ff G- 1 3 3 
 
 B 8 
 
THE NATURAL LAW OF 
 
 MONEY 
 
 THE SUCCESSIVE STEPS IN THE GROWTH OF MONEY TRACED 
 FROM THE DAYS OF BARTER TO THE INTRODUCTION OF 
 THE MODERN CLEARING-HOUSE, AND MONETARY 
 PRINCIPLES EXAMINED IN THEIR RELATION 
 TO PAST AND PRESENT LEGISLATION 
 
 BY 
 
 WILLIAM BROUGH 
 
 Individuality is left out of their scheme of government. 
 The State is all in all.— Burke. 
 
 G. P. PUTNAM’S SONS 
 
 NEW YORK LONDON 
 
 27 WEST TWENTY-THIRD STREET 24 BEDFORD STREET, STRAND 
 
 She |ittitherbotkit |lress 
 
 1^95 
 
 BOSTON €K)LLEGE LIBKAikE. 
 CHESTNUT HILL, MASS, 
 
Copyright, 1894 
 
 BY 
 
 WILLIAM BROUGH 
 
 Entered at Stationers’ Hall, London 
 by G. P. Putnam’s Sons 
 
 Ube Tknlcfeerbocker press, flew IRocbelle, 1R. JJ 
 
CONTENTS. 
 
 CHAPTER I. 
 
 PAGE 
 
 The Beginning of Money.1-19 
 
 What is meant by the “ natural law of money ”—The need 
 of a medium of exchange—Barter the first method of ex¬ 
 change—Profit a stimulus to trade—Money as a measure of 
 values—Various forms of money—Qualities requisite to an 
 efficient money—On the coinage of metals—“ King’s money ” 
 
 —Monetary struggles between kings and their subjects. 
 
 CHAPTER II. 
 
 Bi-metallism and Mono-metallism . . . 20-57 
 
 Silver and gold as an equivalent tender—The Gresham law 
 —Mutilation of the coinage in England—Why cheap money 
 expels money of higher value from the circulation—Influ¬ 
 ence of Jew money-changers in raising the monetary stand¬ 
 ard—Clipping and sweating—Severe punishment of these 
 offences—Value of the guinea—Mono-metallism succeeds 
 bi-metallism—The mandatory theory of money—The law of 
 natural displacement—A government’s legitimate service in 
 regard to money—Monetary principles applied to bi-metal¬ 
 lism—Effects of the demonetization of silver in 1873—The 
 Latin Union—Effect of legislative interference with money 
 —The per-capita plan—The Bland Act—The Sherman Act 
 —Present difference in value between a gold and a silver 
 dollar—Effects of a change to the silver standard—No 
 levelling of fortunes, but an increased disparity. 
 
 iii 
 
IV 
 
 Contents 
 
 CHAPTER III. 
 
 Paper-Money and Banking .... 58- 
 
 Comparison of silver and gold as a medium of exchange— 
 Intelligence and integrity the foundation of credit—The 
 beginning of interest—The development of the banker—His 
 receipt the beginning of paper-money—Essential qualifica¬ 
 tions of paper-money—The banker’s functions—The clear¬ 
 ing-house—Delegated powers—The defects of government 
 paper-money—Personal supervision necessary to paper- 
 money—Lent money and spent money—The legal-tender 
 obstruction. 
 
 CHAPTER IV. 
 
 Paper-Money in Colonial Times . . . 80- 
 
 Colonial paper-money not redeemable in coin on demand— 
 Issue of bills of credit—Abortive efforts of the Crown to 
 regulate the value of money—Failure of colonial paper- 
 money due to its defective character—Grounds of opposition 
 to colonial paper-money—Value and not volume the test of 
 the money standard—The Bank of North America—Govern¬ 
 ment paper-money displaced by bank-notes—The Bank of 
 England America’s model in banking—Increase of State 
 banks—Conflicting views held by Hamilton and Jefferson. 
 
 CHAPTER V. 
 
 Monetary System of Canada as Contrasted 
 
 WITH THAT OF THE UNITED STATES . 99-I 
 
 Canada’s banking capital and methods—Defects of her 
 monetary system due to legislative action—Differing stand¬ 
 points of her bankers and her politicians—Her ratio of 
 metallic-money to paper-money—General uniformity of 
 Canada’s interest-rate—Her banking methods in relation to 
 her agricultural industries—Why our western farmers borrow 
 money from Canadian banks—British capital not necessarily 
 a factor in Canada’s business transactions with England. 
 
Contents 
 
 v 
 
 CHAPTER VI. 
 
 PAGE 
 
 Money, Capital, and Interest . . . 116-129 
 
 The differing functions of money and capital—An illustra¬ 
 tion of this difference—The supply of capital affects the rate 
 of interest—The normal and the abnormal interest-rate— 
 
 An illustration of the relation between the volume of capital 
 and the volume of money—Effect of the introduction of 
 foreign capital—Mistaken legislation in reference to silver— 
 How to keep two metals in circulation at a parity—The 
 Greenback Act of 1862—Greenbacks as a legal-tender. 
 
 CHAPTER VII. 
 
 Mandatory Money and Free Money. . 130-151 
 
 What the framers of the Constitution thought of paper- 
 money—Thomas Paine’s opinion of tender-laws—Useless¬ 
 ness of a legal-tender law—Free-metallism—Bi-metallism 
 impossible—Impossibility of legislating a new money-metal 
 into general use—Indispensable qualifications of a money- 
 metal—Conditions that would result from a change of 
 standard—The silver party and the silver question. 
 
 CHAPTER VIII. 
 
 The Hoarding Panic of July, 1893 . . 152-163 
 
 Two distinct panics—The first panic the result of the with¬ 
 drawal of capital from the country—The second panic 
 caused by the hoarding of paper-money—Means of expand¬ 
 ing the volume of paper currency—The tax upon paper- 
 money—Rate of shrinkage in volume of current money 
 during the hoarding panic—Effect of the repeal of the 
 silver purchase clause of the Sherman Act—Private efforts 
 to supply a medium of exchange—Revival of industry with¬ 
 out Congressional aid—The chief instrumentality of relief— 
 Improvised money—Clearing-house certificates—Imperative 
 necessity for free money. 
 

 jfc ' 
 
THE NATURAL LAW OF MONEY 
 
 CHAPTER I. 
 
 THE BEGINNING OF MONEY. 
 
 I T may be well to explain at the outset what is 
 meant to be conveyed by the phrase “ the natural 
 law of money.” While it is true that money is a 
 product of man’s labor, and that it derives all its 
 usefulness from the actions of men, it was not 
 planned and brought into existence with an intelli¬ 
 gent prevision of its nature and workings. It would 
 be more correct to say that it came into use because 
 it possessed inherent properties which fitted it for 
 certain services, and that men appropriated it when 
 they felt the need of the services. This they did in¬ 
 dividually, without any concert of action, for money 
 was circulating everywhere in the world before men 
 even thought of making laws for its regulation. 
 
 i 
 
2 
 
 The Natural Law of Money 
 
 When an individual uses money, he is governed in 
 what he does with it purely by his own interests, and 
 he does not concern himself about what becomes of 
 it after it passes out of his possession; thus it circu¬ 
 lates indefinitely, impelled always by the motives 
 and interests of individuals acting independently of 
 each other; yet it is found to move and perform its 
 functions with the regularity of a natural law. 
 
 The material of which money is composed may be 
 almost any product of man’s labor; it becomes 
 money only when it is used as the common medium 
 of exchange. Before the appearance of money in 
 the world, exchanges of commodities were made in a 
 very crude way. If a man had a dog that he wanted 
 to exchange for a sheep, he could not make the 
 exchange until he found some one who had a sheep 
 and wanted a dog. But in the course of time 
 man discovered that, among the commodities 
 produced by him, there was always some one com¬ 
 modity in more general use and demand than others, 
 and this he seized upon as his medium of exchange, 
 —it became his money. Having done this, he was 
 no longer obliged to wait until he found some one 
 who had the particular commodity he wanted, and 
 who also wanted his commodity ; he stood ready to 
 accept the commodity in general demand, because 
 
The Beginning of Money 
 
 3 
 
 he could more readily exchange it for the commodity 
 he wanted, and so, by a double turn, could save time 
 and better accomplish his purpose. 
 
 This first way of making exchanges has been 
 named barter, and the second, trade. 
 
 Here we see how money first came into use in the 
 world. A great variety of articles has been appro¬ 
 priated for use as money at one time or another. 
 We cannot mark the dates in history when these 
 various commodities came to be used, as it was not 
 the age, but the stage of development of the par¬ 
 ticular country, that created the need for them. We 
 may find in the world to-day among primitive com¬ 
 munities the crudest kinds of money that have ever 
 been used. Step by step, and keeping even pace 
 with increasing knowledge, have man’s wants multi¬ 
 plied, and his implements for supplying those wants 
 improved. He did not need money while he was 
 hunting with his dog in the primeval forest, and liv¬ 
 ing upon edibles already in existence; nor did he 
 need it when he began to herd animals and to till 
 the soil. Living in tribal isolation, and having no 
 other bond of sympathy with his fellow-man than 
 kinship, it was not until he was impelled by his 
 necessities to exchange commodities with other 
 tribes that he began to use money. 
 
4 
 
 The Natural Law of Money 
 
 We can hardly overestimate the importance of 
 money as a civilizing agent in the world; there can 
 be no trade or commerce without it; man must 
 have it, or go back to barbarism. By employing 
 one of his commodities as a medium of ex¬ 
 change, he made a big stride forward ; a new era 
 was begun. His small beginnings were the seeds of 
 the industrial progress we see around us. .Impelled 
 
 by want, producer meets producer, each having what 
 the other needs for his own use or for the use of the 
 tribal family ; an ^vrlmno-f* fahes plare r - 
 barter; and this form of traffic goes on increasingly 
 
 
 until the need is felt for a medium of exchange; 
 
 i. m i „ 1 1 ii ■ m m ... .ip —>i ' . '. . . 
 
 when that medium is found, man has become a 
 
 trader. He has discovered that there is profit in 
 these exchanges, and he no longer confines his trad- 
 ing to his immediate wants, but trades for profit .as 
 well. Every want that he satisfies stimulates into 
 
 being other wants, and so his trading goes on in¬ 
 creasing and extending. He has found in profit a 
 new incentive to industry, a spur to continued exer¬ 
 tion. But to succeed in his new occupation he must 
 live in peace; his strength must not be wasted in 
 the petty, but deadly, warfare he has hitherto 
 carried on with neighboring tribes; he endeavors 
 therefore to keep on good terms with them. He 
 
The Beginning of Money 
 
 5 
 
 has already begun to add other ties to the bond of 
 blood-relationship,—ties of self-interest, which grow 
 gradually into friendship, into the merging of tribe 
 with tribe, into a large political community, and 
 finally into a nation. 
 
 We see from what has been said that man had no 
 preconception of money: he felt the want of some¬ 
 thing, and the thing was ready to his hand,—a 
 product of his own creating, but made for other 
 uses. He appropriated it to supply the want, and 
 so long as it was employed in that capacity, he called 
 it “ money.” 
 
 In this brief outlining of the way in which money 
 came into use, some things are to be especially noted 
 and kept in mind. We have seen that money is a 
 
 product of man’s labor,—a commodity, and that it is 
 
 ^ _, _ , —. ’ _ -** 
 
 not any one specific thing, but may be almost any- 
 
 J " .... -.-.v- J 
 
 ting, and is money only by reason of its fitjiess at 
 the time for the service to be. performed. In any 
 given community there is a limit to the number of 
 articles produced, and in earlier times this limit was 
 very much narrower than now ; but however limited 
 the number of commodities may be, there are always 
 one or two that supply the money-want more effi¬ 
 ciently than others. Now, as almost any commodity 
 may be used as money, such a thing as a lack of it 
 
6 
 
 The Natural Law of Money 
 
 is not possible so long as man continues to be a pro¬ 
 ducer of commodities, although he may by false 
 legislation corrupt his money or throw restrictions 
 around it, and thus lessen its efficiency; all over the 
 world there have been examples of such false legisla¬ 
 tion whenever governments conceived it to be their 
 function to regulate the value of money. 
 
 Money fluctuates in value in sympathy with sup¬ 
 ply and demand, as all other commodities do. As 
 all values are relative, the only way to decide whether 
 money has risen or fallen is to compare it with other 
 commodities, and if the comp arison c oye rg^everal 
 yearsTHieTes^^ m. If it 
 
 is found that nearly all the staple commodities can be 
 bought with less money than formerly, we may be 
 sure that money has risen in value; if more is re¬ 
 quired, then it has fallen. 
 
 After adopting a commodity into use as money, 
 man begins to lose sight of its fluctuations in value; 
 these fluctuations appear to him to be altogether in 
 the commo dities that he buys • he loo ks upon 
 money as stationary, and regards it as a fixed stan¬ 
 dard by which he can measure the value of other 
 commo dities. Money is a definite measure, but no t 
 
 a fixed measure, like a yard-stick. There ca?i be no 
 
 ■ — . . . , J »— .. 
 
 fixed'measure for vectues. As all values are relative. 
 
 
The Beginning of Money 
 
 7 
 
 it is only by comparing the price of one commodity 
 with that of another that we get any idea of value; 
 hence, to regard money as a fixed, and not as a 
 fluctuating measure, produces the same kind of mis¬ 
 conception that one would have of the solar system 
 who regarded the earth as stationary. Until such 
 delusions are dispelled, the one individual can no 
 more understand the law of money than the other 
 can realize the fact of the earth’s orbit. 
 
 Since there can be no fixed measure for values, 
 obviously it becomes of essential importance that the 
 commodity selected for use as money should fluctu¬ 
 ate as little as possible. The colonists of Virginia 
 used tobacco as money until after the Revolution; 
 there was alwa ys a ready sale for it, t here fore people 
 took.lt freely in exchange ipr other commo dities ; it 
 was easily exchangeable for money; or co^iQiOiilties“'' 
 in foreign as well as in the ho me markets . Wam¬ 
 pum was used as money by the colonists of Massa¬ 
 chusetts, not only in trading with the Indians, but 
 for a short time among themselves, though only for 
 limited amounts; it was the money of the Indians, 
 and had no value to the colonist except as he 
 might use it in trading with them, so it soon went 
 out of use. As tobacco had intrinsic value and was 
 readily exchangeable, it continued for a long time to 
 
8 
 
 The Natural Law of Money 
 
 be used as a medium of exchange; but as it was 
 cumbersome and unsteady in price, it too went out 
 of use. The commodity employed as money does 
 not go out of use until it is superseded by one of 
 superior qualifications for the service. This is the 
 natural law that governs the change from one kind 
 of money to another. 
 
 The fact that the Virginia colonist used tobacco 
 as money was no indication of the stage of civiliza¬ 
 tion he had reached ; he merely used it to bridge 
 over a period of scarcity of his own money,—which 
 was silver, though gold was also in use in Virginia. 
 His experience proves that if in our own case all our 
 gold and silver were driven from the country, we 
 should not be without money, though our new 
 money would not have the efficiency of the old ; we 
 should have taken a step backward; while we 
 would doubtless show great ingenuity in selecting 
 new commodities for use as money, we should be in 
 the position of a nation that had thrown away its im¬ 
 proved tools and implements to take up those al¬ 
 ready cast aside. We might then accept the proposi¬ 
 tion of the Farmers’ Alliance, and issue certificates 
 against cattle, wheat, and corn, to be used as money. 
 With the introduction of this money would come a 
 new occupation, but an occupation without produc- 
 
The Beginning of Money 
 
 9 
 
 tiveness. Some of us would be detailed to go out 
 and watch our new moneyTEosee" tKaFThe grain was 
 ruTh and th arpfeuro^pneumonia 
 
 had noL^ot-iuumi^ nt 
 
 mi ght adopt excellent device s for the protection 
 of this new money, but it could not prevent the sense 
 of insecurity which pertains to a money of defective 
 character. Should we adopt the Farmers’ Alliance 
 plan, it would not be the first time that cattle had 
 done service as money. History records that this 
 was the first form of money used in the world. 
 
 Wherever the metals came into use as money, 
 they soon supplanted all perishable and clumsy 
 commodities, being particularly adapted to such use, 
 in which nearly all of them have done service at one 
 time or another. They have great durability, being 
 almost indestructible; they can be divided into con¬ 
 venient-sized pieces for handling and for the pocket, 
 and can be run back into bars, if desired, without 
 loss of value. The final test of coined money is that 
 it shall be worth as much when run into bars as 
 when it is in coin. If it will stand that test, it is 
 world-money,—and all coined money should stand 
 it. Coin in constant circulation loses value by abra¬ 
 sion, but this does not alter the rule; the loss from 
 wear must be made good in return for the service 
 
IO 
 
 The Natural Law of Money 
 
 rendered, or the coin will become discredited money. 
 There is but one exception to the otherwise in¬ 
 flexible rule that coin shall possess full intrinsic 
 value, and that is as to the small coin used for 
 change ; this is purposely made light in order to 
 keep it at home. In speaking of coin, or money, 
 this change-money or token-money , will not be again 
 referred to, unless specifically mentioned. 
 
 We have seen that wherever metallic money came 
 into use, it displaced all the cruder forms of money. 
 But the line of advance did not end there. One 
 metal displaced another, the incoming one always 
 having greater efficiency than the outgoing one. 
 Copper was the money of Rome in her earlier days, 
 and is the legal money of China to-day. If we could 
 know all the forms of money in the world, we should 
 doubtless find that the baser metals are still in use 
 in some places. The order of progress is that each 
 in turn shall drop out of use as money, and be put 
 to other uses for which it is better fitted. The 
 ever-increasing demand for more things and better 
 things, calls for better implements and more and 
 more intelligent methods of workmanship. The 
 forces that control this movement are beyond our 
 reach, as we shall do well to recognize, and so 
 bring our feeble attempts at monetary legislation 
 
The Beginning of Money 
 
 11 
 
 into harmony with them, instead of struggling to 
 overcome them. If silver is now going out of use 
 as money, in the natural way, we must let it go ; 
 we cannot stay it, and the attempt to do so can 
 only involve us in trouble. If, when iron was in 
 use as money, man had piled it away in vaults—as 
 we have done with silver—and had kept it out of 
 other uses, is it not plain that his action would have 
 retarded the progress of civilization ? 
 
 In the development of a money adapted to the 
 wants of man, silver and gold have come to be 
 the money metals of the most advanced nations. 
 The superior efficiency of these metals has been 
 established by ages of use, but their qualifica¬ 
 tions are different. In the earlier stages of mer¬ 
 cantile enterprise, silver sufficed for all the require¬ 
 ments of trade, but it proved inadequate to the 
 demands and exigencies of that larger and more 
 complex trade which we call commerce. Gold met 
 these requirements more effectively, and it has 
 become the money of commerce. The monetary 
 similarity of silver and gold prevents the rapid dis¬ 
 placement of the one metal by the other, while their 
 monetary differences make both the metals useful 
 at the same time in one country ; so that we find 
 silver retained in use by nations like England and 
 
The Natural Law of Money 
 
 12 
 
 Germany, though gold is the monetary standard. 
 Indeed, it is hard to see how any nation could al¬ 
 together discontinue the use of silver as money. 
 
 Gold has always been more valuable than silver, 
 hence less time is required to weigh or to count a 
 given amount in gold, and when money has to be 
 transported from one place to another, the carriage 
 of gold costs less. It is because of such nice differ¬ 
 ences as these that the changes from one money to 
 another have taken place, man always seizing upon 
 the agency that will most effectually serve his pur¬ 
 pose and supply his need. Without gold, it would 
 now be hardly possible to transact the volume of 
 business that is done in the world. To be com¬ 
 pelled to use only silver money would be a check 
 upon enterprise and a burden to commerce. 
 
 If a nation that had reached the gold stage of in¬ 
 dustrial development should adopt the single silver 
 standard, it would surely be at a disadvantage in its 
 commercial transactions with gold-standard nations. 
 Silver is not only more cumbersome than gold, but 
 has always been more fluctuating—of late years 
 much more so than formerly. If we should adopt the 
 single silver standard, it would put us on the mone¬ 
 tary basis of Mexico and Russia ; with these nations 
 we should be at no disadvantage in our commercial 
 
The Beginning of Money 
 
 13 
 
 intercourse, but with such nations as England, France 
 and Germany we should be at great disadvantage. 
 In their dealings with us, they would charge us for 
 the risk they incurred in accepting a less stable 
 money than their own ; this charge would be added 
 to the cost of goods imported, and deducted from 
 the price of goods exported by us. It would not only 
 increase the cost of our imports and reduce the price 
 of our exports, but it would also reduce the price at 
 home of all those commodities of which we produce 
 a surplus; our entire products of cotton and of 
 wheat, for example, would be measurably lowered in 
 price. Everybody knows that when the price of 
 wheat goes up or down abroad, it correspondingly 
 rises or falls at home, for the price at home is gov¬ 
 erned by the price that we can get for the surplus 
 that goes abroad. The risk from fluctuations of our 
 silver money would be as constantly present in all 
 commercial transactions with gold-money countries 
 as is the risk of the sea-carriage, and would have to 
 be insured against in the same manner, with the dif¬ 
 ference only that in the case of the sea-risk the cost 
 is borne equally by the buyer and the seller, whereas 
 in the case of our fluctuating money the cost would 
 fall entirely upon us. 
 
 In order to render to man the highest service of 
 
14 
 
 The Natural Law of Money 
 
 i 
 
 which it is capable, metallic money must have intrin¬ 
 sic value , stability , and elasticity . 
 
 The fundamental requisite of metallic money is 
 that it shall have full intrinsic value. From the be¬ 
 ginning of money, through all its forms down to the 
 introduction of paper-money, this rule has governed 
 inflexibly at all times, except when abrogated or in¬ 
 terfered with by rulers and law-makers. The term 
 ^intrinsic value/’ as here used, means that a coin 
 contains its full denominational worth of precious 
 metal; in other words, that its nominal and its 
 actual exchangeable values are the same. If coin 
 contains its full complement of precious metal when 
 issued from the mint, and if its free circulation be 
 not thereafter interfered with, it will have intrinsic 
 value, which, combined with freedom of circulation,, 
 will give it stability and elasticity. 
 
 The stability of coin must rest upon the value of the 
 bullion it contains, as then it will fluctuate only with 
 the fluctuations of the bullion market, which is the 
 highest degree of steadiness it can possibly acquire. 
 It will then gain access to the marts of the world, and 
 this wide range of circuit will enhance its “ elasticity,” 
 which term is used to express the readiness with 
 which money responds to the demands upon it. 
 The importance of this quality in money will be 
 
The Beginning of Money 
 
 15 
 
 treated in more detail when we come to speak of 
 paper-money. 
 
 It is obvious that the larger, broader, and more 
 open the market for any commodity, the more steady 
 will be the price of that commodity. These are 
 marked characteristics of the bullion market; conse¬ 
 quently, to give to coin all the elements of efficiency 
 it can possess, it is only necessary to start it into cir¬ 
 culation with its full weight and fineness of precious 
 metal, and let it go where it will. Here we have the 
 natural law of metallic money in all its simplicity; 
 the complexities are of our own making. 
 
 The miner of California in 1849 made his pur¬ 
 chases with gold dust, weighing it in scales. It was 
 thus, doubtless, that the metals were measured when 
 they first came into use as money. In coining 
 money for the people, our government performs a 
 very important service; the bullion is minted in 
 convenient forms for handling and for expressing 
 value, thus dispensing with scales and saving time; 
 but the service rendered has a still higher signifi¬ 
 cance. The stamp of the government is a sufficient 
 assurance that the coin contains the required amount 
 of the precious metal: if coining were left to indi¬ 
 viduals, there would arise doubt on that score that 
 would greatly lessen the efficiency of the money. 
 
i6 
 
 The Natural Law of Money 
 
 If money is to be efficient, there must be no uncer¬ 
 tainty as to its quality, for the questioning doubt 
 will limit its usefulness. A sense of security gives 
 mobility to money, and the lack of that sense 
 cripples it. No intelligent community was ever 
 deceived by debased money ; nor has there ever been 
 a community so ignorant that it would not in course 
 of time discover the deception. Emerson has said 
 that not even a tree is so stupid but that if the earth 
 is taken from its roots, it will find it out. 
 
 Following this line of thought, we perceive that it 
 was the questioning doubt that led to the coinage of 
 metals; for, as the operation of assaying is both dif¬ 
 ficult and tedious, it would become necessary, in 
 order to facilitate exchanges, that the operation 
 should be performed and verified by an unquestioned 
 authority ; and this work the people would naturally 
 require their government to do for them. We 
 know that it was the fineness, not the weight, of the 
 metal that was stamped on the first rude coins, the 
 people weighing them for themselves in making their 
 exchanges. The next improvement in coinage was to 
 stamp the weight on the coins, and these pieces were 
 designated by their weight. The Roman “ pondo ” 
 was a pound of copper, the English “ pound ” 
 a pound of silver, and the English “penny” a 
 
The Beginning of Money 
 
 17 
 
 pennyweight of silver. Money passed from hand 
 to hand by tale; but when a large sum was to be 
 transferred, it was weighed, because that could be 
 done more easily and accurately. The practice of 
 weighing large amounts of coin still prevails. 
 
 The next step in coinage was a step backward. 
 The coinage came to be known as “ king’s money ”; 
 it bore the effigy of the sovereign, and the pieces 
 were more artistically minted ; but they were given 
 names that had no reference to their weight or fine¬ 
 ness. This irrelevant naming was misleading, and 
 people soon lost sight of money as a commodity, and 
 came to regard the stamp and denomination as its 
 valuable part. The superstitious awe in which kings 
 were then held made it but a short step from the 
 belief that a king’s touch would cure disease, to the 
 belief that his effigy and superscription gave value 
 to the coin. By this last change in coin, which 
 obliterated the meaning of money, the people lost 
 control of their coinage,—that control had passed 
 into the hands of the kings. Let us see what they 
 did with it. 
 
 It may be stated as an axiom that, down to 
 modern times, kings have been lavish and wasteful 
 in their expenditures, and that, with few exceptions, 
 they have been governed altogether by cupidity in 
 
i8 
 
 The Natural Law of Money 
 
 their dealings with their subjects ; these were kept in 
 a constant conflict with their rulers to retain in 
 rightful possession the product of their toil and 
 labor; the one power that should have protected 
 them in that right, was the power they dreaded most. 
 The long conflict developed into a struggle for politi¬ 
 cal supremacy, and while it went on, the wealth-pro¬ 
 ducing capacity of the people was maintained or 
 diminished in proportion as the contest went in 
 their favor or against them. When resistance to the 
 demand of the ruler ceased altogether, the people 
 sank into poverty and serfdom ; when this resistance 
 was successful, the people rose to affluence and polit¬ 
 ical independence. The people of England, after 
 a long monetary struggle with their kings, succeeded 
 in appropriating to themselves exclusive control of 
 the revenues and expenditures of the kingdom; the 
 coining of money continued to be a prerogative of 
 the king, but gradually it came under the direction, 
 and finally under the absolute control, of Parliament. 
 
 A common and favorite method adopted by rulers 
 to raise money was to abstract from the coinage a 
 portion of its precious metal, and to substitute 
 therefor a cheaper metal; when resistance was made 
 to receiving such money, its circulation was enforced 
 by mandate. This doubtless seemed to the rulers a 
 ready road to wealth, but nothing could have been 
 
The Beginning of Money 
 
 T 9 
 
 more destructive of the prosperity of their people, 
 or of their own prosperity. A debased coinage 
 seems to have entered into the experience of every 
 civilized nation at some period of its history. Among 
 the Romans, the pondo decreased to a half ounce of 
 copper, in England the pound sterling to less than 
 one-third of a pound of silver, and some coins in 
 Scotland were reduced to less than one-sixtieth of 
 their normal value. That the rulers have been 
 chiefly responsible for this debasement will be seen 
 when we come to consider the Gresham law. 
 
 There is an interesting chapter in Macaulay’s His¬ 
 tory of England which describes how the clipping and 
 sweating of coin gradually so lowered the standard 
 of money as to bring great distress upon the nation. 
 This was in the time of William III. ; the vigorous 
 and intelligent action of Parliament corrected the 
 evil; no less a personage than Sir Isaac Newton was 
 appointed Warden of the Mint, while the famous 
 philosopher John Locke expounded his theory of 
 money. 
 
 We have long ceased to regard the king’s person 
 as more sacred than that of a subject; nevertheless, 
 a remnant v of. that old superstitious belief in the 
 potency of sovereignty found its way to the New 
 World, and is here with us still, to tangle our thoughts 
 and blur our perceptions. 
 
CHAPTER II. 
 
 BI-METALLISM AND MONO-METALLISM. 
 
 I N calling our silver and gold coins by the same 
 name, “ dollar,” and in trying to hold them at 
 an equal value under a fixed ratio, is there not evi¬ 
 dence of a lingering belief that the power of sover¬ 
 eignty can regulate the value of coin ? And is not 
 the effort to enforce the circulation of the two coins 
 at equivalent value a survival of the king’s mandate 
 in modified form ? Have we not overlooked the fact 
 that silver and gold are commodities, the values of 
 which are regulated only in one way, and by the 
 same rule that regulates the value of other com¬ 
 modities—by letting them find in open market what 
 that value is ? They are not alike, not even in their 
 money functions. They are both metals, to be sure, 
 as wheat and barley are both cereals: what more 
 cogent reason is there for making silver and gold an 
 equivalent tender than for making wheat and barley 
 
 20 
 
Bi-metallism and Mono-metallism 
 
 21 
 
 an equivalent tender ? Is it not evident that we 
 have inherited from the past a vague notion that we 
 can, in some mystic manner, regulate the value of 
 our metallic money ? If a legislative enactment could 
 confer that power, similar legislation would enable us 
 to regulate the value of all our commodities. 
 
 The well-meant efforts to hold silver and gold coin 
 at a parity in value have had no other effect than 
 to drive one of these metals out of active current 
 service. This has been our experience from the 
 beginning of our government down to this day. 
 We have not had both coins in circulation simul¬ 
 taneously, except during the short intervals when 
 one was going out and the other coming in, and all 
 other nations have shared this experience. When¬ 
 ever the metals composing the two coins are put up 
 for sale in open market, the price of each is governed 
 by the supply of and demand for each ; in no other 
 way can their true value be ascertained ; each must 
 stand on its own merits. The efforts of governments 
 to give them equality in value seem to have had the 
 opposite effect. 
 
 It is estimated that three-fifths of the volume of 
 silver and gold in the world are used in the arts, and 
 two-fifths in money; but this is only an estimate— 
 accurate figures cannot be had. That the amount 
 
22 
 
 The Natural Law of Money 
 
 of these metals used as money is sufficiently large 
 to considerably affect their market value is, however, 
 a matter of course ; but that the efforts to hold them 
 at a relatively fixed value have utterly failed, is 
 proved by the whole history of bi-metallism. 
 
 All the leading commercial nations at one time or 
 another have tried to harness these two money- 
 metals together, and make of them one monetary 
 standard. We may suppose the first step towards 
 this end to be the determining of the amount of 
 silver and of gold respectively that shall constitute 
 coins of equal value, the ratio being adjusted to the 
 relative market value of these metals at the time. 
 The act authorizing this coinage would also make 
 the silver and gold coin an equivalent tender at the 
 ratio fixed. This is what is termed bi-metallism. In 
 course of time, the market values of the two metals 
 part company; one may go up or the other down, or 
 they may move simultaneously in opposite directions. 
 As soon as this separation takes place, the coin of the 
 metal which has risen in value begins to disappear 
 from the circulation. This movement, unlike the 
 intelligent order of free selection (in which the 
 superior money supersedes the inferior), has nothing 
 to do with the inherent fitness of the metals for ser¬ 
 vice as money; indeed, the coin going out of circu- 
 
Bi-metallism and Mono-metallism 
 
 23 
 
 lation may be the more serviceable money for the 
 time and place; it disappears only because it is 
 worth more as bullion than the coin remaining in 
 circulation. 
 
 The mode of operation whereby, contrary to the 
 law of natural displacement, an inferior money may 
 expel a superior money from the circulation, is known 
 as the Gresham law, and is so called because first ex¬ 
 pounded by Sir Thomas Gresham, who lived in the 
 sixteenth century, and who was the founder of the 
 Royal Exchange of London. The Gresham law 
 would never have been heard of had coin passed by 
 weight only, because in that case the recipient would 
 have taken the coin only at the market value of the 
 precious metal it contained ; but when coin became 
 king’s money and people were required to accept it 
 by tale at its face value, objection was made to pieces 
 that did not contain the full complement of precious 
 metal; as, however, the king’s money was manda¬ 
 tory, it could not be refused so long as his imprint 
 remained upon the coin. The fact that coin could 
 not be refused—whether it contained the full com¬ 
 plement of precious metal or not—was practically 
 an invitation to every holder of a coin to abstract 
 some metal from it before passing it, and this was 
 practised to such an extent in England that in course 
 
24 
 
 The Natural Law of Money 
 
 of time, and by slow degrees, the whole coinage of 
 the realm was reduced to about two-thirds of its 
 standard weight and value. 
 
 As nothing is more destructive of industrial 
 prosperity than a money of indefinite value, this 
 continuous mutilation of the coinage finally in¬ 
 volved the nation in intolerable distress, and how 
 to restore the coinage to its normal standard was 
 a problem the solution of which long puzzled the 
 people of England. The belief was general that if 
 the full-weight coin were put into circulation, it 
 would of itself, as being a more desirable money, 
 drive the light-weight coin out of use; and this view 
 seemed all the more reasonable in that the people 
 were unanimous in demanding of their government a 
 reformation of the coinage. 
 
 But this view did not take into account the natural 
 forces that control the circulation of money, nor did 
 it recognize the personal character of money, and its 
 relationship to the individual; it regarded money 
 only from the public stand-point—as an impersonal 
 agency. As all the transformations and movements 
 of money take place naturally, through individuals 
 acting separately and independently, each one in his 
 own interest, and without any purpose to further a 
 general law, we must recognize this personal and 
 
Bi-metallism and Mono-metallism 25 
 
 private interest as the real and only means whereby 
 the coinage could be restored to, and preserved in, 
 its normal integrity. So long as the king’s effigy 
 was the important factor, individuals continued to 
 abstract from the coin any metal that could be taken 
 without impairment of the effigy ; but if the law were 
 repealed which gave the king’s effigy the quality of 
 money, the coin would be taken only at its bullion 
 market value. Each individual, acting for himself, 
 without the least reference to the public interest, 
 would refuse to receive the coin on any other terms, 
 which would at once put a stop to any further 
 debasement of the coinage. 
 
 As then there could be no further profit in the 
 clipping and sweating of coin, clipping and sweating 
 would cease; the debased coin at its bullion market 
 value would be as good money intrinsically as that 
 which came fresh from the mint, but as the clipped 
 pieces would be of different values and intrinsically be¬ 
 low their nominal value, they could be used in trade 
 only by weighing them. Hence the same individual 
 interest that had formerly led to the debasement 
 of the coinage would now require that the pieces 
 be made of uniform weight and fineness for the 
 greater convenience of counting them and of ex¬ 
 pressing value. 
 
26 
 
 The Natural Law of Money 
 
 In thus minutely defining the means by which a 
 debased coinage could be restored, our object is to 
 call especial attention to the fact that the debase¬ 
 ment of the money was caused solely by its legal- 
 tender quality, and that its restoration and preserva¬ 
 tion could only be effected by the removal of that 
 cause. Nothing more was needed, because, as soon as 
 the money was deprived of its legal-tender feature, it 
 came underthe law of natural displacement, and under 
 this law, it is only the money of superior efficiency 
 that can maintain supremacy in the circulation; 
 whereas, when the artificial quality of legal-tender is 
 given to money, it is always the cheaper money that 
 expels the money of higher value , without the least 
 reference to the efficiency of either. 
 
 The English government was finally enabled to 
 restore the coinage by decreeing that clipped coin 
 should pass by weight only, thus virtually repealing 
 its legal-tender quality ; but before taking this step 
 the government had confidently expected to ac¬ 
 complish its purpose simply by recoining the muti¬ 
 lated pieces. As the government received the 
 clipped coin at its full nominal value, and as the 
 people were consequently eager to obtain the new 
 money in exchange for their clipped money, it was 
 taken for granted that the coinage could be re-estab- 
 
Bi-metallism and Mono-metallism 27 
 
 lished within a short- time by increasing the output 
 of the mints ; and this was accordingly done. Much 
 of the coin in circulation had been minted by hand, 
 with shears and hammer, at earlier dates than the 
 time now referred to, which is 1695-6; these pieces 
 were so rudely formed that the edges could be 
 clipped without detection ; but as the new coin was 
 minted with milled edges, to clip it was a more 
 hazardous undertaking, and this strengthened the 
 public confidence that a sound currency would soon 
 be established. 
 
 Meantime, the law against clipping was vigor¬ 
 ously enforced ; counterfeiting had long been pun¬ 
 ished with the same extreme penalties as treasoa, 
 and in the reign of Elizabeth the clipping of coin was 
 also made a capital offence. Besides the clipped 
 silver money, there were also in circulation at that 
 time gold pieces issued in the reign of Henry VIII., 
 which had been debased by that monarch to half 
 their nominal value, and it is to this gold coin that Sir 
 Thomas Gresham especially referred in expounding 
 his law, which he did in a letter to Queen Elizabeth, 
 written in the year 1558. Though he explained the 
 practical working of the debased money, showing 
 clearly how it drove the full-weight coin of Elizabeth 
 from the circulation and from the country, he did 
 
28 
 
 The Natural Law of Money 
 
 not suspect the real cause of the evil, which was the: 
 mandatory character of the debased coin. He noted 
 in this letter the disadvantage which the English 
 merchants labored under in their exchanges with the 
 continent—for it is in a foreign country that the 
 coin of a nation must surely answer the test of bul¬ 
 lion value. The superstitious awe that hedged a 
 king in his own country had no influence upon the 
 value of his coin when that coin went abroad ; nor 
 were the Jews, who were the principal dealers in 
 money and bills of exchange, in the least misled by 
 the king’s image on the coin. 
 
 A persecuted and plundered race, everywhere in 
 Europe denied the right of ownership in real estate, 
 the Jews had no avenue of commercial activity 
 save the dealing in such personal property as could 
 easily be secreted ; thus they found their recompense 
 in the establishment of a monopoly of the most 
 lucrative of trades. Themselves freed from monetary 
 delusions, their course as money-changers operated 
 as a constant protest against the debasement of the 
 coinage, and so contributed to raise the standard of 
 monetary integrity. 
 
 The English government having in 1695 entered 
 seriously upon a reform of the coinage by practically 
 giving full weight for light-weight pieces, while at 
 
Bi-metallism and Mono-metallism 
 
 2 9 
 
 the same time requiring that both full- and light¬ 
 weight pieces should circulate at their nominal 
 value, and there being no doubt in the public mind 
 as to the ultimate success of this measure, attention 
 was naturally fixed upon the circulation to note the 
 process of change from the old money to the new. 
 Great was the disappointment when, after large sums 
 of the new money had been coined and paid out, 
 there was no perceptible increase of new pieces in 
 the circulation ; they vanished almost as fast as they 
 came from the mint. The financiers and the politi¬ 
 cians of that age seem alike to have expected that 
 the new money would soon displace the old, and, as 
 Macaulay has said, they “ marvelled exceedingly that 
 everybody should be so perverse as to use light 
 money in preference to good money.” 
 
 But it was really everybody’s preference for the full- 
 weight pieces that kept these pieces out of the circula¬ 
 tion, for, as their bullion value was half as much more 
 than the bullion value of the clipped pieces, each 
 person who received a good piece naturally held it 
 and paid out his clipped money. Each naturally 
 sought to appropriate the extra value that the new 
 coin possessed, and this he could do in several ways : 
 he could melt it and sell it as bullion ; he could 
 abstract the extra value from it by paring it down 
 
30 
 
 The Natural Law of Money 
 
 before passing it ; or he could hoard it until he found 
 opportunity to pass it at its actual bullion value. 
 All these things were done ; but that the rapid dis¬ 
 appearance of the new coin from the circulation arose 
 mainly from hoarding by the people who could 
 afford to hoard, was afterwards shown by its re¬ 
 appearance when the government decreed that the 
 clipped coin should no longer pass as money. 
 
 For at least a hundred years clipping had been a 
 capital offence; a law was now enacted against melting 
 or exporting coin, but it could not be enforced ; nor 
 could hoarding be prevented ; even the laws against 
 clipping were ineffective, notwithstanding the terrible 
 punishments inflicted upon offenders. Macaulay 
 narrates that in one day seven men were hanged and 
 one woman burned for clipping, yet the number of 
 clippers multiplied in proportion as the volume of 
 new coin thrown into the currency increased ; which 
 demonstrates not only the futility of governmental 
 regulation of a people’s money, but its utterly de¬ 
 moralizing effect upon money and people alike. 
 Harsh as was the law against the crime of clipping, 
 it was even more unjust than harsh, for, in compel¬ 
 ling the acceptance of debased coin at its nominal 
 rather than at its actual value, the government was in 
 fact an abettor of the crime it was seeking to suppress. 
 
Bi-metallism and Mono-metallism 
 
 3i 
 
 Although the English government, by demone¬ 
 tizing the clipped coin, was enabled to restore the 
 coinage, this action was not prompted by any intel¬ 
 ligent perception of the real cause of the debasement, 
 but came upon government and people alike as a 
 dynamic necessity. We have seen that it was the 
 legal-tender quality of the coin that caused its de¬ 
 basement, and that if it had been deprived of this 
 quality, individual interest and action would have 
 restored and preserved the coinage in its integrity; 
 but as it was the general belief that money circulated 
 only through the mandatory authority of the Crown, 
 this simple, natural law of money was not perceived. 
 In other words, the trying experience of the English 
 people with their clipped coin did not dispel the de¬ 
 lusive idea that the Crown could regulate the value 
 of money ; in the belief of the people, the clipped 
 coin ceased to pass because the decree had gone out 
 that it should not pass, and the sound coin passed 
 because the decree had gone out that it should pass. 
 
 The same Parliament which decreed that the 
 clipped coin should not pass, also made it a penal 
 offence to give or take more than twenty-two shil¬ 
 lings for a guinea, which is conclusive evidence that 
 this Parliament believed in the power of sovereignty 
 to regulate the value of the coin. Silver was then 
 
32 .The Natural Law of Money 
 
 the predominant money ; it was this metal that was 
 the common medium of exchange and measure of 
 values, gold occupying a secondary place. The name 
 “ guinea ” is still used in England to express twenty- 
 one shillings, though the coin is no longer minted or 
 in circulation ; the actual value of these gold pieces 
 then, as measured by the new silver pieces, was 
 twenty-one shillings and sixpence, but before the 
 coinage was restored, their exchangeable value, as 
 measured by the clipped money, was about thirty 
 shillings. Though the clipped money could not be 
 made to pass current at its nominal value, it did pass 
 for more than its actual bullion value, for the reason 
 that the government accepted it at its nominal value 
 for the payment of taxes. The decree of Parliament 
 in reference to the guinea was supererogatory legis¬ 
 lation, as, after the restoration of the coinage, this 
 piece passed at its normal value of twenty-one 
 shillings and sixpence. 
 
 In the act of Parliament which undertook to 
 hold the gold guinea in circulation at a fixed silver 
 valuation, is plainly indicated the mandatory theory 
 of money which, twenty-one years later (1717), led 
 England to adopt bi-metallism, and which has more or 
 less influenced her monetary legislation down to the 
 present time. After nearly a century’s practical ex- 
 
Bi-metallism and Mono-metallism 
 
 33 
 
 perience with bi-metallism, England abandoned it for 
 mono-metallism ; gold meantime having become the 
 dominant metal, was made her monetary standard. 
 
 The course taken by England with her metallic 
 money, and which has been followed by some of 
 the chief commercial nations of Europe, may be 
 briefly stated thus : bi-metallism has first been 
 adopted ; then, after experience has shown that the 
 silver and the gold coin cannot be held at a parity, 
 the law which was designed to make one monetary 
 standard out of two independent money metals, has 
 been repealed ; the metal found to be the less 
 serviceable has been discarded, and the other by 
 enactment made the only legal tender, thus creating 
 what is called mono-metallism . Whilst mono-metal¬ 
 lism is undoubtedly an advance upon bi-metallism, 
 inasmuch as it furnishes a more definite monetary 
 standard, both systems embody the mandatory 
 theory, and interfere with the natural flow of money. 
 
 Although the mandatory theory of money is still 
 acted upon, even by the most advanced govern¬ 
 ments, it is gradually yielding to the pressure of 
 natural forces. This is shown especially in their 
 coinage legislation. Except in bi-metallic countries, 
 no attempt is now made to enforce the circulation 
 of coin on any other basis than its intrinsic value; 
 
34 
 
 The Natural Law of Money 
 
 the pieces are by most nations made a legal tender 
 at a full and a short weight, the difference between 
 these weights being very slight, and designed only 
 to provide a margin for the ordinary abrasion from 
 a reasonable length of service. When a piece falls 
 below its short weight it ceases to be a legal 
 tender. 
 
 There is really no more occasion for a legal tender 
 short weight in coin than there is for a legal tender 
 short weight in the pound-weight. A moment’s re¬ 
 flection will show that the tendency of such legisla¬ 
 tion by inciting fraudulent abrasion, is to degrade 
 coin to the lowest level at which it may be tendered. 
 It is estimated that of the gold in the currency of 
 England, one-half the pieces, amounting to fifty mil¬ 
 lion pounds, are barely above their short weight. 
 Higgling over short-weight pieces is not uncommon 
 there, although this is precisely what the long and 
 short weight is intended to obviate. 
 
 In our own country, coin enters so sparingly into the 
 general circulation that the deterioration from natural 
 wear is very much slower than in England, and the 
 short weight is so nicely adjusted to the natural wear 
 by our Coinage Act of 1873, that there is practically 
 no temptation to fraudulent abrasion. 
 
 Clearly there is no need of making coin a legal 
 
Bi-metallism and Mono-metallism 35 
 
 tender at any specified weight. If governments 
 would confine their legislation to fixing by enact¬ 
 ment the fineness of the precious metal and the 
 number of grains that shall constitute each piece 
 of a given name, they may safely leave the mainte¬ 
 nance of the coinage in its integrity, and the value 
 of the pieces, to be regulated by individual interest 
 and action. In practice this point of monetary 
 advancement has been reached by most of the 
 civilized nations; but in the useless, although com¬ 
 paratively harmless act of decreeing coin a tender 
 
 * 
 
 at the authorized legal weight only, is manifested 
 the extreme conservatism which still clings to the 
 old delusion that legislation may in some vague sense 
 regulate the value of coin. 
 
 Although this delusion is harmless as embodied in 
 many coinage acts, it becomes extremely mischiev¬ 
 ous when the attempt is made to regulate the value 
 of the silver and gold coin at a fixed ratio of weights 
 under the ruling of bi-metallism ; and it is only in 
 a less degree mischievous when one of the money 
 metals is ejected from the circulation under the 
 ruling of mono-metallism. As the efficiency of coin 
 as a medium of exchange depends on its circu¬ 
 lating only at its bullion market value, and on the 
 freedom with which it may circulate, any attempt to 
 
36 The Natural Law of Money 
 
 interfere with these natural conditions operates as a 
 restriction of individual rights. 
 
 A government can render most important service 
 by assaying the precious metals and minting the coin, 
 by verifying the fineness and weight of the pieces, 
 by guarding the coin against criminal deterioration, 
 and by shaping the pieces in accordance with the 
 actual needs of the time. More than this no govern¬ 
 ment can do without trenching upon the freedom of 
 the money, and, as a consequence, upon the rights of 
 the individual, for his rights are bound up with his 
 money, and his money, be it ever so sound, must 
 have freedom to render him its most efficient service. 
 
 Money is identified with man as an individual, 
 and not with man in mass; it is through the in¬ 
 dividual acting independently that it acquires all its 
 potency. Moved by the incentive of gain, and for 
 the gratification of his desires, the individual works 
 only for himself and for those who come within the 
 compass of his affections. It is by such delicate, 
 complex, and hidden relationships to the individual 
 that money becomes the circulating medium of a 
 nation; and as the free circulation of the blood 
 vivifies the body, so the unrestricted circulation of 
 money vivifies the nation. If governments had 
 limited their legislation to the simple requirements 
 
Bi-metallism and Mono-metallism 37 
 
 mentioned above, Sir Thomas Gresham would have 
 had no occasion to expound the law that inverts the 
 order of natural selection and drives money from 
 circulation regardless of its efficiency ; nor would we 
 have any silver question to discuss ; the two metals 
 might then circulate as efficient money in one 
 country at the same time; if one went out of use, 
 it would be because it was no longer needed and 
 could do better service in other occupations; the 
 transition would be quiet and without disturbance 
 to industry. 
 
 Let us now make an application of the principles 
 of money to the actual workings of bi-metallism, as 
 exemplified by the experience of our own and other 
 nations. It has been shown that money may be any 
 commodity that is used as the common medium of 
 exchange, which is money only when so used. From 
 the beginning of trade down to the introduction of 
 paper-money, commodities employed as money 
 necessarily possessed for that use full intrinsic value, 
 except when kings, clippers, or sweaters abstracted 
 a part of that value, or when law-makers undertook 
 to create a factitious value. Although the money 
 of the Massachusetts Indians had no value to the 
 colonists, we need not doubt that it had real value 
 to the Indians; that is, it had cost them as much 
 
38 
 
 The Natural Law of Money 
 
 to produce as they could get for it. The colonists 
 counterfeited this money, which they would hardly 
 have done if they could have produced the genuine 
 more cheaply than they could obtain it through 
 trade. It has also been shown that silver and gold, 
 through a series of displacements, proved themselves 
 better qualified for monetary service than all other 
 commodities, and so came into use wherever a 
 people had risen high enough in industrial civiliza¬ 
 tion to appreciate this superiority. It has also been 
 shown that silver and gold differ in their monetary 
 functions, the first being adapted to trade, while the 
 second performs the larger and more complex duties 
 of commerce; and when we extend our inquiries to 
 paper-money, we shall see that its functions differ 
 from those of silver and gold ; that it is an implement 
 of higher refinement than either, performing more 
 complex duties; that it is, in short, the money of a 
 still higher civilization, requiring for its most effec¬ 
 tive working a higher intelligence and a higher 
 degree of integrity. It has also been shown that 
 metallic money acquires its highest efficiency when 
 left perfectly free to find its actual value in open 
 market. 
 
 The open market here referred to really represents 
 the whole world, for the precious metals are every- 
 
Bi-metallism and Mono-metallism 39 
 
 where in use and everywhere bought and sold ; it 
 not only embraces the accumulations of all former 
 ages, but receives the entire current product of these 
 metals, which is continuously pouring into it. While 
 we cannot compute either the amount of the precious 
 metals in the world, or the amount required for the 
 many different uses to which they are applied, we 
 can easily see that fortunately this market is too 
 large, and broad, and free, to be brought under 
 governmental control; if it were not so, the useful¬ 
 ness of the metals for money service would surely be 
 paralyzed or destroyed. In the magnitude and 
 freedom of this market, in the constantly changing 
 form of the metals as they pass from one use to 
 another, a continuous movement is kept up, and an 
 even poise is preserved by innumerable buyings 
 and sellings. Every change that peoples may make 
 in their money, every transaction in trade and com¬ 
 merce, w’herever made, touches and influences to 
 some extent this wonderful market. 
 
 A little thoughtful study of this market should 
 suffice to show that the bi-metallic theory of money 
 is a mistake. A slight change in the market value of 
 silver and gold from the ratio fixed by law will drive 
 one of these metals out of monetary service ; and the 
 only effect of an effort to retain both by making the 
 
40 
 
 The Natural Law of Money 
 
 coins interchangeable will be to impose upon one the 
 burden of carrying the other. 
 
 England adopted bi-metallism in 1717, and changed 
 to mono-metallism in 1816, selecting gold as her 
 standard. Germany made a similar change in 1871, 
 and her example was followed by Norway, Sweden, 
 Denmark, and our own country, all within three 
 years. But there is no evidence that these nations 
 were prompted in their action by the fear of an ap¬ 
 proaching decline in silver, or by any other desire 
 than to secure a more stable standard of money. 
 The price of silver had not materially fallen at the 
 time these changes were made, nor had the output 
 of the silver mines increased to any marked degree, 
 as they did later; so that no one could have had any 
 reason to suppose that silver would fall in price, as 
 it subsequently did. 
 
 By demonetizing silver in 1873, we doubtless 
 helped to strengthen the general movement tow¬ 
 ards mono-metallism, but in no other way could 
 our action have had any effect on the price of 
 silver, as for about thirty years there had been prac¬ 
 tically no silver dollars in our circulation, and in 1873 
 we were on a paper-money basis. That our subse¬ 
 quent action, in passing the Silver Bill of 1878 had a 
 depressing effect on the silver market, is more than 
 
Bi-metallism and Mono-metallism 41 
 
 probable; it was regarded by the world at large as 
 an effort to give to the metal an artificial value, and 
 this impression created a distrust that greatly re¬ 
 stricted the freedom of the market. An attempt 
 made a few years ago to control the copper market 
 of the world created a similar distrust, which had the 
 effect of putting the price of copper below its nor¬ 
 mal level, as was plainly seen when the syndicate, 
 which had attempted to advance the price, broke 
 down in bankruptcy, thus putting a stop to its inter¬ 
 ference. 
 
 France has done more than any other nation to 
 maintain the double standard; her bankers and 
 economists have been strong supporters of this 
 monetary theory ; five other nations co-operate with 
 her, composing what is termed the Latin Union; 
 yet in all these countries, if there is not a premium 
 on, there will be a preference for, one of the metals; 
 and even a preference is sufficient to lessen the use¬ 
 fulness of both. France closed her mints against 
 free coinage of silver in 1876, and it is quite evident 
 from the way in which she is accumulating gold and 
 discarding silver, that she is moving toward a mono¬ 
 metallic standard. 
 
 There is a limit to the amount of money that any 
 community can employ productively, and what that 
 
42 
 
 The Natural Law of Money 
 
 limit is can never be measured mechanically. If the 
 money metals are left free to flow in and out of a 
 country, their supply will be self-regulating, and 
 every legitimate demand for metallic money will be 
 met. If the supply of these metals in the world at 
 large is at any given time insufficient to meet the 
 demand, there will necessarily be an appreciation in 
 the value of money; if, on the other hand, the sup¬ 
 ply is in excess of the demand, money will depreci¬ 
 ate. These fluctuations are constantly occurring, 
 but they are so slight as to be hardly noticeable. In 
 reviewing a long period of time, however, we find 
 that the general tendency is towards lower values, 
 and this applies not only to the precious metals, but 
 to all products of man’s labor. Since the introduc¬ 
 tion of steam power, machinery, and subdivision of 
 labor, the tendency towards lower prices has been 
 more decided than before. To obtain a more 
 abundant supply of the necessaries, comforts, and 
 luxuries of life, is the object of all industry, and with 
 the increase of supply comes the reduction in price. 
 This is the natural order of progress,'of civilization. 
 
 As nearly as we can now judge, the decline in value 
 of the precious metals has kept comparatively even 
 pace with the decline in prices of commodities. 
 There have been but two marked exceptions to this 
 
Bi-metallism and Mono-metallism 
 
 43 
 
 rule, arising from natural causes; one when Euro¬ 
 peans got possession of Mexico and Peru, and the 
 other when the gold fields of California and Aus¬ 
 tralia were opened. In the latter case there was a 
 depreciation in the price of gold ; this was made 
 evident by a general advance in the price of com¬ 
 modities, including silver, all over the civilized world. 
 It was not until 1879 that gold recovered the value 
 that it had had, as compared with other commodities, 
 before 1850. 
 
 If England, instead of demonetizing silver in 1816, 
 had permitted her silver and gold coin to circulate 
 independently, and if the other European nations 
 had followed this example, both metals would have 
 circulated freely in all these countries, and with much 
 slighter fluctuations, and the people would have been 
 perfectly competent, in making their exchanges, to 
 adjust them to the two monetary standards. 
 
 There has been too much legislative interference 
 with money, and the best we can do now is to recog¬ 
 nize this and act accordingly. In a country like ours, 
 there can never be a lack of efficient money, if we 
 observe the natural law of money; our immense 
 natural resources and the industry of our people 
 are a guaranty against it. We have now a super¬ 
 abundance of money that does not properly perform 
 
44 
 
 The Natural Law of Money 
 
 its functions. Gold is practically our standard, but 
 it is burdened with carrying silver, whereby the 
 efficiency of both metals is reduced; nor does it 
 alter these conditions to issue silver in the form of 
 paper-money. The silver in the Treasury vaults is 
 of no more use to us now than when it was in its 
 native hills. Nobody questions the capability of the 
 United States to redeem any obligation it may 
 assume ; the only question that has been raised in 
 reference to our silver money is, what is its value ? 
 And this is a point upon which there should never 
 be any room for doubt. 
 
 Two examples have been given showing how one 
 money may replace another in the circulation; the 
 first was the natural order of displacement, whereby 
 the more serviceable money displaces a less service¬ 
 able money; the second was the artificial displace¬ 
 ment that occurs under bi-metallism, when the cheaper 
 money drives the more valuable money from the cir¬ 
 culation. It remained for the United States to give 
 a third example of displacement, which, like the 
 second, was artificial. It was furnished by the silver 
 legislation of 1878 and 1890, by which there was in¬ 
 jected monthly into the currency a specified amount 
 of silver. This feature of the legislation was a mone¬ 
 tary anomaly; nothing of the kind had ever been 
 
Bi-metallism and Mono-metallism 45 
 
 attempted before. It worked upon what is called 
 the “ per capita ” plan—so many heads, and so many 
 dollars per head. Machinery was set in motion to 
 grind out a given number of dollars per month, and 
 the country was forced to take them and pay for 
 them, whether it needed them or not. There is a 
 limit to the amount of money that any community 
 can employ productively ; therefore, to force money 
 into the circulation after that limit is reached, is to 
 force other money out. It will be seen that in this 
 third example the displacement is purely mechani¬ 
 cal, and without reference either to serviceableness, 
 as in the first example, or to value, as in the second; 
 the money goes simply because it is not needed. 
 
 Having thus stated the three forms of monetary 
 displacement, we will now consider them somewhat 
 more specifically, as exemplified by the operation of 
 the acts referred to, especially that of 1890, com¬ 
 monly called the Sherman Act. We have seen that 
 while money may be mechanically forced into the 
 circulation, it cannot be retained there unless there is 
 employment for it. The country has had a practical 
 illustration of this in the necessary retirement of a 
 large volume of national-bank notes, though these 
 notes were practically the same in efficiency and 
 value as the silver notes supplied by the govern- 
 
46 
 
 The Natural Law of Money 
 
 ment. Many of the banks found a little more profit 
 in redeeming their own notes and using the govern¬ 
 ment notes instead, but this profit was not in itself 
 sufficient to induce them to retire their notes if there 
 had not already been an excess in the volume of the 
 currency. That this was so is shown by the fact that 
 much of this retired money reappeared when the 
 volume of the circulation was reduced by the paper- 
 money hoarding which began in the summer of 1893. 
 
 Though the national-bank notes were displaced 
 by this mechanical enlargement of the volume of 
 currency, the gold money which retired was not simi¬ 
 larly displaced ; nor would it have retired from the 
 circulation had it not been for the Act of 1890, by 
 which Congress sought to give it a silver valuation 
 below its bullion market value. But for this manda¬ 
 tory decree, gold money would, by reason of its 
 superior efficiency, have remained in circulation to 
 the exclusion of silver money when the volume of 
 currency was in excess of the needs. The silver 
 dollar has continued to pass at a parity with the gold 
 dollar, but this has been the case only because it 
 could be exchanged at the United States Treasury 
 for a gold dollar. It was therefore not a difference 
 in the current value of the two coins that caused the 
 retirement of the gold money, but a fear in the 
 
Bi-metallism and Mono-metallism 47 
 
 public mind that the Treasury might at some time 
 cease to redeem its silver money with gold. Nor 
 was this fear by any means groundless. The Act of 
 July 14, 1890, does indeed declare it as being “the 
 established policy of the United States to maintain 
 the two metals on a parity with each other,” but this 
 declaration is not sustained by the action of our gov¬ 
 ernment in the past, nor is it consistent with the spirit 
 and letter of other portions of the act itself. 
 
 Bi-metallism has been the monetary policy of the 
 United States from the beginning of the government, 
 except for five years—from 1873 to ^78—during 
 which time there was no metallic money in the circu¬ 
 lation. At all other times, down to 1878, when the 
 money of the country was on a metallic basis, it has 
 been the policy of the government to let the two 
 metals take their natural course, and this has in¬ 
 variably resulted in excluding from circulation the 
 coin of higher bullion market value. The reason 
 for this will be obvious when we reflect that, if in a 
 transaction of trade the seller may exercise his choice, 
 he will naturally demand the most valuable money 
 obtainable, but if he must accept the money that is 
 tendered to him, the buyer will pay him in that 
 which has the least value. It is through such action 
 by individuals, each prompted by his own interest. 
 
48 
 
 The Natural Law of Money 
 
 that bi-metallism operates to retain in the circulation 
 the money of least value and to expel from it that 
 of any higher value. 
 
 Nor can it be said to have been the policy of the 
 government since 1878 to maintain the two metals 
 at a parity, if we are to judge of that policy by the 
 acts of Congress, and not by the practice of the 
 Treasury department. The Act of February 28, 1878, 
 commonly called the Bland Act, made no provision 
 for maintaining the two metals at a parity ; it simply 
 authorized the injectment of silver money into the 
 currency, and decreed that the silver dollar should 
 be a legal tender at its nominal value. There is 
 really no act of Congress which definitely commits 
 the nation to maintaining the two metals at a parity, 
 and it is the fact that the nation is not thus definitely 
 committed that discredits our money. By making 
 the two metals a legal tender at a fixed ratio, and 
 thereafter abstaining from interference with the coin 
 in circulation, which was the policy of our govern¬ 
 ment down to 1878, the metal of higher value was 
 expelled from the circulation, leaving the other 
 metal to constitute the monetary standard. By thus 
 permitting the metals to take their natural course, 
 the United States, when on a metallic basis, had 
 always had, down to 1878, a definite and stable 
 
Bi-metallism and Mono-metallism 49 
 
 money ; in other words, the United States has theo¬ 
 retically had bi-metallism, but practically mono¬ 
 metallism. 
 
 Since 1878, we have had bi-metallism in its most 
 objectionable form, by reason of the effort made 
 to force, by legislative decree, the circulation of 
 the two metals at their nominal values, irrespective 
 of their actual bullion values. This is what the 
 Act of 1890 assumes to do in authorizing the Secre¬ 
 tary of the Treasury to pay “ in gold or silver coin 
 at his discretion ,” since to maintain the two metals 
 at their legal parity, it is absolutely necessary that 
 the choice of the metal to be received shall rest with 
 the recipient. This fundamental principle is now so 
 generally understood and accepted that no intelli¬ 
 gent person can be misled by an act which in one 
 clause declares for the maintenance of “ the two 
 metals on a parity with each other,” and in another 
 authorizes the Secretary of the Treasury to pay in 
 either metal at his discretion. In the exercise of 
 this discretionary power the Secretaries have uni¬ 
 formly left the choice of the metals to the person 
 receiving the money, and it is solely through this 
 recognition of a monetary principle in their gover¬ 
 nance of the Treasury Department that the legal 
 parity of the two metals has been maintained. 
 
50 
 
 The Natural Law of Money 
 
 Congress can render no greater service to the na¬ 
 tion than by substantiating its declared policy under 
 a definite pledge to make the gold and silver money 
 of the United States interchangeable at the Treasury 
 at the option of the holder; nothing it can do would 
 so quickly restore confidence and bring relief to an 
 overburdened people. The repeal of the silver-pur- 
 chase clause of the Act of 1890 was necessary and 
 commendable ; it relieved the country from a bur¬ 
 densome tax, but with our large volume of silver 
 money, the remaining clauses of that act must con¬ 
 tinue to menace our credit so long as the nation is 
 not definitely committed to redeem its silver money 
 with gold. 
 
 We have now little cause to fear that the gold 
 standard will not be maintained : in the agitation 
 and discussion of the silver question, the people have 
 come to realize the injustice that would be wrought 
 by permitting the standard to drop from gold to 
 silver, and on this moral ground, if not from the 
 convincing force of economic logic, they will insist 
 upon the maintenance of the gold standard. While 
 we may ourselves be entirely confident that our gov¬ 
 ernment will honestly live up to its monetary profes¬ 
 sions, it is particularly unfortunate that any occasion 
 should be given to other nations to question our good 
 
Bi-metallism and Mono-metallism 51 
 
 faith, and so long as the Act of 1890 remains in its 
 present equivocal form, we cannot logically expect 
 to secure or to retain foreign confidence ; but with a 
 definite commitment of the nation to preserve the 
 integrity of its monetary standard, all cause for dis¬ 
 trust would be removed. We might then look for¬ 
 ward with reasonable assurance to a return of the 
 foreign capital that has been, withdrawn from us, the 
 loss of which is the chief cause of our industrial 
 depression. 
 
 It is not money, but wise monetary legislation, 
 that the country now needs. There has been 
 no time in the past two years, except during the 
 few weeks when the “ paper-money hoarding ” craze 
 prevailed, that the money in circulation, though 
 wofully defective in quality, was not amply sufficient 
 in volume for all demands; and if we include the 
 hoarded gold money in the country, the volume 
 has been greatly in excess of what could be profit¬ 
 ably employed under normal conditions. It is 
 admitted on all sides that a revision of our monetary 
 system has become absolutely necessary; but no 
 revision can be of any service that does not re-estab¬ 
 lish public confidence in our money. 
 
 Before proceeding to illustrate the beginning 
 and growth of paper-money, it may be well to con- 
 
5 2 
 
 The Natural Law of Money 
 
 sider briefly some of the salient evils that would 
 result, in the event of a fall in our monetary standard 
 from the gold to a silver basis. If such a change of 
 standard were made with due consideration, the 
 government providing for the redemption in gold of 
 the silver money it had issued at a gold valuation, 
 and replacing it with silver money issued at its actual 
 valuation, and also requiring that all contracts and 
 obligations entered into during the continuance of 
 the gold standard should be settled on that basis, 
 the disturbance to industry would be only such as 
 must arise from the adjustment of values to the new 
 standard, and business would soon move along much 
 the same as if on a gold basis. Though our mone¬ 
 tary standard would not be improved, no one could 
 then justly charge us with duplicity or bad faith; 
 but to let the standard drop from gold to silver 
 without making full provision for the change, would 
 be criminal neglect. 
 
 All metallic money should have a market value as 
 bullion equal to its current value as coin; if it has 
 not this, it is not true money, nor can it be the most 
 serviceable money. As our gold coin is worth as 
 much in bullion as in coin, it answers to this test; 
 but our silver coin, if converted into bullion, would 
 yield only three-fifths of its current value, which 
 
Bi-metallism and Mono-metallism 53 
 
 current value, as we have seen, is maintained only 
 because a silver dollar can be exchanged for a gold 
 dollar at the United States Treasury. 
 
 The bi-metallic ratio of the United States is sixteen 
 grains of silver to one of gold. When this ratio was 
 adopted it corresponded very nearly to the relative 
 market values of the two metals; at present, however, 
 one grain of gold will buy about twenty-seven grains 
 of silver, which makes the bullion value of our silver 
 dollar about sixty cents. 1 If, for example, we should 
 melt five silver dollars and three gold dollars sepa¬ 
 rately into bullion, the present market value of these 
 two bits of bullion would be the same, and we should 
 find this to be the case wherever sold. 
 
 As gold has been the standard in the United 
 States since January, 1879, every dollar of silver 
 money in the country, whether it be in coin or 
 paper, has cost its owner a gold dollar, or the 
 equivalent of a gold dollar; therefore a drop in 
 the monetary standard to a silver basis would 
 cause these owners to lose forty per cent, of their 
 money. A person with five dollars of silver money 
 in his pocket would lose two dollars ; he would 
 still have five dollars nominally, but actually only 
 three, as the purchasing power of the five would 
 
 1 This valuation is used throughout, to preserve uniformity in the 
 calculations, though in Nov. 1893, when this was written, silver was 
 worth less. 
 
54 
 
 The Natural Law of Money 
 
 have shrunk to that of three. It might seem to him 
 when he came to spend his five dollars that prices 
 had advanced, but what would really have taken 
 place would be a reduction in the value of his money 
 while it lay in his pocket. Commodities, and prop¬ 
 erty in general, would not be affected in value by 
 the change in the value of the money, as would be 
 evident to those who had gold money to spend. In 
 the adjustment of values to the depreciated mone¬ 
 tary standard, the advance in prices would disturb 
 for a time the prevailing idea of relative values; but 
 these changes in prices would be nominal ; values 
 would remain as they were, subject only to natural 
 fluctuations. 
 
 In the derangement of prices that would follow a 
 sudden change of the monetary standard, large 
 numbers of persons, not foreseeing the effect of the 
 change, would be likely in trading to underestimate 
 the value of their property in the new and cheaper 
 money, and thus they would sustain the full loss result¬ 
 ing from buying with gold and selling for silver. The 
 better knowledge of monetary conditions possessed 
 by the few, and their larger opportunities for turning 
 this knowledge to pecuniary advantage, would enable 
 them not only to protect themselves, but to profit 
 by the ignorance or the limitations of their neigh- 
 
Bi-metallism and Mono-metallism 55 
 
 bors; and thus much of the wealth of the country 
 would be aggregated in fewer hands. But as values 
 of property in general would not be affected by the 
 depreciation in the value of the money, the direct 
 and immediate loss would inevitably fall upon the 
 owners of money, of bank-deposits, and of such 
 assets as were payable in money. This loss would 
 fall mainly upon that great body of frugal and in¬ 
 dustrious working people that composes more than 
 half the population of the United States, as the 
 savings of these people are generally held in bank 
 deposits. A large majority of them would not 
 understand the situation, and even if they did, it 
 would not be in the power of any considerable num¬ 
 ber of them to protect themselves. 
 
 The number of small depositors in the United 
 States cannot be less than eight millions; in a general 
 liquidation, these depositors would be found to be the 
 principal owners of the money that constitutes our 
 medium of exchange. As their savings are usually 
 left quietly and permanently on deposit, this money 
 becomes, through the intricacies of exchanges in the 
 ordinary course of business, the active lendable money 
 of the nation. The sum of deposits in savings banks 
 alone is $1,712,769,026.00, and the number of de¬ 
 positors is 4,781,605, making an average of $358.20 to 
 
5 6 
 
 The Natural Law of Money 
 
 each depositor. As, however, but a small percentage of 
 the money deposited in savings banks is allowed to lie 
 idle, this money goes immediately back into circula¬ 
 tion ; even the bulk of the reserve money of savings 
 banks is held on deposit in commercial banks, which 
 are the active distributors of money. 
 
 If the government should cease to redeem its 
 silver money in gold, about a thousand million dol¬ 
 lars of the circulating medium of the nation would 
 drop to the silver basis ; but in order to ascertain 
 the full percentage of individual loss on the de¬ 
 preciated money, we must take the total sum on 
 deposit in the United States, and add to it the 
 money in current use, as follows : 
 
 In commercial banks . . . $2,967,248,529 00 
 
 In savings banks .... 1,712,769,026 00 
 
 In current use (estimated) . 500,000,000 00 
 
 $5,180,017,555 00 
 
 Here we have a sum exceeding five thousand 
 million dollars, upon which there would be a direct 
 loss of forty per cent., or say two thousand million 
 dollars. 
 
 While the change of monetary standard would 
 not lessen the volume of actual capital in the 
 country, the loss to individuals would be as abso- 
 
 \ 
 
Bi-metallism and Mono-metallism 57 
 
 lute as if their property had been annihilated 
 by fire; and nothing can be plainer than that the 
 great burden of this vast loss would have to be 
 sustained by the working people who had laid up a 
 little money in bank for safe-keeping, and for the 
 interest it would bring them. There would be no 
 levelling of fortunes, as is vaguely supposed by some 
 people, but only an increased disparity. Trades¬ 
 people, merchants, manufacturers, and the great 
 industrial corporations, have their capital invested in 
 goods and merchandise, in land, factories, and in the 
 products of factories: the value of all these would 
 be adjusted to the new standard without loss, and as 
 these industries are mainly carried on with borrowed 
 money, the loss from its depreciation would not fall 
 upon them. Nor would the banks that are the 
 lenders of money be the losers, for nearly all the 
 money lent by them belongs to their depositors; 
 banks would therefore in a large measure be able to 
 protect their stock-holders by keeping their reserve 
 money in gold. 
 
 A glance at the weekly statements of the National 
 Banks of the City of New York will show that the 
 gold held in reserve by them is really in excess of 
 their total capital. 
 
CHAPTER III. 
 
 PAPER-MONEY AND BANKING. 
 
 W E have seen that the improvement in money 
 as a medium of exchange began with the 
 substitution of one commodity for another, because 
 the incoming commodity was better adapted for the 
 service required than the outgoing, and we have seen 
 that silver and gold, having gradually established 
 their superiority over all other commodities, became 
 the only money of the civilized world. Since the 
 adoption of these two metals, the improvement of 
 money through displacement has proceeded very 
 slowly. Silver being more plentiful than gold, and 
 better adapted to the limited trade of early times, 
 was the predominant money for many ages; but as 
 trade developed into commerce, gold came more and 
 more into use, and is now the chief money of all the 
 more advanced commercial nations, while silver con¬ 
 tinues to be the chief money of nations second in 
 
 53 
 
Paper-Money and Banking 
 
 59 
 
 advancement. This condition is in strict accord 
 with the general march of development. 
 
 In the larger and more complex transactions of 
 modern traffic, gold has two qualifications that render 
 it superior to silver ; these are, that very much less of 
 gold than silver, in bulk and weight, is required to 
 perform a given service, and that gold has more sta¬ 
 bility than silver and is therefore a more trustworthy 
 measure of values. 
 
 Thus far, it may be noted that all the improve¬ 
 ment in metallic money coming through natural 
 displacement, seems to culminate in the su¬ 
 premacy of gold ; but while this inference is 
 probably correct, it is certain that improvement of 
 money generally will not cease so long as trade 
 and commerce continue. He deceives himself who 
 believes that such constant improvement as we see 
 around us, in all the implements and appliances 
 of every department of industry, could be possible 
 if the one instrumentality upon which all such ad¬ 
 vancement depends, and without which it would 
 stop, had remained stationary. We may rest as¬ 
 sured that money has continually improved in effi¬ 
 ciency, except in places and at times when the 
 industrial organism of society was disordered by 
 warfare, or when arbitrary rulers interfered with the 
 
6 o 
 
 The Natural Law of Money 
 
 natural order of progression. This view is supported 
 by the testimony of history. 
 
 While the question as to the superior serviceable¬ 
 ness of silver or of gold was still unsettled, forces of 
 a more subtle character than those that had pro¬ 
 duced displacement, came into play to augment 
 indefinitely the monetary efficiency of these metals ; 
 these, in brief, were intelligence and integrity. It 
 may not be obvious at first sight that a people’s 
 sense of what constitutes fair-dealing has anything 
 to do with the amount of metallic money needed by 
 them to conduct their business, but we shall see as 
 we extend our inquiry that as man rises in the moral 
 scale he requires relatively less and less of the money- 
 metals. Nothing more truly shows the degree of 
 civilization attained by a people than their estimate 
 of what constitutes right and wrong; it is upon this 
 sense that credit must rest, and it is to credit that we 
 must look for the further growth and efficiency of 
 money. 
 
 Let us now see how this new element of credit be¬ 
 came not only an Indi-spens able qualit y of money, 
 but the only quality by which its efficiency could 
 be enhanced when improvement by natural displace¬ 
 ment ceased. Take, for example, a community ar¬ 
 rived at the silver and gold stage of monetary 
 
Paper-Money and Banking 
 
 61 
 
 advancement, but still hoarding all its idle money or 
 hiding it in the ground for safe-keeping. This money 
 would be used only by the owners of it, and as every 
 transaction in trade would require a sum equal in 
 value to the commodity exchanged, the volume of 
 money employed, as compared with the volume of 
 transactions, would be at its maximum. From this 
 stage, improvement would progress when the owners 
 of idle money lent it to those who would put it to 
 use. This would be the beginning of credit , and the 
 consideration paid by the borrower would be the 
 beginning of interest. Thus, by the introduction 
 of credit—by lending instead of hoarding—the 
 same money would be made to repeat its ser¬ 
 vice indefinitely; the presence of the precious 
 metals would still be required in every transaction, 
 but by turning the money oftener, the volume 
 of money employed, as compared with the vol¬ 
 ume of transactions, would be lessened, and the cost 
 of maintaining the medium of exchange would there¬ 
 by be cheapened. To continue to hoard money and 
 to supply the demands of growing trade by increas¬ 
 ing the stock of precious metals, would not be 
 monetary advancement; the burdens of trade would 
 not be lightened in the least, and there would come 
 a time when this slow and labored growth would be 
 
62 
 
 The Natural Law of Money 
 
 arrested by the mere physical inability of the people 
 to handle the metals. 
 
 At this stage of development, it is only by the 
 cultivation of intelligence and integrity that any 
 monetary advance can be made; in trading with 
 one another, men are impelled, by the incentive 
 of profit, to exercise these higher qualities of their 
 natures. Through trade they are brought into 
 closer relationship, and the distrust that led them 
 to hoard their money, is gradually changed into 
 confidence by the amenities of commercial inter¬ 
 course. With the lending and borrowing of money 
 fairly established, there would soon arise the need 
 of a middle-man to promote and facilitate these 
 transactions ; and the need would develop the banker . 
 A competent, responsible, trustworthy person, hav¬ 
 ing the confidence of the community, would find his 
 services in demand ; he would become the depositary 
 of lendable money ; practically, he would himself 
 become the borrower from those who wished to lend, 
 and the lender to those who wished to borrow. His 
 profit would be derived from charging a higher rate 
 of interest than he paid; when metallic money was 
 deposited with him, he would give his receipt for it, 
 and as he possessed the public confidence, his receipt 
 would pass from hand to hand, performing the func- 
 
Paper-Money and Banking 
 
 6 3 
 
 tion of money with greater ease than could the metal 
 itself. Here we have a second refinement of money 
 through the agency of credit—the banker’s receipt, 
 as the beginning of paper-money. 
 
 It will be seen, and should be noted here, that 
 the banker is himself an essential factor in the 
 refinement of money through the agency of credit; 
 to illustrate his importance in this respect, we will 
 trace this development one step further before 
 proceeding to consider paper-money. We may 
 suppose that, through the stimulus to interchange 
 developed by more efficient money, the trade of 
 the community has so far increased as to require the 
 services of several bankers to transact the business; 
 and that when metallic money, receipted for by 
 one banker, is lent by him, the borrower deposits it 
 with another banker, who also gives his receipt for 
 it, thus furnishing two receipts which circulate as, 
 and perform the function of, money, though repre¬ 
 senting one and the same metallic base. Here we 
 have a third refinement in the growth of money 
 through the agency of credit. 
 
 In thus tracing the growth of money from 
 improvement by natural displacement to improve¬ 
 ment by credit, it has been with a view to greater 
 brevity and a clearer outlining of principles that we 
 
64 
 
 The Natural Law of Money 
 
 have illustrated the process by a concrete example; 
 but the delineation is drawn from actual history. 
 Credit, as a factor in monetary improvement, opened 
 a new era of industrial growth, which may be classi¬ 
 fied as only second in importance to the adoption 
 of a medium of exchange. 
 
 History records that the goldsmiths of London 
 were the first bankers and the first issuers of paper, 
 money in that city. 
 
 The superiority of paper-money over metallic 
 money consists: first, in its cheapness; second, in 
 the readiness with which its volume may be expanded 
 or contracted ; and third, in the ease with which it 
 may be handled and transferred. Beyond these 
 three important qualifications, it has no monetary 
 function that is not derived from the commodity 
 in which it is redeemable. It may be issued against 
 any property that has the qualifications to serve 
 as a medium of exchange, but if the thing selected 
 is deficient in any of the essential qualifications 
 of money, the paper-money will be similarly de¬ 
 ficient. For example, paper-money cannot be issued 
 against land, for land itself has no adaptability for 
 use as money. Mortgages on real estate, govern¬ 
 ment, state, or railroad bonds, cannot perform the 
 service of money, and therefore are unfitted to be 
 a basis for paper-money. 
 
Paper-Money and Banking 
 
 65 
 
 As paper-money is but a “ promise to pay on de¬ 
 mand,” the thing in which it is payable must itself 
 have all the essential qualifications of money, and 
 these qualifications, as we have seen, are possessed 
 in the highest degree by silver and gold. It is these 
 metals that perform all the essential duties of money ; 
 but by the introduction of paper, simply as their 
 representative, the volume of money is increased and 
 its efficiency enhanced. 
 
 To have a paper-money of high efficiency, two 
 conditions are essential: it must rest upon its only 
 true basis—the precious metals, and it must be 
 bank, and not government, paper-money. 
 
 We saw that when our banker lent a portion of 
 his metallic money, against which notes had been 
 issued, it went to another banker, who also issued 
 notes against it; but the fact must now be noted 
 that when our banker lent the money, he received 
 from the borrower an equivalent in value as security 
 for its safe return ; consequently, although these 
 notes exceeded in amount the metallic money 
 against which they were issued, the security held 
 fully insured their redemption. In the regular 
 order of banking this is what always takes place; 
 no paper-money issued by a bank ever finds its way 
 into circulation until there is an equivalent in value 
 deposited somewhere to secure its redemption. 
 
66 
 
 The Natural Law of Money 
 
 The banker who issues paper-money is its natural 
 guardian ; it is he who, impelled by the incentive 
 of profit, assumes all the responsibility of its prompt 
 redemption when presented for payment ; his prop¬ 
 erty and his integrity are pledged to its redemption ; 
 why then should the state interpose to relieve him 
 from the responsibility of his own act ? Such inter¬ 
 ference can have no other effect than to lower the 
 standard of banking integrity. The banker is the 
 one man especially competent to judge of the char¬ 
 acter of the security that shall protect his notes 
 while in circulation, and his interest lies in protect¬ 
 ing them. 
 
 Bond-security as a basis for bank-notes is another 
 example of false theory in our monetary legisla¬ 
 tion ; but the public mind has unfortunately be¬ 
 come charged with the belief that such security 
 is essential to a sound circulating medium, though 
 no phase of the theory can be presented that will 
 stand intelligent scrutiny. A bank is a dealer in 
 money only; if it should permit all its money to go 
 into long-time securities, its banking capabilities 
 would be exhausted; if it is obliged to invest a por¬ 
 tion of its capital in this way to secure its note-issue, 
 its ability to serve its customers is crippled to that 
 extent. 
 
Paper-Money and Banking 
 
 67 
 
 One important function of a bank is to gather up 
 the idle money of its neighborhood and to keep it 
 in active employment, and this is a bank’s main 
 source of profit. Exclusive of savings-banks de¬ 
 posits, the amount of money thus gathered and 
 kept actively at work in the United States is almost 
 three times as great as the total sum of the capital in¬ 
 vested in the banking business. This money is gener¬ 
 ally subject to immediate call; a bank must be ready 
 to pay the checks of its depositors whenever they are 
 presented. It finds, however, that on the principle 
 of general averages, it can lend the greater part of 
 the money, and still meet all demands upon it; but 
 in order to do so, it can lend on short time only, 
 and it must have the right, if a loan be not paid when 
 it becomes due, to sell the pledged securities of the 
 defaulting debtor at his risk. These conditions may 
 seem hard, but they are not of the banker’s making 
 —they are inherent in the business; a banker is of 
 all men the least of a monopolist; he is much more 
 the servant of his customers than their master. 
 Indeed, banking is in a special sense a public busi¬ 
 ness ; a bank may be owned by only a few indivi¬ 
 duals, but the community where it is located has the 
 larger interest in it, and the larger power over it as 
 well. Most occupations may be conducted inde- 
 
68 
 
 The Natural Law of Money 
 
 pendently of each other, but this one is linked to all 
 of them, and its prosperity is dependent upon their 
 prosperity ; it is bound to them by ties of mutual 
 interest. 
 
 When improvement in money through displace¬ 
 ment ceased to meet the requirements of trade, the 
 banker and his paper-money became a necessity ; 
 the distrust which called for metallic money in every 
 transaction had to give place to confidence, or trade 
 could grow no faster than the volume of the precious 
 metals increased. It is the confidence reposed in 
 the banker that has created and that sustains his 
 occupation ; for a bank cannot exist in an atmos¬ 
 phere of distrust. Through credit the banker gathers 
 up idle money and keeps it employed ; through 
 credit he issues his paper-money, which enables him 
 to expand and contract the volume of money to meet 
 the actual requirements of trade, and while profit is 
 his prime incentive, his interest is also entirely in 
 accord with legitimate trade and industry. It is to 
 his intelligence and integrity that the world is in¬ 
 debted for the enhanced efficiency of money beyond 
 the mere subdivision of the precious metals. But as 
 the chief function of the banker in the industrial 
 world is to facilitate exchanges, he does not fail to 
 use such methods as tend to accomplish this with 
 
Paper-Money and Banking 
 
 69 
 
 the greatest safety, in the shortest time, and with 
 the least labor. Beginning with paper-money, he 
 next introduces checks, every one of which effects an 
 exchange more safely and speedily than any kind of 
 money can ; more recently he has originated the clear¬ 
 ing-house, which is another step in the same direction. 
 
 In the city of New York the daily transactions in 
 trade are numbered by the millions, and ninety-four 
 banks are required to make the exchanges. At the 
 clearing-house on every business day these banks 
 are represented by their accountants, and ninety-five 
 per cent, of the business transactions of the previous 
 day are settled, entirely by the exchange of checks 
 and balancing of accounts, no other medium being 
 used; this clearing is accomplished in about an 
 hour’s time, the volume of business thus settled each 
 day averaging one hundred and twelve million dol¬ 
 lars . 1 The remaining five per cent, is settled with 
 money, but it is mainly paper-money, coin being 
 called for only when it is actually needed. 
 
 In estimating the growth of money in the world, 
 it is impossible to ignore the services of the banker, 
 for it is through his instrumentality that metallic 
 money has been made to meet every legitimate de¬ 
 mand upon it; the industrial progress of the English- 
 
 1 These figures give the average daily clearings for the year 1892. 
 
7 ° 
 
 The Natural Law of Money 
 
 speaking people for the past two hundred years has 
 been largely dependent upon the banker’s methods 
 of monetary refinement. The mere recital of these 
 methods should be sufficient to satisfy us that.un¬ 
 less the banker is unduly restricted by legislative 
 enactments, industry can never again languish for 
 want of the means to effect exchanges. It may 
 safely be said that the volume of business transac¬ 
 tions throughout the world, now settled economi¬ 
 cally, securely, and speedily, through the agency of 
 paper-money, checks, bills of exchange, banks, and 
 clearing-houses, infinitely exceeds any volume that 
 could be settled with metallic money alone, even if 
 the earth were emptied of its precious metals and 
 every ounce of them converted into coin. It would 
 simply be a physical impossibility to transact this 
 enormous business with the metals alone. 
 
 That the existing monetary methods, adopted by 
 the banker are the result of natural development is 
 so obvious that the only wonder is that any intelligent 
 person can be found to question it. Every step of 
 this development lessens the volume of precious 
 metals needed to transact a given amount of business ; 
 yet we must not infer from this that they can be dis¬ 
 pensed with altogether; indeed, the need of them 
 seems to be increased by the magnitude of the work 
 
Paper-Money and Banking 
 
 7 1 
 
 they are made to perform. They are the standard 
 of measurement in every transaction as much now 
 as when they were the only money in use, and the 
 mechanism whereby their usefulness has been so 
 greatly enhanced revolves wholly upon the degree 
 of certainty with which they can be had when 
 actually needed and called for; it is thus that, by 
 the logic of events, monetary growth has come to 
 be dependent upon individual honesty. As metallic 
 money is but a medium of exchange, every instru¬ 
 mentality whereby its work is accomplished becomes 
 money in the larger sense, and as all these instru¬ 
 mentalities are bound by the inexorable law of 
 equity, the only terms upon which industrial prog- 
 ress can be made, are exact dealing and strict 
 adherence to the word of promise. Paper-money, 
 the bank, the check, the bill of exchange, the clear¬ 
 ing-house, all owe their existence to the observance 
 of the principle of reciprocal justice between man 
 and man ; this whole fabric of credit, which has 
 already produced such wonderful results, began with 
 the individual, is of individual growth, and still 
 clings to the personality of the individual. 
 
 It was the fundamental idea of the fathers in 
 framing our Constitution that the people should re¬ 
 tain, as far as possible and consistent with political 
 
7 2 
 
 The Natural Law of Money 
 
 unity, the management of their affairs; that no 
 power should be delegated to the county that 
 could as well be exercised by the town ; that no 
 power should be delegated to the State that could 
 as well be exercised by the county ; and in like 
 manner, that no power should be delegated to the 
 federal government that could as well be exercised 
 by the State. To make an application of this prin¬ 
 ciple to the subject in hand—banking,—it may be 
 stated that no power which can be exercised by a 
 community should be delegated to the general gov¬ 
 ernment, and that banking is especially of such 
 quality. All our monetary enactments since the 
 issue of greenbacks, in 1862, have been in conflict 
 with this principle. The Legal-Tender Act, the act 
 taxing State-bank notes out of existence, the act 
 closing the mints to free coinage of silver, and the 
 act by which silver was mechanically injected into 
 the currency, are all calculated to contract and 
 obstruct the only avenue of monetary growth that is 
 open to the people, and tend therefore to bring them 
 into helpless subjection to the government at Wash¬ 
 ington. And these enactments are equally in con¬ 
 flict with the natural law of money, which is in 
 perfect accord with, and promotive of, popular 
 government. 
 
Paper-Money and Banking 
 
 73 
 
 It has already been said that government paper- 
 money is not adaptable to the industrial needs of 
 our country. In order to indicate with more exact¬ 
 ness why this is so, and to show the superiority of a 
 bank-note currency, it will be necessary for us to 
 clearly demonstrate the importance of elasticity as a 
 property of money. The volume of trade fluctu¬ 
 ates widely, and even under normal conditions has 
 seasons of activity and of dulness ; money should 
 therefore be adaptable to these fluctuations. By the 
 term “ elasticity,” when applied to money, is meant 
 its responsiveness to trade demands ; it is said to 
 have more or less elasticity in proportion to the ease 
 and readiness with which its volume may be increased 
 or diminished at a given point. Now, as the volume 
 of metallic money cannot be readily expanded or con¬ 
 tracted, its elasticity depends mainly upon the ease 
 with which it may be moved from places where it is 
 not needed to places where it is needed. On the other 
 hand, paper-money—by which is meant bank-notes 
 issued under a free system of banking—may be in¬ 
 creased or diminished in volume at every point 
 whence it is issued ; consequently its elasticity is not 
 so dependent on freedom of circulation as that of 
 metallic money is. 
 
 As will presently be shown, our government paper- 
 
74 
 
 The Natural Law of Money 
 
 money does not possess these elastic qualities, and 
 
 i 
 
 as a natural consequence, the supply of money at 
 all points of industrial production away from the 
 commercial centres has been so uncertain as to pro¬ 
 duce a widespread unrest among our people. They 
 realize fully the restrictions imposed upon their pro¬ 
 ductive powers by this defective money, but they do 
 not seem to understand that a government paper- 
 money cannot be made adaptable to their local 
 wants. 
 
 Bank-notes being credit-money, their circula¬ 
 tion is necessarily limited to localities where they 
 are known to be good, and if they wander beyond 
 this range, they are sent home, even if their expenses 
 have to be paid ; whereas, coin of full intrinsic value 
 is returned only when there is a profit in returning 
 it; hence, paper-money is inherently local in charac¬ 
 ter. All paper-money needs supervision ; it cannot 
 be turned out-of-doors, as metallic money may be, 
 without acquiring vagrant habits ; metallic money is 
 self-constituted and self-sustaining; it has estab¬ 
 lished its status in every land ; but paper-money is 
 as yet dependent and in a state of tutelage ; what its 
 capabilities may become in the future, it is not now 
 within our province to inquire ; as it has already out 
 stripped all other money as a factor in wealth pro- 
 
Paper-Money and Banking 
 
 75 
 
 duction, the important questions for us are: From 
 what source does it derive its wonderful efficiency, 
 and what are the terms upon which it will render its 
 best service? In answering these questions, we 
 shall find that the fact of its being local money is 
 the basic reason for its efficiency, and that its terms 
 for most effective service are that it shall work 
 under the supervision of its issuer, whose interest 
 is to keep it in productive employment. 
 
 Government paper-money, in the wide range of its 
 circuit, acquires something of a nomadic character ; it 
 has no local attachments or home-ties ; nobody in¬ 
 deed has any interest in it but its immediate posses¬ 
 sor, and his interest ceases with the spending of it: 
 bank-notes, on the other hand, will return frequently 
 to their issuer to remind him of his obligations, and 
 to keep alive the reality of their convertibility. When 
 money is spent, the spender’s interest in it ceases; 
 but when it is lent, the lender’s interest in it in¬ 
 creases. Government money, when issued, is always 
 spent money, no Treasury official having the least 
 interest in it after it leaves his hands; whereas, 
 money issued by a bank is invariably lent money, 
 the banker’s interest following it and keeping watch 
 over the uses to which it is put. 
 
 The issuance of paper-money is properly a func- 
 
7 6 
 
 The Natural Law of Money 
 
 tion of banking; the political mechanism of our 
 government is not adaptable to banking, as the 
 Treasury can pay out and take in money only 
 through its regularly authorized expenditures and 
 collections; it is powerless to adjust the volume 
 of its money to the fluctuations of trade, hence 
 we say government paper-money is deficient in 
 elasticity; and the fact of its having a national 
 circulation is another disqualification, so far as 
 the industrial needs of the nation are concerned. 
 In this vast country, government bills have but 
 one point of issue, and that not an industrial, 
 commercial, or financial one; they are sent off 
 on their wanderings as spent money , and are soon 
 caught up by the general drift that carries all such 
 money into speculative dealings at the great finan¬ 
 cial centres. Nor could this money be made to 
 serve industrial production with the efficiency of 
 local bank-notes, even if a sub-Treasury with power 
 of issue and redemption were planted in every town 
 in the Union, because there would still be lacking 
 that one supreme underlying motive power which 
 turns all the wheels of industry —the incentive of 
 profit. 
 
 Wherever paper-money has had a free individual 
 growth, it will be found adapted to the occu- 
 
Paper-Money and Banking 
 
 77 
 
 pations of those employing it: the banker’s bill 
 of exchange is the paper-money of international 
 commerce, and the volume of transactions annually 
 settled with this medium cannot be less than sixteen 
 thousand million dollars; yet these monetary trans¬ 
 actions proceed so quietly as to attract little atten¬ 
 tion beyond the circles immediately concerned in 
 them. The bill of exchange is a free growth of 
 individual credit; as its range of circuit is outside of 
 national boundary lines, it has escaped the poli¬ 
 tician’s meddling. 
 
 Nothing has done so much to obstruct the growth 
 and improvement of paper-money in general, and to 
 prejudice people against its use, as the making it a 
 legal tender; this legislation was the means in colo¬ 
 nial times of engendering for paper-money a dis¬ 
 trust that still survives among the better educated 
 people, while the common people are comparatively 
 free from it. We may even now find among eco¬ 
 nomic writers the opinion that the issuance of paper 
 is wrong, notwithstanding the fact that they do not, 
 and cannot, point out any possible means by which 
 we can get along without it. 
 
 To explain this prejudice we must let the light 
 of the colonists’ experience with paper-money 
 fall upon the facts of to-day. We shall see 
 
78 
 
 The Natural Law of Money 
 
 that the shadow of the king’s mandate rested 
 upon the colonies during the whole period from 
 the first issue of paper-money by the General Court 
 of Massachusetts in 1690, down to the day, in 
 1780, when, in sympathy with an aroused public 
 sense of justice, the Continental Congress by resolu¬ 
 tion begged the States to repeal their legal-tender 
 enactments, and to make an equitable settlement 
 with the holders of Continental bills. In view of 
 what was and what might have been, the story of 
 the struggles of the people of the colonies with 
 paper-money, looked at from an economic stand¬ 
 point, becomes pathetic. There was not, from first 
 to last, any proper conception of the real nature of 
 paper-money: that to give it stability, it must be 
 redeemable in coin on demand—that it is a growth 
 of individual credit—that it must have a local habi¬ 
 tation and personal supervision—had not yet entered 
 the minds of the most advanced monetary students; 
 the people lived out their lives, generation after gen¬ 
 eration, in mental slavery to the idea that it was the 
 duty of the state to supply their medium of exchange. 
 
 We need not recite the many fruitless attempts of 
 the colonists to produce an efficient paper-money; 
 the story forms an interesting and instructive chap¬ 
 ter in the history of our country. Nothing is plainer 
 
Paper-Money and Banking 
 
 79 
 
 to the thoughtful reader who is looking for causes, 
 than the fact that metallic money in the colonies 
 became inadequate to the demands of their growing 
 trade, and that this inadequacy created a condition 
 which threw the balance of advantage into the scale 
 of the money holder. The time had indeed come 
 for the people to use credit-money, but they did not 
 understand its governing principles; they did not 
 realize that the stability and efficiency of this kind 
 of money are dependent upon public confidence, and 
 that public confidence is simply an aggregation of 
 the individual confidence ; that individual confidence 
 is a thing of spontaneous growth which can never be 
 brought into being at sovereign command. The 
 colonists looked to the state as the only power that 
 could supply their medium of exchange, and had 
 not the least idea that it was to themselves they 
 should look—that the state could do nothing to aid 
 them beyond preventing fraud and certifying fact. 
 
CHAPTER IV. 
 
 PAPER-MONEY IN COLONIAL TIMES. 
 
 HE paper-money, or bills of credit, of the dif¬ 
 
 ferent colonies varied more or less in minor 
 
 details, but in its more important features it may be 
 divided into two kinds : that which had only the 
 guaranty of the colony for its redemption, and that 
 which had in addition a real or personal security. 
 As this latter money was the best ever issued by the 
 colonists, and came to be held in special favor by 
 them, we may confine ourselves to the consideration 
 of this kind. It was put into circulation by the 
 colony’s lending it for a term of years on interest, 
 and taking from the borrowers real or personal se¬ 
 curity ; but as none of it was redeemable within a 
 year of its issue, and much of it ran for five or for 
 ten years, it could not maintain stability. The idea 
 that paper-money could be made to maintain par 
 value in circulation by redeeming it in coin on de- 
 
 80 
 
Paper-Money in Colonial Times 81 
 
 mand, seems not to have occurred to the colonists; 
 they looked to the credit and authority of the state 
 to impose this quality upon their money. The lack 
 of public confidence in the money appeared to them 
 to arise solely from a lack of confidence in its ulti¬ 
 mate redemption; the thought evidently did not 
 suggest itself to them that the most absolute cer¬ 
 tainty of remote redemption could not serve the 
 bill-holder whose immediate necessities demanded 
 metallic money, and that if there were but one such 
 bill-holder among a hundred, the whole volume 
 of paper-money would depreciate until his needs 
 were satisfied. 
 
 The first issue of bills of credit was made by 
 Massachusetts in 1690: it was not then known in 
 England or in America why clipped coin should 
 hold its place in the circulation, while coin of full 
 weight could not ; although this problem had been 
 solved by Sir Thomas Gresham more than a hundred 
 years before, its solution was not known to the 
 colonists ; it was therefore not to be expected that 
 they should understand the workings of their paper- 
 money. England, in common with monarchical 
 Europe, had long before fallen into the way of look¬ 
 ing at money as of the king’s creation, and what 
 England thought in reference to money, the colonists 
 
82 
 
 The Natural Law of Money 
 
 thought. The crown arrogated to itself the power 
 to fix the value of money, and nobody questioned 
 that power. In the years following the introduction 
 of paper-money in the colonies, it came to be under¬ 
 stood that metallic money was but a commodity 
 with which the people were as competent to supply 
 themselves as with any other commodity; but this 
 knowledge was confined to the few, and even the 
 few never understood the nature of paper-money. 
 Nor is there any evidence that the law of metallic 
 money was sufficiently assimilated by any one to 
 enable him to perceive that it was beyond the power 
 of the state to regulate the value of it, or that the 
 assumption of such power by the state was not one 
 of the legitimate prerogatives of sovereignty. 
 
 The repeated failures of the colonists to produce 
 a paper-money that would possess the stability of 
 coin, were attributed by them to the nature of the 
 money itself, and not to its inconvertibility; if they 
 had understood the governing principles they need 
 never have been without a sufficiency of good, ser¬ 
 viceable money. The whole difficulty was that they 
 looked upon money as a thing that only the state 
 could supply, and they never freed themselves from 
 this mental delusion. The power they depended 
 upon to supply them was not only incompetent for 
 
Paper-Money in Colonial Times 83 
 
 the task, but the coercive instrumentalities which it 
 employed to force its defective money into circu¬ 
 lation prevented the natural growth of credit-money 
 which otherwise would have taken place. 
 
 Apparently there was always a sufficiency of 
 metallic money in the colonies when it was not 
 driven out by defective paper money ; but increasing 
 trade, with its accompanying complexities, called 
 for a more flexible currency, and the appearance of 
 paper-money was in itself a proof that the time had 
 come for its use. The amount of metallic money in 
 the colonies just before the breaking out of the 
 Revolution was estimated at from eight to twelve 
 million dollars. (Alexander Hamilton’s estimate 
 was eight million.) The population of the colonies 
 was then less than four millions. Canada, to-day, 
 with a population of five millions, and a trade pro¬ 
 portionately very much larger than that of the 
 colonies, finds thirteen million dollars of gold (that 
 metal being her only metallic standard) an ample 
 basis for all her monetary transactions. 
 
 Within thirty years of the first issue of colonial 
 paper-money it had come into general use in all the 
 colonies, and in Massachusetts the demand for it was 
 so urgent that it became necessary to establish 
 county loan-offices in order that the borrowers might 
 
8 4 
 
 The Natural Law of Money 
 
 have an even chance to obtain their pro rata share. 
 In the estimation of the wise and well-to-do of the 
 time, it was a “ borrowing-passion,” an “ epidemic,” 
 that had gotten possession of the people. But even 
 a passion and an epidemic have their causes. Back 
 of this movement lay the imperative necessity, if 
 not for more money, at least for a more serviceable 
 money. The backwardness of monetary knowledge 
 at this time may be judged from the fact that, in 
 1722, George I. issued a patent to one William Wood 
 to make coin from pinchbeck for circulation in the 
 colonies. 
 
 Paper-money became a serious question in the 
 politics of the colonies, and continued to be so down 
 to the Revolution ; through the pressure of im¬ 
 personal forces there was a constant demand for it 
 coming from the great body of the people. On the 
 other hand, it was deemed by many to be nothing 
 better than a corrupting monetary innovation. A 
 state wields no power so effective to lift or to lower 
 the morals of a people as its monetary legislation, 
 and no legislation could be more destructive of 
 morality than the paper-money laws of the colonists 
 —laws which put it into the power of a debtor to 
 evade the payment of his just debts, and thus per¬ 
 verted the sense of justice and offered a premium to 
 
Paper-Money in Colonial Times 85 
 
 dishonesty ; laws which arbitrarily fixed the prices of 
 commodities, irrespective of cost to the producer, 
 thus striking down one of the chief incentives to 
 industry and frugality, which is profit; laws which 
 prohibited the exportation of coin and bullion, 
 denying to the individual that protection which the 
 state owes him to hold and use his property for his 
 own benefit, and thus converts him into a smuggler 
 and a contemner of law. 
 
 It is to this coercive and demoralizing legisla¬ 
 tion that the failure of colonial paper-money must 
 be attributed, and not to the money itself, not¬ 
 withstanding its defective character; its lack of 
 stability and of elasticity would have had a 
 tendency to misdirect industry and to incite to 
 speculation, but if utterly vicious measures had not 
 been adopted to force its circulation at a factitious 
 value, we may fairly assume that it would have 
 gradually grown in favor and that its quality would 
 have improved by changes in the manner and 
 form of issuing it. Although these arbitrary laws 
 were not always in force, they were so frequently 
 resorted to as to be inseparably associated with 
 paper-money in the minds of the people. When 
 coin was driven from circulation it was by the opera¬ 
 tion of the legal-tender quality given to paper- 
 
86 
 
 The Natural Law of Money 
 
 money, and not because the money was paper; but 
 as this distinction never became clear to the popular 
 mind, paper-money circulated under a cloud of dis¬ 
 trust even during those times when it rested solely 
 upon its intrinsic merits. Thus it was that the 
 growth and improvement of colonial paper-money 
 was stifled by the king’s mandate. 
 
 In comparing the colonial paper-money move¬ 
 ment with our silver movement, we find a marked 
 similarity as well in the popularity of the two move¬ 
 ments as in the character of the opposition to them. 
 The colonist opponents of paper-money took the 
 position that this money was a worse than useless 
 innovation, and that their silver money was all-suffi¬ 
 cient. This view was held as late as 1819, by John 
 Adams, who was a student of monetary science ; this 
 is shown by the following extract from a letter of his 
 of that year: “ I am old enough to have seen a paper 
 currency annihilated at a blow in Massachusetts in 
 1750, and a silver currency taking its place imme¬ 
 diately, and supplying every necessity and every 
 convenience.” 1 The public demand for paper- 
 money was attributed to personal dishonesty, and 
 not to any need for this new money. In politics it 
 became a question of individual morals rather than 
 
 1 Life and Works , x., 375. 
 
Paper-Money in Colonial Times 87 
 
 of finance, and there were examples of such rare 
 integrity as men declining from principle to pay 
 their debts in paper ; yet the movement went on 
 persistently at all times, when not suppressed by the 
 home government, or when it had not, by excessive 
 issues, broken down in utter wreck. Notwithstand- 
 ing all the difficulties attending the use of this 
 money, it rendered considerable service to the 
 colonists, and was generally admitted, even by its 
 opponents, to have done excellent service during 
 the revolutionary war. Thomas Paine said of it: 
 “ Every stone in the bridge that has carried us over 
 seems to have a claim upon our esteem. But this 
 was the corner-stone, and its usefulness cannot be 
 forgotten.” 1 
 
 The paper-money movement of the colonists pro¬ 
 ceeded from the fact that they had reached the 
 stage of industrial development when metallic money 
 could no longer supply all their needs ; and the com¬ 
 mon people’s advocacy of the new money proved 
 that their apparent ignorance was but the expres¬ 
 sion of a profounder instinct. Our silver movement 
 has an equally substantial warrant for its existence ; 
 it proceeds from the fact that the money that has 
 been substituted for bank notes will not render ser- 
 
 1 Letter to Abbe Reynal 
 
88 
 
 The Natural Law of Money 
 
 vice where service is most needed ; the need of money 
 is felt, but the nature of the want is not understood. 
 It is believed to be caused by a scarcity of gold, and 
 that an increase in the volume of silver would com¬ 
 pensate for this deficiency and supply the need ; but 
 this view loses sight of the well-known historical 
 
 i 
 
 fact that two hundred years ago, when the magni¬ 
 tude and complexities of trade were relatively not a 
 hundredth part of what they are now, the English- 
 speaking people had reached the period of paper- 
 money, when without it the metals could no longer 
 supply their needs, and when further industrial 
 progress was only made possible by an intelligent 
 use of the new money. 
 
 The fact has been overlooked that since the 
 introduction of paper-money the natural trend 
 of improvement has been wholly towards an in¬ 
 crease of credit-money, and a relative lessening 
 of the need for the precious metals. We have 
 been led away by the delusion that there is not 
 enough gold in the world to supply the world’s needs, 
 ignoring the fact that it is value and not volume that 
 
 constitutes the money standard, and that, therefore, 
 
 0 
 
 stability is the essential point to be looked to. Under 
 the mistaken impression that the public craving for 
 money proceeds from insufficient supply and not 
 
Paper-Money in Colonial Times 89 
 
 from defective quality, we have attached undue im¬ 
 portance to the acts of foreign governments in 
 demonetizing silver ; yet while noting clearly the dis¬ 
 turbing effects of their action upon the stability of 
 silver, we have ourselves become the greatest dis¬ 
 turbers of the silver market; by ignoring the funda¬ 
 mental monetary law which forbids interference with 
 the free flow of the precious metals, we have for the 
 time being rendered silver unfit for monetary use. 
 
 Because of the larger diffusion of intelligence and 
 the larger trustfulness that is found here as com¬ 
 pared with European countries, together with our 
 immunity from sudden outbreaks of war, a very 
 much smaller proportion of coin is needed by us 
 than in the specie-paying countries of Europe. In¬ 
 deed, ours is particularly a paper-money country. 
 Notwithstanding the extraordinary effort made to 
 force silver dollars into circulation by paying the ex¬ 
 press charges on them, the limit of possible output 
 was reached at sixty millions, and these went mainly 
 to the South, a fact that should be noted as showing 
 how true it is that money will always find its way 
 into the channels of employment for which it is best 
 adapted. These dollars are eminently well-fitted to 
 the simple trading of the negroes, and if we should 
 adopt the single gold standard, excluding this coin 
 
90 
 
 The Natural Law of Money 
 
 from circulation, it would retard the industrial ad¬ 
 vancement of the South. The negro prefers this 
 money to either gold or paper. 
 
 Improvement in money proceeds altogether on 
 practical lines, the impetus in that direction coming 
 from the great body of the people, which concerns 
 itself little with economic theories. At the head of 
 this movement is the banker, who has shown that 
 when not trammelled by restrictive legislation, he is 
 entirely competent to meet and provide for the 
 varying conditions of trade that exist around him. 
 But there has been no time in the history of our 
 country when banking has not been more or less re¬ 
 stricted by laws intended to protect the bill-holder 
 and the depositor, which, while ineffective for the 
 purpose designed, have operated to retard the growth 
 of the business. 
 
 Considerable progress was made in banking 
 methods in the interval between the Revolution 
 and our civil war; but the issuance of govern¬ 
 ment paper-money as a war measure, together with 
 the subsequent suppression of State-bank notes, 
 revived the antiquated idea that it is the duty of 
 government to provide the money of the people. 
 It was this idea that retarded the growth of banking 
 during the colonial period, and it is the prevalence 
 
Paper-Money in Colonial Times 91 
 
 of the same idea to-day that is chiefly responsible for 
 our present monetary backwardness. This supersti¬ 
 tion so obscured the colonists’ views in reference to 
 paper-money that they never got a glimpse of the 
 true principles of banking, and at no time did they 
 ever have a clear perception of money as simply a 
 medium of exchange. They continued to the end 
 to rely upon the authority and credit of the State 
 for their paper-money ; this is evidenced by the fact 
 that, notwithstanding the ill-success of the individual 
 colonies with paper-money, it was the general belief 
 when the Continental bills were issued that this 
 “ universal money,” as it was called, being supported 
 by all the States, must certainly be a success. The 
 failure of Continental money finally produced a gen¬ 
 eral disgust for all paper-money; the prejudice 
 against it was very strong and bitter, especially 
 among moneyed men and people of property ; there 
 was still, however, a paper-money party in the coun¬ 
 try, though it was for the time quiescent. 
 
 This was the temper of the public mind in regard 
 to paper-money when the federal Constitution was 
 framed ; specie was considered the only legitimate 
 money; the issuance of paper-money was held to be 
 a governmental prerogative, and the right of the 
 state to make it a legal tender was not questioned ; 
 
92 
 
 The Natural Law of Money 
 
 but in view of the evil effects already experienced^ 
 its issuance was regarded as justifiable only in cases 
 of extreme emergency. 
 
 It was not until 1782, when the Bank of North 
 America was started, that the first forward step was 
 made towards the displacement of government 
 paper-money by bank notes. These notes were pay¬ 
 able in coin on demand, and were the first paper- 
 money ever issued in America that recognized the 
 essential principle of immediate redemption ; but 
 neither in America nor England was the potentiality 
 of this principle fully realized. In neither country 
 was it understood that in no way but through a faith¬ 
 ful observance of the principle of immediate redemp¬ 
 tion could such a sense of public confidence be 
 inspired as would maintain a paper currency at par. 
 In both countries state support was deemed essen¬ 
 tial. The Bank of North America was practically a 
 national institution ; nearly two-thirds of its capital 
 were subscribed by the general government, and it 
 was absolutely under the control of the Finance 
 Minister, Robert Morris. Its notes were receivable 
 as specie for duties and taxes, and in payment of 
 dues from the respective States. 
 
 The Bank of England, though at this time it had 
 been in operation for eighty-six years, was still a 
 
Paper-Money in Colonial Times 93 
 
 government monopoly, overshadowing and obstruct¬ 
 ing any banking enterprise of an individual character. 
 Its capital was government debt, against which notes 
 were issued to an equal amount, and although these 
 notes were payable in coin on demand, this principle, 
 not being fully understood, was not carried out with 
 sufficient promptness and uniformity to remove the 
 distrust of paper-money that lingered in the public 
 mind. 
 
 The Bank of England was undoubtedly America’s 
 model in banking, but the conditions in America 
 were not such as to permit the establishment of a 
 similar monopoly. The sensitiveness of the States 
 in regard to centralizing power in the general gov¬ 
 ernment, combined with a deep-seated jealousy of 
 monopolies, defeated the original design of the Bank 
 of North America, which was to have been the fiscal 
 agent of the nation, with a monopoly of bank-note 
 issue. In this condition of public sentiment, the 
 right of Congress to charter the bank was questioned ; 
 it was found that the Articles of Confederation con¬ 
 tained no power to charter a bank; but as Congress 
 had already pledged its word, and was itself depend¬ 
 ing on the bank to supply its pressing need of 
 money, a compromise measure was adopted. The 
 charter was granted “ with a recommendation to the 
 
94 
 
 The Natural Law of Money 
 
 States to give it all the necessary validity within 
 their respective jurisdictions.” It was also tacitly 
 understood that the exclusive right of the bank to 
 issue notes should end with the war. But the virtual 
 admission by Congress of its defective powers, made 
 it necessary for the bank to obtain a charter from 
 the State of Pennsylvania, and the door was thus 
 opened to joint-stock-company banking. 
 
 Before the present national government went into 
 operation in 1789, New York and Massachusetts had 
 each chartered a bank, and when the United States 
 bank was chartered by the federal government in 
 1790, there were already in existence five corporate 
 banks, holding State charters, with a capital of 
 $3, x 35,° 00 - In : 794 there were sixteen such banks; 
 in 1796, twenty-four; and by 1804 there were sixty- 
 five, with a total capital approaching $40,000,000. 
 
 Thus it was that through a fortuitous combination 
 of circumstances, banking had broken away from the 
 restraints of centralized authority, and was drifting 
 on practical lines into its natural channel. By un¬ 
 dertaking, in imitation of England, to issue paper- 
 money through a national bank rather than directly 
 by the government, a line of demarcation was drawn 
 which finally left banking and the production of 
 paper-money in the hands of the people. Though the 
 
Paper-Money in Colonial Times 95 
 
 framers of the federal Constitution had practically 
 precluded the direct issue of paper-money by the 
 federal government, popular opinion in regard to 
 this form of money had not materially changed. In 
 the public estimation, its issuance was a prerogative 
 of government ; but to transfer this power to a cor¬ 
 poration which, though absolutely under the control 
 of government, embodied in part individual owner¬ 
 ship, was deemed to be incompatible with repub¬ 
 licanism. 
 
 The contest over the United States Bank which 
 in later years became a “ burning question ” in 
 national politics, had no reference to the prevailing 
 opinion that it was a function of government to 
 supply the people’s money. Hamilton, the founder 
 of the Federalist party, and Jefferson, the founder 
 of the Democratic party (then called the Republican 
 party), were at one on that point. They differed as 
 to the expediency of issuing paper-money, Hamilton 
 favoring the issue and Jefferson opposing it; though 
 both looked upon it as a fiscal agency rather than as 
 a medium of exchange. Hamilton’s preference was 
 for a single bank which, as the fiscal agent of the 
 general government, should be the only bank of issue 
 for the nation. Jefferson was opposed to all banks 
 of issue, and a national bank he justly looked upon 
 
g 6 The Natural Law of Money 
 
 as a centralizing agency in conflict with the princi¬ 
 ples of popular government. 
 
 A better understanding of the principles of money 
 would have shown Jefferson how perfectly they har¬ 
 monized with his theory of government; but he 
 never clearly understood those principles, and the 
 course that banking had taken disturbed him 
 greatly in his later years. His failure to compre¬ 
 hend the personalism of money is the more remark¬ 
 able because no one of the fathers of the republic 
 had a truer sense of what constituted popular gov¬ 
 ernment than he; and no one of them was in 
 closer sympathy with the great body of the 
 people. The banking “ mania ” which had seized 
 upon the people was unintelligible to him : “ I be¬ 
 lieve it to be one of those cases where mercantile 
 clamor will bear down reason until it is corrected by 
 ruin,” he wrote in 1813. 1 In 1815 he made the fol¬ 
 lowing peculiar statement in regard to bank-notes: 
 “ The banks were able for a while to keep this trash 
 at par with metallic money, or rather to depreciate 
 the metal to a par with paper , by keeping deposits of 
 cash sufficient to exchange for such of their notes as 
 they were called on to pay in cash.” 9 In his plan 
 
 Jefferson’s Works , vol. vi., p. 232 . 
 
 9 16-, p. 434- 
 
Paper-Money in Colonial Times 97 
 
 for reducing the circulating medium, submitted to 
 Mr. Rives in 1819, among other strictures upon the 
 issue of paper-money, he says : “ Interdict forever 
 to both State and national governments the power 
 of establishing any paper bank ” ; and again : “ Cer¬ 
 tainly no nation ever before abandoned to the 
 avarice and jugglings of private individuals, to regu¬ 
 late, according to their own interest, the quantum of 
 circulating medium.” 1 
 
 And yet it is only through private individuals, 
 each acting in his own interest, that the quantum 
 of circulating medium can be regulated; if all mone¬ 
 tary legislation were repealed, leaving the people 
 entirely free to produce their medium of exchange, 
 this medium could move only in one direction, and 
 that towards a higher degree of refinement. 
 
 Although the views entertained about money had 
 undergone but little change since colonial times, the 
 conditions stated, which had transferred the produc¬ 
 tion and regulation of money from the general to 
 the State governments, brought this work closer to 
 the people and to their occupations ; it was not to 
 be expected that there would be any immediate < 
 improvement of the monetary legislation of the 
 States over that of the general government, but with 
 
 1 Jefferson's Works, vol. vi., p. 147 . 
 
9 8 
 
 The Natural Law of Money 
 
 thirteen distinct legislative bodies acting upon this 
 one subject, there would necessarily be differences; 
 these differences in course of time would demonstrate 
 advantages, and this, taken together with their closer 
 relations to the occupations of the people, would 
 necessarily produce improvement in money. 
 
 It is not our purpose to follow the growth of 
 paper-money under state legislation—much of this 
 money was positively bad,—but before the breaking 
 out of the civil war and the issuance of greenbacks, 
 there were many instances where the money had 
 reached a stage of development fully abreast with 
 the best economic teachings of that time, and we 
 need not doubt that, if the State banks had been 
 permitted to continue the issuance of paper-money, 
 we should by this time have a money as good as any 
 nation has. 
 
CHAPTER V. 
 
 THE MONETARY SYSTEM OF CANADA AS CONTRASTED 
 WITH THAT OF THE UNITED STATES. 
 
 ANADA to-day, with a gold basis of about 
 
 thirteen million dollars, supplies all her 
 monetary needs with great efficiency; she is not 
 only able to supply all her own legitimate wants, but 
 has for many years rendered substantial aid to our 
 western people in the movement of crops in the 
 autumn; this was notably the case in regard to the 
 heavy crops of 1891. 
 
 Canada’s total authorized banking capital is some¬ 
 thing over seventy-five million dollars, and the paid- 
 up capital a little less than sixty-two million dollars. 
 The banks are permitted to issue notes equal to the 
 amount of their unimpaired capital; the average 
 circulation of bank-notes is about thirty-five million 
 dollars, and the till-money is about fifteen million 
 dollars, leaving twelve million dollars in reserve for 
 extraordinary contingent demands. The demand 
 
 99 
 
ioo The Natural Law of Money 
 
 for money during the harvest months is increased 
 about twenty-five per cent., and the large bank-note 
 reserve enables the banks to meet this special call 
 for money without adding a fraction to the rate of 
 interest; for when these notes are not in service, 
 they are lying in the vaults of the banks without 
 cost to the banks or to their customers. 
 
 There is no bond security for the bills; the only 
 security is a first lien on the assets of the bank and 
 on the double liability of the stockholders, the total 
 amount of which security averages four or five times 
 the total possible circulation, and seven times the 
 average circulation. There is, besides, a note- 
 redemption fund, contributed by the banks and held 
 by the government for the immediate redemption of 
 the notes of insolvent banks. This fund amounts 
 to five per cent, of the total sum of notes in circu¬ 
 lation during the previous year, each bank being re¬ 
 quired to keep its proportion good. The holder of 
 a failed-bank bill has, besides, the guaranty of 
 every solvent bank for the payment of his bill; the 
 result is that every Canadian has a sense of complete 
 security in the money of the country. 
 
 There has been no bank failure in Canada during 
 the term of the present or of the preceding Banking 
 Act (which latter dates from 1880), in which the 
 
Monetary System of Canada ioi 
 
 assets of the insolvent bank were not sufficient to 
 pay all the bill-holders. So far as can be ascertained, 
 there has been no general suspension of specie pay¬ 
 ment in Canada within the past forty years ; there 
 was certainly no suspension there in 1857, when the 
 banks of the United States suspended, nor has there 
 been any since that time. 
 
 In submitting Canada’s monetary system to the test 
 of fundamental principles, the only defects we find 
 are those which arise from legislative interference: her 
 government has reserved to itself the right to issue 
 legal-tender paper-money ; the limit of such issue, 
 as at present fixed by statute, is twenty million dol¬ 
 lars, and of this total about nineteen million dollars 
 has been put out. The government has also estab¬ 
 lished a number of post-office and other savings- 
 banks, competing with the corporate banks for the 
 deposits of the people, thus crowding up the rate of 
 interest upon the whole Dominion. As might be 
 expected there is a bond security to the government 
 paper-money. Gold being the only standard of value 
 in Canada, this paper-money has for its basis of re¬ 
 demption fifteen per cent, in that metal, and for 
 security ten per cent, in Dominion bonds guaranteed 
 by the British government, and seventy-five per 
 cent, in Dominion bonds not so guaranteed. The 
 
102 The Natural Law of Money 
 
 government retains to itself the issuance of all paper- 
 money of a lower denomination than five dollars ; it 
 also requires each bank to carry forty per cent, of its 
 reserves in Dominion notes ; there are, however, no 
 statutory restrictions on bank reserves, that mat¬ 
 ter being left very properly to the judgment of the 
 banker. A reserve that is fixed by statute may 
 operate as an embarrassment, but cannot as a 
 security. Bank auditing, bank statements published 
 monthly, a strict holding of the banks to their obli¬ 
 gations under penalty of forfeiture of their charters, 
 and, added to these, individual punishment for 
 irregular or criminal banking, are the best securities 
 the public can have, and these Canada has provided. 
 
 No better example can be found to illustrate the 
 divergence in monetary ideas between the banker 
 and the politician than is furnished by Canada. In 
 all the essential characteristics of banking, the former 
 is abreast with the intelligence of his time, while 
 the latter still clings to the old notion that the State 
 can arbitrarily enforce credit. By making the Do¬ 
 minion notes legal tender, and then compelling the 
 banks to carry forty per cent, of their reserves in 
 these notes, the Canadian government has need¬ 
 lessly burdened the banks, and in so doing has 
 betrayed ignorance of monetary law. The same 
 principles govern the relation between debtor and 
 
Monetary System of Canada 103 
 
 creditor, whether a State or an individual is the 
 debtor; these principles operate with equal force in 
 cither case, and cannot be set aside with impunity. 
 
 There is no such thing as compulsory credit; the 
 whole banking system of Canada rests upon a foun¬ 
 dation of confidence; hence when the government 
 exacts from the banks an enforced credit of forty 
 per cent, of their reserves, it weakens this founda¬ 
 tion, and with it the whole fabric of credit of the 
 Dominion. But as the banks are amply able to meet 
 every legitimate demand upon them for coin, the 
 enforcing enactment is practically inoperative so far 
 as the people are concerned, since no judicious 
 banker would force these notes upon a customer 
 who needed coin ; and it is to intelligent and upright 
 banking that Canada owes her great advantage in 
 the possession of an ample currency which is at once 
 safe, stable, and elastic. The large measure of indi¬ 
 viduality and freedom conferred by the Banking 
 Act of Canada has evidently been inspired by 
 bankers, as the government’s own monetary methods, 
 if carried to their logical conclusion, are calculated 
 to undermine credit. 
 
 Canada’s monetary system is a complete refutation 
 of the argument so persistently advanced among us 
 that there is not enough gold in the world to supply 
 the money needs. The per-capita statisticians would 
 
104 The Natural Law of Money 
 
 have us believe that we are helplessly dependent up¬ 
 on the volume of the precious metals for our medium 
 of exchange, and yet here is a country that main¬ 
 tains a paper circulation of $16.40 per head on a 
 metallic base of only $2.64 per head, without the 
 least strain to her credit 1 ; while our paper-money 
 averages $16.40 per head with a metallic base of 
 $11.36 per head, $7.20 of which is silver and $4.16 
 gold. 2 In computing this ratio of $11.36 to $16.40, 
 
 1 The following figures, taken from the official statement of the 
 Canadian government for the month ending July 31, 1893, form the 
 basis, in regard to Canada, of these computations : 
 
 Authorized government note issue. $20,000,000 
 
 Paid up banking capital against which notes may be 
 
 issued. 61,954,773 
 
 Total note issue. $81,954,773 
 
 Specie held by the government. $ 6,863,123 
 
 Specie held by the banks. 6,369,996 
 
 Total specie. $13,233,119 
 
 The population of Canada is computed at five millions. 
 
 2 The following figures, taken from the official statement of the 
 United States Treasury for August 1, 1893, form the basis, in regard 
 to the United States, of these computations : 
 
 Silver certificates... 
 
 Treasury notes.. 
 
 Greenbacks. 
 
 Gold certificates.... 
 National-bank notes 
 
 Total note issue 
 
 $ 333 , 031,504 
 
 148,286,348 
 
 346,681,016 
 
 87 , 704,739 
 
 i 83 , 755 U 47 
 
 $1,099,458,754 
 
 Gold coin in Treasury..$103,363,626 
 
 Gold bullion in Treasury. 83,450,336 
 
 Gold held by national banks. 91,764,347 278,578,309 
 
 Standard silver dollars in Treasury... 363,108,461 
 
 Silver bullion in Treasury. 119,277,735 482,386,196 
 
 Total specie. $760,964,505. 
 
Monetary System of Canada 105 
 
 silver is taken at its nominal value ; but as the object 
 is to show the very large proportion of metallic 
 money used by us as contrasted with the proportion 
 used by Canada, we must reduce our silver to its 
 gold basis of sixty cents to the dollar, in order to 
 make a uniform basis for comparison. Our ratio 
 would then be $8.48 of metal to $16.40 of paper, 
 as contrasted with the Canadian ratio of $2.64 of 
 metal to $16.40 of paper. In computing the amount 
 of metallic money in each country, only that is taken 
 into the account which is held by the government 
 and by the note-issuing banks of each country. 
 
 The fact that Canada’s medium of exchange is 
 maintained at a proportionate cost of two-thirds less 
 than ours costs us, is evidence in itself that her mone¬ 
 tary system is in advance of ours ; for, as has already 
 been shown, the trend of improvement in money is 
 now wholly towards the enlargement of credit and 
 the relative lessening of the use of the precious 
 metals. As the proportion of metallic money to 
 credit-money is three times greater in the United 
 States than it is in Canada, this difference against us, 
 amounting to $378,673,350, may be regarded as just 
 
 The amount of gold held by the national banks is from the report 
 of the Comptroller of the Currency for the year ending October 31, 
 1893. 
 
 The population of the United States is estimated at sixty-seven 
 millions. 
 
io6 The Natural Law of Money 
 
 so much productive capital abstracted from industry 
 and converted into dead capital, for no one can doubt 
 our ability to maintain as large a proportion of credit- 
 money as Canada, if we will but adopt the proper 
 
 legislative measures. The abstraction of this large 
 sum from productive industry would be justified 
 if it contributed to enhance the efficiency of our 
 medium of exchange ; as it does nothing of the kind, 
 there is no way in which it can make the least return 
 to the people from whom it is taken. 
 
 As all our paper-money is either government or 
 national-bank money—and this latter is practically 
 a government issue,—it does not come into com¬ 
 mercial use until it is weighted with its nominal 
 value in gold ; whereas sixty-eight per cent, of the 
 paper-money of Canada in commercial use represents 
 credit. In so far as the business interests of our 
 country are concerned, we have no credit-money, 
 and the only possible advantage derivable from the 
 use of paper-money is that it is more convenient 
 than the metals. Whatever profit accrues from the 
 issuance of paper-money, over and above the amount 
 of metal held for its redemption, goes to the govern¬ 
 ment, and operates as a direct tax upon the medium 
 of exchange, and an indirect tax upon productive 
 industry. As no bank in the United States has, 
 
Monetary System of Canada 107 
 
 aside from its deposits, a dollar of paper-money 
 which has not cost a dollar in gold or its equivalent, 
 it cannot afford to keep such money idle; whereas, 
 out of the total issue of eighty-two million dollars 
 of paper-money in Canada, the banks hold about 
 fifty-six million dollars, which represent credit, and 
 which they can issue to their customers as required, 
 or can carry in their vaults without cost to either 
 bank or customer. 
 
 A comparison of the practical working of the two 
 banking systems, as applied to agricultural industry, 
 will illustrate more clearly the superiority of the 
 Canadian system. Our western farmers and southern 
 planters, as a rule, have not sufficient capital to carry 
 on their work throughout an entire year without aid ; 
 they are consequently dependent for supplies be¬ 
 tween spring and autumn upon the local store¬ 
 keeper and the local banker. Few of them indeed 
 can get through the winter without using their 
 credit; but when autumn comes and they have 
 marketed their crops, there is an all-round settling 
 of accounts. This necessarily calls for a much larger 
 amount of money in the autumn than is required at 
 any other time of year. As these conditions are 
 fixed by the seasons, it becomes necessary that all 
 business dependent upon or accessory to agriculture 
 
io8 The Natural La fa of Money 
 
 shall be made adaptable to it. The country store¬ 
 keeper, recognizing this fact, brings his business into 
 conformity with it, and so does the local banker, as 
 far as he can ; but as he cannot exercise his func¬ 
 tions with the same freedom as the store-keeper or 
 the Canadian banker can, his ability to serve his cus¬ 
 tomers is greatly curtailed. The Canadian banker 
 makes his own paper-money, which, though in the 
 form of bank-notes, because of their greater con¬ 
 venience, is nothing more than checks upon his own 
 bank ; our local banker is compelled to get his money 
 from the national government, and pay therefor 
 its full denominational value in gold ; and this is the 
 case whether his bank is national or state. 
 
 The effect of this difference is that it costs the 
 Canadian banker little or nothing to keep an ample 
 supply of money on hand awaiting the contingent 
 needs of his customers, while it costs our banker the 
 full average rate of interest on the money so held ; 
 he is therefore obliged to keep his lendable money 
 constantly employed in order to make it pay. Hence, 
 
 when the demand for money is light at home, he 
 sends his surplus to his corresponding bank say in 
 Chicago or New York, where he is allowed interest 
 upon it at a rate of a third to a half the average pre¬ 
 vailing rate. Thus it is that the money of the in- 
 
Monetary System of Canada 
 
 109 
 
 terior drifts to the great commercial cities, where it 
 can always find employment in speculative ventures, 
 if not in legitimate commerce. A million bushels of 
 wheat transferred speculatively ten times will lock 
 up in margins as much money as the wheat is worth ; 
 and when these transactions are all liquidated, the 
 result in wealth production to the nation at large is 
 nil. 
 
 But it is not necessary to own wheat in order to 
 sell it speculatively ; all that is needed is money. It 
 would tax the ingenuity of man to make a money 
 less fitted for industrial purposes and more easily 
 drawn into these whirlpools of unwholesome specula¬ 
 tion than our government money is. A money that 
 has no local ties, no specific qualifications for definite 
 work, but that is a “ Jack of all trades,” will always 
 elude supervision ; and all paper-money, to be indus¬ 
 trially productive, must have personal supervision. 
 But as this implies an acquaintance with the workers 
 and a knowledge of their work, the area of super¬ 
 vision is naturally circumscribed by individual limita¬ 
 tions. While the bankers of the great cities where 
 this money accumulates may, from their more com¬ 
 manding position, have a larger general knowledge 
 of the monetary needs of the country than the in¬ 
 terior banker can have, in the essential details of 
 
no The Natural Law of Money 
 
 lending money they are equally confined to their 
 own field of supervision. What, for example, can a 
 New York banker know of the qualities of the local 
 commercial paper and collateral # that is brought to 
 him for re-discount by a Georgia banker? Practi¬ 
 cally nothing ; he has to take the word of the Georgia 
 banker, and however highly he may estimate that 
 word, his mind is still impressed with the difference 
 between a loan made at home upon his own judg¬ 
 ment and knowledge, and one made at a distance 
 upon the judgment of another ; and this risk, whether 
 real or imaginary, not only limits the disposition to 
 lend, but raises the rate of interest charged. 
 
 The centralizing tendency of our money operates 
 as another disadvantage to the rural banker by re¬ 
 ducing his deposit account (a chief source of profit 
 to the metropolitan banker), thus leaving the former 
 mainly dependent for his profits upon the rate of 
 interest charged. Hence we find that the Dakota 
 farmer pays two to three per cent, per month for the 
 money he borrows, while the Manitoba farmer pays 
 three-quarters of one per cent. Notwithstanding the 
 fact that our banks have relatively more capital than 
 the Canadian banks have, they are not able to fully 
 meet the legitimate demands made upon them. 
 Dotted all over the West and the South are these in- 
 
Monetary System of Canada 
 
 111 
 
 dustrial banks at local centres, with veritable capital 
 and under excellent management, which are yet un¬ 
 able to supply money that they would gladly lend if 
 they could. Yet in the eastern States there is a preva¬ 
 lent belief that the call for more money which comes 
 from the West and the South, comes only from those 
 who have nothing to give in return for it; for it is 
 said : “ As money is always seeking a level, by flowing 
 from points where it is in excess to points where it 
 is in demand and can find safe employment at higher 
 rates of interest, any one in good credit, or who has 
 the proper security to offer, can always borrow what 
 he needs.” Under a natural monetary system this 
 would be so, but under our present artificial system 
 it is not so. What better collateral security can 
 there be than the products of the farm and of the 
 plantation, and who more competent than the local 
 banker to judge of the character of such security? 
 Give him the same freedom as the local store-keeper, 
 and he will serve his customers with the same thor¬ 
 oughness ; it will not then be a question with the 
 farmer as to how he shall get money to carry on his 
 legitimate undertakings, but there will be a compe¬ 
 tition among bankers to serve him. 
 
 The situation in Canada to-day is that every legiti¬ 
 mate demand for money is supplied. To be assured 
 
112 The Natural Law of Money 
 
 of this fact it is not necessary for us to know the 
 details of the actual transactions, for conclusive evi¬ 
 dence is furnished in the published statements of 
 the banks, which show that they have at all times a 
 surplus of bank-notes in their vaults awaiting employ¬ 
 ment. While money is just as available at one point 
 of the Dominion as at another, the rate of interest, 
 although not the same at all points, is uniformly 
 steady, and the difference in rate between one point 
 and another is due to the difference in cost of con¬ 
 ducting banking at different points. The merchants 
 of Winnipeg borrow money at about the same rate 
 of interest as is paid by the merchants and manufac¬ 
 turers of Montreal, the financial centre; and the 
 farmers of the far West pay about the same rate 
 that is paid by the farmers of Ontario. The import¬ 
 ance of an ample supply of money and a stable rate 
 of interest, in encouraging and aiding industrial pro¬ 
 ductiveness, can hardly be over-estimated ; for obvi¬ 
 ously no intelligent person will risk his credit and 
 property in industrial operations that cannot pos¬ 
 sibly yield him any return within a year, unless he 
 can know beforehand where he is to get his money 
 and how much he is to pay for it. 
 
 But how can any one know anything, about the 
 future of our money ? It may have the intrinsic 
 
Monetary System of Canada 113 
 
 value of gold to-day, and before the year expires be 
 down to the price cf silver; it may be abundant at 
 six per cent, per annum when a business operation 
 is undertaken, and be scarce at thirty-six per cent, 
 before it is closed. These are the conditions that 
 environ the workers, the wealth-producers of the 
 United States, and they are the result of the gov¬ 
 ernment’s undertaking to be banker-in-chief for the 
 nation. The demoralizing tendency of such condi¬ 
 tions, which stimulate speculative ventures and dis¬ 
 courage legitimate industry, needs not be pointed 
 out. Nor need we be surprised that the farmers and 
 planters are impressed with the belief that there is 
 a moneyed conspiracy against them. In the interest 
 of the whole country, is it not well that there should 
 be a “greenback craze,” a “silver delusion,” and a 
 continued agitation, until the most productive of all 
 our industries is relieved from the incubus of a false 
 monetary system, since these are the surest signs 
 that there is an evil that needs correction ? 
 
 If any more evidence is needed to prove the in¬ 
 ability of our local banks to perform their proper 
 functions, we have it in the fact that our western 
 grain dealers are obliged to resort to Canadian banks 
 for monetary aid. It is estimated that in the autumn 
 
 of 1891 more than three million dollars were bor- 
 8 
 
114 The Natural Law of Money 
 
 rowed from these banks for use in Minnesota and 
 Dakota alone. It may be said that the grain-dealers 
 resort to the Canadian banks only because they can 
 borrow at a lower rate of interest ; but is not this of 
 itself a full concession of our contention that our 
 local banks are unable to perform their functions ? 
 It is solely because they are deprived of the right to 
 issue their own notes on the security of the grain, as 
 the Canadian banks do, that they are unable to com¬ 
 pete with these banks. On what better security 
 could paper-money be issued than on a bill of lading, 
 or a warehouse receipt with accompanying insurance 
 policy, which is the collateral given by the grain- 
 dealer ? The Canadian banks do not send gold into 
 the United States to perform these services; they 
 are able to come to our aid simply because their im¬ 
 plement for effecting exchanges is of higher refine¬ 
 ment than ours, and it is so by reason of its having 
 less gold in its composition and more intelligence 
 and integrity. 
 
 The idea which prevails among us that in some 
 exceptional sense Canada is backed up by British 
 capital, ignores the established principle that 
 capital is not limited by nationality. The motives 
 that move English capital are a sense of security 
 and a higher rate of interest or of profit than 
 
Monetary System of Canada 115 
 
 can be realized at home, and it will come to the 
 United States on these terms just as readily as it 
 will go to Canada. It was reported last July (1893) 
 that Canadians “ loaded with English capital ” had 
 appeared at Duluth as buyers of grain, when prices 
 had broken in consequence of the hoarding of our 
 currency. Now, we venture the assertion that if, as 
 stated, Canadians went to Duluth to buy grain, they 
 employed neither English capital nor English credit. 
 A sight draft of the Bank of Montreal on its repre¬ 
 sentative in New York for the purchase money would 
 be a satisfactory form of payment to the seller of 
 the grain ; we may suppose the grain then shipped 
 via the Lakes and St. Lawrence River to Liverpool, 
 where it would be immediately convertible into 
 English money; the bank meantime being in secure 
 possession of the grain by bill of lading. But the 
 bank could realize upon the grain before it arrived 
 in Liverpool; it could authorize its agent in New 
 York to draw a sixty-days’ bill of exchange on its 
 agent in London, and this it could convert imme¬ 
 diately into cash in New York, even in time to pay 
 the draft from Duluth. It will be seen that the only 
 capital that appears in this transaction is the grain 
 itself, the credit of the Bank of Montreal being the 
 medium of exchange. 
 
CHAPTER VI. 
 
 MONEY, CAPITAL, AND INEREST. 
 
 ) 
 
 M ONEY is not capital, nor is capital money, 
 though these words are often, in common 
 parlance, used interchangeably ; but there is a marked 
 difference in their signification which should not be 
 lost sight of. Strictly speaking, money is never any¬ 
 thing but the common mediurh oTexchange, whereas 
 capital is an investment, producing some income. 
 The term capital is commonly applied to the kind of 
 investment known as personal property, such as the 
 bonds or stock of railroads, or the capital stock of a 
 business, which may include the money in use at the 
 time and the building in which the business is con¬ 
 ducted ; but the name is not applied to land, nor to 
 real estate, nor to money in general, though it may 
 be applied to metallic money. When we speak of 
 a capitalist, the idea conveyed is not merely of a 
 man of wealth, but of one who has his wealth so at 
 command that it is readily convertible into money, 
 
 116 
 
Money, Capital, and Interest 117 
 
 or into other forms of wealth through the agency of 
 money. It is doubtless because of the intimate 
 relationship between capital and money, and the 
 mobility of both, that the words overlap occasionally, 
 even when their significance is understood ; but the 
 distinction between them becomes important when we 
 inquire into the real purport and function of money. 
 
 Let us suppose that A has capital in England 
 which he finds he can invest more profitably in the 
 United States, and so concludes to transfer it from 
 England to this country. It is stock in a brewery, 
 paying him six per cent, per annum, and he finds he 
 can make a similar investment here that will pay 
 him nine per cent., so he sells his English stock, re¬ 
 ceiving English money therefor ; with this money he 
 buys a bill of exchange on New York, and with the 
 American money received upon it here he pays for 
 the American brewery stock. In this example, no 
 English money passes from England to the United 
 States—the thing transferred is capital. The Eng¬ 
 lish money which bought the bill of exchange re¬ 
 mains in England, and the American money which 
 paid for the American brewery stock remains in 
 America, and goes immediately back into circulation 
 to continue the performance of similar services: this 
 is all that money ever does. 
 
118 The Natural Law of Money 
 
 If, instead of a bill of exchange, gold had been 
 sent to America, it would have been a transfer of 
 capital. Bills of exchange, though not money in the 
 strict sense, may not inappropriately be termed the 
 paper-money of international commerce, as they per¬ 
 form in commercial dealings between different coun¬ 
 tries precisely the kind of service that paper-money 
 performs for people of one country. Drawn mainly 
 against exports of commodities which thereby be¬ 
 come security for the payment of these Bills in gold 
 (that metal being now the common measure of value 
 in international commerce) they economize the use 
 of gold, reducing the amount to one or two per cent, 
 of what would otherwise be required. 
 
 There is a limit to the amount of money that may 
 be used productively, but there is no limit to the 
 amount of capital that may be used productively ; 
 the use of money is limited by the number of trans¬ 
 fers to be made; the use of capital has no limit 
 short of the exhaustion of nature’s productive re¬ 
 sources—which is practically no limit. 
 
 In the old world a vast amount of floating capital 
 has accumulated from past ages; but in the United 
 States the supply of capital is insufficient for the 
 employment of all our labor and the development 
 of our immense natural resources ; the effect of these 
 
Money, Capital, and Interest 
 
 1 19 
 
 conditions is to make the normal rate of interest 
 much higher with us than it is in Europe. In lend¬ 
 ing money, the rate of interest is influenced, first, by 
 the degree of safety with which the loan may be 
 made, and secondly, by the scarcity or abundance 
 of money at the time the loan is made; but under¬ 
 lying these two changing conditions is the relative 
 proportion of capital to opportunities for profitable 
 investment of capital, which is the governing condi¬ 
 tion in fixing what may appropriately be termed the 
 normal rate of interest; this normal rate is the more 
 permanent rate which appears in first-class long-time 
 loans. These three factors—the sense of safety, the 
 supply of money as proportioned to the need for 
 money, and the supply of capital as proportioned to 
 the need for capital—dominate and govern the rate 
 of interest. 
 
 All attempts to regulate interest artificially by 
 legislative enactments which ignore these natural 
 conditions, are but interferences which tend to lower 
 the standard of business integrity, to advance and 
 make unsteady the rate of interest, and to limit 
 productiveness. 
 
 Every one knows that the rate of interest is 
 affected by a sense of safety or of distrust on 
 the part of the lenders and investors of money; 
 
120 The Natural Law of Money 
 
 but that it is differently affected by money and 
 by capital is not so generally realized. Indeed, 
 much of the confusion of thought in regard to money 
 and interest arises from the want of a clear percep¬ 
 tion of the differing functions of money and of 
 capital. It is a very common mistake to suppose 
 that more money is needed where it is really capital 
 that is needed. All peoples have it in their power 
 to supply themselves amply with a money of such 
 efficiency as is best adapted to the stage of their 
 industrial development; but the same cannot be 
 said of capital, for capital is wealth, and the accumu¬ 
 lation of wealth is a slow process even in a country as 
 rich in natural resources as ours. On the other hand, 
 money, as now constituted, may be nine-tenths credit , 
 and all that is required of a people in order to have 
 an ample supply of efficient money is an intelligent 
 recognition of this fact, and the formulation of its 
 monetary laws in accordance with it. 
 
 Now let us apply these principles to the question 
 of interest. If we may assume all transactions in 
 money to be equal in point of safety, it may be 
 stated as a general principle that the more permanent 
 or normal rate of interest is regulated by the volume 
 of capital, and that its temporary fluctuations are 
 produced by abnormal fluctuations in the volume of 
 
Money, Capital, and Interest 121 
 
 money: if the quantity of money in circulation is 
 less than is actually needed, the rate of interest will 
 be above the normal level; if it is more than is 
 needed, the rate will be below. Hence it follows as 
 a corollary that if a people can keep the volume of 
 its money just equal to the needs, the rate of interest 
 will be just equal to the normal rate. Hence it 
 follows also that temporary and violent fluctuations 
 in the rate of interest, which are so common with us 
 and so disturbing to individual enterprise, would not 
 occur if the volume of money were self-regulative, 
 as it would be if the supplying of the money were 
 left, as is the supplying of commodities, entirely to 
 individual action. 
 
 If we may now assume the disturbances to inter¬ 
 est, proceeding from abnormal fluctuations in the 
 volume of money, to be eliminated, the rate of 
 interest will then be affected only by capital, and 
 will be a steady, though not a stationary rate; it 
 will fall with the increase of capital and rise with its 
 decrease; but as changes in the volume of capital 
 take place slowly, changes in the rate of interest 
 will be correspondingly slow. The rate of interest 
 will not be the same in all parts of the country,, 
 because the proportion of capital to profitable in¬ 
 vestment of capital, is not the same everywhere; 
 
122 
 
 The Natural Law of Money 
 
 but as the movement of capital is always from points 
 of less profit to points of greater profit and equal 
 safety, there is a general and constant tendency 
 towards an equalization of the rate of interest; and 
 as in our country there is a constant accretion of 
 capital, the natural tendency of the rate of interest 
 is downward. 
 
 Another point to be considered in this connection 
 is that there is a fixed relation between the volume 
 of capital and the volume of money: where there is 
 much capital, more money will be needed than where 
 there is little, for the number of transactions will be 
 greater, and the volume of money must be exactly 
 sufficient to accomplish all the exchanges required, 
 or productiveness will be diminished; additional 
 money without additional capital can add nothing 
 to wealth production. 
 
 As an illustration, let us take the fixed property 
 of a railroad as analogous to capital, and its rolling- 
 stock as analogous to money. It will be readily 
 seen that when the number of cars is exactly equal 
 to the traffic, the earning power of the road, in so 
 far as it is dependent upon car equipment, is at its 
 maximum. Similarly, when money is exactly equal 
 to the exchanges to be made, the earning power of 
 capital, in so far as it is dependent upon money, is 
 
Money, Capital, and Interest 
 
 123 
 
 at its maximum. What would be thought of a rail¬ 
 road company that should increase its car equip¬ 
 ment beyond the possible requirements of its traffic ? 
 Yet this is precisely the character of our work in 
 enlarging the volume of money regardless of capital; 
 nay more, to further this purpose we have abstracted 
 an immense amount of capital from productive in¬ 
 dustry, thus at one stroke increasing the volume of 
 money and lessening the possible need for it; by so 
 doing we have placed ourselves in the position of a 
 railway company that sells a portion of its road-bed 
 in order to buy an excess of rolling-stock. 
 
 By making a money of doubtful stability, we 
 drive capital away from our country, because with 
 an indefinite measure of values it is impossible for 
 foreign capitalists to calculate the outcome of their 
 investments here. If Congress should enact that 
 twenty inches shall be the equivalent of thirty-six 
 inches, so that measurements made by a yard-stick 
 of either length would be an equivalent legal tender, 
 such an act would be no more absurd than the 
 monetary law which declares a silver dollar to be the 
 equivalent in value of a gold dollar. Definite stand¬ 
 ards of weights and measures are absolutely essen¬ 
 tial to trade and commerce, and a definite money- 
 measure is equally so. 
 
124 The Natural Law of Money 
 
 Within the twenty years following the close of our 
 civil war we had a remarkable example of the bene¬ 
 ficial effects produced by the introduction of foreign 
 capital into a country. Our government having estab¬ 
 lished its power to maintain itself, had inspired the 
 world with confidence in us, and this confidence was 
 reinforced and our credit greatly strengthened by 
 the Act of January 14, 1875, which authorized the 
 resumption of specie payment on January 1, 1879. 
 Capital began to come to us soon after peace was 
 restored, but after the passage of the Resumption 
 Act an increasing inflow gave decided impetus to all 
 our industries; this was more especially manifested 
 by the yearly increase in railway mileage. The 
 number of miles of railway built in 1875 was seven¬ 
 teen hundred and eleven, which was nearly doubled 
 in the following year, and in the year appointed for 
 resumption there were built four thousand seven 
 hundred and forty-six miles, while in 1882, the 
 increase in construction had risen to eleven thousand 
 five hundred and sixty-eight miles. Resumption 
 had actually taken place in 1878 ; the mere announce¬ 
 ment of our intention to put our money on a sound 
 metallic basis had brought capital to us in such 
 abundance that resumption was not only made easy, 
 but the normal rate of interest was reduced. The 
 
Money, Capital, and Interest 
 
 125 
 
 normal rate in the city of New York, which had 
 formerly been six per cent, per annum, dropped to 
 four per cent., and a corresponding decline took 
 place in other parts of the country. This remark¬ 
 able reduction in the rate of interest occurred within 
 a space of two or three years, and is explainable 
 only on the ground of a large influx of foreign 
 capital, as it was not possible for us to have created 
 in so short a time sufficient new capital to produce 
 so great a change. 
 
 The year of actual resumption (1878) was also the 
 year in which we entered upon that anomalous silver 
 legislation, which has since so greatly disturbed the 
 confidence inspired by the Act of Resumption; but 
 as in that year the market value of silver was not 
 much below our legal ratio, and as the decline that 
 had taken place was supposed to be temporary, 
 being attributed mainly to the action of Germany 
 in demonetizing silver in 1871, the evil effect of that 
 legislation was not immediately felt. Not until it 
 became apparent that silver was declining from 
 increasing production, as well as from demonetiza¬ 
 tion, was confidence at all disturbed, and even then 
 no serious apprehension was felt, because as yet 
 nothing had occurred in the history of the United 
 States to justify the least fear in any mind that our 
 
126 The Natural Law of Money 
 
 government would permit a law to continue in force 
 which endangered the stability of its money. 
 
 In view of the discredit into which our country 
 has recently been brought by mistaken legislation in 
 reference to silver, it is of the first importance that 
 every American should understand and appreciate 
 that the United States, from its beginning as a 
 nation down to the present silver legislation, has 
 held a record for monetary integrity not surpassed 
 by that of any nation in the world. In the found¬ 
 ing of the Republic and in the framing of the 
 Federal Constitution, there was no subject that 
 received more solicitous consideration than that of 
 making our measure of values honest and stable. 
 Impoverished as the country was at that time by the 
 drain of along war, no hint of compromising this prin¬ 
 ciple was ever uttered in the national councils; and 
 as the foundation was laid, so the superstructure 
 was built. 
 
 When in 1834 the legal ratio of silver and gold 
 was changed from fifteen to one to sixteen to one, 
 the object was to restore gold to the circulation, as 
 it was undervalued in the first ratio and had been 
 practically out of circulation since 1792. Although 
 under the ratio of sixteen to one the difference in 
 the market value of the two metals was but slight. 
 
Money, Capital, and Interest 
 
 127 
 
 this difference had nevertheless the effect of dis¬ 
 placing the undervalued metal, which in this case 
 was silver. There is but one way in which the 
 two metals can be held in circulation at a parity 
 under any ratio that may be adopted, and that is 
 to close the mints to the free coinage of the cheaper 
 metal and make it redeemable in the other. In 
 referring again to this phase of our subject, our ob¬ 
 ject is to call attention to the fact that in changing 
 the legal ratio of the precious metals in 1834, due 
 regard was paid to preserving the stability of the 
 national money. Although in adjusting the ratio 
 (which is always difficult to do with values that are 
 never stationary), silver went out of circulation and 
 gold came in, the change was so gradual that it did 
 not sensibly affect the monetary standard. 
 
 Clearness of definition as to the measure of values 
 has characterized the monetary legislation of the 
 United States down to the time that the silver 
 question made its appearance in politics. Even the 
 civil-war period of specie suspension cannot be 
 regarded as an exception to this rule; the issuance 
 of the greenbacks did not demonstrate that the 
 national sense of honesty was growing weak, for 
 there was no indefiniteness in the legislation that 
 put that money into circulation; the terms of re- 
 
128 The Natural Law of Money 
 
 demption were plainly stated on the bills themselves, 
 so that the holder was just as competent to judge 
 of their character and value as was the government 
 that issued them. Nobody had occasion to ask, as 
 is now asked about our silver money: What is the 
 purpose of the government in reference to it? 
 Immediate redemption was not then deemed pos¬ 
 sible, but all means were used that were practicable 
 under the stress of civil war to make a stable money. 
 It was made exchangeable for government bonds 
 paying six per cent, interest in coin, and this feature 
 of the Act of 1862 testifies to the honesty of its 
 framers, and to their intelligent solicitude that the 
 money should remain in circulation no longer than 
 the exigency required. Their mistake was in making 
 the greenbacks a legal tender, though they doubt¬ 
 less believed, as we do not, that this feature would 
 contribute to promote the stability of the money. 
 
 In order properly to compare the Greenback Act 
 of 1862 with our late silver legislation, we must keep 
 distinctly in mind that the act was passed as a 
 means of raising money to meet the extraordinary 
 expenditures of the war. There was no pretence of 
 making a better money than we already had ; it was 
 in fact a borrowing act, and was not regarded by its 
 authors as in any true sense a monetary act, nor 
 
Money, Capital, and Interest 
 
 129 
 
 was there any misunderstanding at home or abroad 
 as to its character in that respect. Nevertheless 
 this act was the beginning and the source of the 
 monetary delusions that subsequently took posses¬ 
 sion of the public mind—delusions which gave us a 
 Greenback Party, followed in turn by a Silver Party ; 
 but for this misdirection of the public thought, the 
 framers of the act cannot be held responsible; they 
 realized fully the imperfect character of the money 
 they were issuing, and in making it exchangeable 
 for government bonds they did the best that could 
 be done to secure its retirement from circulation so 
 soon as the people should be able to replace it by a 
 more stable and efficient money. That it was a 
 serious mistake to make the greenbacks a legal 
 tender, we need not doubt, for it could have no 
 other effect than to lower the credit of the United 
 States, and to prompt the withdrawal of capital 
 from the country. We may well believe that if the 
 money had rested solely on the credit of the nation, 
 it would not have declined to thirty-five cents on 
 the dollar, as it did in July, 1864. The issuance of 
 mandatory money is in its essence a declaration of * 
 bankruptcy ; how then can it strengthen the borrow¬ 
 ing power of a state ? 
 
CHAPTER VII. 
 
 MANDATORY MONEY AND FREE MONEY. 
 
 T HERE 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 appre¬ 
 ciate 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 Constitu¬ 
 tion. It was the borrowing clause of the Con¬ 
 stitution that elicited debate; there was but little 
 difference of opinion as to the adjustment of the 
 money clauses; the coinage and the general regula¬ 
 tion of money were reserved to Congress, and the 
 
 130 
 
Mandatory Money and Free Money 131 
 
 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 Conven¬ 
 tion, and we must look at it from their standpoint 
 if we would understand their action. They doubt¬ 
 less 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 Constitu¬ 
 tion 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 
 
132 The Natural Law of Money 
 
 was that right that was stricken from the Constitu¬ 
 tion,—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 man¬ 
 datory 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 
 
Mandatory Money and Free Money 133 
 
 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 control¬ 
 ling 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 man¬ 
 datory 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 
 
134 The Natural Law of Money 
 
 logically to the expulsion of one metal from mone¬ 
 tary 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 delu¬ 
 sive 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 effi¬ 
 ciency 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 govern- 
 
Mandatory Money and Free Money 135 
 
 ment 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.” 1 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 com¬ 
 merce 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 con¬ 
 ception 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 
 
 1 Thomas Paine. 
 
 1 
 
136 The Natural Law of Money 
 
 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 enact¬ 
 ment 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 
 
Mandatory Money and Free Money 137 
 
 industries would doubtless greatly profit thereby. 
 It is through individual selection, individual enter¬ 
 prise 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. Indus¬ 
 trial implements vary, and individual opinions may 
 differ as to their respective merits, but the final 
 test of each implement is its adaptability for pro¬ 
 ductiveness, 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 par¬ 
 tially 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 mis¬ 
 taken, are not crimes to be punished nor vices to be 
 prohibited by coercive legislation. They stimulate 
 enterprise, and whatever errors of judgment they 
 
138 The Natural Law of Money 
 
 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. Profes¬ 
 sedly 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 prac¬ 
 tically 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 func¬ 
 tions 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 
 
Mandatory Money and Free Money 139 
 
 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 displace¬ 
 ment, 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 formu- 
 
140 The Natural Law of Money 
 
 late, it has been a condition of industrial civilization 
 that no advance is possible without a medium of 
 exchange, and this condition applies to man indi¬ 
 vidually, 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 circu¬ 
 lation 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 establish¬ 
 ment must necessarily be of slow growth. 
 
Mandatory Money and Free Money 141 
 
 Hence the law of natural displacement is a suffi¬ 
 cient 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 obstruc¬ 
 tion 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 legisla¬ 
 tion and let both metals circulate independently. 
 With such freedom the two metals would have an 
 even chance of proving, through individual selec¬ 
 tion, 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 
 
142 The Natural Law of Money 
 
 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 con¬ 
 tinue 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 refine¬ 
 ment of commercial methods, even gold is found to 
 be cumbersome, and every expedient that banker and 
 merchant can devise is adopted to avoid the neces¬ 
 sity of handling it. How foolish it is then to sup¬ 
 pose 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 
 
Mandatory Money and Free Money 143 
 
 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 civil¬ 
 ization forward that we can be brought to compre¬ 
 hend the profounder meanings of the Silver move¬ 
 ment, 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 stand¬ 
 ard. 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 mar¬ 
 ketable 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 
 
144 The Natural Law of Money 
 
 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, incon¬ 
 sistent 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 under¬ 
 stood that the forcible injectment of silver into the 
 currency would ultimately expel gold from the cir¬ 
 culation. This monetary law is so firmly estab¬ 
 lished, and is so generally understood and accepted, 
 that it is incredible they would seek shelter from 
 responsibility on the plea of ignorance of its work¬ 
 ings. 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 com¬ 
 mitted 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 
 
Mandatory Money and Free Money 145 
 
 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 imple¬ 
 ment, 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, with¬ 
 out 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 ob¬ 
 jection 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 
 10 
 
146 The Natural Law of Money 
 
 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, a^ 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 in¬ 
 dustrial 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 
 
Mandatory Money and Free Money. 147 
 
 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 doubt¬ 
 less has also some elements of sordid selfishness— 
 what popular movement has not ? It may even have 
 individuals in the ranks of leadership who, for per¬ 
 sonal 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 Sil¬ 
 ver movement, we shall be better able to appreciate 
 its earnestness and force if we will look at the sub¬ 
 ject from the Silverites* standpoint, though we can¬ 
 not agree with them that there is not gold enough in 
 the world for monetary requirements, and that, in 
 
148 The Natural Law of Money 
 
 consequence of the supposed scarcity, a gold stand¬ 
 ard gives to the East a monopolistic power over the 
 West and South ; nor, that it is because of this sup¬ 
 posed 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 com¬ 
 position 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 interde¬ 
 pendent, 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 
 
Mandatory Money and Free Money 149 
 
 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 want¬ 
 ing 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 measure¬ 
 ment of cloths, and thus save time and labor. Why 
 then have they not clearly demonstrated how time 
 and labor could be economized and productiveness 
 
150 The Natural Law of Money 
 
 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 demonstra¬ 
 tion 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 com¬ 
 monest 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 can¬ 
 not 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 
 
Mandatory Money and Free Money 151 
 
 should not forget that a whole generation of educa¬ 
 tion 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 ques¬ 
 tions. 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. 
 
 * 
 
CHAPTER VIII. 
 
 THE HOARDING PANIC OF JULY, 1893. 
 
 P ROBABLY most persons who were in the 
 United States in the summer of 1893 were 
 conscious that a great commercial crisis had arrived, 
 but many of them may not have realized that this 
 crisis included two distinct panics referrible to quite 
 different causes. The first of these occurred in May, 
 the second in July. The May panic was the culmi¬ 
 nation of a long-continued drain upon the capital of 
 the country by foreign investors who distrusted our 
 ability, under existing legislation, to maintain the 
 gold standard; there was no scarcity of money at 
 the time. Gold had already disappeared from 
 general circulation, and was paid out only at the 
 United States Treasury; but, notwithstanding the 
 withdrawal of gold, the money in circulation, had it 
 possessed the requisite elasticity, would have been 
 sufficient in quantity to effect all exchanges in all 
 
 152 
 
The Hoarding Panic of July, 1893 153 
 
 parts of the country. The July panic was quite a 
 different thing; it was occasioned by the hoarding 
 of paper-money, which reduced the quantity in circu¬ 
 lation far below the needs of the people. It is to 
 this second panic that we wish to call special atten¬ 
 tion, because it furnishes, on the one hand, a prac¬ 
 tical illustration of the inability of a government to 
 perform properly those functions of banking which 
 our government has assumed in undertaking to sup¬ 
 ply the medium of exchange, and because, on the 
 other hand, it illustrates the entire ability of the 
 people to properly provide such a medium for them¬ 
 selves. 
 
 The withdrawal of capital from the country and 
 of gold from the circulation, which preceded the 
 May panic, were the acts of individuals who foresaw 
 the disastrous consequences that would follow a sus¬ 
 pension of gold payment; but that the hoarding of 
 paper-money which brought on the panic of July 
 was the work of individuals who were ignorant of 
 monetary principles, is proved by the fact that the 
 money they hoarded, like all the money in general 
 circulation at the time, was liable to decline to the 
 silver basis. Greenbacks are payable in coin, and 
 coin means either silver or gold ; silver certificates 
 are payable in silver only ; Treasury notes are pay- 
 
154 The Natural Law of Money 
 
 able in either silver or gold ; and national-bank notes 
 may be redeemed in either greenbacks or Treasury 
 notes. These four kinds of paper-money, together 
 with the silver coin in current use, constituted the 
 entire circulating medium when the hoarding began, 
 and the Secretary of the Treasury could at his dis¬ 
 cretion have lawfully reduced it all to a silver basis. 
 
 This entire volume of currency was substantially 
 without elasticity; aside from the four and a half 
 million dollars’ monthly output required by the 
 Sherman Act, the paper-money could only be 
 legally expanded by the issuance of notes, to the 
 full amount of the authorized limit, by such national 
 banks as had not already their full quota in circula¬ 
 tion ; but to so expand it involved a preliminary 
 outlay of capital by these banks in the purchase of 
 government bonds, as well as a delay of from 
 twenty to thirty days before they could get their 
 notes from the government; indeed, many of the 
 applicants for notes did not receive them until after 
 the need for them had passed. The only other 
 available resource left open to the people in this 
 extreme emergency was the importation of gold; 
 to make any paper-money was a penal offence. 
 
 It should be borne in mind that there is, under 
 existing laws, a tax of ten per cent, upon every 
 
The Hoarding Panic of July, 1893 155 
 
 form of paper, excepting government notes and 
 national-bank notes, that may be used as a common 
 medium of exchange in any part of the country. 
 This tax is not levied for revenue, but is intended 
 to suppress the issuance of any and all paper-money 
 not directly authorized by Congress ; it is, there¬ 
 fore, in no proper sense a tax,—it is a fine. 
 
 In attributing the first panic to the withdrawal of 
 capital from the country, and the second to the with¬ 
 drawal of money from the circulation, it is under¬ 
 stood that these withdrawals were but the logical 
 sequences of that monetary legislation which was 
 the primary and sole cause of both panics. The 
 natural conditions were all favorable to industrial 
 growth and prosperity. 
 
 The withdrawal of capital from the country had 
 lowered prices, it had raised the normal interest rate, 
 it had checked new industrial undertakings, it had, 
 in short, lowered the productive powers of the nation, 
 thus compelling individual economy and lessening 
 the consumption of commodities : but although, in 
 consequence of the loss of capital, the industry of 
 the nation could move only on a lower plane of 
 activity, the industrial organism itself was still in¬ 
 tact. The hoarding of the currency, on the contrary, 
 threatened a disruption of this industrial organism, 
 
156 The Natural Law of Money 
 
 because any civilized community deprived of its 
 medium of exchange, is thereby carried back to 
 primitive barter. It is no more possible for a people 
 to maintain their industrial activities without a 
 medium of exchange, than it is for a farmer without 
 farming implements to till the soil and produce 
 crops. 
 
 The hoarding of paper-money doubtless began 
 some time before its disturbing effects were seriously 
 felt. Just before the July panic, it was noted by 
 New York city bankers that the volume of current 
 money in that city was shrinking at the rate of a 
 million dollars a day, and this startling fact made it 
 necessary for them to adopt measures to ward off the 
 danger that threatened them ; for although a bank 
 may be ever so solvent, it must, under a strict ruling 
 of our national banking laws, meet its demand obli¬ 
 gations in lawful money, or close its doors. Conse¬ 
 quently, although this hoarding originated with 
 persons who were ignorant of monetary principles, 
 it soon became necessary, as a matter of self-preserva¬ 
 tion, that banks and persons who perfectly under¬ 
 stood these principles, should refrain, as far as 
 possible, from paying out currency. The savings 
 banks were not only admonished to increase their 
 reserve money, but also to keep it in their own 
 
The Hoarding Panic of July, 1893 157 
 
 vaults, thus withdrawing from current use the money 
 usually kept by them in commercial banks. 
 
 The strain upon the industrial activities of the 
 nation caused by the hoarding, reached its greatest 
 tension in the third week of August. Congress had 
 then been sitting in extra session for about two 
 weeks, yet, notwithstanding the urgent appeals from 
 all parts of the country, that body had done nothing 
 to relieve the nation from its distress. The repeal, 
 on the first of November, of the silver-purchase 
 clause of the Sherman Act, served to allay the pub¬ 
 lic fear of gold suspension, and doubtless somewhat 
 checked the drain of capital from the country; but 
 before this repeal was enacted, and while it was still 
 the general belief that the clause would not be re¬ 
 pealed, industries that had suspended in consequence 
 of the hoarding, resumed operations solely through 
 individual action, and without the least aid from 
 Congress. 
 
 It may be doubted whether any people were ever 
 placed in a more trying and critical position by false 
 monetary legislation than were the people of the 
 United States during the months of July and August, 
 1893, and no person at all conversant with monetary 
 principles, noting what then took place, can fail to 
 be impressed by the promptitude with which the 
 
158 The Natural Law of Money 
 
 American people met the crisis and overcame it. 
 Without any warning or previous indication, the 
 mania for hoarding had broken out and had spread 
 like an epidemic all over the country. Mills and 
 factories with ample capital and in active operation, 
 for lack of current money had to shut down and 
 leave their work-people without employment; many 
 perfectly solvent banks had to close their doors; 
 railroad companies could not obtain the necessary 
 money to pay the wages of their workmen. 
 
 Within four weeks after the July panic, the want 
 of a medium of exchange had reduced the productive 
 activities of the nation about thirty per cent., This 
 was made evident by a thirty per cent, reduction in 
 the sum-total of bank clearings in those cities which 
 have the clearing-house system. There are eighty 
 such cities in the United States, and the sum-total of 
 the daily business transacted through the banks 
 of each city is each day brought into one set of 
 books, and the rise or fall of this sum-total, in all the 
 cities, indicates from day to day, with measurable ac¬ 
 curacy, the rise or decline of industrial activity in the 
 nation at large. 
 
 The country was only saved from a much more 
 serious crash by the action of the people who 
 promptly took into their own hands the supplying 
 
The Hoarding Panic of July, 1893 159 
 
 of a medium of exchange, ignoring the laws that 
 make such action a penal offence. Before the hoarded 
 money had returned to the circulation, mills and fac¬ 
 tories that had shut down, started up again with 
 a money of their own making, which their employes 
 were satisfied to take, and which the local store¬ 
 keepers freely received at its full face value in ex¬ 
 change for goods. To relieve their need of currency, 
 many banks imported gold at an extra cost; forty 
 million dollars were thus imported in August. The 
 bank clearing-houses in the different cities issued 
 certificates which were used among themselves in 
 lieu of legal money in making their exchanges. About 
 forty million dollars, in certificates of five thousand 
 dollars each, were issued by the New York Clearing- 
 House ; while in some other cities certificates for as 
 small a sum as ten dollars were issued, and these 
 passed into the current circulation of the localities 
 where they were issued. 
 
 The individual bank-check was, however, the chief 
 instrumentality of relief in this exigency; it became 
 for a time the common medium of exchange, as was 
 shown by the fact that legal money was bought and 
 sold as any commodity might be. As much as four 
 and a half per cent, premium was paid in check- 
 money for legal money. In these transactions, it 
 
160 The Natural Law of Money 
 
 was noted that the government paper-money some¬ 
 times brought half per cent, more than gold coin, 
 and this circumstance was interpreted by some as 
 evidence that silver money was preferred to gold, 
 but it had no significance beyond the fact that the 
 silver money was paper and the gold was coin. The 
 paper-money commanded the higher premium only 
 because it is more convenient to handle than coin. 
 The question of quality did not enter into these 
 transactions. What the buyers wanted was any¬ 
 thing that could legally perform the function of a 
 medium of exchange, and they were obliged to pay 
 a premium to obtain it because the government, in 
 its capacity of banker-in-chief, had failed to supply 
 this medium. 
 
 The hoarded currency began to return to the cir¬ 
 culation in September, and in October the banks 
 were amply supplied with legal money and were 
 paying it out freely. We cannot know to what 
 extent the extemporized money—such as bank- 
 checks, clearing-house certificates, pay-roll checks, 
 etc.—supplied the deficiency occasioned by the 
 hoarding of the legal medium of exchange, but we 
 do know that by the second week of October the 
 industry of the nation was no longer restricted by 
 the want of such a medium. The issuance of cer- 
 
The Hoarding Panic of July, 1893 161 
 
 tificates by the New York Clearing-House, which 
 began in the third week of June, had reached the 
 sum of $38,280,000 on August 29th, and this was the 
 largest sum outstanding at any one time, although 
 there had been a total issue of $41,490,000. The 
 cancellation of these certificates began in the second 
 week of September, and the last certificate was can¬ 
 celled on the first day of November. The date of 
 issuance of these certificates not only enables us to 
 fix definitely the duration of the hoarding period, 
 but also to fix the time at which the strain was 
 greatest; this was in August, as is confirmed by the 
 fact that the premium on legal money began to be 
 paid in the second week of August and ceased with 
 the first week of September. 
 
 Under a monetary system that would not interfere 
 with the freedom of metallic money or with the 
 freedom of banks in the exercise of their legitimate 
 function of issuing paper-money, and with laws that 
 would recognize the vital importance of personal 
 supervision and individual responsibility, this hoard¬ 
 ing panic would not have been possible; but under 
 our present system of government money, we are 
 constantly exposed to similar experiences. Nor 
 would this risk be lessened by a change of standard. 
 Whether silver or gold, or whether both these metals, 
 
162 The Natural Law of Money 
 
 formed the standard, government paper-money would 
 still have all its present defects; it would still have a 
 tendency to desert the agricultural districts for the 
 great cities, where it would stimulate unwholesome 
 speculation; it would still be monopolistic, in the 
 sense that it would confer upon wealth the power to 
 
 i 
 
 create a monopoly in money. A few rich men, by 
 withdrawing money from the circulation and locking 
 it up, can break prices and embarrass legitimate trade, 
 thus producing conditions in a given locality similar 
 to those produced by the hoarder in the nation at 
 large. 
 
 During the greenback period, this method of 
 manipulating the New York stock market was so 
 commonly practised that it came to be regarded 
 almost as a legitimate occupation. A clique of 
 moneyed men would sell a long line of securities, 
 then put away the greenbacks received for them, 
 and having by this means broken the market, they 
 would buy back their securities at the reduced rates, 
 —a transaction made possible by the lack of elas¬ 
 ticity inherent in government paper-money. 
 
 Money is so important a factor in the creation of 
 wealth that until we can have a paper currency with 
 sufficient elasticity, not only to respond promptly to 
 legitimate demands in every section of the country, 
 
The Hoarding Panic of July, 1893 163 
 
 but to return to its issuers for redemption when that 
 demand shall cease, we can neither know what the 
 productive powers of the nation are, nor can they 
 be developed to their fullest extent; but we shall 
 never have such a currency so long as the national 
 government continues to exercise the function it 
 has assumed of supplying the common medium of 
 exchange. 
 

I 
 
 INDEX. 
 
 A 
 
 Act of Resumption, 124 
 Adams’s, John, opinion of paper- 
 money, 86 
 
 B 
 
 Bank of England, America’s 
 model, 93 
 
 Bankers, the first, 64 ; duties of, 
 67-69 ; services of, 70 
 Banking, development of, 62 
 Bank-notes, bond security for, 66 ; 
 
 first issue of, 92 ; Canada’s, 101 
 Bank of North America, 92 
 Barter and trade, 3 
 Bills of credit first issued in Massa¬ 
 chusetts, 81 
 
 Bills of exchange, 77, 118 
 Bimetallic ratio, 53 
 Bi-metallism, 22, 32, 37, 47, 49 
 Bland Act, 48 
 
 Bullion market, the world’s, 38 
 C 
 
 Canada, bank-note issue of, 99; 
 metallic basis, 99 ; securities in, 
 
 165 
 
 for safe banking, 102 ; metallic 
 basis of, contrasted with that of 
 the United States, 105 ; banking 
 facilities of, in regard to agri¬ 
 cultural industries compared 
 with those of the United States, 
 107, 112 
 
 Canadian banks, why our western 
 farmers borrow money from, 
 
 114 ; illustration of, 115 
 
 Capital, not limited by nationality, 
 
 115 ; contrasted with money, 
 116, 118 ; insufficiency of, in 
 United States, 119 ; volume of, 
 as affecting the rate of interest, 
 120 ; beneficial effects of the 
 introduction of foreign, 124 ; 
 destructive results of the with¬ 
 drawal of, 155 
 
 Change of metallic standard, by 
 England, 32, 40 ; effects of a, 
 52, 54, 126 
 
 Clearing-house system, the, 69 ; 
 returns of, as a gauge of busi¬ 
 ness activity, 158 ; certificates, 
 161 
 
 Clipping of coin, 19, 25-30 
 
Index 
 
 166 
 
 Coinage, debasement of the, 19 ; 
 of metals, 15, 18 ; mutilation of 
 the, 24 
 
 Coined money, final test of, 9 
 Colonists of Virginia, 7, 8 
 Commodities as money, 2 
 Confidence as a factor, 79 
 Congress, the duty of, 50 
 Continental paper-money, 78 
 Credit as a factor, 60 ; beginning 
 of, 61-63 
 
 D 
 
 Demonetization of silver, 40, 89 
 Displacement, law of natural, 23, 
 59; two examples of artificial, 
 44 , 47 
 
 Dollar, silver and gold, 20, 47 
 
 % 
 
 E 
 
 Elasticity, 14; meaning of the 
 term, 73 
 
 Emerson, R. W., 16 
 F 
 
 Farmers’ Alliance, 8 
 France’s bi-metallism, 41 
 P'ree-metallism, 136, 139, 141 
 Full-weight and short-weight coin, 
 29 
 
 G 
 
 Gold and silver as money-metals, 
 comparison of, 11, 12, 59 
 Goldsmiths of London, 64 
 Gold standard, maintenance of 
 the, 50 
 
 Government, monetary functions 
 of, 36 
 
 Government money monopolistic, 
 162 
 
 Greenbacks, definite character of, 
 127 ; issuance of, a fiscal expe¬ 
 dient, 128 
 
 Gresham law, the, 23, 27, 136 
 Guinea, the, 31 
 
 H 
 
 Hamilton’s opinion of banking, 95 
 Hoarding panic, the, 153; effect 
 of, 155 
 
 I 
 
 Immediate redemption, principle 
 of, 92 
 
 Improvised money, 159 
 Indian money, 37 
 Individual, influence of the, on 
 money, 37, 71, 121, 153 
 Interest, beginning of, 61 ; normal 
 rate of, 119, 120 ; as affected by 
 the volume of capital and by the 
 volume of money, 121 
 Intrinsic value, 14, 33 
 
 J 
 
 Jefferson’s opinion of banking, 95 
 Jews as money-dealers, 28 
 Joint-stock banking, beginning of, 
 94 
 
 K 
 
 King’s money, 17 
 
Index 
 
 167 
 
 L 
 
 Latin Union, the, 41 
 Law of displacement, 48, 127, 
 141 
 
 Legal-tender money, 26, 34, 77 ; 
 of Canada, 101 ; paper-money 
 as, 135 
 
 Legislation, effects of false, 6; 
 relation of, to the interest rate, 
 119; in regard to silver, 126; 
 impossibility of introducing a 
 new money-metal by, 140 
 Limit of the output of metallic 
 money, 89 
 Locke, John, 19 
 
 M 
 
 Macaulay on the clipping and 
 sweating of coin, 19, 30 
 Mandatory money, 20, 23, 32, 129 
 Medium of exchange, 4, 160 
 Metallic money, 9 ; requisites of, 
 13, 15 ; indispensableness of, 71 
 Miners of California, 15 
 Monetary standard, effects of a 
 change of, 52, 57, 145 
 Money, natural law of, 1 ; de¬ 
 velopment and functions of, 2-5 ; 
 as a measure of value, 6 ; In¬ 
 dian, 7 ; tobacco as, 7 ; of 
 China, 10; of Rome, 10, 16; 
 mutilation of, 24, 30 ; amount 
 of, in the colonies, 83 ; monopo¬ 
 listic, 148, 162 ; improvised, 159 
 Mono-metallism, 33, 49, 139 
 
 N 
 
 National bank-notes, retirement 
 of, 46 
 
 Natural law of money, what is 
 meant by the, 1 
 
 Newton, Sir Isaac, 19 
 
 P 
 
 Paine’s, Thomas, opinion of paper- 
 money, 87 ; of legal-tender laws, 
 135 
 
 Paper-money, characteristics of, 38, 
 40; beginning of, 63-65 ; effi¬ 
 cient, 65 ; elasticity of, 73 ; 
 reason of the efficiency of, 74 ; 
 government, 75 ; Continental, 
 78 ; different kinds of, 80 ; fail¬ 
 ure of Continental, 82 ; laws 
 regulating, in the colonies, 84 ; 
 similarity of colonial paper- 
 money movement to our silver 
 movement, 86 ; constitutionality 
 of legal-tender, 130-133 ; four 
 kinds of, 153 ; tax on, 154 
 
 Per capita plan, 45 ; statisticians, 
 104 
 
 Profit as an incentive to industry, 4 
 
 Punishment for clipping coin, 27 
 
 R 
 
 Railway mileage, 124 
 
 Repudiation, one form of, 145 
 
 Revision of our monetary system 
 necessary, 51 
 
i68 
 
 Index 
 
 s 
 
 Savings banks deposits, 55 ; effect 
 of the hoarding on, 156 
 
 Sherman Act, the, 45, 47, 49, 143, 
 147 
 
 Short-weight and full-weight coin, 
 34 
 
 Silver, comparison of gold and 
 silver as money-metals, 11, 20; 
 the choice of backward nations, 
 89 ; demonetization of, 138 ; 
 movement, honest intent of, 140, 
 147 
 
 Slavery agitation, the, a hindrance 
 to economic education, 150 
 
 Stability an indispensable quality 
 of metallic money, 14 
 
 State bank money, improvement 
 in, 98 
 
 Sweating of coin, 19, 25 
 
 Tax, the, on paper-money, 154 
 Tobacco used as money, 7 
 Token-money, 10 
 Trade customs more powerful than 
 legislative enactments, 143 
 True money, 52 
 
 U 
 
 United States, bank, 95 ; record 
 for monetary integrity, 126 
 Universal money, 91 
 
 V 
 
 Values, no fixed measure of, 7 
 Virginia, colonists of, 7 
 
 W 
 
 Wampum, the Indian money, 7 
 Weighing money, 16 
 Wood’s patent, Wm., 84 
 
Date Due 
 
 
 
 
 
 
 
 
 
 
 
 
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 BOSTON COLLEGE LIBRARY 
 
 UNIVERSITY HEIGHTS 
 CHESTNUT HILL, MASS. 
 
 Books may be kept for two weeks and may 
 be renewed for the same period, unless re¬ 
 served. 
 
 Two cents a day is charged for each book 
 kept overtime. 
 
 If you cannot find what you want, ask the 
 Librarian who will be glad to lielp you. 
 
 The borrower is responsible for books drawn 
 on his card and for all fines accruing on the 
 same. 
 
 <f)