Popular Science Monthly/Volume 39/July 1891/A Coming Solution of the Currency Question
|A COMING SOLUTION OF THE CURRENCY QUESTION.|
IT is obvious that the present agitation for the free and unlimited coinage of silver derives its real strength mainly from a general feeling that the cheapening of the standard dollar would make it easier to pay off existing debts.
The great farmer class of the central States have seen their farms shrink in value fifty per cent in ten years have seen the value of the annual product steadily falling; and in thousands of cases have found a purchase-money mortgage, after being half paid off, still equal to the selling value of the farm. It is natural and inevitable that the causes of this calamity should be largely attributed to the classes who have during the same period been growing steadily richer, and that the great agricultural class should turn to a cheaper currency as a remedy for debts harder to pay.
This is no new phenomenon. English kings, centuries back, when encumbered with debt, solved their difficulties by the easy method of paying their creditors with half the amount of precious metal they had agreed to pay merely going through the formality of stamping the half by the same name as the whole had formerly borne. Thus the English pound sterling, like the French livre, is said originally to have been a pound weight (troy) of pure silver. Now it is equal to less than half that amount. Bluff King Hal the Eighth put two parts alloy to one part of silver into his coins, instead of one part alloy to twelve of silver, as had been and is now the rule. Anything to get the better of the Jew money-lenders was "all right." French, German, and other nations, including the Greeks and Romans, have had a similar and generally far worse history of their coinage.
While it must be admitted that the question of silver coinage, involving as it does the whole history of the production, use, and value of the precious metals, is a great and delicate and difficult problem, I believe there is no controversy about this proposition: that men should pay precisely what they contract to pay—should do just as they agree. The difficulty arises over the question as to what they really agree to do. If they agree to pay one hundred dollars, the question arises, What is a dollar? and the answer must be, in general terms, that it is a monetary unit, composed of a certain amount of gold or silver determined and defined by the United States Government. This leaves open the door for all sorts of honest differences of opinion as to what a dollar really is (since two kinds of dollars are in actual circulation), and also for a very wide field of action for the political power. Manifestly, if contracts were made to deliver a certain amount of gold or silver bullion, or a certain amount of wheat or railroad stock, of specified kind, the ambiguity would not arise.
This is the solution of the currency problem that the financial world, led purely by that enlightened self-interest which is at the bottom of most improvements, is preparing. Several copies of railroad mortgages, made within the last ten years from forms dictated at the great financial centers, lie before me, and in each of them I find the promise to pay "in gold coin of the United States of America of the present standard weight and fineness." For example:
The Toledo, Ann Arbor and North Michigan Railway Company. . . delivers "its certain ten thousand bonds for one thousand dollars each, . . . severally payable to the Farmers' Loan and Trust Company, or bearer, in gold coin of the United States of America of the present standard weight and fineness. . . with interest thereon. . . at the rate of five per centum per annum, payable in like gold coin."
No doubt there are hundreds of such mortgages, amounting in the aggregate to at least a billion dollars, and probably much more.
The highest court of the land has several times declared that such contracts must be performed literally. If a man promises to pay a certain amount of gold, he must do so, whether at the time of payment gold be worth more or less. In Bronson vs. Rodes, 7 Wall., 229, Chief-Justice Chase said: "It is the appropriate function of the courts to enforce contracts according to the lawful understanding of the parties. .. . The intent of the parties is clear. .. . A contract to pay a certain number of dollars in gold or silver is therefore in legal import nothing else than an agreement to deliver a certain weight of standard gold, to be ascertained by a count of coins, each of which is certified to contain a definite proportion of that weight. It is not distinguishable, as we think, from a contract to deliver an equal amount of bullion of equal fineness." The same doctrine has been established by the cases of Butler vs. Horwitz, 7 Wall., 259, and Tribelock vs. Wilson, 12 Wall., 687, the latter case being decided in 1871, Justices Miller and Bradley dissenting. The later case of Gregory vs. Morris, 6 Otto, 619, decided in 1877, without dissent among the justices, affirmed the case first cited. And while it is within the bounds of possibility that this doctrine may be upset in some period of great excitement, it is as solidly established as any doctrine can well be, having been affirmed by a large number of the Supreme Courts of the States as well as by the Supreme Court of the United States, which in such matters has supreme authority.
The currency problem has therefore been taken out of politics in a very large class of cases, and it can readily be done in nearly all. If bankers agree to pay their depositors in coin of a specified kind, say in gold coin of the present standard weight and fineness, regardless of legislation, they can readily make obligations due themselves likewise payable. Bankers, indeed, being subject to demand payments by their depositors, are really under a pledge to pay them in an undepreciated currency, since in the event of a debasement of the coinage the public would at once rush for the more valuable currency; and, as few bankers could stand such runs if made simultaneously on different banks, they are almost unanimously opposed to any change in the currency. The assertion may be ventured that the same causes that have led to the insertion of the above-cited provision in railroad mortgages will lead to similar contracts in other instances, particularly in the case of long-time, low-rate real-estate mortgages to insurance companies. While such changes can not come quickly, the pressure of interest and the universal desire for certainty will lead gradually to the adoption of expedients of the kind mentioned. If this kind of obligations should become common and of recognized validity, it is obvious that the political pressure, now so great, would be entirely neutralized, because few would have anything to gain from a debasement or enhancement of the value of the coined dollar.
If the conception of money as a commodity of convenient exchange should altogether supplant that of an artificial standard of value made by Congress out of its own will, the function of the Government would manifestly be reduced to certifying the weight and quality of precious metal in its coins. If it undertook nothing more than this (except the prohibition of coins not issued by itself), there would be nothing to prevent the free coinage of gold and silver, though a slight charge for the expense of coinage would be proper. And with practically free coinage for both metals it is submitted that the varying needs of the country for currency would be more perfectly met than in any other way, because with every "squeeze" in the money market bullion could at once be converted into coin, and vice versa. This, indeed, is already provided by section 3518 of the Revised Statutes, which says that the owner of gold or silver may have the same cast into bars with a stamp designating the weight and fineness thereof; but this statute, though no doubt of great use in facilitating the international exchange of bullion, is without the benefit it might have because the bars are not issued in sizes convenient for currency. It is the word "dollar" in existing contracts of indebtedness that prevents this; and if by such action as that above mentioned the word dollar shall be established as the present gold dollar, there would be nothing to prevent a healthy expansion of the currency by the free coinage of silver and the issuance of certificates for the same in any amount desired.
It would be an unspeakable blessing to have the currency question removed from the domain of politics. Questions of so complex a character are precisely those which the people are most ill qualified to decide. It is the interest of all that as few questions as possible having great financial importance should be decided by the political power; for therein lies the source of the corruption of the Government, the oppression of the people, the uncertainty of business, the possibility of panics, a stimulus of class prejudice and class-greed, and the obstruction of legitimate public business.
Mr. Warner—Corporation after corporation, savings-bank after savings-bank, life-insurance company after life-insurance company, have, since the passage of this last act, felt, not that they wanted anything to happen, but compelled, out of due regard for those whose money they were trustees for, to require that in all reinvestments and loans there shall be put a gold clause. That has actually taken place to such an extent that I believe that, before the time Congress meets in December, in the great money-centers this movement will have become general on account of this proposed legislation.
Mr. Bartine.—Do you know whether, after the passage of the former act, contracts were made payable in gold?
Mr. Warner.—Yes, sir; a good many were. . . .
- It is not easy to see how many of these companies could escape bankruptcy in the event of the free coinage of silver, if they were compelled to fulfill their contracts to pay in gold coin. While their earnings might rise somewhat from higher charges, it is hardly possible that they could earn thirty-three per cent more in that way—setting aside the likelihood of financial panic and business stagnation.
- For a collection of authorities, see 2 Daniel on Negotiable Instruments, sec. 1247.
- Hon. John De Witt Warner, before Congressional Committee, February 16, 1891.