[CHAPTER IX.]
A NEW MONETARY SYSTEM.
In the development of commerce from simple barter between savages up to its present complicated form and enormous volume, an evolution is apparent, similar in character to that which has taken place in the organic world. In both the change has been from the simple and homogeneous to the complex and heterogeneous. In both it has been a differentiation of the functions of the several parts, accompanied by an increased sensitiveness of the whole.
The primitive form of commerce, direct barter, may be compared to one of the lowest forms of animal life, in which all parts are alike mouth and stomach, and which if cut into pieces, will exist, severally, as a complete animal; while modern commerce, with its various parts, each with a separate function, and its highly sensitive organism, is more like a human being, in which each part is adapted to the work it has to perform and is dependent on all the others, so that the failure of any one to do its work cripples all the rest.
Just as the cutting or maiming of a low form of animal life is of little damage to it, while a far less injury, relatively, would kill or seriously maim a man, so an injury to commerce, that in a primitive form would amount to little, in our modern highly developed system would cripple it greatly. Money is one of the most important parts of our industrial system,—the very life-blood, in fact,—and if, for any reason, it fails to perform its functions fully and completely, the consequences are far more disastrous than they would have been under the more primitive systems of the past.
Along with the evolution of commerce in general has gone an evolution of money and the mechanism of exchange. As the volume of traffic grew larger, the use of the bulkier commodities as money was gradually abandoned for the more valuable metals. In time, even these became too bulky and inconvenient for use as a medium of exchange, and credit, in its various forms, now does the work of money, as to this function, to a far greater extent than money itself does, and even the money itself is mostly a paper money,—a sort of certified credit.
As previously stated, about 95 per cent of the bank deposits are in forms of credit, and of the actual money deposits only about one-tenth is gold, the balance being paper money and silver; so that, on the strength of these estimates, only .6 per cent of the exchanges of commodities are effected through the direct use of gold.
This evolution of money, however, has been almost wholly confined to the one function, a medium of exchange; there has been no advance for centuries in regard to the other function, a measure of value. Men have continued to cling to the fiction that gold was a standard of value, and that, so long as their monetary system was based on that metal, their unit was of invariable value. We have seen how little ground there is for this claim; that a gold basis for our money is not necessary to our foreign commerce; and how small a part gold really plays in domestic commerce as a medium of exchange. Is it not about time, then, to abandon the fiction that gold is either a standard of value or a medium of exchange, in any proper sense of the terms, and to take a forward step in the evolution of money by adopting a more scientific standard of value, and making the money, as a measure of value, conform thereto?
Professor Jevons, in "Money and the Mechanism of Exchange," in the chapter on "A Tabular Standard of Value," inquires whether it is not possible to have a standard based on a large number of commodities,—a "multiple legal tender," as he terms it,—and concludes that the plan would resolve itself into those severally proposed by Joseph Lowe in 1822, and, independently, by G. Poulett Scrope in 1833, and by G. R. Porter in 1838. These plans were practically alike. Recognizing the fluctuations of money value, and the injury done especially to long-time debts thereby, they proposed that tables be prepared showing the variations from year to year of the prices of the principal commodities, taking into account, also, the amounts sold. These tables were to be used for reference, to ascertain in what degree a money contract must be varied so as to make the purchasing power of the money returned equal to that loaned. The plans seem to have been only suggestions, and the details not worked out. Professor Jevons speaks favourably of them, as perfectly sound in principle, and the difficulties in the way as not considerable. He suggests a method by which the average prices of the commodities could be computed, and closes with the statement: "Such a standard would add a wholly new degree of stability to social relations, securing the fixed incomes of individuals and public institutions from the depreciation which they have often suffered. Speculation, too, based upon the frequent oscillations of prices which take place in the present state of commerce, would be to a certain extent discouraged. The calculations of merchants would be less frequently frustrated by causes beyond their own control, and many bankruptcies would be prevented. Periodical collapses of credit would no doubt recur from time to time, but the intensity of the crisis would be mitigated, because, as prices fell, the liabilities of debtors would decrease approximately in the same ratio."
Prof. F. A. Walker, referring to these schemes, and to similar ones proposed by Count Soden and by Professor Roscher in Germany, criticises them as too cumbersome for general use, but thinks they might be advantageously employed for long-time contracts. The criticism is evidently just; not only are the plans too cumbersome, but they only partially accomplish what is needed. They contain, however, the germ of a plan which it is believed would be both more effective and less open to the criticism mentioned. Long and short time contracts, and cash transactions, are too intimately connected to make it possible in practice to use different and varying standards for each.
Since the values of all commodities constitute the only true standard of value, as close an approximation to this standard as possible should be adopted as our standard of value.