To carry out this pledge, it would be necessary to have a small corps of statisticians who would receive and tabulate the current market prices for each day; and who would calculate therefrom the aggregate prices of the specified quantities of all the commodities constituting the standard,—in similar form to the final table before mentioned, and of which an example has been given. If this aggregate for any clay were more or less than the total of the standard table, it would show that prices in general had risen or fallen, and some money should be withdrawn from circulation, or more issued until the daily total corresponded with the standard total.
Doubtless several plans might be proposed for putting such a money into circulation and controlling its volume. The following seems to commend itself by its simplicity and effectiveness of control, for at least a part, if not all, of the issues, viz.: The money to be loaned by the government on approved securities, such as their own bonds; other bonds of states, counties, cities, railroads, etc.; warehouse receipts, gold and silver deposits, etc. First-class commercial paper, when guaranteed by solvent banks, might also be taken, especially in case of threatened panic. In short, such securities as would be considered the safest for banks and trust companies to loan upon, all under such proper restrictions and safeguards as would insure their safety as collateral. The rate of interest charged for such loans to be a variable one, decreasing as prices tended to fall, and increasing as they tended to rise, and without other restriction. This would absolutely control the volume of money, within narrow limits, since more would be borrowed at a lower, and less at a higher rate, of interest, yet the control would be elastic.
While the loans should be for short time, they could be renewed at pleasure, and as often as desired, at the current rate of interest, the security remaining good.
Such a plan would not interfere with general banking business to any considerable extent. In order to prevent monopoly, the loans should be open to all on equal terms, and the list of approved securities acceptable as collateral should be made as wide as possible, consistent with safety. It would probably be found by experience, however, that the principal borrowers direct from the government would be the banks, who would re-loan the money (at a sufficiently higher rate to pay them for their trouble) to their customers, on local securities, commercial paper, etc., as they now do.
In fact, the present system of national banks could be made, with few changes in the regulations governing them, a most valuable adjunct to the plan as a distributing agency, and the plan is one that it would seem ought to meet with approval. They would, it is true, lose their present note circulation, but that, under existing laws and conditions, is of little or no profit to them. They would gain by its being unnecessary for them to keep so large a reserve of cash on hand as they are often obliged to do now; for not only would the whole financial system be more stable than now, but they might safely be allowed to carry a part of the present 15 to 25 per cent. reserve, required by law, in such securities as they could at all times use as collateral with the government. They would gain even more by the security such a system presents against panics and senseless runs, which so often compel solvent banks to close their doors. In short, the government would act toward the banks, not as a competitor, but rather in the relation that the New York clearing-house has several times acted toward its members in times of panic, by the issue of clearing-house certificates,—a quasi-money that helped them in time of need. The government would not be subject to the limitations of the clearing-house, however. The money it loaned would be, unlike clearing-house certificates, a legal tender everywhere; and the protection would extend to all the banks of the country. The government would act toward the banks in somewhat the same way as they act toward individuals, or as the Bank of England acts towards the other English banks, as a sort of reserve agent. In this case, however, the resources as to money would be unlimited. In the manner of regulating the volume of money, also, this plan would resemble that of the Bank of England, since that institution attempts in a feeble way, and prompted doubtless by self-interest, to regulate the volume of money, to some extent, by raising the discount rate when the volume is decreasing, as evidenced by exports of gold, and lowering the rate when gold is being imported.
If it were impossible or inexpedient to loan in the above manner all the money the country required, a sufficient amount could be so loaned as to give an absolute control of the volume, and to regulate its value at all times, and the balance could be issued in exchange for the present greenbacks, and for interest-bearing bonds of the government, thus converting a part of the interest-bearing debt into a permanent non-interest-bearing one.
It is evident that the control of such a system should rest with the government, and not be left to any banking institution; for a bank would be more influenced by considerations of profit than of proper control in the interests of all. The interest received by the government would be a minor consideration, the control of the volume being the main object, and the rate of interest a means merely to that end. The people, besides, would have at all times a greater confidence in notes issued directly by the government than they could have in notes issued by any bank, however strong.
The department of the government to be charged with this issuing function should, of course, be entirely distinct and separate from the other departments. Its sole business should be the maintenance of an honest money. It should have no connection with the general expenditures of the government, further than to pay into the Treasury such profits, in the way of interest, as might be received. The government expenses should be met, as they now are, by the receipts from taxes and duties, or, if these were insufficient at any time, by borrowing money on its bonds. Under no circumstances should money from the issuing department ever be taken for the expenses of government, except in the same way that banks or individuals might receive it, and never then to an extent that would raise average prices.
The legal tender provision of the notes would be necessary only as specifying the medium in which payment of debts should be made, to prevent misunderstanding, and for the protection of debtor and creditor alike. The new dollar being a quantity of value, and not of a specified commodity, a loan might be returned in any commodity of that value but for some such provision.
The provision could in no case wrong a creditor, for what he would receive in payment of the debt would be a positive guarantee to deliver him the value specified in any commodity he chose. Making the money redeemable in any of the commodities on which it is based would be only a form, and might be omitted; it is suggested merely as obviating any objections to an irredeemable money. Of course the government would never be called upon to so redeem money, since the holder of it could exchange it for the commodity wanted in the open market to equal advantage. No reserve of commodities of any kind need be kept, therefore, for redemption purposes. One great difference between this plan and existing systems will, of course, be seen at once: the present system promises a definite amount of gold, and must, therefore, keep a gold reserve; but as no one really wants the gold, except to exchange for commodities, this plan proposes to do away with the necessity for a gold reserve by guaranteeing that the money can be directly exchanged for such commodities at the current market price,—which is all that can be done with the gold,—and that the average purchasing power of such money shall not vary as gold does.