It must not be supposed that this plan contemplates any control of individual prices. Such will be free to fluctuate in accordance with the law of supply and demand, as they now and ever must do, regardless of the monetary system used. It would not be desirable, even if it were possible, to make individual prices constant; but what is desirable and possible, and what it is believed this system would accomplish, is to relieve the prices of all commodities from the fluctuations due to changes in value of the one commodity by which all others are measured; to make the money—the one commodity which no one wants except for measuring the value of and exchanging for other commodities—of constant value. The prices and values of gold and silver would then depend on their use for other than money purposes, or for money purposes in other countries, and if the value of either metal should fall, or fail to continue to rise, there would be no room for complaint that it was being discriminated against by the laws, since all commodities would be treated alike, and the demand for none increased over what it would otherwise be by its selection for monetary uses.
It is evident that gold could still be used as a hoard of value, if desired, but such use would in no way interfere with the volume of money, as it now does. Neither would the hoarding of money itself affect prices and cause business stagnation as is the case now. The reasons for such hoarding would be mostly done away with, but if any should remain and the money be hoarded, the government would at once issue as much more as was needed to supply the deficiency so created, thus maintaining its value constant, and when the money hoarded was again put in circulation the government would withdraw a portion of it if it were excessive in amount.
The exchange of the new money for the existing kinds would be a matter of practical financiering, presenting no unusual difficulties. This need not be enlarged upon.
The gold certificates should be redeemed with the gold now held for that purpose. This gold, as well as that now in private hands, would thereafter take care of itself.
The silver dollars, and all forms of paper money, should be redeemed in the new money, dollar for dollar; the paper money should be cancelled, and the bullion—both gold and silver—sold gradually, with due regard to the effect of such sales on the prices of gold and silver, especially the latter. The proceeds of such sales in the new money should also be retired from circulation.
As a final result, the new money issued would all be in the form of loans to banks or individuals, except to the amount used in redeeming the uncovered paper now outstanding, less the reserve fund (and some loss that would result from the sale of silver below the price paid for it). This net balance of the new money issued, above what was issued as a loan, could be left as an uncovered paper issue, as it now is; but for the sake of uniformity it would be better to make all the money a loan issue, in which case it would be necessary to issue bonds to take up such amount. It represents now, of course, a remnant of our war debt, not refunded. No increase of interest charges would result from funding it in bonds, for the interest on the bonds would be offset by the interest on the equal amount of extra money that would be loaned in that case. It would make no difference as regards this general plan which of the two methods were adopted.
This plan should not be confounded with any "fiat money" or unlimited "greenback" proposals. Its main point is directly the opposite of these, to secure a more complete control of money volume. It is not an attempt to make something out of nothing, or to create value by government fiat or authority where none existed before, or to coin the government's credit,—although there is no valid objection to doing the latter when properly limited.
It is simply an exchange of credit, analogous to the operation of every bank. The government would loan a command over immediate goods (represented by its promise to deliver such goods on demand) in exchange for a promise to return such command over goods at a future time, and secured by a deposit of collateral; and in payment for the difference between the value of present and future goods it would charge interest. This is precisely what the loan department of every bank does. Every man who accepted the money in payment for goods would deposit, for the time being, with the government the command over commodities in general which he owns; the money being his certificate of deposit. This would constitute the fund from which the loans were made, just as the deposits in a bank constitute, in the main, its loan fund. When the money was used to purchase goods, it would be redeemed, so far as the purchaser was concerned, and the claim would be transferred to the seller of the goods, who in turn would become a depositor.
Like every bank, the government would rely on the probability that all claims against it would not be presented for payment at once, but this probability would amount to a certainty in the case of the government, for there would be no probability of any of the claims being presented for direct redemption, as every one who had goods to sell would redeem the notes, so far as the holder was concerned.
The honesty of the government as an agent for all the people is, of course, assumed in this plan; but the credit of the government, in any other than a trust capacity, is neither assumed nor involved, since it would hold secured claims against others for every dollar issued (unless, of course, a portion of the money was left as an unsecured issue, which, as above stated, is no necessary part of the plan).