Readings in Money and Banking / Selected and Adapted

by Chester Arthur Phillips

(1) The increase in the amount of the greenbacks. Each new issue was reflected in a rise in the premium.

(2) The condition of the treasury. The annual reports of the Secretary of the Treasury were anxiously awaited and their appearance caused a rise or fall of the premium according as the condition of the finances seemed gloomy or hopeful.

(3) Ability of the Government to borrow. The fate of a loan indicated public confidence or distrust.

(4) Changes in the officials of the treasury department. Secretary Chase's resignation, July 1, 1864, depressed the currency decidedly.

(5) War news. Every victory raised the price of currency and every defeat depressed it.

From 1862 to 1865 the premium on gold and the median of relative prices correspond so well that one cannot resist the conclusion that these changes were mainly due to a common cause, which can hardly be other than the varying esteem in which the notes of the Government that constituted the standard money of the country were held. If this conclusion be accepted, it follows that the suspension of specie payments and the legal-tender acts must be held almost entirely responsible for all the far-reaching economic disturbances following from the price upheaval which it is our task now to trace in detail.

The Effects of Greenbacks upon Wages

Statistical evidence supports unequivocally the common theory that persons whose incomes are derived from wages suffer seriously from a depreciation of the currency. The confirmation seems particularly striking when the conditions other than monetary affecting the labour market are taken into consideration. American workingmen are intelligent and keenly alive to their interests. There are probably few districts where custom plays a smaller and competition a larger rôle in determining wages than in the Northern States. While labor organisations had not yet attained their present power, manual laborers did not fail to avail themselves of the help of concerted action in the attempt to secure more pay. Strikes were frequent. All these facts favored a speedy readjustment of money wages to correspond with changed prices. But more than all else, a very considerable part of the labor supply was withdrawn from the market into the army and navy. In 1864 and 1865 about one million of men seem to have been enrolled. About one-seventh of the labor supply withdrew from the market. But despite all these favoring circumstances, the men who stayed at home did not succeed in obtaining an advance in pay at all commensurate with the increase in living expenses. Women on the whole succeeded less well than men in the struggle to readjust money wages to the increased cost of living.

It is sometimes argued that the withdrawal of laborers from industrial life was the chief cause of the price disturbances of the war period. This withdrawal, it is said, caused the advance of wages, and greater cost of labor led to the rise of prices. The baselessness of this view is shown by two well established facts—first, that the advance of wages was later than the advance of prices, and second, that wages continued to rise in 1866 after the volunteer armies had been disbanded and the men gone back to work.

Wage-earners, however, seem to have been more fully employed during the war than in common times of prosperity. Of course, the enlistment of so many thousands of the most efficient workers made places for many who might otherwise have found it difficult to secure work. Moreover, the paper currency itself tended to obtain full employment for the laborer, for the very reason that it diminished his real income. In the distribution of what Marshall has termed the "national dividend" a diminution of the proportion received by the laborer must have been accompanied by an increase in the share of some one else. Nor is it difficult to determine who this person was. The beneficiary was the active employer, who found that the money wages, interest, and rent he had to pay increased less rapidly than the money prices of his products. The difference between the increase of receipts and the increase of expenses swelled his profits. Of course, the possibility of making high profits provided an incentive for employing as many hands as possible.