Readings in Money and Banking / Selected and Adapted

by Chester Arthur Phillips

There are no indications of real and permanent prosperity ... in the splendid fortunes reported to be made by skilful manipulations at the gold room or the stock board; no evidences of increasing wealth in the facts that railroads and steamboats are crowded with passengers, and hotels with guests; that cities are full to overflowing, and rents and the necessities of life, as well as luxuries, are daily advancing. All these things prove rather ... that the number of non-producers is increasing, and that productive industry is being diminished.

In one of his reports as special commissioner of the revenue, Mr. Wells said:

During the last few years large numbers of our population, under the influence and example of high profits realized in trading during the period of monetary expansion, have abandoned employments directly productive of national wealth, and sought employments connected with commerce, trading, or speculation. As a consequence we everywhere find large additions to the population of our commercial cities, an increase in the number and cost of the buildings devoted to banking, brokerage, insurance, commission business, and agencies of all kinds, the spirit of trading and speculating pervading the whole community, as distinguished from the spirit of production.

Within the period under review, then, it seems very doubtful whether the high profits had their usual effect of leading to a larger production of raw materials or to an increase in manufactures. The prudent man hesitated to expand his undertakings because of the instability of the inflated level of prices; the man with a turn for speculative ventures found more alluring opportunities in trade.

CONSUMPTION

No one can read contemporary comments on American social life of the later years of the war without being impressed by the charges of extravagance made against the people of the North. Newspapers and pulpits were at one in denouncing the sinful waste that, they declared, was increasing at a most alarming rate. The "shoddy aristocracy" with its ostentatious display of wealth became a stock subject for cartoonists at home, and earned a well-merited reputation for vulgarity abroad.

In trying to account for this unpleasant phase of social development, men usually laid the blame upon the paper standard. High prices were said to make every one feel suddenly richer and so to tempt every one to adopt a more lavish style of living than his former wont. Thus the view gained general credence that the greenbacks were ultimately responsible for a great increase in the consumption of wealth.

However, such a view regarding the consumption of wealth can be but partially true. The enormous profits of entrepreneurs made possible the rapid accumulation of an unusual number of fortunes, and the families thus lifted into sudden affluence enjoyed spending their money in the ostentatious fashion characteristic of the newly rich. It is therefore true that the monetary situation was largely responsible for the appearance of a considerable class of persons—of whom the fortunate speculator and the army contractor are typical—who plunged into the recklessly extravagant habits that called down upon their heads the condemnation of the popular moralist.

But if the greenbacks were in the last resort a chief cause of the increased consumption of articles of luxury by families whom they had aided in enriching, they were not less truly a cause of restricted consumption by a much larger class of humbler folk. The laboring man whose money wages increased but one-half, while the cost of living doubled, could not continue to provide for his family's wants so fully as before. He was forced to practise economies—to wear his old clothing longer, to use less coffee and less sugar, to substitute cheaper for better qualities in every line of expenditure where possible. Similar retrenchment of living expenses must have been practised by the families of many owners of land and lenders of capital. In other words, the war time fortunes resulted in a very large measure from the mere transfer of wealth from a wide circle of persons to the relatively small number of residual claimants to the proceeds of business enterprises. The enlarged consumption of wealth which the paper currency made possible for the fortunate few was therefore contrasted with a diminished consumption on the part of the unfortunate many on whose slender means the greenbacks levied contributions for the benefit of their employers.

That the diminished consumption of wealth by large numbers of poor people escaped general notice, while the extravagance of the newly rich attracted so much attention, need not shake one's confidence in the validity of these conclusions. The purchase of a fast trotting-horse by a Government contractor, and the elaborateness of his wife's gowns and jewelry, are much more conspicuous facts than the petty economies practised by his employees. The same trait that leads fortunate people to flaunt their material prosperity in the eyes of the world leads the unfortunate to conceal their small privations. Even an attentive observer may fail to notice that the wives of workingmen are still wearing their last year's dresses and that the children are running barefoot longer than usual.