The Life and Work of James A. Garfield, Twentieth President of the United States / Embracing an Account of the Scenes and Incidents of His Boyhood; the Struggles of His Youth; the Might of His Early Manhood; His Valor As a Soldier; His Career As a Statesman; His Election to the Presidency; and the Tragic Story of His Death.

by John Clark Ridpath

“The functions of money as a medium of exchange, though more complicated in their application, are precisely the same in principle as the functions of the vessels in the case I have supposed.

“If we could ascertain the total value of all the exchanges effected in this country by means of money in any year, and could ascertain how many dollars’ worth of such exchanges can be effected in a year by one dollar in money, we should know how much money the country needed for the business transactions of that year. Any decrease below that amount will correspondingly increase the value of each dollar as an instrument of exchange. Any increase above that amount will correspondingly decrease the value of each dollar. If that amount be doubled, each dollar of the whole mass will perform but half the amount of business it did before; will be worth but half its former value as a medium of exchange.

“Recurring to our illustration: if, instead of sailing vessels, steam vessels were substituted, a much smaller tonnage would be required; so, if it were found that $500,000,000 of paper, each worth seventy cents in gold, were sufficient for the business of the country, it is equally evident that $350,000,000 of gold substituted for the paper would perform precisely the same amount of business.

“It should be remembered, also, that any improvement in the mode of transacting business, by which the actual use of money is in part dispensed with, reduces the total amount needed by the country. How much has been accomplished in this direction by recent improvements in banking may be seen in the operations of the clearing-houses in our great cities.

“The records of the New York Clearing House show that from October 11, 1853, the date of its establishment, to October 11, 1867, the exchanges amounted to nearly $180,000,000,000; to effect which, less than $8,000,000,000 of money were used, an average of about four per cent.; that is, exchanges were made to the amount of $100,000,000 by the payment of $4,000,000 of money.

“It is also a settled principle that all deposits in banks, drawn upon by checks and drafts, really serve the purpose of money.

“The amount of currency needed in the country depends, as we have seen, upon the amount of business transacted by means of money. The amount of business, however, is varied by many causes which are irregular and uncertain in their operation. An Indian war, deficient or abundant harvests, an overflow of the cotton lands of the South, a bread famine or war in Europe, and a score of such causes entirely beyond the reach of legislation, may make money deficient this year and abundant next. The needed amount varies also from month to month in the same year. More money is required in the autumn, when the vast products of agriculture are being moved to market, than when the great army of laborers are in winter-quarters, awaiting the seed-time.

“When the money of the country is gold and silver, it adapts itself to the fluctuations of business without the aid of legislation. If, at any time, we have more than is needed, the surplus flows off to other countries through the channels of international commerce. If less, the deficiency is supplied through the same channels. Thus the monetary equilibrium is maintained. So immense is the trade of the world that the golden streams pouring from California and Australia in the specie circulation, are soon absorbed in the great mass and equalized throughout the world, as the waters of all the rivers are spread upon the surface of all the seas.

“Not so, however, with an inconvertible paper currency. Excepting the specie used in the payment of customs and the interest on our public debt, we are cut off from the money currents of the world. Our currency resembles rather the waters of an artificial lake, which lie in stagnation or rise to full banks at the caprice of the gate-keeper.

“Gold and silver abhor depreciated paper money, and will not keep company with it. If our currency be more abundant than business demands, not a dollar of it can go abroad; if deficient, not a dollar of gold will come in to supply the lack. There is no legislature on earth wise enough to adjust such a currency to the wants of the country.