“Let us examine more minutely the effect of such a currency upon prices. Suppose that the business transactions of the country at the present time require $350,000,000 in gold. It is manifest that if there are just $350,000,000 of legal-tender notes, and no other money in the country, each dollar will perform the full functions of a gold dollar, so far as the work of exchange is concerned. Now, business remaining the same, let $350,000,000 more of the same kind of notes be pressed into circulation. The whole volume, as thus increased, can do no more than all the business. Each dollar will accomplish just half the work that a dollar did before the increase; but as the nominal dollar is fixed by law, the effect is shown in prices being doubled. It requires two of these dollars to make the same purchase that one dollar made before the increase. It would require some time for the business of the country to adjust itself to the new conditions, and great derangement of values would ensue; but the result would at last be reached in all transactions which are controlled by the law of demand and supply.
“No such change of values can occur without cost. Somebody must pay for it. Who pays in this case? We have seen that doubling the currency finally results in reducing the purchasing power of each dollar one-half; hence every man who held a legal-tender note at the time of the increase, and continued to hold it till the full effect of the increase was produced, suffered a loss of fifty per cent. of its value; in other words, he paid a tax to the amount of half of all the currency in his possession. This new issue, therefore, by depreciating the value of all the currency, cost the holders of the old issue $175,000,000; and if the new notes were received at their nominal value at the date of issue, their holders paid a tax of $175,000,000 more. No more unequal or unjust mode of taxation could possibly be devised. It would be tolerated only by being so involved in the transactions of business as to be concealed from observation; but it would be no less real because hidden.
“But some one may say: ‘This depreciation would fall upon capitalists and rich men, who are able to bear it.’
“If this were true, it would be no less unjust. But, unfortunately, the capitalists would suffer less than any other class. The new issue would be paid in the first place in large amounts to the creditors of the Government; it would pass from their hands before the depreciation had taken full effect, and, passing down step by step through the ranks of middle-men, the dead weight would fall at last upon the laboring classes in the increased price of all the necessaries of life. It is well known that in a general rise of prices, wages are among the last to rise. This principle was illustrated in the report of the Special Commissioner of the Revenue for the year 1866. It is there shown that from the beginning of the war to the end of 1866, the average price of all commodities had risen ninety per cent. Wages, however, had risen but sixty per cent. A day’s labor would purchase but two-thirds as many of the necessaries of life as it would before. The wrong is, therefore, inflicted on the laborer long before his income can be adjusted to his increased expenses. It was, in view of this truth, that Daniel Webster said, in one of his ablest speeches:
“‘Of all the contrivances for cheating the laboring classes of mankind, none has been more effectual than that which deludes them with paper money. This is the most effectual of inventions to fertilize the rich man’s field by the sweat of the poor man’s brow. Ordinary tyranny, oppression, excessive taxation, these bear lightly on the happiness of the mass of the community, compared with a fraudulent currency and the robberies committed by depreciated paper.’
“The fraud committed and the burdens imposed upon the people, in the case we have supposed, would be less intolerable if all business transactions could be really adjusted to the new conditions; but even this is impossible. All debts would be canceled, all contracts fulfilled by payment in these notes—not at their real value, but for their face. All salaries fixed by law, the pay of every soldier in the army, of every sailor in the navy, and all pensions and bounties, would be reduced to half their former value. In these cases the effect is only injurious. Let it never be forgotten that every depreciation of our currency results in robbing the one hundred and eighty thousand pensioners, maimed heroes, crushed and bereaved widows, and homeless orphans, who sit helpless at our feet. And who would be benefited by this policy? A pretense of apology might be offered for it, if the Government could save what the people lose. But the system lacks the support of even that selfish and immoral consideration. The depreciation caused by the over-issue in the case we have supposed, compels the Government to pay just that per cent. more on all the contracts it makes, on all the loans it negotiates, on all the supplies it purchases; and to crown all, it must at last redeem all its legal-tender notes in gold coin, dollar for dollar. The advocates of repudiation have not yet been bold enough to deny this.
“I have thus far considered the influence of a redundant paper currency on the country when its trade and industry are in a healthy and normal state. I now call attention to its effect in producing an unhealthy expansion of business, in stimulating speculation and extravagance, and in laying the sure foundation of commercial revulsion and widespread ruin. This principle is too well understood to require any elaboration here. The history of all modern nations is full of examples. One of the ablest American writers on banks and banking, Mr. Gouge, thus sums up the result of his researches:
“‘The history of all our bank pressures and panics has been the same in 1825, in 1837, and in 1843; and the cause is given in these two simple words—universal expansion.’
“There still remains to be considered the effect of depreciated currency on our trade with other nations. By raising prices at home higher than they are abroad, imports are largely increased beyond the exports; our coin must go abroad; or, what is far worse for us, our bonds, which have also suffered depreciation, and are purchased by foreigners at seventy cents on the dollar. During the whole period of high prices occasioned by the war, gold and bonds have been steadily going abroad, notwithstanding our tariff duties, which average nearly fifty per cent. ad valorem. More than five hundred million dollars of our bonds are now held in Europe, ready to be thrown back upon us when any war or other sufficient disturbance shall occur. No tariff rates short of actual prohibition can prevent this outflow of gold while our currency is thus depreciated. During these years, also, our merchant marine steadily decreased, and our ship-building interests were nearly ruined.
“Our tonnage engaged in foreign trade, which amounted in 1859–’60 to more than two and a-half million tons, had fallen in 1865–’66 to less than one and a-half millions—a decrease of more than fifty per cent.; and prices of labor and material are still too high to enable our shipwrights to compete with foreign builders.