Judge Tiffany, in his work on Constitutional Law, expounding the right of Congress “to coin money and regulate the value thereof,” says:
“The authority which coins or stamps itself upon the article can select what substance it may deem suitable to receive the stamp and pass as money; and it can affix what value it deems proper, independent of the intrinsic value of the substance upon which it is affixed.”
This learned opinion, which annihilates all necessary distinction between “primary” and “secondary” money, was followed by the United States Supreme Court in the celebrated Greenback cases, and hence has all the authority of law. (See 12 Wallace’s Reports, p. 519.)
2. The specie basis theory is contrary to the facts of history, some of which will be recited in succeeding pages. Many instances are recorded in which paper and other material have been successfully used as money where no redemption in coin was promised or possible.
3. The specie basis theory postulates that a certain amount of “redemption money” will support or float a proportional amount of “credit money;” as the specie increases the paper money may be safely increased; and as the specie decreases paper money must also be decreased—a philosophy that would lead to the absurd conclusion that when all specie disappears the people can have no money of any kind. Mr. R. H. Patterson, a distinguished English economist, truly puts the paradox as follows:
“The gospel of monetary science now is, that when a country does not want paper money, it ought to have a great supply of it; and when it does require paper money it shall have none. When a country has enough of specie it ought to double its currency by issuing an equal amount of bank notes; and when there is no specie there should likewise be no notes. Is it necessary to discuss such a theory? In order to be rejected it needs only to be stated; in order to be rejected it only needs to be understood. It is a theoretical monstrosity against which common sense revolts—a burlesque of reason which even the present generation will live to laugh at.”
4. The specie basis is insufficient in volume to redeem the credit money which is necessarily used in business. The entire circulating medium of the United States is, approximately, sixteen hundred millions of dollars, of which about one-third is gold, one-third silver and one-third paper. Since silver was demonetized it is now only credit money; hence we have but one dollar of redemption money (gold) with which to redeem two of credit money, or, taking into consideration, as we should, the vast volume of checks, drafts and other credits which must finally be redeemed in gold, it is perfectly apparent that the United States has not one dollar of redemption money with which to redeem one hundred dollars of credit—and thus the whole theory of redemption becomes a mere figment incapable of practical realization. And what is true of the United States is true of all other countries.
5. The specie basis is a breeder of panics. In times of prosperity and confidence credits are safely increased to accommodate the increasing volume of business, and the specie basis is sufficient merely because it is not put to the test, the people preferring paper money because of its superior convenience. But at such a time a pebble may start an avalanche. A startling failure occurs somewhere, creditors press for liquidation, the banks are besieged, and, being unable to redeem their promises to pay gold, they suspend—and the panic is complete. Such is the recurrent history of finance in all civilized lands.
Charles Sears, an eminent authority, says of the gold basis:
“Within the last fifty years, say, a money crisis has come quite regularly every ten years. Something—any one of a dozen causes, few know what—sets gold to flowing out. Fifty millions withdrawn in a short time from its usual place of deposit is quite sufficient to make the whole volume of coin disappear from ordinary circulation as completely as if it had never existed. The metallic basis is gone—slipped out; the pivot of the system is dislocated; somebody wanted it and took it, and the pyramid tumbles down, burying in its ruins three-fourths of a business generation.”