To the same effect is the opinion of the famous American jurist, Judge Walker. He says:
“The whole paper scheme is founded on the presumption that the holders of these bills will not generally ask for specie at the same time; and, therefore, the amount of specie kept in reserve bears but a small proportion to the notes in circulation. And this is the great evil of the system. A general and simultaneous demand for specie cannot possibly be met, and disaster must follow. To enforce a universal performance of these promises is to insure their being broken. Every sudden panic, therefore, must produce wide-spread calamity.”—Walker’s American Law, p. 152.
6. The specie basis affords a means by which greedy speculators work “a corner” in gold and thus extort large sums in profits which the people eventually have to pay. The laws and official rulings, for instance, which require the maintenance of a gold reserve in the Federal treasury and the payment of duties and interest on the public debt in gold, create a special and imperative demand for the yellow metal; and as the supply for that kind of money is almost entirely in the hands of a few great banking firms, the latter can, at their pleasure, extort such terms as they please when applied to for gold. An instance of the kind occurred on Feb. 8, 1895. On that day, in order to maintain its gold reserve, the United States government purchased of M. Rothschild & Sons and J. P. Morgan & Co., bankers of London, 3,500,000 ounces of standard gold coin of the United States at the rate of $17.80441 per ounce, and paid for it in United States four per cent. thirty-year coupon or registered bonds, interest payable quarterly. These bonds were taken by the British bankers at $1.04, and were sold by them within ten days at $1.18, by which the foreign gold exploiters made a net profit of about eight million dollars—to be eventually paid by the people.
7. The specie basis must inevitably become more and more insufficient with the lapse of time, and the disasters due to it in the past become more frequent and distressing. The population of the world is increasing, barbarous nations are becoming commercial, and commercial nations are extending their commerce with unexampled rapidity from year to year. With this increasing business must come a necessity for a corresponding increase in the medium of exchange—money. But no material increase of the precious metals is possible. On the contrary, as the mines successively become exhausted, or deeper and more difficult to work, it is clear that the annual supply of gold and silver must become increasingly insufficient to replace that which has been lost or consumed in the arts and sciences; and hence the difficulties of the specie basis will of necessity become more and more aggravated as time goes on.
Considerations such as the foregoing have led to the rapid development of a new school of finance which, rejecting the specie basis as antiquated and no longer tenable, professes to find a sufficient guarantee for the stability of money in
The Legal Tender Basis.
President Grant said:
“My own judgment is that a specie basis cannot be reached and maintained until our exports exclusive of gold pay for our imports, interest due abroad, and other specie obligations, or so nearly as to leave an appreciable accumulation of the precious metals in the country from the product of our mines.”—Message, Dec. 1, 1873.
Plentiful experience has demonstrated that a paper money based upon the authority, faith and credit of the government and made by law a full legal tender for all debts will serve all the purposes of a staple circulating medium as effectually as gold itself.
The effectiveness of legal-tender paper depends upon two circumstances: