The resumption of specie payments after 1873 by a number of nations which had issued paper money in the previous period, and the alternate expenditure and re-collection of war-hoards of gold, had far greater importance than the demonetizations.
There has been no diminution of the world’s coined money within fifty years, but a steady and rapid increase of it. There have been fluctuations in the production of gold and silver such as belong to the production of all metals and are inevitable.
The Alleged Scramble for Gold.
There has been no “scramble for gold.” Those who do not put any obstacle in the way of gold get more of it than they want. The Bank of England has had lately the largest stock of gold that it ever had, and complaints have begun to be heard of a glut. The gold-production in the last five years is the greatest ever known and there is no fear of any lack of it, whatever may be the sense in which any one chooses to speak of a “lack.” There is not and has not been any “scarcity of gold.” There is no such thing conceivable, except where paper has been issued in excess, so that it is hard to keep enough gold to redeem it with.
Proof that there has been no Scarcity of Gold.
There is one proof that there has been no scarcity of money for twenty-five years past which has not indeed passed unnoticed, but which has not received the attention which it deserves; that is the rate of interest. The rate of interest is normally due to the supply and demand of loanable capital, and has nothing to do with money. The value of money is registered by prices, not by the rate of interest. But whenever there is a special demand for money of account—that is, for the solvent of debts—the rate of interest on capital passes over into a rate for the solvent of debts. Banks lend capital in its most universal form, i.e., the currency or money of account, or bank credits. If credit fails, as in a time of crisis and panic, actual cash in the money of account is wanted. This now is loaned, under a rate, by the same persons and institutions who formerly loaned capital, and the one phenomenon passes into the other without any line of demarcation. The transition, however, never takes place except in time of crisis, and therefore at a high rate. From this it follows certainly that never when the market rate is low can it be a rate for the solvent of debts. Now, ever since 1873, with the exception of periods of special stringency in 1884, 1890, and 1893, we have had very low rates of interest; the rate for call loans (which in this connection are the most important) has been about two per cent. This is a demonstration that the country has not been suffering from a crisis on account of a lack of currency for the normal needs of business. Proofs could be presented, on the other hand, that the currency for the last six years has been constantly in excess, excepting in 1893, when the credit of the currency failed for a time.
How to Get Poor and Rich at the Same Time.
Mr. St. John tries his hand at the relation between prices and interest in connection with our subject. He says: “If the dollar can be cheapened by increasing the number of dollars, so that each dollar will buy less wheat, the increasing price of wheat will increase the demand for dollars to invest in its production.” Evidently he fails to distinguish between the rise in price of wheat from one gold dollar to two gold dollars per bushel, and the rise in wheat from one gold dollar to two fifty-cent silver dollars per bushel. The former would undoubtedly stimulate production. The latter would do so also, among farmers who shared Mr. St. John’s confusion on this matter. There would be many of them. They would imagine that they were getting rich by raising wheat to sell at two silver dollars, or five, ten, fifteen, or twenty paper dollars, as depreciation went on. Hence, as he says, they would pay a banker eight, ten, twelve, or fifteen per cent, in the depreciated dollars, in order to get “money,” as he calls it, with which to raise wheat. Mr. St. John thinks that this would mean that farmer and banker were both magnificently prosperous. It would mean that the real value which came in was steadily growing less than that which went out, so that the capital was being consumed. Hence the high rates of inflation times, and the disaster which follows when the truth is realized. They told a story in Revolutionary times of a man who invested his capital in a hogshead of rum which he sold out at an enormous advance—in Continental paper; but when he went to buy a new supply, all his “money” would only buy a barrel. This he retailed out at another enormous advance—in Continental—but when he went to buy more he had only enough money to buy a gallon. If he had borrowed his first capital he might have paid twenty per cent for it—in Continental—but the banker would hardly have made a good affair.
Monopoly of the Money.
We hear it asserted that the gold standard gives the owners of gold power to appropriate the money and make it scarce, and that they have used this power. Why, then, under silver or paper, may not the holders of silver or paper do the same? That the holders of gold have not done it has been shown above. But nobody can do it with any kind of value money. There are no “holders of gold.” He who holds gold wins no gains on it. The bankers who are supposed to hold it, if peace and security reign, put it all out at loan in order to get gain on it. When peace and security do not reign it is not safe to put it out, and borrowers, fearing to engage in new enterprises, do not present a demand for it. Furthermore, the greatest gains can then be won by holding money ready to buy property when the crash comes. That is what those who own surpluses are doing now. Hence there are no “holders of gold” until monetary threats and dangers call them into existence. Silver legislation has made a great many. The law of 1873 never made any.