The Forgotten Man, and Other Essays

by William Graham Sumner

I regard economic forces as simply parallel to physical forces, arising just as spontaneously and naturally, following a sequence of cause and effect just as inevitably as physical forces—neither more nor less. The perturbations and complications which present themselves in social phenomena are strictly analogous to those which appear in physical phenomena. The social order is, to my mind, the product of social forces tending always towards an equilibrium at some ideal point, which point is continually changing under the ever-changing amount or velocity of the forces or under their new combinations. Consequently, I do not believe that the advance of economic science depends upon fuller and more minute description of complicated social phenomena as they present themselves in experience, but on a stricter analysis of them in order to get a closer and clearer knowledge of the laws by which the forces producing them operate. If this can be attained, all the complications which arise from their combined action will be easily solved. Of course we have peculiar difficulties to contend with, inasmuch as we cannot constitute experiments, and it is necessary to rely largely upon historical cases which present now one and now another force or set of forces in peculiar prominence. The facts which show the difficulty of the task, however, have nothing to do with its nature.

According to this view of the matter there is no more reason to be satisfied with generalities in economics than in physics. Some writers on economic subjects, who pride themselves upon scientific reluctance, remind me of Mr. Brooks, in “Middlemarch.” They believe in things up to a certain point, and are always afraid of going too far. They would be careful about the multiplication table, and not bear down too hard on the rule of three. They do not discriminate between care in the application of rules, and confidence in scientific results; or between harshness in personal relations and firm convictions in science. The more we come to understand economic science the more clear it is that we are dealing with only another presentation of matter and force, that is to say, with quantity and law, so that we have mathematical relations, and have every encouragement to severity and exactitude in our methods. When, therefore, it is said that the economists do not pay sufficient heed to the power of legislation, that is no stopping place for the argument any more than it would be in physics to say that sufficient heed was not paid to friction. The question would then arise: What is the force of legislation? Let us study it, just as we would go on to study friction in mechanics. When it is loosely said (as if that dismissed the subject) that men have passions and emotions and do not act by rule, the objection is not pertinent at all. It is connected with another wide and common, but very erroneous notion, that economic laws involve some stress of obligation on men to do or abstain from doing certain things. I suppose this notion arises from the classification of political economy amongst the moral sciences. Economic laws only declare relations of cause and effect which will follow, if set in motion. Whether a man sets the sequence in motion at all or not, and if he does so, whether he does it from passion or habit or upon reflection, is immaterial. Such is the case, as I understand it, with all sciences. They simply instruct men as to the laws of this world in which we live that they may know what to expect if they take one course or another, or they instruct men so that they may understand the relations of phenomena of forces beyond our control so that we may foresee and guard ourselves against harm. It follows from all this that I demand and aim at just as close thinking in political economy as in any other science. I think we must try to get as firm hold of principles and fundamental laws as we can, and that, especially in the face of speculative propositions, we ought to cling to and trust the firmly established laws of the science.

(2) As to legal tender, it seems to me that the public mind has been sadly confused under the régime of paper money. Money is any commodity which is set apart by common consent to serve as a medium of exchange. If it is a commodity, it will exchange by the laws of value, and will therefore serve to measure value. It must therefore be a commodity, an object of desire requiring onerous exertion to get it. In theory, it may be any commodity. The question as to what commodity is a question of convenience—that one which will answer the purpose best. Through a long period of experiments we have come to use gold or silver, simply because we found them the best. Convenience here gave rise to custom, and money of gold or silver owes its existence to custom entirely, and not to law at all. Law has only in very few instances even selected that one of the two metals which should be used. Even that has come about through custom. Law, therefore, here as elsewhere where it has been beneficent and not arbitrary, has followed custom, recognized it, ratified it, and given it sanctions. (1) A legal tender law, therefore, where customary money is used, simply declares that the parties to a contract shall not vex each other by arbitrarily departing from the custom. The creditor shall not demand, and the debtor shall not offer, out of spite or malice, anything but the customary money of the nation. Such a legal tender law has no significance whatever. No one thinks of it or speaks of it or takes it into account, unless he be one of those whose idle malice it prevents.

(2) A legal tender law is used where a subsidiary token currency is employed as a part of the system, to prevent debtors from using it in payment, and to prevent the system from bringing about a depreciation of the money. In this case it is part of the device for using a token currency, and is open to no objection. It would check the debtor when he meant to perpetrate a wrong. It would not enable him to do one.

(3) A legal tender law has been used very often, however, to give forced circulation to a depreciated currency of little or no value as a commodity. In that case the legal tender act enables the debtor to discharge his obligations with less commodities than he and the creditor understood and expected when the contract was made. If the creditor appeals to the courts, they are obliged to rule that the debtor has discharged his obligation, when he has not, and they give the creditor no relief. Hence it appears that a legal tender act giving forced circulation to depreciated currency amounts simply to this: it withdraws the protection of the courts from one party to a contract, and leaves him at the mercy of the other party to the extent of the depreciation of the currency. Obviously no other act of legislation more completely reverses the whole proper object of legislation, or more thoroughly subverts civil order. The English passed two or three acts of this nature, although they were not specifically acts for making banknotes legal tender, during the bank suspension at the beginning of this century. It would have been interesting to see what English courts would have made of an act which reversed the whole spirit of English law by diminishing the rights of one party under a contract, and which made the courts an instrument for his oppression instead of an institution to provide a remedy, but no case came up. The twelve judges on appeal overturned the sentence of a man convicted of buying and selling gold at a premium. Some few persons demanded and obtained gold payments throughout the suspension but the paper circulation was really sustained by public opinion and consent, it being believed that the bank suspension was necessary. This form of legal tender, therefore, is totally different from that first described. I call it, for the sake of discrimination, a forced circulation. When a legal tender act giving forced circulation to a depreciated currency is first passed, if it applies to existing contracts it transfers a percentage of all capital engaged in credit operations from the creditor to the debtor. In its subsequent action it subjects either party to the fluctuations which may occur in the forced circulation, robbing first one and then another. Hence the debtor interest is that the depreciation once begun shall go on steadily, because any recovery would rob debtors as creditors were robbed in the first place.

Having disposed of these two points I now take up the question I proposed at the outset: Is a concurrent circulation of gold and silver possible under an international coinage union?

Here we have to make a radical distinction between two different propositions for an international coinage union. The first is that of M. Wolowski. He pointed to the comparatively small fluctuations of the precious metals and to the effect which France had exerted by the double standard, and inferred that if all civilized nations would join France in her system they might arrest the fall of either metal before it became important. If the coinage union fixed upon a ratio of one to fifteen and one-half, then, if silver fell all would use silver, which would arrest its fall. If gold should fall, all would use gold. As the metal in use would always be the one which was cheaper than the legal ratio, the other would be above it, if I may so express it. Hence neither would be permanently demonetized, because neither could fall so low as to go out of use. Only one would be used at a time but the other would be within reach, and if either should rise relatively to commodities, debtors would not suffer but might even be benefited by being enabled to turn to the falling metal. This system would require of the law nothing except to prescribe that the mint should coin either metal indifferently which people might bring, silver coins being made fifteen and one-half times as heavy as gold coins of the same denomination, both being of the same fineness. This is Wolowski’s plan, and these are the advantages he expected from it. He thought that it would hold the alternative open between the two metals. He feared that silver, if universally demonetized, would fall so low as to go out of use entirely for money. He thought that France and, later, the Latin Union ought not to bear alone the cost of keeping up the value of silver. He thought the debtor ought not to be oppressed by being forced to rely on one metal alone which might rise relatively to commodities. He did not propose to give the debtor the use of the whole mass of both metals at the same time. Indeed that arrangement would defeat Wolowski’s purpose, for if the whole mass of both metals could be brought into use at once prices would rise. Those who are indebted now would win, but when prices and credit had adjusted themselves to the bimetallic money the effect would be exhausted. Debts contracted after that would be relatively just as heavy to pay as they are now, and if the precious metals taken together rose relatively to commodities, debtors would have no recourse to anything else. Now this chance of recourse, when the standard of value rose, was just what Wolowski wanted. His language is very guarded and scientific. He never went further than to say that his scheme would restrain and limit the fluctuations of the metals—how far he did not know and did not pretend to say. He thought the fluctuations would be so narrow that the transition from one metal to the other would be a relief to debtors without any appreciable injustice to creditors. All this is very clear and very sensible. On theory it is open to no radical objection. The discussion of it turns upon considerations of practicability and expediency. It is much to be wished that this plan should be called by its proper name: the alternative standard, or, better still, the alternate standard. It counts among its adherents a number of strong men, and many others have signified assent to it on theoretical grounds.

The term “bimetallism” ought to be restricted to another theory of which Cernuschi is the advocate, which has for its purpose to unite the two metals at once in the circulation and give debtors the whole mass of both metals as a means of payment. Cernuschi believes that the international coinage union could arrest the fluctuations of the metals entirely; or that there is some narrow limit of fluctuation within which both would remain in use, and that the coinage union could hold the value-fluctuations of the metals within these limits. The American schemes are numerous and so crude that it is difficult to analyze or classify them. They are also of many different grades. They all, however, seem to have this in common, that they want to secure to the debtor the use of both metals at once, and that they aim at a concurrent circulation. They must, therefore, be classed under bimetallism. These schemes all involve not simply what Wolowski said—that legislation and union could limit the fluctuations—but the proposers know how much it would limit them, and they can control the results. This view has very few adherents in Europe. It has not been discussed there save by one or two writers. It is passed by in silence for reasons which I shall soon show.

The opinion has been expressed that these two propositions differ only in degree. From this opinion I must express my earnest dissent. It is the very cardinal point of my present argument. Wolowski’s alternate standard seems to me to rest upon the belief that legislation of the kind proposed would restrict the fluctuations in value of the metals. It affirms that legislation would have a certain tendency. Any plan for a concurrent circulation giving debtors the use of the whole mass of both metals pretends to say how far the tendency would go and what its results would be. To my mind the difference between those two propositions is that between a scientific and an unscientific proposition. We have a parallel case before us. Some say re-monetization would cause an advance in silver. Others say re-monetization would make a four hundred and twelve and one-half grain silver dollar equal in value to a gold one. Are those two propositions the same save in degree? It seems to me that only a very superficial consideration of them could so declare. Obviously they differ in quality more than in degree. The former of these propositions is not false in principle; the question in regard to it must be decided by circumstances. The second is false and erroneous from beginning to end, and would be false even if temporarily and by force of circumstances the silver dollar should become equal to the gold dollar, because it rests, like the old doctrine that nature abhors a vacuum, upon false views of all the forces involved. Just so with regard to a concurrent circulation or bimetallism as compared with the alternate standard. The latter predicts tendencies to arise from the play of certain forces. Those tendencies are the true effect of those forces. The question may be raised whether the means proposed would bring those forces into action, whether they would be as great as is expected, whether they would be counteracted by others, but there is no error as to the nature and operation of economic forces. Bimetallism predicts results, not tendencies. It assumes to measure the consequences and say what will result as a permanent state of things. It therefore involves the doctrine that legislation can control natural forces for definite results. If legislation cannot so control natural forces, then we cannot secure a concurrent circulation, giving the debtor the use of the whole mass of both metals with which to pay his debts. At a time like this, when the silver craze seems to be asserting itself as a mania, by sweeping away some who ought to be most staunch in their adherence to economic laws and most clear in their perception of economic truths, I may be pardoned for insisting most strenuously upon this distinction and upon its importance. Many of the American writers have been betrayed into error by not having examined these two plans and discriminated between them with sufficient care. It is very common to see arguments based upon the alternate standard and inferences drawn as to bimetallism which are entirely fallacious because they cross the gulf between the two theories without recognizing it. Bimetallism is so plainly opposed to fundamental doctrines of political economy that few European economists have felt called upon to discuss it. Here the case is different, and the more ground it wins, and the more danger there is that it will affect legislation, the more urgent is the necessity to resist every form of it.

Now my proposition is that a concurrent circulation, that is a permanent union of the two metals in the coinage, so that the debtor can use both or either, is impossible. Permanent stability of the metals in the coinage, whether with or without an international coinage union, is just as impossible in economics as perpetual motion is in physics. Against perpetual motion the physicist sets a broad and complete negation, because action and reaction are equal. He does not care what the principle may be on which any one may try to construct perpetual motion. If any one brings to him a perpetual motion perhaps he will spend time to examine and analyze it and show how it contravenes the great law of motion. I claim that a concurrent circulation is impossible on any scheme or under any circumstances because it contravenes the law of value. Value fluctuates under supply and demand at a limit fixed by what Cairnes calls cost of production, or Jevons calls the final increment of utility, or Walras calls scarcity, all of which on analysis will be found to be the same thing. Bimetallism affirms that, under legislation, although supply and demand may vary, value shall not. In order to test this let us next examine the influence of legislation on value.