The Online Library of Liberty

A project of Liberty Fund, Inc.

• Introduction.
• Taxation and Work.
• Chapter I.: Occupations. Distribution of Products.
• Chapter II.: Taxation Measured By Work.
• Chapter III.: Taxation Measured In Money.
• Chapter IV.: Principal Sources of Revenue.
• Chapter V.: How the Tariff Should Be Reformed.
• Chapter VI.: Taxation Which the Government Does Not Receive.
• Chapter VII.: British Tariff Reform.
• Chapter VIII.: Beggarly Compensation of United States Officials.
• Chapter IX.: What Is Protection?
• Chapter X.: Occupations That Cannot Be Protected By Duties On Imports.
• Chapter XI.: Method of Tariff Reform.
• Chapter XII.: Protection By Exemption From Taxation.
• Chapter XIII.: Free Trade the Objective Point.
• Chapter XIV.: Attempted Definition of the Principle of Protection By Senators Sherman, Hoar, and Aldrich.
• Chapter XV.: Hamilton’s Policy.
• Chapter XVI.: Tariff Protection Does Not Raise Wages.
• Chapter XVII.: Protection Promotes War; Free Trade Promotes Peace.
• Chapter XVIII.: Does Tariff Protection Promote Liberty?
• Chapter XIX.: Progressive Reduction of Duties.
• Chapter XX.: Cost of a High Tariff.
• Chapter XXI.: Development By Free Commerce.
• Chapter XXII.: High Wages and Low Cost.
• Chapter XXIII.: The Use of Machinery By Nations.
• Chapter XXIV.: The Waste of Armies.
• Chapter XXV.: Senator Morrill’s Report On Canada Received. Food and Wages.
• Chapter XXVI.: In the Matter of Silver, Bi-metallism, and Free Coinage.
• Chapter XXVII.: Volume of Trade.
• Chapter XXVIII.: Taxation By Bad Money.
• Chapter XXIX.: How to Maintain Silver Equal to Gold.
• Chapter XXX.: The Issue Joined.
• Chapter XXXI.: Personal Observations—conclusion.

CHAPTER XXVI.

In the Matter of Silver, Bi-Metallism, and Free Coinage.

It would not be suitable to leave the subject of Taxation and Work after having treated the tariff system only. The very worst and most destructive form of tax that can be imposed on any community is to tamper with the currency and to impair the standard of value. Compared to this method of taxing the many for the benefit of the few, the tariff sinks into relative insignificance.

It will not be possible to extend these treatises much further. Hence, the only present treatment which the writer can be permitted to adopt will be to put down a series of propositions and interrogatories, to the end that each person who gives thought to the subject may designate all points of agreement by numbers. These points being eliminated, a large part of the apparent complexity will be removed, and it may be possible thereafter to come to an agreement on the points of difference which will be left after cancelling the points of agreement.

In framing these propositions and queries I have endeavored to develop the logic of the case upon the basis of admitted facts, bearing in mind that all statutes which are not consistent with the nature of things must either be repealed or become inoperative, else the attempt to enforce them will only make disorder.

1. Gold and silver have become what are known as money metals, through a gradual process of natural selection subsequently established under forms of law.

2. Coinage is a process of manufacture; that is to say, a process of converting a definite weight of the pure metal of which the coin mainly consists, with a definite proportion of alloy into a disk, upon which a government stamp is put in order to certify its kind, its weight, and its fineness—in other words, to certify to the quality of the coin. That definition exhausts the word coinage.

3. Coinage has been made a government monopoly in order to assure just weight and quality.

4. The names of nearly all coins can be traced to definitions of weight. It is probable that all coins were once named in that way so that the name might correspond to the weight of metal in them. When subdivided, the smaller coins represent aliquot parts of a given weight.

5. The valuation, estimation, or conception of value of each coin is first derived from the estimation in which a given weight of metal is held in ratio to other things that may be exchanged for it. The estimation or value of representative or token money rests wholly upon its being redeemable or convertible into coin of full weight.

6. When goods are sold for coined money or its equivalent, coin is bought; vice versa, when coin is bought, goods or services are sold. It is not necessary that actual coin should pass; instruments of credit serve to give title to coin.

7. A contract to pay one or many dollars is therefore a contract to deliver certain things containing a certain weight of metal.

8. A contract to deliver a certain number of gold dollars is, therefore, a contract to deliver the just weight of gold in the gold dollar. The alloy adds nothing to the value. The process of coining merely certifies the coin and gives stability to its valuation.

9. A contract for the delivery of one metal cannot be satisfied by the delivery of another metal in any true and just sense at any fixed ratio or proportion, because the ratio or value of each, as compared to the other, changes.

10. If it were enacted that dollars were to be made only of gold, and that the silver coin which is now named a dollar were legally named thaler (from which word the word dollar is supposed to be derived), then a contract in dollars could only be satisfied by the delivery of gold dollars; a contract in thalers could only be satisfied by a delivery of thalers in silver.

11. Scrip, that is to say, tokens made of paper convertible into either kind of coin, might be used for small change.

12. Under such conditions no act of legal tender would be required, except for the perpetuation of evidence that either thalers or dollars had been offered in liquidation of a contract.

13. It is not necessary to the enforcement of or practice under an act of legal tender that the kind of money in which a legal tender is to be made should be specified, provided there is but one lawful coin under one name.

14. A tender of merchandise may be made, but the delivery may not be accepted because the quality is not what it purports to be, even if there is no dispute about the weight.

15. A delivery of a given number of pounds of cotton may be tendered, but if the tender is in troy pounds of 5,760 grains each, then the tender is not good, the purchaser being entitled to pounds avoirdupois of 7,000 grains each.

16. By analogy, an act of legal tender may serve its full purpose in perpetuating evidence of an offer of delivery of money of one kind or another—each kind in lawful coin—without enforcing the acceptance of one kind or the other.

17. Let it be assumed that all mints were open to the free coinage of gold or silver, without charge for the cost of converting the bullion into coin, the dollar of gold being established by law of the same weight and fineness as it now is; the thaler of silver being established by law at 412½ grains, nine-tenths fine, corresponding in all but name to the present silver dollar. Free coinage would then be safe.

18. Which kind of coin would be the one chosen by buyer and seller as the standard of their contracts?

19. When contracts in dollars could only be fulfilled in dollars made of gold, or multiples thereof, and when contracts in thalers could only be fulfilled in silver thalers, would either buyer or seller be likely to make a contract in thalers?

20. Would silver bullion be brought to the mint for conversion into thalers? Would any bank or banker keep a reserve of lawful money consisting of thalers? Why not?

21. Would it not be because the silver thaler might not be equal in value to the gold dollar?

22. Why not? Would it not be because the silver thaler would not be worth as much after it is melted as the gold dollar is worth after it is melted?

23. Can a silver thaler of 412½ grains, nine-tenths fine, stamped with the motto, “In God We Trust,” designated one thaler, be made equal in value to a dollar made of gold, by an act of legal tender?

24. If a silver thaler cannot be made equal in value to a gold dollar, how can a silver dollar identical in all respects, except in the matter of two letters, be made equal in value to a gold dollar?

25. Can a thing of which the first two letters of the name are d o be given a value thirty per cent. in excess of the same thing under a name of which the first two letters are t h?

26. Equation:—One thaler of 412½ grains of silver nine-tenths fine being worth seventy cents in gold, how much is one dollar of 412½ grains of silver nine-tenths fine worth?

27. Can you make one dollar of silver of 412½ grains worth one hundred cents in gold by forcing a creditor to take it under the penalty of losing his whole claim if he refuses?

28. What man of common-sense being in possession of capital valued at the standard of gold at one hundred cents on a dollar, would lend that capital on credit subject to the liability of its being paid in silver dollars or silver thalers?

29. What does the South need to-day, good credit or bad money?

30. What is bad money? Is it not that kind of money that is worth less after it is melted than it purports to be in the coin?

31. A silver dollar is worth less than seventy cents after it is melted. Is it good money?

32. Can good credit be established on bad money?

33. There must be a money of redemption.

34. There must be a standard of deferred payment.

35. That money must be coin.

36. That coin must be worth as much after it is melted as it is in the coin, provided the government makes no charge for coinage.

37. All paper representative or token money must be redeemable on demand in coin of full value—that is to say, in the money of redemption.

38. The money of redemption must therefore be a standard or denominator of all valuations.

39. The money of redemption must be a standard of deferred payment.

40. International commerce is conducted or nominated in terms of money.

41. Whatever the money of the country from which the export is made, or to which the import is directed may be, the common denominator or standard of international commerce has become the pound sterling.

42. What is the pound sterling?

43. There is no coin of that name. It is a simple definition or denomination of a given weight of gold.

44. International commerce is therefore conducted on contracts promising payment in terms of weight of gold.

45. As there is no coin of the name of a pound sterling, actual balances are discharged by the transfer of an equivalent weight of gold in a concrete form.

46. The coin which is known as the English sovereign, when not worn in use, corresponds to the weight named pound sterling; these coins are used in the settlement of balances.

47. In such settlements the sovereigns are customarily weighed out and are rarely counted, except in the delivery of a small number.

48. There is no international act of legal tender, therefore contracts in pounds sterling must be liquidated according to the letter of the contract by a just and true weight of metal.

49. International commerce comes to over seventeen thousand million dollars a year ($17,000,000,000.00).

(See Statesman’s Year-Book.)

In the present year the imports and exports of the United States may come to $2,000,000,000.00.

50. If purchases and sales to this amount can be and are conducted upon a standard or denominator of weight of uncoined gold and without the force of a statute of legal tender, then it follows that all domestic purchases and sales in each and every country could be conducted in the same way.

51. There is no need of an act of legal tender among men who intend to meet their contracts honestly.

52. It is not necessary that an act of legal tender should designate the kind of money in which the tender is to be made when each coin is true to its name.

53. No gold dollars are now coined.

54. A dollar is now the denomination of a certain number of grains of gold.

55. If there were no other coined dollars and no act of legal tender in this country, purchases and sales would be made in terms of dollars and accounts would still be kept in dollars. Scrip convertible into dollars could be issued to fill the place of subsidiary coin. Balances of accounts could then be settled in eagles and half-eagles, and in tokens of paper convertible in sums of five dollars into half-eagles.

56. In the international commerce between this country and Great Britain it is common to ship bars of gold in place of coin to foreign countries. The liquidation being by weight they serve the same purpose.

57. International commerce, nominated and liquidated in terms of pound sterling by weight without an act of legal tender, is conducted at the least charge for the services of bankers, and is subject to the least burden in the settlement of accounts.

58. International commerce has become adjusted to these conditions from choice and not by force of law; or rather by a process of gradual selection, as it became manifest that upon the standard of valuation known as pound sterling, the safest, surest, and least costly method of doing the work would be established.

59. If such are the facts, then in reasoning upon the conduct of domestic commerce, these facts must be considered.

60. From these facts principles may be deduced. A principle is “a rule of action among human beings, or an admitted truth that requires no further proof.”

61. It is an admitted truth that the practice of nations in the conduct of substantially all international transactions is to denominate these transactions by a valuation in pounds sterling; it is a rule of action among human beings to liquidate their international contracts without resort to law, except in case of failure or bankruptcy; especially without any reference to acts of legal tender.

62. No one misses an act of legal tender in the conduct of international commerce, because it is an admitted truth that requires no further evidence that this form of contract by the weight of gold in pound sterling is the most beneficial to both parties in all contracts.

63. If such are the facts in a branch of trade in which all men are free to act for their own best interest, by what right can any legislator deprive them of their freedom of contract in domestic traffic?

64. By what right can a legislative body force or attempt to force the circulation of two kinds of coin of unequal value, by giving a debtor an option of which it deprives the creditor?

65. Who will trust such a nation?

66. Who will trust a State which advocates such a measure?

67. Who will trust the citizens of a State by which such a measure is advocated?

68. What more certain way of destroying credit could be devised?

69. Credit transactions are in ratio to cash transactions as ninety-five or ninety-eight to five or two.

70. An act of legal tender could only have been originally conceived in fraud, when a despotic government deprived the lawful coin of a part of its weight, and then forced its circulation among the people.

71. An act for the free coinage of silver dollars of the present standard and of full legal tender would correspond to such an act of fraud.

72. If it were possible to impart value to money by legislation, why not use paper or leather in place of silver?

73. The purchase of bullion would be great folly if value could be imparted by law to any circulating medium without providing for its redemption.

74. All the present efforts to provide more money have been made in this and other countries in past times.

75. Every project now contemplated by the Farmers’ Alliances, the fiat-money men, and by the advocates of free silver coinage under present conditions, has been tried, and it has failed.

76. There would be no surer way to enable the rich to pick the pockets of the poor than to pass an act for the free coinage of silver dollars at 412½ grains of full legal tender at the present time.

77. Dating from the opening of the gold mines in California and Australia about the year 1850, the ratio of gold to silver being then one to fifteen and one-half, subject to slight fluctuations and variations down to 1873, more gold than silver has been added to the monetary stock of the world.

78. In later years the proportionate addition of silver has been greater than that of gold.

79. It may be assumed that both metals have depreciated; the one metal gold having become relatively more abundant and being more suitable for bank reserves and for international transactions has taken the place of silver, while silver may be said to have become depreciated from the relatively greater abundance of gold.

80. The use of either metal in actual transactions by passing the coin from hand to hand or from place to place, has greatly lessened in proportion to the transactions by the substitution of instruments of credit convertible into gold on demand. The more intelligent and the more united the people of the different sections, States, or nations become, the less use they make of the actual coin and the greater use they make of bank notes, checks, bills of exchange, and other instruments of credit.

81. The intelligence of a given community may be accurately gauged by its banking facilities and by the confidence reposed in banks and bankers by the community at large, each serving the other.

82. It is alleged that because prices have been reduced in recent years therefore it is proved that gold has become scarce. Reference being made to the Hamburg list of prices, reprinted in Atkinson’s Report on Bimetallism (State Dept., 1887) or to Jevons’ List of Prices, or to the prices of the London Economist, or to other lists, it will appear that the prices of the necessaries of life are even now higher on the average than they were prior to 1850, notwithstanding the fact that the cost of production and distribution, measured in terms of work rather than of money, has been vastly diminished.

83. Reference being made to the ante-war period in this country, 1857-1860, it may be held that through the introduction of machinery and the application of science and invention, the people of the United States can now produce and distribute one-third to one-half more of the necessaries and comforts of life, applying thereto less work, both measured by hours and the intensity of the effort, than in 1857 to 1860. Hence lower prices.

84. Had lower prices been due to a scarcity of money or a scarcity of gold, the wages or earnings of labor would also have been reduced. The wages or earnings of labor, measured either in terms of gold or its equivalent or in what money will buy, are now higher than they ever were before in this or any other country.

85. There have been some difficulties about the supply of actual money, and there may now be sections in this country where coin or paper money is not supplied in sufficient measure to serve the use of the people. This may be attributed to restrictive legislation upon banking and to the limitations of the National Bank Act; or else to the tax upon bank-note circulation.

86. There are some indications of a general character which may to some extent show why there may have been a local scarcity either of actual money or of the instruments of exchange or credit, which serve as money—especially in the Southern States—even though the volume of circulating medium in coin, notes, or certificates is now very large—larger than for many years.

87. In the year 1882 the actual tons (disregarding fractions) moved over the railways of the United States numbered 361,000,000. Each ton was moved an average haul of 109 miles. The number of tons hauled this distance for every man, woman, and child of the population averaged 6.83, equal to 13,660 pounds. The charge for this service came to $9.20 for each person.

88. In the year 1890 the tons moved numbered 701,000,000. Each ton averaged 113 miles’ haul. The number of tons hauled 113 miles for each man, woman, and child of the population was 11.22, equal to 22,440 pounds. The charge to each person for this service was $10.56. Had the charge per ton per mile been as high in 1890 as it was in 1882 the service of the railways on freight charges only would have cost the people $238,000,000 in excess of what it did cost them.

89. The population increased a fraction over eighteen per cent. between those two dates, but the railway-freight traffic increased a fraction over sixty-four per cent. The additional quantity moved was 340,000,000 tons of food, fuel, fibres and fabrics of all kinds, hauled 113 miles. If valued as low as twenty dollars a ton these figures represent an increase in the business transactions on one single exchange, to an amount only a little short of seven billions of dollars ($7,000,000,000). The average value is probably above twenty dollars per ton.

90. Banking facilities have not increased in anything like a due proportion; therefore a heavier work has been thrown upon the circulating medium. Therefore notes, silver certificates, and other instruments of credit have not come in rapidly for redemption, because they were required for daily use. So long as all were directly or indirectly convertible into gold, parity with gold has been maintained.

91. It is manifest, however, that no increase either of coin, bank notes, certificates, or other similar instruments of credit, of one, two, five, or ten dollars, can begin to meet the requirements of such an enormous increase of traffic. It follows, therefore, that any restrictive legislation upon banking should be removed.

92. The tax upon the circulation of State bank notes may safely be removed. The present period differs wholly from the period known as “wild cat banking.” There is now an ample supply of coin or other lawful money for all interstate transactions or exchanges, and for the use of travellers; enough to remove all fears of the former difficulties of obtaining money at par when moving from city to city, or from State to State.

93. State banks of issue may now be safely organized for granting credit in the locality where they are established, or within which their notes may circulate.

94. It will become the duty of each community to establish the credit of its own banks, and to assure the redemption of notes in the most certain manner, else they will neither circulate in that locality nor anywhere else.

95. Suitable conditions for the organization of banks may be established among the citizens of each city, each county, each township, and each town. In sections where banks and bankers are looked upon with distrust, money will be scarce and credit will continue to be lacking. In sections where the actual benefit of banking is recognized, and where sound banks are established, money will be plenty, provided its absolute redemption in coin of the highest standard is assured under the laws of the State in which such banks may be organized.

96. Under such conditions, wherever there are commodities to be moved there will be plenty of money to move them. Where the quality of the money is absolutely assured, the quantity will adjust itself to the specific need of each intelligent community, and there will always be enough.

97. When the credit of the money itself is impaired, neither banks nor bankers can serve the community.

98. When the dollar of the United States is as well established and its credit is as well assured as that of the pound sterling of England, the commerce of the United States will assume such proportions as its system of duties upon imports will permit. Its possible magnitude cannot be determined while our money is liable to discredit, and our tariff obstructs imports.

99. The propositions submitted in this treatise have reference to existing conditions. What the effect of a treaty of international legal tender for the common use of gold and silver, interchangeable at a specific ratio of weight, might have upon the value or estimation of these metals must remain to be proved, if such a treaty can be made.

Until then, so long as there is no international treaty, and so long as all international commerce, including that of the United States with other countries, is denominated in pounds sterling, this country among all others has the greatest possible selfish interest in adhering strictly to the gold standard, because the price of all its principal products is determined by what the excess that cannot be consumed at home will bring, either in the home market on sales made for export, or what it will bring in the foreign markets to which it may be exported. The excess of our exports of cotton, grain, oil, and other commodities to Great Britain over imports therefrom exceeds $250,000,000 a year in gold valuation. If we need gold more than we want the merchandise against which we draw drafts in pounds sterling upon that balance, we may demand gold to the extent of our requirements.

If we did not stop the product of our silver mines, nominally worth $70,000,000, in fact worth about $50,000,000, by piling it up in our Treasury, the export of that silver at its market value, whatever that might be, would be added to our gold resources.

The gross product of this country comes to between twelve and thirteen billion dollars on a gold valuation. The little petty product of the silver mines bears the ratio to our total product of twelve hundred and fifty dollars to five dollars. Under the pretext of protection to this unprofitable branch of industry—against the judgment of all the intelligent advocates of an international bi-metallic treaty, the free coinage of silver is urged. The commerce of this country has been endangered and the credit of the country has been imperilled by this proposal.

100. When Free Trade, qualified only by the necessity of collecting a moderate revenue from duties imposed for that purpose, shall have been established, and when our international commerce is conducted by the standard of the given weight of gold, which is contained in a dollar made of gold, without danger of that standard being impaired, the centre of the commerce of the world may be changed from London to New York.