The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface
• Protectionism the -ism Which Teaches That Waste Makes Wealth [1885]
• Tariff Reform
• What Is Free Trade?
• Protectionism Twenty Years After
• Prosperity Strangled By Gold
• Cause and Cure of Hard Times
• The Free-coinage. Scheme Is Impracticable At Every Point
• The Delusion of the Debtors
• The Crime of 1873
• A Concurrent Circulation of Gold and Silver
• The Influence of Commercial Crises On Opinions About Economic Doctrines
• The Philosophy of Strikes
• Strikes and the Industrial Organizaton
• Trusts and Trades-unions
• An Old “trust”
• Shall Americans Own Ships?
• Politics In America, 1776–1876
• The Administration of Andrew Jackson
• The Commercial Crisis of 1837
• The Science of Sociology
• Integrity In Education
• Discipline
• The Cooperative Commonwealth
• The Cooperative Commonwealth
• The Forgotten Man
• Bibliography
• Index

THE CRIME OF 1873

THE CRIME OF 18731

Legislative History of the Act of 1873.

It is alleged that the law of 1873 was enacted surreptitiously. Mr Bryan is quoted as having said that the free-coinage men only ask for a restoration of “that system that we had until it was stricken down in the dark without discussion.” Within the last ten years the facts of the legislative history of that law have been published over and over again. They are to be found in the report of the Comptroller of the Currency for 1876, page 170; in “Macpherson's Political Manual” for 1890, page 157, and in “Sound Currency,” Vol. III, No. 13. The bill was before Congress three years, was explained and debated again and again. The fact that the silver dollar was dropped was expressly pointed out. It is not now justifiable for any man who claims to be honest and responsible to assert that it was passed “'in the dark and without discussion.” The fact is that nobody cared about it. It is noteworthy that the act is not in “Macpherson's Manual” for 1874. It was not thought to be of any importance. It was not until after the panic of 1873 that attention began to be given to the currency. To that, I who write can testify, since I tried in vain, before that time, to excite any interest in the subject. I was once in the gallery of the House of Representatives when a question of coinage was before the House. I counted those members who, as far as I could judge, were paying any attention. There were six. What is it necessary to do in such a case in order to prevent the claim, twenty-five years later, when countless interests have vested under the law, that the law is open to “reversal” because it was passed “in the dark”?

Was it Passed Surreptitiously?

How can a law be passed through Congress surreptitiously? We have indeed heard of bills being “smuggled through” in the confusion attending the last hours of the session, or as an amendment, or under a misleading title. There are the rules of order, however, by which all legislation is enacted. All laws which get through the mill are equally valid. There never has been and never can be any distinction drawn between them according to their legislative history. In the present case there was not the slightest manoeuvre or trick, nor is there even room to trump up an allegation of the kind.

That the People Did Not Know of It.

It is said that “the people” did not know what was being done. How do they ever know what is being done? There is all the machinery of publicity, and it is all at work. If people do not heed (and of course in nearly all cases they do not), whose fault is it? Who is responsible to go to the ten million voters individually and make sure that they heed, lest twenty-five years later somebody may say that the fact that they did not heed lays down a justification for a new project which certainly is “a crime” in the new sense which is given to that word here?

Motive of the Law.

The act of 1873 did not affect any rights or interests. It took away an option which had existed since 1834, but had never been used, and, for ten years before this act was passed, had sunk entirely out of sight under paper-money inflation. Secretary Boutwell, when he first brought the matter to the attention of Congress in 1870, explained the proposed legislation as a codification of existing coinage laws. Later it took the shape of a complete simplification of existing law, history, and fact, in order to put the coinage on the simplest and best system as a basis for resumption. As we had then no coin, we had a free hand to put the system on the best basis, there being no vested rights or interests to be disturbed. That this was a wise and sound course to pursue under the circumstances is unquestionable. Three years later, by the rise in greenbacks and the fall in silver, it came about that four hundred twelve and one-half grains of silver, nine-tenths fine, was worth a little less than a greenback dollar. The old option would, therefore, if still existent, have been an advantage to debtors. Complaint and clamor for the restoration of the option then began, but to give such an option, after the market had changed, would be playing with loaded dice. The European countries which still retained the option abolished it as soon as silver began to fall, and we, if we had retained it open until that time, ought to have done the same.

Alternate Ruin to Debtors and Creditors.

The inflation of the Civil War had a direful effect upon all creditors on contracts outstanding in 1862. The resumption of specie payments had a similar effect on debtors under contracts made between 1868 and 1878. Greenbackism and silver debasement were produced by resistance to this operation. The debtors of to-day are not those of that period. The debts of that period are paid off. The pain and strain have been borne. The credit of the United States has been established, the currency restored, and the whole business of the country for seventeen years has been completely established on the gold dollar as the dollar of account for all transactions whatsoever. The population of the country is now two and a half times what it was in the war time, and its wealth is probably a much greater multiple. The debts now outstanding have, with unimportant exceptions, been contracted since the resumption of specie payments. What is now proposed is to enter upon a new period of these alternations of wrong and injustice, first to creditors, then to debtors, and so on, and to do this in a time of peace, not from any political necessity, but on the ground of some economic interpretations of the facts of the market, which are incapable of verification and proof, when they are not obviously erroneous and partisan. The effect of the various compromises with silver is that the currency is once more intricate and complicated, excessive and confused, so that few can understand it, and it offers all sorts of chances for perverse and mischievous interpretations.

Demonetization Removed No Money from Use.

The law of 1873 never threw a dollar of silver or other currency out of circulation. We hear it asserted that “demonetization” destroyed half the people's money. People say this who know nothing of the facts, but infer that demonetization must mean that some silver dollars which were money had that character taken from them. No one of the other demonetizations, which took place in Europe at about the same time, diminished the money in use. The result of changes in 1873–1874 was that the amount of silver coin in use in Europe was greatly increased, and has remained so since.

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.

There is not, therefore, a fact or deduction about the law of 1873, or the history of the market since, which the silver men have put forward, which will stand examination.

[1]Leslie's Weekly, September 24, 1896.