A Standard of Value Considered in its Relation to Currency
Lewis H. Blair. A Standard of Value Considered in its Relation to Currency. 1893
STANDARD OF VALUE
CONSIDERED IN ITS
RELATION TO CURRENCY.
By LEWIS H. BLAIR,
Of Richmond, Va.
A STANDARD OF VALUE
CONSIDERED IN ITS
RELATION TO CURRENCY.
THOUGH "Standard of Value" is ever on our lips, a standard of value, as usually understood, is an ignis fatuus, an impossibility, and, except in a very limited sense, "standard" itself is impossible.
Thus a standard for creation is obviously impossible; is equally so for the three kingdoms, and is no less so for vertebrates and invertebrates, for beasts, birds or fishes. It is also obvious that the animal horse, cannot be a standard for the animal ox, though both are vertebrates, quadrupeds and mammalians, or that a horse cannot be a standard for the horse, but only for its special breed. Coach horses and draft horses, racers and trotters, ponies and cobs, etc., each has its standard, but no one breed can he standard for all breeds. Standard must deal with the particular, not with the general, with the similar, not with the dissimilar, else it can be no standard. Standard weights and measures deal strictly with the special and particular. But, contrary to general understanding, the inch is not the standard of measurement, but only of one form of measurement, the linear. To measure surface the inch must be modified into the square inch, and to measure bulk it must be further modified into the cubic inch. Accurately speaking, therefore, " standard" is a fixed, definite, strictly limited something, such as grains, seconds, inches, etc., the same everywhere and under all circumstances, whereby all things of the same, not even similar, kind are tested.
There can be no general standard, no one thing to test or gauge all other things, but innumerable special standards for the innumerable dissimilar things.
Value, on the contrary, is mostly an opinion, a state of mind, one esteeming what another despises, one liking what another hates, and is independent of utility, meat to one being poison to another.
Because we value wheat highly we ignorantly imagine all the world does too; but the Irishman rejects it for potatoes, the Scotchman for oats, the German for rye, the Chinaman for rice, the Arabian for dates, while the Esquimo would soon freeze and the Cingalese would soon burn to death if fed upon it. Though the utility of wheat remains unchanged, abundance or scarcity radically affects our state of mind respecting it, or its value.
And, because we worship at the shrine of Mammon and are ever ready to sacrifice health, reputation, and life itself in his service, we imagine that others esteem gold and silver as we do. Their value, however, varies according to peoples and even according to individuals, poor countries valuing silver most and rich countries valuing gold most. Thus silver is more valued and, therefore, becomes standard money in Mexico and South America, not because they are large silver producers, but because of their poverty; is standard money in China and India, though they produce no silver, because of their poverty, and it was practically our standard money while poor, though since California has made us wealthy, first directly and second indirectly, by stimulating production and enterprise, gold has been our standard money. Great Britain, like China and India, produces neither gold nor silver, why then does she not, like them, value silver most and make it her standard money? Because Great Britain is wealthy, and silver is too bulky to liquidate her enormous transactions. Her coined gold, however, is curtailed in value and becomes uncurrent upon crossing a narrow strip of water, and her 225,000,090 Indian subjects regard it as a valueless bauble. That value is in, great degree a state of mind, and is independent of utility, needs no further proof.
STANDARD OF VALUE.
Although standard and value, or definite invariable fact and indefinite variable state of mind, are as opposite as the poles, yet because we can unite the words, standard and value, into the glib phrase, " Standard of Value," we imagine when we have done so that fact and sentiment have thereby become welded into a reality, definite and comprehensive enough to test or measure all other things, or that we really have "a standard of value." But blinded by custom, misled by authority, and confounding exchangeability with standard of value, we cannot see that though we have a name we have not a fact, and that standard of value is an impossibility, a will 0' the wisp luring to ruin. Exchangeability, however great, can never be transmuted into a standard of value any more than an opinion into a fact. Exchangeability does not imply intrinsic value in the medium of exchange, for that is accepted freely which can be passed freely. At one time counterfeit fractional currency was knowingly received in Richmond because it could be readily expended. Great exchangeability may, however, become an approximate standard of value, voluntary and flexible, local or temporary, and accommodating itself to different peoples and to the same peoples at different times and under different circumstances, but to attempt to make of exchangeability an arbitrary, compulsory standard of value, is to insure disappointment, if not disaster.
A natural standard of value being impossible, an artificial or legislative standard of value is equally so for several reasons.
First. Because to be possible all must value the standard alike, and must continue to value it alike. If no, then no standard, single or double, exists, and legislation cannot make one; if yes, then all must continue of the same mind or the standard expires.
Second. Because government must be omniscient and omnipotent; omniscient, to know not only how all regard the standard, but how they will continue to regard it; omnipotent, to compel all to continue to regard the standard the same as when established. As there is little prospect of government being omniscient or omnipotent, there is little prospect of a permanent standard of value.
Third. Because in the long run government is simply preponderating public opinion. Government's standard, therefore, can be no better or sounder than public opinion, and as public opinion is not always wise or honest, so standard of value is not always wise or honest.
Fourth. Because, however wise or honest personally, legislators collectively are ruled more by party than principle, and under the lash of caucus they freely violate right and conscience for temporary party success. Therefore, government, or rather party, even when incorrupt, can never be depended upon not to tamper with or debase the standard. That party has not hesitated to debase the standard of value, see what it has done in the past sixty years.
In 1834 party, by reducing the gold contents of a dollar from 241 to 23.2 grains, debased the standard nearly seven per cent. In 1853 party, by reducing the weight of two half-dollars from 412! to 384 grains, and by stopping the coinage of dollars, debased the silver currency. In 1861 party debased the standard by issuing legal tenders, which, sinking as low as 35 cents,. practically reduced the pure gold in the dollar to about 8 grains. At present party stamps one bullion value of about 65 cents and another bullion value of 100 cents, and says, receive them both at par or reject them at your peril. And party is now seeking to make a bullion value, which may be less than 50 cents, a legal equivalent of 100 cents. Party or government always has and always will seek party ends at public expense, and it can never be known when party will think it advantageous to tamper with the country's standard of value.
Courts are slight protection against degradation of standard, because even the Supreme Court, which we regard with superstitious reverence, is but part of public opinion or party, and it will not long oppose strong drift of public sentiment, however wrong, because if it did it would soon be legislated out of existence or into impotence. Thus this august court, supposed to be elevated above popular prejudice and popular passion, decided that as "dollars were dollars" it was no degradation of standard to reduce in 1834 the dollar from 100 to 93 cents, nor repudiation of prior contracts.
When the same court decided that greenbacks were not legal tender for prior gold contracts, party at once legislated it into impotence by adding two justices whose votes reversed its previous decision. Given the temptation, which is rarely long absent, and party will surely tamper with the standard of value; therefore, if possible naturally, a permanent standard of value is impossible from the imperfection of party.
The argument showing impossibility of a standard of value has so far been mainly theory. The fact of the impossibility is shown by the violent antagonism of silverites and goldites, each school taking the same data, and one school proving that silver has remained stationary and gold has advanced, and the other school proving that gold has remained stationary and silver has declined, and agreement is impossible because the contention is not about something having fixed, uniform and demonstrable qualities, but about a sentiment, an opinion, a state of mind varying with time, place, individual and circumstance. Better attempt a standard of beauty or of taste or of religion, than a permanent standard of value. If we permitted ourselves to think, we would soon perceive that we were attempting sunbeams from cucumbers, and that our search was more hopeless than the Quest of the Holy Grail, and quite as hopeless as the search for the Fountain of Youth. But because we follow in the beaten track, we still pursue with heat and passion not only one impossibility, namely, a single standard, but a twofold impossibility, namely, a double standard of value-a comedy with the world for a stage, with statesmen for actors, and the fun at the expense of the people.
In view of the foregoing the inadequacy of the following propositions of the United States delegates to the Brussels Conference ought to be patent to all:
First. The unrestricted coinage of both gold and silver into money of full debt-paying power.
Second. Fixing a ratio in the coinage between the metals. Third. The establishment of a uniform charge, if any, to the public for minting gold and silver coins.
These propositions, if adopted, would not settle the monetary problem. The first would go far toward it, provided it simply read, "The unrestricted coinage of both gold and silver into money," leaving off "full debt-paying power." Legal tender is the root whence springs many, if not most, of the perplexities of the monetary problem.
The second proposition, "Fixing a ratio in the coinage between the metals," would only perpetuate the difficulties in which arbitrary ratio has already plunged us.
The last proposition, which naturally ought to be the climax, but is puerile, has no bearing on the problem, and is unworthy of consideration.
The fundamental error of these and all other propositions is the assumption that the citizen, though admitted to be better able than government to manage his other affairs, is incapable of managing his monetary affairs, and that, therefore, government must manage them for him. Man made the government, therefore the creature must manage the creator, at least in monetary matters-such is the absurdity that passes for truth, and as long as it does there is little hope for a solution of the monetary problem.
Another fundamental error of single and double standard alike is that legislation seeks to guard the citizen against instability in the value of money, as if in a world of perpetual instability permanent stability can be secured for anything, even for these semi-divine tools, gold and silver coins. Daily, much more from year to year, men lose, break and perish from instability, personal and impersonal, and there is no way to prevent, yet governments seek or rather demand a bond of fate or futurity guaranteeing stability, which of course is impossible, and it is because the impossible is demanded and expected that the money question vexes and perplexes. Government must learn that, owing to his necessary ignorance, man is in great measure the creature of instability, and, that the only way to minimize its ill effects is to leave him as free in monetary as in other affairs.
A third fundamental error is that government disclassifies gold and silver, but especially the coins made therefrom. Governments, however powerful, cannot make fact; they can at best only give fact a dress and a name, so as to be recognized. But, notwithstanding their impotence in this respect, they refuse to recognize the precious metals as simple commodities, subject to all the natural laws of commodities, but invest them with a certain mysterious nobility, and because of the great exchangeability of gold and silver coins they endow them with a nature different from but superior to all other things. Yet by a singular obliquity the things that they consider superior to all other things they think most responsive to their fashioning hand, and, though they would not attempt to impart by statute permanent value to other commodities, they do not. hesitate to attempt this with gold and silver commodities. Governments cannot make one hair white or black, but they" regulate the value of money" as complacently as they regulate the compensation of their agents. Until governments disabuse their minds of the idea that they can regulate the value of money, we need not expect a solution of the monetary problem. How then shall the monetary problem be solved? Before answering, however, a few words as to what money is. Money is not an end but a means. Nobody, not even the miser, accumulates money as an end but as a means to an end-for enjoyment or for further accumulation. It need not be of metal or possess intrinsic value, anything, gold, silver, copper, salt, shells, paper promises, etc., being money that facilitates the exchange of values. But the nature of any means or medium that facilitates exchange is not altered by its superior ability to effect exchanges. Money is merely a superior instrument of exchange. A plough is a superior instrument for facilitating agriculture, an axe for facilitating the felling of trees, a locomotive for facilitating transportation. The thousands 'of things that facilitate and lighten labor are instruments or means to ends. Money, ploughs, axes, locomotives, etc.,-all are instruments, tools, differing merely in the ends to which they lead. Therefore, money, real as well as representative, and, therefore, gold and silver coins, are tools and nothing but tools so long as they remain coins.
The most useful and essential of all tools is, perhaps, the plough; for the plough is the basis of agriculture and agriculture the basis of civilization. People can increase and multiply, and be happy and brave and virtuous without gold and silver money tools; but without the plough they can be only roving savages or wandering herdsmen. Therefore, the tool plough is mightier than the tool money, even though it be gold or silver. Should the plough then be made the standard for all tools, even for all agricultural tools? or should the plough, irrespective too of its cost, be made the arbitrary standard of value, not only for all tools, but for all things? Certainly not. But the same public that condemns making the greater tool a standard of value are diligently seeking to do this with the lesser tool. That money is a mere tool is proved by the fact that representative money, intrinsically not worth the paper printed on, effects infinitely more exchanges than real money-an example of which we have in the last annual report (December 7, 1892) of the Comptroller of the Currency, which presents the following summary showing the percentage of each of the kinds of money received by the banks on the dates stated:
I remark in passing that actual or intrinsic money represents an inferior social state, when, because of little mutual confidence, people will not part with their property except for intrinsic value. Representative money, on the other hand, bespeaks a superior social state, when mutual confidence having been learned, men freely exchange actual value for a bit of paper containing a promise to be fulfilled at some remote and perhaps unknown place. Destroy representative money (bills of exchange, checks etc.,), and we destroy civilization, because, without it, commerce would be impossible, and without commerce man would relapse into barbarism. As civilization progresses, representative money will more and more supersede intrinsic money, and even now, slightly as society has approached its goal, which is that we shall do unto others as we should be done by, intrinsic money, except in retail transactions, is as we have seen and as we know by experience, little used.
In propounding the following solution of the monetary problem it is not proposed or contemplated that abrupt and radical changes be made; these must come with time and after a long course of education. The intention principally is to point to the only permanent solution possible, so that we may face in the right direction, which after all is the essential thing. To face right is ultimately to reach the goal, however distant or however slow the progress.
Government must wholly dissociate itself from coining money, providing and issuing representatives or substitutes therefor, regulating its value and determining its ratio, and must leave the matter to the natural and unrestricted play of competing and conflicting interests. This means of course the closing of every government mint, the abolishing of every bureau and official pertaining to coinage and currency, and leaving everyone as free to coin real and to issue representative money, as he is to make and put upon the market all other tools and commodities. This is radical, but anything short thereof is mere washing outside of cup or platter.
The objection at once spontaneously arises, that this would never do, because everyone would then turn coiner or issue currency, when the public would be so flooded with spurious and light-weight coins and worthless notes that we would be bewildered, and the poor would be fleeced and defrauded on every hand. This seems plausible, but it by no means follows, because, though all could coin and issue, all could refuse to accept, and thus little coin and few notes would or could gain circulation unless . well endorsed. Moreover, though all would be free to coin and issue, yet, owing to the great sums required for a mint or bank-note plant, and working capital, few would avail themselves of the liberty. Just as the manufacture of steel rails, though open to all, is, on account of great cost of plant and working capital, confined to a few; just as for similar reasons refining sugar, though open to all, is confined to few; just as many other things, though free to all, are confined to few, so the coining of money and the issuing notes would be confined to a few-to such wealthy and ably managed corporations as the Chemical National Bank of New York, with its colossal surplus of $6,893,400* on a capital of $300,000, or as the First National Bank of the same city, with its equally colossal surplus of $7,030,500* on a capital of $500,000. Nobody could doubt or would be deceived by the issues, metal or paper, of such institutions, because no temptation would be great enough to
- Official report, September 30, 1892.
make them 'either dishonest or careless, for their very existence would depend upon keeping scrupulous faith with the public. Irresponsible coiners or issuers, unable to inspire confidence, would find so little demand for their products they would soon go out of business, and false coiners and issuers of counterfeit money would be soon run to cover by the police like other thieves and swindlers. The public would be further protected by the jealous competition and watchfulness of rival mints and issuers of notes, each ever eager to detect and expose shortcomings, intentional or accidental, of other.
Coins should simply state weight and fineness, and be of convenient size and good appearance, but every mint should be free to adopt any weight and fineness and any original design or shape. This liberty would not, as might be supposed, perplex and bewilder and deceive the public by a great multiplicity of coins, varying in weight, shape, fineness, etc., because the mints would find their advantages in assimilating their coins to those most familiar-dollars and dimes for us, pounds, shillings and pence for Great Britain, francs for France, marks for Germany, etc. Notes should be of any denomination demand required. No obstruction should be placed in the way of new mints, but the coinage of no new mint could gain circulation except as its capital and management inspired public confidence. Mints should be required to redeem their issues deficient in weight or fineness, unless worn by use, clipped, sweated or otherwise tampered with, in which event the loss, as now, must fall on the last holder. But this requirement would scarcely be necessary because the mints would do this in their own interest. Publicity would be all the penalty necessary to protect the public. No other penalty should attach to dishonest coinage than to other dishonesty. The mints of reputation will be more eager and more successful perhaps in ferreting out counterfeiters than government now is. Leave coinage to the people and the people would protect themselves earlier, better and at less cost than government can, however expensive and elaborate its machinery, and however appalling its penalties.
We are so accustomed to the regulative, but especially restrictive, hand of government in things monetary, we can scarcely conceive of any monetary system based on liberty and competition. Many objections, therefore, will immediately and spontaneously arise to the proposition that government must absolutely dissociate itself from coinage and currency. The chief and most formidable will be that it is the duty of government to protect the citizen against bad money. We shall examine only this objection, because if this is found baseless all other objections fall with it.
It is denied that it is the duty of the government to protect the citizen against bad money. The duty of the government is. simply to protect him in his life, liberty and pursuit of happiness. In all other respects-in his food, raiment, shelter, business, religion, etc.-"he is or should be left to look out for himself, and when so left he protects himself better than government can, and so it should and would be with money.
But granting that government is parent and citizen child, thus reversing the natural order, and that, therefore, government must protect him against his own ignorance, why select money? Many things are more essential to one's welfare than money. While one-fourth of the human race never sees money, and another fourth has little if any practical acquaintance with money, there are other things that all men hourly need to use from cradle to grave.
Take, for example, the humble article thread. Without thread no life but nude or fig-leaf life is possible. By aid of safety-pins and a bolt of cloth the babe may be clothed after a fashion. Maiden also, by aid of pins, and provided she adopted tropical American style, where a fathom of cloth is the regulation dress, might without thread attire herself well enough for the home circle, but what would then become of the shops, for thus garbed she would find it awkward shopping. True, she could imitate actresses and go in stockinet, but this would be embarrassing off the stage. Without thread there could be no pockets, and without pockets and plenty of them, what would become of the boys. But argument is unnecessary to prove the overshadowing importance of thread. Therefore, if government should protect the citizen in the minor, money, much more should it protect him in the major, thread, and if government should manufacture and regulate the value of money, much more should it manufacture and regulate the value of thread.
But government does not manufacture and regulate the value of thread-in fact, government dissociates itself altogether from thread, does not recognize thread at all. Then, of course, citizens (especially the poor) are suffering fearfully from inability to distinguish good thread-shoes ripped, feet on the ground, pneumonia; garments split up the back and down the legs, and rags and nakedness everywhere; poor fishermen unable to catch fish because bad thread makes rotten nets; poor boys can't catch big fish because poor thread makes miserable lines, etc. Unpaternal government to permit such loss, suffering, and mortification, just because it will dissociate itself from thread! Shame that government leaves the poor to the tender mercies of the thread-makers. But get up societies for the protection of the poor against bad thread, circulate petitions, and demand of the government protection against the untold evils of bad thread, and government which protects the poor against bad money, which, God knows, they have little acquaintance with, will surely protect them against thread, which they must use every moment of their waking existence.
But people are not suffering from ignorance of good thread! Indeed! Well, they ought to be if there be any truth in the position that government must protect people against bad money.
Why, then, are they not suffering? Simply because left to protect themselves they have in the firms of Coats, Clark, Barbour, Corticelli and others stepped forward and supplied their needs to benefit of consumer and profit of producer. And if let alone in their monetary affairs people would protect themselves equally well.
The same argument that applies to money applies equally to every other calling, profession, occupation, business, etc. -to protection against quacks, shysters, shylocks and charlatans-to protection in food, drink and clothing, and especially to protecting the poor farmer against bad seed and worse fertilizer, in fine, to monopolizing all the business of the people, and protecting them against all the ills, natural and artificial, that flesh is exposed to. And if government must do people's monetary thinking, it must equally do their social, religious, business and other kinds of thinking must be general wet-nurse and the people helpless automatons. Or, if the principle does not apply to all other interests, neither does it nor can it apply to monetary interests. Interference with nature, however well intended, always finally results in injury, and interference with the natural course of money has brought many ills with more and worse threatening.
Government has no equitable right to prescribe "legal tender" or to determine "ratio" between citizens, but only between citizens and self. When, for example, it announces periodically that it will receive and disburse, say for six months, any and all gold and silver coins of a certain weight and fineness at par, or at so much discount or premium, as bullion varies, it has exhausted its equity; for to invade the citizen's liberty to value at will gold and silver tools, called coins, is as great a violation of equity and sound principle as to invade his liberty in other directions, and the invasion is sure ultimately to produce similar evils. As government is by far the largest creditor and debtor, its action would keep both coins in constant circulation, and would thus establish a natural and automatic, not an arbitrary or impossible, parity between the metals. That this is perfectly feasible is proved by the readiness with which business conforms to the constant fluctuations of foreign exchange. Fluctuations and their consequent ill effects, especially to the rash and incautious, are omnipresent and inevitable, and all that can be done is to avoid aggravating their ill effects by our own folly, obstinacy, or well-meant interference.
Under the system of liberty coinage would most likely conform to a universal standard of weight and fineness, varying, however, as observed, in nomenclature and appearance agreeably to national taste.
Contracts of short date need not, therefore, specialize their conditions beyond reciting either gold or silver dollars, or francs or marks, because there would be no probability of materially altered conditions between initiation and maturity of contract. But contracts of long date would, in view of past governmental tampering with coinage, probably recite payable in gold or silver dollars or other coins of a certain weight and fineness at market value at date or maturity of contract, or in circulating notes redeemable at par in standard gold or silver coin. In default of stipulation debtors should have right to pay in either coin or mixed coin at market value. Custom would establish the market value of current coins just as it now establishes the value of uncurrent coins or the value of foreign exchange. These values constantly vary within narrow limits, and so would the value of our domestic coins constantly fluctuate within narrow limits, but these very fluctuations would enable commerce to make full use of both gold and silver coins. We should then hear no more of the silver question, which on present lines is as impossible of solution as squaring a circle.
Contracts for stocks, bonds and commodities would still be made as at present in terms of specific performance, and in case of default they would be settled in damages payable in standard coins at market value, which would be determined at New York, the commercial centre, and the market value at other points would be determined to a great extent by expense of transfer to New York.
A universal currency is a great desideratum, but such currency can never be until monetary matters are entirely dissociated from government and left to the free play of conflicting interests. When thus dissociated and left to intelligent self-interest, not a generation will probably pass before the great financial interests of civilization will have agreed upon a universal coinage, varying only in appearance and nomenclature, co-extensive with commerce. A universal currency resting upon consent and not arbitrary statute would only be an extension of the clearing-house systems of London, New York and other great financial centres. These have arisen naturally and do their work perfectly, and in like manner a universal currency would as naturally arise and do its work perfectly if government would restrain its regulative hand. Similar clearing houses for railroads have also naturally arisen without governmental initiation and control. As governmental interference with financial, railroad and other clearing houses would not be tolerated, because felt to be hurtful, so its interference with monetary affairs should not be tolerated, or if necessary in monetary affairs, so should it be necessary in all other affairs. What nature has put asunder man should not attempt to join together.
While governmental control ever tends to over-or under-production, non-control ever tends to prevent both. Left to themselves men do not over-produce for any length of time, because over-production means loss or bankruptcy to the producer, and under-production means so much profit to producer that others rush in to share therein, and thus production soon catches up with demand. But legislation is hard to enact but harder to repeal. Hence, when reliance is placed on legislation an evil frequently becomes extreme before legislation corrects it; and on the other hand, when legislation is bad the injury has frequently become excessive before the faulty legislation can be repealed. Hence too much or too little, as the case may be. Thus when legislation confers a bonus or extra profit on production of bullion, much more bullion is produced than is naturally needed; or when legislation imposes a burden or extra cost upon production of bullion, much less bullion than is naturally needed is produced. But left to natural influences, too much bullion means loss to producer. He, therefore, curtails production before disastrous over-supply. Too little bullion means profit to producer, hence increased production but gradually decreasing profit, which in time reduces production to natural demand. This system would go on perpetually, but within narrow automatic limits, so that neither excessive damage nor inconvenience could result.
The question of currency, real and representative, is not intrinsically difficult, but only difficult because custom and authority have so blinded, we not only cannot see but are unwilling to see. So soon, however, as we shall consent to regard the question on its merits, we shall be amazed at our fatuity; scales will drop from eyes supposed to be acute and far-seeing, and the question will appear so plain that all controversy will cease.
The solution of the monetary problem is not in Brussels conferences or in legislation, but simply in laissez faire. Hands off, and the monetary clouds now so threatening will pass away and leave a serene sky behind. The task, however, is difficult and the end remote, but set our faces right and the end is assured, though the pathway be long and tedious.
- Lewis H. Blair, A Standard of Value Considered in its Relation to Currency (Richmond, VA.: Everett Waddey Company, 1893).