Popular Science Monthly/Volume 40/January 1892/Correspondence

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Editor Popular Science Monthly:

SIR: In your issue of July, 1891, the writer ventured to predict, as "a coming solution of the currency question," that a "gold clause," requiring payment of indebtedness in "gold coin of the United States of the present standard of weight and fineness," instead of silver, copper or fiat money, would be inserted in future long-time mortgages, and that (the legal validity of such clauses being unquestioned) the effect would be to decrease very greatly the then existing pressure for a depreciation of the currency. For it would become a matter of the greatest importance to any one who had obligated himself to pay in gold that no disturbance of the currency should take place which would prevent him from doing so. Various instances of importance, such as railroad mortgages, were pointed out in which financial caution had already resorted to this expedient.

It is interesting to note that this change is taking place every day. Quoting from The Honest Dollar of October 31, 1891:

"Inquiries which we have made of the most prominent companies interested in the negotiating of Western farm mortgages have been met with the invariable answer that all mortgages now placed have a clause inserted that payment shall be made in the gold coin. We have examined numerous bonds representing these mortgages, and in every case the provision that payment is to be made in gold is inserted, and thus not only respecting the principal, but also the interest, the gold clause being written or stamped upon all the coupons. This applies not only to Kansas, but to all Western and Southern States in which the farm-mortgage business has assumed large proportions. It is probable that few farmers have seriously considered the effect of this clause, and, in fact, many of them are doubtless not aware of its presence in their mortgages. Yet the matter is of immense importance to them.

"Let us consider the effect of a gold clause in connection with the theories of the silver men and their opponents, and let us take in first the statement of the silver men that the free coinage of silver would not put gold at a premium. Let us suppose, in other words, that after free coinage had been introduced the silver and gold dollars still remain of equal value. In this case the farmer has gained nothing by the free coinage of silver, and is not affected by it except in so far as all the members of the community may be benefited or injured by the change. But suppose, on the other hand, that the opinions of the anti-free-silver men are right, what is then the position of the farmer? According to this supposition the gold dollars will disappear from circulation, and be worth a premium of, say, thirty-three and a half per cent. But it is in these gold dollars that the farmer must pay his mortgage and the interest thereon—that is, he must pay in the current money one third more than the face of his mortgage. It is easy to see what this means. It means that many a farmer who is comfortably off will find himself very hard pressed, and that those who now find it hard to make the two ends meet will be utterly ruined. And this will be true even if the farmer gets somewhat more dollars for his crops, for he will not get enough more to make up for this difference, and the balance of loss will be enough to make the farmer's lot a direfully hard one. No doubt the silver men tell the farmer that the gold clause in his mortgage does not mean anything. But the meaning of the clause is perfectly clear in common sense and common justice, and a properly drawn gold clause has been held valid by the Supreme Court of the United States, from which there is no appeal. The gold clause, moreover, is part of a contract protected by the Constitution of the United States, and no State Legislature can impair its validity."

Thus the financial world is usurping the functions of statesmanship, and preparing for itself a solution of the most dangerous problem confronting this nation. In the course of a few years the great majority of long-time borrowers will be on paper having in it the gold clause, and will be aware of the fact that their chances of payment depend largely upon the maintenance of the gold standard. The political force of the movement for a cheap currency will thus be largely removed.

But there remains the law of 1890, under which 4,500,000 ounces of silver must be purchased monthly by the Secretary of the Treasury and silver certificates issued for the same. The Government buys 371¼ grains of pure silver for seventy cents and issues for it a certificate for one dollar in silver; or, what is the same thing, it buys 530 grains of silver for one dollar and issues a certificate for 371¼ grains of this as legal tender for one dollar. The force that sustains these certificates, and the silver dollars of which they are equivalents, in the market as the equivalent of the gold dollar, is the same as that which makes one tenth of a cent's worth of copper pass as one cent, or one cent's worth of nickel pass as five cents. It is their convenience as subsidiary coin, the impossibility of getting any other, and the limited number in circulation. Were the coinage of copper free, everybody owing a dollar would buy ten cents' worth of copper, have it coined, and pay his debts with it. In this way a man owing $1,000 could pay up with $100, and pocket $900. Were the coinage of nickel free, and legal tender for the same unlimited in amount, he would buy $200 worth of nickel, pay off $1,000 of debt, and pocket $800 profit. The same thing, with diminished ratio of profit, might be looked for with the free coinage of silver.

Now the question is. How long can the Treasury issue certificates for silver without destroying the force which keeps it on a parity with gold? This depends on the amount of necessity there is for currency. The moment that the daily pressure of currency is such that a considerable portion may be conveniently withdrawn and held in safe-deposit boxes, or sent to Europe, that portion will without doubt be gold. If, then, 550,000,000 silver dollars or certificates should be suddenly put forth (that being approximately the amount of gold in circulation), gold would no doubt disappear, because business transactions are adjusted to the existing amount of currency, and the surplus amount thus made would be unavailable here, at least to a large extent. Now, how long can the silver certificates be issued without a corresponding result? Several facts are required to answer this question: 1. How great is the natural expansion of the demand for money per month?

2. How great must be the preponderance of silver before gold is hoarded in quantity?

3. When the hoarding begins, will it accelerate, from alarm or panic?

Without trying to answer these questions, upon which the best informed differ widely, it may be granted that there is danger in the continued issuance of so large an amount of currency based upon silver. Assuming this to be a fact, what is the probability of a modification of the law? The opponents of silver having failed for twelve years to repeal the Bland law, will they be more successful with the Sherman law?

Upon this point I hazard the suggestion that the silver movement, which seemed so dangerous a year ago, may have been a blessing in disguise. It led directly to the insertion of the gold clause in contracts, as before stated, with all the consequent effects. It led to the division of the Democratic party; to the justly famous silver letter of ex-President Cleveland; to the defeat of Governor Campbell in Ohio; and to the necessity of choosing an Eastern man, or one opposed to any form of fiat money, for the presidential nominee of the Democratic party. Thus the recoil from the silver agitation has far exceeded in importance of effect the original momentum. The continuous effect of the "gold clause" goes marching on to an irresistible issue in a stable single standard; and it would not be surprising if the final result of the silver movement of the past year would be the relief of the country from the dangers of the compromise law made in the fury of the recent silver agitation.

Charles S. Ashley.


Editor Popular Science Monthly:

Sir: An article in a recent number of The Popular Science Monthly, by President D. S. Jordan, on The Colors of Letters, assigning colors more or less pronounced to the different letters of the alphabet, reminds me of a childish fancy of my own, of which I have often thought, but to which I had never before attached any significance. The days of the week were as distinctly marked or colored in my early conception as the objects about me. Sunday was red; Monday a light pink; Tuesday gray, with irregular streaks of a darker hue; Wednesday was green, with interstices of a dull white; Thursday was yellow, but not of deep tone; Friday was pink again, and of deeper tinge than Monday; and Saturday was green. What is there in these names to suggest colors? The associations of the days do not seem to offer any explanation, with possibly one or two exceptions, and, if it be a mere freak of imagination, it would be interesting to know the experience of others touching the same matter. Again, as I think over the names of the months and the seasons now, there is a suggestion of color in each, but more, I think, the result of association than in the days of the week.

J. H. Chapin.
St. Lawrence University, Canton, N. Y.,
November, 1891.