Popular Science Monthly/Volume 49/June 1896/The Monetary Problem

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THE MONETARY PROBLEM.
By LOGAN G. McPHERSON.

AS has been perceived, it is by the constant exchange of bum an effort that human welfare is promoted, and therefore is necessarily a means whereby each portion of effort contributing to the total welfare may be measured and rewarded. This means or medium of exchange is money, and its development has been as follows:

First, there was barter, or the direct exchange of commodity for commodity. Next, there was the disposal of commodities in exchange for a generally acceptable and readily disposed of commodity, the first form of money. By reason of their suitability, one or another of the metals becomes generally used as such a commodity, and as commodities are exchanged in larger volume, metals of the greatest value are coined. Then, there is the use of paper promises to pay coin issued from various sources and accepted to the extent that their security is believed in. Then these representatives of coin gradually pass into paper representatives of value, as evidenced by the result of effort, and by means of banks paper representatives of value are offset against other paper representatives of value without the intervention of coin at all.

But the progression through barter and the use of metals as money to the use of paper representatives of value has not been uniform either in time or place. There are still tribes in out-of-the-way regions who make rude exchanges by barter, and there are races between the individuals of whom the exchange of effort is uncertain and irregular, whose currencies are composed almost exclusively of lead, tin, copper, and iron. There are not only marked points of difference between the monetary systems of different nations, but in many instances one and the same nation still uses coins of different metals, of different weights, and different degrees of fineness, the values of which are not in definite regular ratio, and notably in the United States there ate paper currencies issued from different sources and resting upon different bases.

The money in circulation in the United States amounts to between one and a half and one and three-quarter billions of dollars, divided approximately as follows: Nickel and copper coins, twenty millions of dollars; silver coin, one hundred and twenty millions of dollars; gold coin, four hundred and eighty millions of dollars; paper currency, one thousand millions of dollars.

Statistics gathered by the Comptroller of the Currency show that, of the receipts of national banks, checks form an average of about ninety per cent, only about ten per cent being composed of paper currency and coin. Other statistics, also gathered by the Comptroller of the Currency, show that in retail transactions throughout the United States the medium of exchange is composed, on an average, to the extent of about forty per cent of checks and sixty per cent of paper currency and coin. The smaller retail transactions are effected almost entirely by the use of coin; as the transactions become of greater value, the more does paper currency enter into them; as their value further increases, the greater is the use of checks, and transactions of magnitude between different localities are settled by drafts and bills of exchange.

This progression in the medium of exchange, corresponding with the progression in value of coexistent transactions, agrees with the progression in the medium of exchange in correspondence with the progression in value of transactions, as they have developed throughout history, and makes manifest the fact that the most important monetary factors at present are paper representatives, of value consisting, first, of bank notes or government notes circulating generally as currency, issued under government regulation, and secured upon widely known bases; second, of checks, drafts, promissory notes, bills of exchange, and other instruments depending for their security upon the resources of the drawers and indorsers, the extent of which is not generally known.

As these paper representatives of value form by far the greater portion of the medium of exchange, the most important point of the monetary problem is raised by the question—

How may paper representatives of value be secured, to most satisfactorily meet the requirements of a medium of exchange?

Let the conditions incident to the issue and acceptance of a paper representative of value in a simple case be considered. When, a few years ago, a humble laborer, bereft of home, property, and family by the Johnstown flood, applied to the manager of a Pittsburg mill for work, he was provided with some immediate necessaries in exchange for his duebill, which called for five dollars. That duebill was practically his promise to expend effort in the service of the mill, to balance the efforts of others expended in producing the necessities provided him, and the manager accepted it in the belief that the laborer's effort to that value would be forthcoming. That duebill was returned to the laborer the next pay day as part of his wages, its purpose having been effected without the use of coin or bullion.

It will be perceived that the duebill, the representative of value in this instance, was accepted—

1. Because the acceptor believed in the ability of the issuer to produce desired result of human effort to the value called for by it.
2. Because the acceptor believed in the intention of the issuer to produce desired result of human effort to the value called for by it.
3. Because the value of the effort called for was definitely understood between the issuer and the acceptor, the unit of the measure of that value being one dollar, and the total measure of that value five dollars.

The duebill could not have been given general circulation, because not many people would have been confident that its value would be forthcoming. This lack of confidence may have proceeded from ignorance of the ability and intention of the issuer through lack of acquaintance with him, or from doubt in the minds of those acquainted with him as to his ability and intention. If, however, the promise of the laborer had been re-enforced by the promise of the manager that he would make its value good if the laborer did not, the duebill doubtless could have been given a certain circulation among those having knowledge of the manager's honesty and resources, and believing in the genuineness of his indorsement.

In other communities, however, among persons knowing neither the laborer nor the manager, circulation for the duebill could not have been expected. A representative of value, therefore, to have wide circulation, must be issued and assured from a source widely known to be able and honest in the intention to produce the value of effort to the amount for which it calls.

As it is by transition from the use of coin that paper representatives of value come into use, they are at first usually direct representatives of coin, and are generally accepted on the assurance that they can readily be exchanged for the amount of coin for which they call. This assurance is nearly always given by a government directly or indirectly. If it be required that gold, to the full value specified by circulating notes, be held as a basis for a paper currency, such a currency will never be adequate to supply the monetary needs of so vast a nation as the United States. It is doubtful that even the vast increase, both present and prospective, in the production of gold will yield a supply, the proportion of which coming to the United States would be sufficient for its monetary needs under such a requirement. To the evils of a paper currency issued against silver, reference will be made hereinafter.

If paper currency apparently based upon gold be issued to a value greatly in excess of that of the gold held for its redemption, the excess of the currency above the gold, in the absence of other guarantee of its security, is speculative and unstable. If a guarantee of its security other than gold or other metal in coin or bullion be given, a new factor enters into the monetary sphere.

The United States bonds are promises to pay, based upon the ability of the Government of the United States to obtain the result of human effort to the extent of their value by the power of taxation; and as a United States national bank is required to deposit numbers of these bonds as a basis for the bank notes issued by it, the security for these notes is really the Government's power of taxation, or ultimately the result of human effort elicited by the use of that power. A considerable portion of the security for the notes of the Bank of England consists of indebtedness of the nation to the bank; and the Dominion notes of Canada are largely based upon the Government's indebtedness. A new factor succeeding and supplementing gold as the basis for monetary issue is therefore the assurance of the result of human effort to the extent necessary to maintain the expressed value of the currency.

To perceive that a pa-per representative of value so secured will perform every function of a coin of equal value needs only an instant's reflection. A five-dollar national bank note, for example, one of hundreds of such notes, drawn from a bank by the paymaster of a woolen mill, may be paid to one of the operatives as the measure and reward in part of the expenditure of his effort in guiding the loom. It may be paid by him to his grocer, thereby measuring and rewarding in part the efforts of men expended in producing and bringing to him potatoes, flour, coffee, sugar, bacon. It may be paid by the grocer to his landlord, and so measure and reward him in part for effort expended under his direction in erecting and finishing the building containing the grocery. It may be paid by the landlord to a servant, as the measure and reward of effort expended in keeping his house clean and preparing food for his family. It may be given by her to a shoe dealer, measuring and rewarding in part the efforts of men expended in killing cattle, tanning hides, working them into shoes, and bringing the shoes to the store whence she obtained them. And thus that five-dollar bill may go round and round until it is deposited by some recipient in a bank, whence it may emerge and perform round after round of other service, and so on perhaps for years. In all its circuits, the thought of exchanging it for gold or silver may not enter the mind of a single person through whose hands it passes. It measures and rewards human effort; it is generally accepted because its recipients have ample confidence in the assurance of the bank, guaranteed by the Government that its value, as expressed on its face, will be preserved and maintained. They have confidence in the ability of the issuer to that end; they have confidence in the intention of the issuer to that end. The measure of value expressed by five dollars is definitely understood by them.

If other proof is required that neither coin nor bullion is essentially necessary to effect the exchange of human effort, attention need only be called to the emergency currency brought into existence by the currency famine of August and September, 1893. Clearing-house certificates, clearing-house duebills, certified checks, pay checks, negotiable certificates of deposit, bond certificates, grain-purchase notes, store orders, improvement fund orders, teachers' warrants and shingle scrip, sprang into being and measurably facilitated the exchange of human effort in many localities, especially in the West and Southwest, where mills, mines, and stores would have closed had there been nothing to take the place of the ordinary currency of the nation. These instruments in each instance were paper representatives of value as evidenced by the result of human effort; they each attained a circulation among those believing in the intention and ability of the issuers to make their expressed value good.

As it is by use of the results of human effort that further effort is made possible, as it is to obtain the result of human effort that human effort is put forth, what more logical, what more inevitable, than that the medium whereby human effort is exchanged, whereby it is measured and rewarded, be based upon the results of human effort? That is, it is by the exchange of human effort that we are fed and housed and clothed. It is by use of houses, food, and clothing that we are enabled to construct machines, build bridges and railroads. By the use of machines, bridges, and railroads other houses are built, other food, other clothing is prepared and distributed. To obtain houses, food, and clothing our effort is put forth. The medium which rewards us should assure us the possession of that for which we toil. As it is human effort that supplies human wants, and as human effort is known by its results, the medium of exchange and measure of value should be based directly upon the results of human effort; that is, effort of a certain quantity and quality, as evidenced by its result, should be rewarded by that which, under the law of supply and demand, will assure the possession of the result of other human effort of a certain quantity and quality in an acceptable form. Human effort should be measured by human effort, not by any one commodity, however precious, the supply of which is inconstant; human effort should be rewarded by human effort, not by any one commodity, however precious, the value of which is unstable. The attainment of this end is the final step of that evolution which began with barter, and through the use of coin and paper representatives of coin we are taking that step so gradually that we notice not its meaning.

Obviously it must not be that the assurance of reward bo based upon the result of human effort, as evidenced solely by any one commodity. Cloth, corn, leather, each varies in quantity from year to year, and the supply is not always in the same ratio to the demand—that is, neither one of these commodities is of a definite value that is permanent. This same objection applies, but in greater degree, to both gold and silver. The assurance of the reward of human effort must not be based solely upon the result of human effort as embodied in houses, mills, factories, railways, canals, ships, machinery, for these structures are not indestructible. Even those that endure for centuries may fluctuate in value as they increase or decrease in their capacity for service to society, because of change in the currents of the law of supply and demand, or as they are honestly and capably or dishonestly and incapably managed. As it is for the results of human effort in all their varied forms that the aggregate of human effort is put forth, its reward should be the assurance of a given measure of effort as embodied in desired results.

A paper currency, therefore, should be based directly upon the assurance of the result of human effort to make its value good unqualifiedly and unconditionally; and that it may attain the utmost confidence, such assurance must be universally known to be sufficient and reliable. This can only be when a group of people, the members of which, perceiving a secure currency to be vital to their prosperity, combine in giving that assurance. Such a group of people cohering by the force of common need, constituting a state or nation, can give assurance of their combined effort through enactment of their administrative body known as the government. The instrument whereby that enactment can be made good is the power of taxation, which is the power of the government to take from its people a portion of their effort for the attainment of ends necessary to their common good. The acceptance of such a currency among a people will depend in natural course upon the degree of their coherence as evidenced by their confidence in the honesty and ability of their own government to make the currency good, and also upon the knowledge of the values represented by the different representatives of value constituting the currency. Its acceptance among other peoples will depend also upon the facility with which it can be exchanged for currency in general use in their countries.

That a paper representative of value, resting upon the power of taxation, may attain a high degree of confidence, is evidenced by the United States bonds themselves, which are eagerly sought throughout Europe and America; and the national bank notes, which rest upon the same basis as the bonds, are readily accepted throughout the entire country. But there is a respect wherein the provision for currency, if limited to the issue of bank notes secured by Government bonds deposited by the issuing source, has been seriously defective. In every country, and especially in one covering so extensive a territory and with such varied resources as the United States, the processes of production and distribution do not proceed with evenness and regularity week by week, month by month, or year by year. In the spring, great quantities of fruit are shipped North from the semitropical lands of the South; in the autumn, innumerable train loads and vast cargoes of grain come from the Western plains to the Atlantic seaboard; the great mills and factories in every line of industry are busier at one time of the year than another. Currency in greater abundance is therefore needed at the times of greater activity than during the periods of comparative dullness. If there be sufficient national bank notes for the times of activity, there is during the times of dullness a plethora which is an incentive to overtrading and speculation. If their issue is only sufficient for the ordinary needs of exchange, there is a scarcity at the times of greater demand, with the result that exchange is hindered, the processes of industry retarded; that is, the currency provided by our present national bank note system is not elastic, and the restrictions imposed by the Government have made its issue so little profitable that the banks are often loath to increase the supply, which at the present amounts to but about two hundred millions of dollars.

The paper currency of the United States issued directly by the Government is composed principally of United States notes, the "legal-tender" legacies of the war, to the extent of $346,000,000, which, like the bonds, are based directly upon the power of taxation; certificates issued directly against and redeemable in silver to the amount of $345,000,000; Treasury notes issued against silver, but redeemable in either gold or silver, to the extent of $137,000,000; and certificates issued directly against and redeemable exclusively in gold to the extent of $45,000,000. The lack of elasticity is an objection to each of these issues of currency, and that they are open to other objections recent discussion has made evident. Gold, the standard of value in international exchange, has for many years exceeded silver in value in greater ratio than that deemed by the United States to exist between them. As it has been the declared intention of the Government to keep all the paper currencies issued by it of the same value as though they had been issued against gold, its currency must be exchanged for gold upon the request of the holders. But as the legal tenders, when accepted in exchange for gold by congressional enactment, must be immediately paid out again, to be again exchanged for gold if the holders so request, and so on without limit, the supply of gold in the Government's possession has been kept at so low an ebb that it has often been feared that it would not be able to maintain its intention of keeping all its issues of currency as good as gold. To avert this fear, the Government has increased its indebtedness by several issues of bonds which have been exchanged for gold, which the legal tenders have immediately again begun to drain. It is obvious that this and other evils of the immediate situation must be removed. But, without further reference to them, this article must return to the discussion of an ideal system of note issue.

The experience of the United States, as referred to in the preceding paragraph, makes important in that discussion the reply to the question—

Should the paper representatives of value which serve as currency be issued directly by the Government?

The determination from time to time of the amount of currency necessary for a nation's exchanges at all places within the territory of that nation would require the services of a large number of intelligent men, thoroughly organized; and that the currency might expand and contract according to the nation's needs, a governmental mechanism would have to be provided that is difficult of conception, and its maintenance in efficiency would be more difficult. The losses occasioned by the errors of the officials would fall directly on the Government, and therefore entirely upon the whole people; and as the issue of currency in any event must be closely allied to the business of banking, if not always practically an incident thereof, the maintenance of a governmental organization for that purpose would impose a superfluous burden upon the people, as the banking organizations are capable of the same function.

As it is the banks that, by making loans and discounts and cashing checks, can the most readily get notes into circulation and can profit by so doing; as it is the banks that come directly into contact with the business pulse of entire communities, it is evidently proper that banks should be empowered to issue representatives of value for use as currency upon such resources as would assure the value of such representatives of value, and under such checks and restrictions as would insure the expansion and contraction of issue in accordance with the law of supply and demand, not only in particular localities but throughout the nation. But as it is vital to the prosperity of the entire nation that its currency he incontestably and unquestionably secure, the guarantee of the whole people given through their Government should be the ultimate assurance of the security of their currency. The checks and restrictions upon its issue by banks should provide, therefore, that the liability for loss lie as far as possible with the banks, reducing to a minimum the responsibility, in any event, of the Government. To insure elasticity, these checks should be such as to necessitate the expansion and contraction of the currency in accordance with the law of supply and demand, by providing that, should there be insufficient currency, the banks would suffer loss, and that they also would suffer loss should there be an overabundance. The issue of currency by banks under governmental regulation and control should secure to the people the benefits that flow from competition reacting upon enterprise, and the benefits that come from the solidity of governmental backing. It should avoid the evils of overissue and speculative issue into which private enterprise is apt to be induced by greed and overcompetition, and the evils of that inertness which is characteristic of operations conducted entirely under bureaucratic control.

That such a system is not impossible of attainment, may be disclosed by an examination of different banking systems in force at different times and places, each of which has been characterized by one or more of the points of excellence which have just been specified.

Under the Scotch banking system, which has bravely stood the test of time, circulating notes are issued directly against the assurance of the forthcoming of human effort given by the drawers and indorsers of promissory notes. These promissory notes are paid with the results of the effort elicited by the circulating notes obtained in exchange for them. Although many of the old State banks are of unhappy memory, the Bank of Indiana and the banks of Louisiana were efficient in supplying currency for the commercial needs of their sections and are of honorable record.

An existing banking system of admirable performance is that of the Dominion of Canada. Under the Canadian banking act, adventurers and light-weight financiers are debarred from establishing banks by the fact that a charter is not issued for less than a capital of five hundred thousand dollars, of which at least two hundred and fifty thousand dollars must be paid up, and the character of the applicants is subjected to close scrutiny by the Minister of Finance. Notes are a first charge against all the assets of the issuing bank, and there is a penalty for excessive issue. The shareholders are liable for double the amount of their stock. There must be monthly returns to the Minister of Finance, and there is a rigid system of inspection. To insure the stability of the entire bank-note issue, each bank is required to keep on deposit with the Minister of Finance a sum equal to five per cent of its circulation, as a contribution to the Bank Circulation Redemption Fund, held by the Government to make good the notes of suspended banks. A most noteworthy and beneficent feature of the system is the practice of branch banking, the thirty-eight Canadian banks having four hundred and sixty offices. By their means the banking facilities of circulation, deposit, and discount are given not only to communities of considerable population, as in the United States, but even to hamlets remote from commercial centers. The competition of the different banks throughout their various branches, each striving for as large a proportion of the note circulation as possible, together with the governmental restrictions upon overissue, insure to the millions of people inhabiting the Dominion a supply of currency, that at all times sufficient for their needs, expands and contracts as the demand for it rises and falls. The principle of branch banking places the available funds of the entire Dominion at the disposal of the communities needing them at the times of need, whereas in the United States, because of the narrow sphere of operation of each bank, there is frequently an overabundance of currency at one point, while the healthy exchange of effort is retarded at other points because of a deficiency. The "Baltimore plan" proposed in 1894 by the American Bankers' Association, and the bill introduced by the present national administration in Congress in December, 1894, were in their essential characteristics substantially similar to the Canadian banking law, and it was the opinion then expressed of most competent financiers, that the adoption of such an act would have relieved the country of the most crying evils of the present system, and have provided the foundation for a most wholesome currency hereafter. It is noteworthy that the provisions of the Canadian act were largely the outcome of the recommendation of the leading bankers of Canada called in conference by the Canadian Government, while financial authorities, among the highest in the United States, found members of both Houses of Congress deaf to their recommendations during the discussion of the administration measure, which was finally defeated by the votes of demagogues subserving selfish interests. It, however, goes without saying, that the province of true statesmanship is often not to persist in seeking the immediate attainment of an ideal when it is unquestionable that opposition makes that immediate attainment impossible, but to better existing conditions to the extent that betterment may be possible.

The steps that followed the defeat of the administration bill are well known. There have been additional issues of bonds which may serve as the basis for additional bank-note circulation under present laws. A better system will doubtless be adopted in time, but enlightenment as to the ultimate basis of representatives of value, and their use in forwarding civilization by effecting the exchange of human effort, will need to spread in great waves to the minds of many people before there is the adoption of an ideal monetary system, and before such a system will diminish the need for money changers by effecting exchanges of effort without their aid.

And it should be perceived that the adoption of a monetary system consisting of paper representatives of value, based upon the result of human effort, will be an important step toward the determination of an absolute standard or measure of value. The attempts to invest gold or silver, or both, with the attributes of such a standard are the underlying causes of a current phase of the monetary problem that is uppermost in discussion. To the word "bimetallism" many different meanings have been attached. But, as even the most pronounced advocates of the gold standard do not oppose the use of silver for subsidiary currency, the question evidently has not now to do with the abolishment of silver as money; and as the most pronounced advocates of silver at present, in demanding even the unlimited coinage of that metal, insist that its value always bears a definite and fixed ratio to the value of gold, the question evidently has not now to do with the maintenance of a double standard of value, for if the ratio between the metals can be constant, there necessarily is but a single standard. That neither silver nor gold throughout the past has afforded an absolute standard of value is abundantly shown by the frequent fluctuations in the value of these metals, both as compared one with the other and either with other commodities.

The ratio between the value of silver and gold that was fairly level from the beginning of the expansion of mediæval commerce to the middle of the sixteenth century, was violently disturbed by the great yield of the silver mines of Potosi. The instability increased with the variations in the supply of silver as mines were opened in Mexico, and in the supply of gold as that metal was found in Brazil. The disturbance became feverish with the discovery of gold in California, and the oscillations in the ratio have since that time not ceased, having been affected by the output of silver from the Western States, and apprehension is now being felt as to the effect of the development of new gold fields in Colorado, Siberia, South America, and Africa.

During the Christian era the ratio between the values of the two metals has varied from eleven to one to thirty-two to one, which is about the commercial ratio to-day. The question at the root of the present bimetallic controversy, therefore, is:

Can a definite ratio be preserved between the values of silver and gold, notwithstanding that under the law of supply and demand the ratio rises and falls?

There are those who think that such a definite ratio can be fixed and maintained by legislative enactment, either national or international, but the possibility of the maintenance of a fixed ratio is negatived by the history of at least five centuries. This is nowhere shown more clearly than in the valuable History of Currency, by W. A. Shaw; the verdict is "clear, crushing, and final"—that is, the purchasing power of a pound of gold or a pound of silver in the markets of the world is never a matter of certainty for any extended period. This is not alone because of the fluctuation in the value of other commodities, but also because of the unequal fluctuations in the value of these commodities themselves. The results that naturally follow these fluctuations legislation is powerless to change. Since 1890 the United States has been learning this fact through bitter experience. As stated on a previous page, the nation has incurred an indebtedness that will approximate three hundred millions of dollars in the effort to maintain the ratio of 15·98 to one.

It was long claimed by radical advocates of silver, that if the mints were open to the unrestricted coinage of that metal, as they are to the unrestricted coinage of gold, coins of the two metals would circulate together, and a double standard be thereby established. But it is clear that the silver coins would inevitably be accepted at their bullion value only. The effort of the national administration to maintain the parity of the two metals, which has been strained even under the restricted use of silver, would be broken by the deluge that its unrestricted use would bring. The four hundred and twelve and a half grains of silver that were worth one dollar in gold a generation ago would be worth but fifty cents in gold to-day. If four hundred and twelve and a half grains of silver were still molded and stamped as one dollar, gold dollars would be worth twice as much as silver dollars: there would be two separate and distinct standards of value. If, notwithstanding this, it should be the edict of Congress that dollars of the two metals should circulate side by side, it is evident that gold dollars would be hoarded, sent out of the country or melted, for no one would pay a gold dollar for an article that could be purchased with a silver dollar worth but half as much. The currency of the country would fall to the silver basis, and, as the bullion price of silver is subject to great and continual fluctuation, all values would be uncertain, commerce would be restricted, manufacturing retarded. And it is obvious that the objections to the too extensive use of silver apply also to the use of paper representatives of value based upon silver.

But it must be recognized that the taking of such a step, disastrous as its total consequences would be, would not be absolutely without warrant of justice. Because of improved appliances and improved methods of production and distribution, the prices of nearly all the great staple products—clothing, shoes, furniture, grain, nails, tools, watches, drugs, glass, carpets—have in the last generation fallen in about the same degree that the price of silver has fallen. Therefore a silver dollar of four hundred and twelve and a half grains, taken at its bullion value to-day, will now buy about as much of the most needed results of human effort as a silver dollar of four hundred and twelve and a half grains thirty-five years ago, taken at its bullion value then, would buy of the most needed results of human effort at that time. Therefore a debt of one hundred dollars incurred thirty-five years ago, if paid to-day in gold, would inure to the creditor double the amount of benefit that the borrower obtained at the time the debt was incurred. Apply this reasoning to the indebtedness of the United States. It is claimed that, notwithstanding the great reduction in this debt since the war, the decrease in the prices of staple commodities, as measured by gold, has been so great that the amount of gold necessary to pay the present indebtedness would purchase at this time as much of the staple commodities as gold to the total of the indebtedness at the close of the war would have purchased at that time. That is, although the indebtedness of the Government, as expressed in gold dollars, has been vastly reduced, that indebtedness, as expressed by universally desired results of human effort, has not been reduced at all. In this connection it is significant that the depreciation in the price of silver has not led the people of Mexico to adopt other than the silver standard. Indeed, the depreciation has scarcely been noticed by them, largely because of the greater depreciation in the value of other commodities.

But as there are two sides to every question, so also are there two sides to every phase of every question. Wages, salaries, and incomes of all sorts, on the average, are far higher to-day than they were a generation ago. In many a pursuit it is easier for a man in a given time to earn two hundred dollars in gold to-day than it would have been for a man in the same pursuit to have earned one hundred dollars in gold then. So that the payment of a debt of one hundred dollars incurred then, in its gold equivalent now, would work no injustice to him. But this is not the case in all pursuits. And does the application hold good with the United States bonds, whose holders in many cases have acquired them by inheritance and have throughout their lives made no contribution to that totality of effort from which is poured into their purses an annual interest that constantly increases in purchasing power? And the original holders of these bonds may have procured them by means of the revenue obtained from land that has appreciated in value through no possible effort or foresight of theirs. Do not all these considerations point to the fact that a standard of value which may measure justice to all and injustice to none must be based directly upon the results of human effort? It is not for an instant to be intimated that existing obligations shall be repudiated, nor can it be conceived that such an ideal standard will be attained save through slow and painful development. But the theoretical demonstration of such an ideal may even at this time not be beyond the bounds of possibility. And there may be all the more need for such demonstration because of the increase, both present and prospective, in the production of gold, which may at some future time cause the fluctuations in the value of that commodity to be no less than they have been in the value of silver.

But even the adoption of an ideal monetary system would not entirely deprive the precious metals of a positive monetary function. Until one such system were adopted by all of civilization, gold would be needed in international exchange; and for various reasons, perhaps, whether the basis for circulating notes were the assurance of the result of human effort as given in promissory notes, or whether it were stocks, bonds, or other securities depending for their value upon the result of human effort, it might now and then happen that the holders of the notes might want to make an immediate test of their value. The issuing source to preserve confidence in the notes emitted by it must be able to satisfy this test. As the medium of exchange that antedated notes and that has not been entirely superseded by the issue of notes is coin; as coin has a definite intrinsic value, which notes have not; as coin is durable, portable, and readily exchangeable—it follows that a natural and practical immediate test of a note's security is the readiness with which it may be exchanged for coin. To this end, when authority to issue notes has been given, it has usually been required that specie in a certain minimum ratio to the value of the note circulation be held by the issuing source for the redemption of notes presented for that purpose. The facility for the exchange of notes for coin may be not only a test of their security, but, as in the Dominion of Canada, a means whereby through the competition of various banks the note circulation may be contracted as need for it is lessened, each of the Canadian banks being required to redeem daily such of its notes as are presented for that purpose.

And this last reference to the Canadian banking system gives rise again to the thought that perhaps, if there could yet be adopted in the United States a banking system modeled upon something of the same plan as that of Canada, it would give the nation more relief than could any other step that is now at all practicable in connection with monetary issue. Such a system would provide within safe limits the abundance of currency that the farmer and the laborer struggling for a livelihood in the West and Southwest are led by fallacious reasoning to believe can only be obtained by the free coinage of silver.