Charles Franklin Dunbar.

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industry and wealth, which will finally raise the people to the con-
dition where their need of goods for use will no longer keep them
bare of cash. At present the condition of portions of the South
and West presents a kind of deadlock. Their people are poor in
all but natural resources. They remain poor because there is little
" money in circulation," and there is httle " money in circulation "
because they are poor. With a short succession of bad years they
are in something like destitution. With a bountiful harvest they
gain a little ground, and hope rises. To encourage the proper use
of credit, and of credit in the form most natural to their condition,
although a slow remedy, appears to be not only a hopeful one, but
also the only one now within reach of the national government.

To recapitulate the points which appear to be of chief impor-
tance in the current discussion : —

The great objects to be secured are: to enable sections of
country, now excluded from the advantages of the national bank-
ing system, altogether or in part, to make use of this system and
of the right of issue under it, as their needs may require ; and to
make the issues of the national banks elastic as well as safe.

The natural means for securing these results are : to abandon

people who live around it. Yet, if a country bank issues currency backed by the gov-
ernment, that currency will leave it and the people who really need it, and go to a com-
mercial centre, where there is no legitimate need for it."

Mr. Royall's cure for the difficulty appeared to be an issue of notes, not too good,
but just good enough to be used at home, — a difiacult medium to strike.


the present system of bond deposit as security for notes, to sub-
stitute a first lien in favor of note-holders upon all assets and upon
the stockholders' liability, and to create a guarantee fund supported
by levy upon all banks in proportion to their circulation ; to
strengthen the system, by provision for closer inspection and by
more frequent publication of accounts ; to authorize and encourage
the introduction of the branch system, at the same time raising the
line of minimum capital, say, to $200,000 ; and to organize a sys-
tem of central redemption, enforced by restriction upon the right
of banks to pay out the notes of other banks.

The practical and political difficulties, at present hindering any
reform, need no comment. Factions in Congress, apathy produced
by a new period of prosperity, popular financial delusion, and
differences of opinion among the friends of reform may raise for-
midable obstacles in the way even of partial measures, and still
more in the way of any comprehensive plan, for the removal of
generally acknowledged evils. But, whatever steps it may be
possible to take, little will be gained if they do not turn plainly
towards the objects above stated, and proceed courageously and
unequivocally upon the general lines which the present writer,
following many others, has reviewed in these pages.


No previous year in our history has seen such an increase of
the stock of gold in the United States as that which marks 1898.
Our product for the year is beheved to have exceeded that of the
richest period of the CaHfornia discoveries, our imports surpassed
by fifty per cent the highest sum ever before reported by our cus-
toms records, and these enormous receipts were offset only to an
unimportant extent by exports. Looking at the influx from
abroad, it is safe to say that no commercial nation has ever before
received such a mass of gold in a single twelvemonth for the
supply of its own requirements. Taking our mining product and
imports together, our total receipts in 1898 exceeded even those
of England, the great distributing reservoir of gold, which also
then reached their highest point.

Although the course of trade which produced this remarkable
result is sometimes spoken of as if it betokened some radical
change in our commercial relations, careful examination will show
it to have been the consequence of precisely the same influences
as those previously at work in our foreign dealings. Allowing for
changes wrought by eighteen years of rapid national growth, the
course of our foreign trade from the fall of 1896 bears a strong
resemblance to the wonderful tide ending in 1881, which estab-
lished the permanence of the specie payments, undertaken with
such doubtful prospect of success at the beginning of 1879. In
both cases the United States were able to command gold until
every reserve and depository was overflowing.

Still, at the bottom of much of the current discussion of finan-
cial questions, there is often found a doubt, express or implied, as
to the ability of the people of the United States to maintain a cur-
rency on the gold standard. This doubt relates to something more
than our present ability to hold gold, with our paper currency in
the top-heavy condition to which it has been brought by thirty

' Quarterly Journal of Economics, h^x'X, 1899.


years of haphazard legislation. It involves the much broader
question whether there is not something in the economic charac-
teristics or relations of this country, as compared with the other
great commercial nations, which makes it difficult, perhaps impos-
sible, for us to retain permanently what might otherwise be
regarded as our natural proportion of the world's stock of money.

It is hardly surprising that this doubt should sometimes spring
up. As no part of our financial system now works according to
expectation, we have nearly the whole of the export demand for
gold concentrated upon the Treasury. Any cause which lowers
the gold balance in the Treasury, whether it be an unusual demand
for the redemption of notes or a deficiency of revenue, weakens the
sometimes narrow foundation on which our paper currency stands ;
and, as there is no provision for systematic repair, the possibility
of a suspension of gold payments by the government instantly
comes to mind. For the greater part of the time, in the last eight
or ten years, the attention of the public has been fixed upon the
Treasury balance. Any movement in the wrong direction has been
viewed with alarm, any demand for the redemption of legal tender
notes has come to be described as a " raid," the export of gold has
become an event of black significance. The line to be drawn
between the embarrassments caused by remediable defects of sys-
tem and those springing from some inherent financial incapacity
of the nation, is not always made out with ease ; and we can hardly
wonder, therefore, that the doubt whether, under any arrangement
of the currency, we can expect to hold our own in the competition
of international exchanges should sometimes gain ground. It is
on the fundamental question thus presented that I now propose
to offer a few considerations.

The general advantages with which the United States enter
the field of international trade are manifestly such as to raise a
strong presumption in favor of our ability to maintain a gold cur-
rency, if we will, — a presumption to be controlled, if at all, only
by showing the existence of some highly exceptional disqualifying
condition. We have a territory of remarkable productive capacity,
already developed to such a point as to place us in the first rank
as a producing country. Our people have the qualities needed for
the most effective use of this source of material wealth, and are
practically free from the burdens of debt and armaments which



fetter the energies of most of our rivals. Our industries are
varied and highly organized ; our industrial outfit for the produc-
tion, transportation, and exchange of goods is vast in extent, and
in many branches of unprecedented excellence ; and our accumu-
lation of capital has been extraordinary in rapidity and amount,
as is evidenced, significantly for the present purpose, by the sup-
ply of gold in our hands, which, by the mode of estimate followed
by the Treasury, must now largely exceed $900,000,000. To all this
is to be added the fact that the United States have long been the
first gold-producing country in the world, and that, if we now take
the second place, this is not because our own annual supply has
fallen off, but because that of South Africa has come into existence.

If now we seek for a possible disqualifying condition, tending
to defeat the presumption created by these solid advantages,
original and acquired, we must look for it either in the trade in
merchandise carried on by this country with others, or in our
strictly financial transactions with the rest of the world. It is
only in dealings of these two kinds that we receive gold or part
with it, on any great scale, and it is therefore in one or the other
set of relations thus created that any such exceptional character-
istic as is now sought for must exist.

Taking into consideration, first, the economic character of our
exchange of merchandise with other countries, it is clear that, as
regards the movement of gold, the position of the United States is
one of singular advantage. This fact we recognize in our confident
moods, but are inclined to overlook in the presence of any financial
difficulty. Summarily stated, the advantage consists in this, — that
our demand for the goods of other nations is, on the whole, far less
intense than their demand for ours. This is, doubtless, at variance
with much that is often said as to our tendency to over-importation ;
but the truth of the statement is demonstrated by well-recognized
facts, of which the history of 1893 offers a convenient illustration.

The crisis of that year came on so late in the spring that the
imports for the fiscal year ending with June show little trace of its
effects ; and their net amount, $849,800,000, is one of the highest
then recorded. Under the pressure of the revulsion our imports
for the next fiscal year, 1893- 1894, fell more than $211,000,000.
A sudden change of that magnitude necessarily implies some ex-
traordinary alteration of economic conditions, and great individual


hardship as the result; but it also implies a wide range of adjust-
able demand, previously satisfied by imported goods. The nature
of this demand is disclosed by the classification of imports in the
Treasury returns. Under Class I., articles of food (of which seven-
eighths were made up by sugar, tea, coffee, and fruits), there was
an increase of imports in 1893-1894, amounting to over ^6,000,000 ;
under Class II,, crude materials for domestic industry, there was a
drop of forty per cent, or nearly 1^90,000,000; under Class III.,
partially manufactured materials imported for further manufacture,
there was a fall of thirty-one per cent, or a little more than
;^30,ooo,ooo ; under Class IV., manufactured goods for consumption,
there was a fall of thirty-five per cent, or $51,000,000 ; and under
Class v., luxuries, including silks, laces, tobacco, wines, and liquors,
there was a fall of over thirty-six per cent., or $46,000,000.

These figures tell a plain story of enforced economy, by which
a great people, under the pressure of a revulsion, changed for the
time the scale and the distribution of their demands for consump-
tion, slackened the productive machinery which supplied some
great classes of demand, and undertook to live within their present
available means. So far as our foreign trade was concerned, this
economy was practised, not, indeed, with ease, but chiefly by cut-
ting off the superfluities and the dispensable comforts of life and
the material for their production, without, however, sacrificing the
articles of necessary consumption, or even " the free breakfast
table." Under similar pressure in other years the shrinkage of
our demand has followed a similar course, marking a high degree
of control on our side of the international trade.

If we look at the other side of the trade, and examine the
demands made upon the United States, we find that cotton, bread-
stuffs, cattle, and provisions made up two-thirds of our domestic
exports in 1893 and nearly two-thirds in 1894, the total rising from
$831,000,000 in the former year to $869,000,000 in the latter. In
neither year were our exports of these leading articles at their
highest. Our cotton crop fell off in 1893 by more than 2,000,000
bales, and our yield of wheat fell in 1894 by more than 100,000,000
bushels. But the foreign demand for these products is plainly not
a controllable demand in the same sense in which our demand for
manufactures is controllable. The demand for cotton is as con-
tinuous as that for any article of consumption can be. Although



our exports vary with the abundance of our crop, the purchases of
Great Britain in a long series of years show great steadiness ; and
the United States still send to that chief customer as large a pro-
portion of her annual supply as they did before the Civil War.
Our cotton, in short, finds its market in bad years as well as in
good. It supplies the indispensable material for a vast industry,
which may indeed flag in bad times, but cannot stop. Our exports
of food, which are now seldom below $300,000,000, swell, of course,
with any deficiency of crops in Europe. The demand for them is
imperative within the limits set by other sources of supply, and,
when strengthened by the deficiency of those sources, is neither to
be satisfied by a substitute nor to be reduced by economy of con-
sumption. It may be said, therefore, of our great exports, that the
demand made upon us for cotton is constant and imperative, and
that the demand for breadstuffs and provisions, though irregular,
is always large and often of remarkable intensity.

The extraordinary movement of gold to this country beginning
in 1896 is the latest proof of the importance of this characteristic
of the relative demands of the United States and of the other lead-
ing commercial nations. Illustrations to the same effect, however,
can easily be found in the statistics of our foreign trade, all going
to show that, while, like any rapidly developing nation, we often by
large imports strain our ability to pay, any severe pinch finds us
able to forego a large amount of purchases, — which, after all, are
not for the supply of imperative wants, — and thus to check the
outflow of gold ; and that, on the other hand, the urgent demands
made upon us frequently turn the current of gold in our direction
with amazing force. That these urgent demands are irregular is
an undeniable drawback to the advantage which we enjoy. Our
command of the situation, which is now intermittent, might no
doubt be constant, and the change in the volume of our trade less
serious, if the need for our products were always felt at its maxi-
mum by our chief customers. This irregularity, however, is the
condition annexed to the enjoyment of a resource which has no
parallel in the commerce of the world.^ How far it can be thought to

1 The extent of the irregularity may be seen by the foUownng statement of the per-
centage ratio of the annual export of breadstuffs, provisions, and food animals compared
with the mean for the last ten years : —

1889 1890 1891 1892 1893 1894 1895 1896 1897 1898
.69 .91 .84 1.34 1.03 .98 .76 .88 1.05 1.52



place us at a disadvantage compared with other countries as regards
ability to retain a gold currency will be seen more plainly when we
come to consider the actual movements of gold to and from the
leading nations respectively. For the present it is enough to point
out the strong probability that a trade in which we buy for the
satisfaction of our own secondary wants and sell chiefly to supply
the primary needs of others, whether the course of this trade be
uniform or not, gives us a position of exceptional advantage.
It is at any rate certain that it presents no reason for concluding
that the United States have any particular incapacity for retaining

Turning now to the other quarter in which any disqualifying
condition for maintaining a gold currency must be sought, — the
strictly financial relations of this country with others, — we have to
deal with a state of things far more complex than that already
considered, in which misconception is far easier. Extraordinary
rapidity of development and the possession of resources which
offer a vast field for investment have made the United States the
greatest borrower in the modern world. In saying this of our peo-
ple as a community, the word " borrow " is used in a wide sense, to
include all the forms in which foreign capital is employed within our
limits in uses to which domestic capital must otherwise have been ap-
plied. Whatever form the evidence of the transaction may assume,
whether it be found in national, state, corporation, or individual
indebtedness, in the bonds or in the stocks of railways or industrial
enterprises, or in the private ownership of manufacturing establish-
ments, — in all these cases and under many other disguises, the
people of the United States as a whole are employing foreign
capital in the support of their general system of industry. The
interest, the dividends, or the current profits, if any, are the reward
of the lender : the general gain, convenience, and stimulus coming
from the development of a particular resource or industry, or from
the more rapid and symmetrical development of our system as a
whole, inures to the advantage of our own community. Borrowing
in this sense we have carried on for a century upon an ever
increasing scale, and shall doubtless long continue to carry on,
unless we wantonly sacrifice our unexhausted ability for vigorous

As great debtors, in this large sense, the United States have


necessarily great payments to be made to their creditors, — to be
made according to the standard of the commercial world, and
therefore called, conveniently enough, gold payments. This con-
sequence of our position as a debtor nation is habitually spoken of
as a perpetual drain upon our stock of gold and as a necessary
hindrance to the maintenance of a gold currency. And yet noth-
ing is more certain than the fact that the interest, dividends, and
profits upon foreign capital employed in our industries are no more
a drain upon our gold than any other debts to be paid in the mar-
kets of the world. They no more require the export of gold than
a payment for goods or securities ; and even if by their terms the
payment is to be made, not, we will say, in pounds sterling, but
specifically in gold coin, neither the obligation nor the mode of its
execution differs from that of the payments habitually made in
foreign trade. It is not, even in this case, the actual transporta-
tion of metal across the Atlantic that is called for, but the payment
of metal in London, Paris, or Frankfort, the debtor providing the
means of payment at that place as he finds easiest, — by selling
American wheat or cattle, or perhaps by a fresh loan.^ In fact, in
the actual process of settlement, one international liability is like
another. They all take their place among the conditions which
regulate the barter of commodities between nations, stimulating
sales here and discouraging them there, and thus by their action on
the relative level of prices requiring habitually only the clearing of
comparatively moderate balances. " Gold interest " and the like,
in the settled course of trade, simply call for the regular export of
a larger amount of salable commodities, the proceeds of which are
finally converted, in the foreign market, into that medium which
secures the execution of the contract for foreign interest pay-

Without further exposition of these familiar facts, it is enough
for the present purpose to point out that, although a systematic
course of foreign payments on a large scale may have much to do
with the habitual level of prices in the country making the pay-
ments, it has no tendency to strip the country of the gold neces-

' Thus the Geneva award of 1872 rec|uirecl the payment of ^15,500,000 by England
to the United States " in K"'''-" The gold was paid to the Treasury, but the transfer
across the Atlantic was made liy a shipment of United States bonds which had been called
for payment. F. W. Ilackett, "The Geneva Award Acts," p. 176.


sary to carry on its home transactions upon what has become, for
it, the normal level. It is only when we come to the return of bor-
rowed capital, or to the transfer in either direction of securities
which represent debts, that we find in the relations of the borrower
anything that can be treated as a permanent disturbing element.
Indeed, the return of borrowed capital, or, in other words, the pay-
ment of debt, can also be set aside as little likely in practice to be
the cause of serious disturbance, so steadily is cancelled debt re-
placed by fresh borrowing. It is the transfer of securities as
investments or for speculative purposes, sometimes in large masses,
acting as an unseen import or export, and therefore calling for
settlement in precisely the same way as a movement of merchan-
dise, that is most important from the present point of view. It is
this which, at all events, appears to be the cause of most frequent
anxiety as to the drain of specie. The possibility that, at some
moment of stress on one side of the water or the other, stocks and
bonds to an unknown amount may be launched by London upon
the New York market, creates a vague apprehension, all the more
disturbing because the facts involved can never be measured with

No doubt the great class of " international securities," which
have so important a place in the operations of modern finance,
while they facilitate settlements and make transactions easy which
would otherwise be impossible, at the same time often make the
movements of commerce unsteady, and increase the swiftness and
intensity of their changes. This, again, is a drawback suffered for
the sake of great benefits enjoyed, the world being, on the whole,
immeasurably the gainer. In the use of these securities the United
States have a leading share, not only because of the extent of their
general dealings, but because so large an amount of the securities
are issued and domiciled in this country, and so find a natural
market here. It is not probable, however, that, either in the gen-
eral trade of the world, or in our particular trade, the movements
of gold have been increased by the dealings in this kind of prop-
erty. On the contrary, it is more probable that, Hke any other
improvement which introduces new varieties of desirable exports,
the increased movement of securities has, on the whole, tended to
diminish the transfers of gold relatively to the value of goods ex-
changed, and that this relative diminution has been felt in the


trade of the United States,^ although with our growth the absolute
amount both of goods and of gold has vastly increased.

But our present inquiry is whether the dealings in international
securities make the hold of the United States upon a specie cur-
rency weaker than that of other countries which successfully
maintain such a currency. It would be strange if this were the
case ; for, as they sell what we buy and buy what we sell, any dis-
turbing tendency felt by us must also be felt by them at some stage
in the series of operations. London, for example, is a buyer when
New York sells and a seller when New York buys, having the same
sensitiveness to an outflow of gold and even greater anxiety as to
the sufficiency of the export trade to counteract any serious drain.
If, on the whole. New York is weakened by this class of opera-
tions, often no doubt highly speculative, is not London also weak-
ened by a similar process ? Do we, in fact, lose anything in the
comparison of our position and its advantages with those of the
country which for nearly eighty years has maintained a sound
specie currency without interruption ? The truth is that on each
side of the water international securities, when imported, are an
import of the class not necessary for the satisfaction of any
imperative want, and are bought therefore because the purchase is
likely to be profitable, and when exported, are sold, if at all, for
such price as the purchaser judges to be for his advantage. The
disadvantage of having them crowded for sale upon the home

Online LibraryCharles Franklin DunbarEconomic essays → online text (page 27 of 40)