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market, so often dwelt upon in discussion in this country, is, at all
events, slight in comparison with the disadvantage suffered by the
country which finds itself compelled to make unusual purchases of
food or of any great staple for manufacture.

It is convenient, at this point in our discussion, to consider
briefly the special advantage, as compared with the United States,



1 In the last five decades the aggregate imports and exports of


merchandise by the


United States, compared with their aggregate import and export of


gold


have been as


follows : —










Merchandise Gold


Perc

TO


entage of gold
Merchandise


1849-1858 . .


. . ^4,621,000,000 $389,000,000




.0842


1859-1868 . .


. . 5,641,000,000 704,000,000




.1248


1869-1878 . .


. . 10,118,000,000 530,000,000




.0524-


1879-1888 . .


. . 14,098,000,000 571,000,000




.0405


I 889- I 898 . ,


. . 16,848,000,000 1,094,000,000




.0649 +



The exceptional conditions of the second and fifth decades require no comment.



CAN WE KEEP A GOLD CURRENCY ?



257



which England is often said to derive from her peculiar position as
a commercial nation. " England," it is said, " being the great
creditor country of the world, can draw gold as she pleases from
any quarter, whereas this is a debtor country, never secure against
demands from abroad." This idea of the practical command of
the gold of the world lying in the hands of the great creditor, per-
haps owes its origin partly to the fact that the commercial relations
of England make her the agency through which a large part of the
gold produced by the United States, Australasia, and South Africa
finds its way into the currency of the world at large, and partly to
the visible movements of that great financial barometer, the Bank
of England rate. It is true that her function as the distributer of
gold does not enable England to retain more than a rather small
proportion of what comes into her hands. It is also true that the
sliding scale of discount, by which the Bank of England protects
its own reserve and is apt to give the signal for the London market
generally, is a means of defence in no way peculiar to that institu-
tion. It is used systematically and quite as effectively by the Ger-
man Reichsbank. The apparent neglect of it by the Bank of
France is due, partly to the fact that the enormous stock of metal
in the bank enables it to yield up gold, if need be, to a great
amount with no sensible inconvenience, and partly to the fact that,
by charging a premium upon gold, the bank is able to mask its
defensive policy, and to preserve a generally "uniform rate of dis-
count with little regard to an outflow of money. The English
method may in fact be seen at work in our own country, in a less
definite form, but with similar effect, in the changing rates of
interest prevailing in the great money centres.^ Nevertheless, the
facts that the great streams of gold converge in England and

1 The following extract is from the hearing before the House Committee on Banking
and Currency, 1897-1898, Hon. C. S. Fairchild being under examination : —

"Mr. Fairchild [referring to the raising of its rate by the Bank of England].
Now in this country the same thing takes place when a man borrows a million dollars
to pay a debt abroad. It makes a diminution of the loanable funds, and that of itself
works an increase in the rate of interest ; and, when that rate of interest becomes large
enough, the seller of exchange, instead of meeting his remittances by the actual ship-
ment of gold, finds a cheaper way to meet his bill of exchange. We do not have to
have any specific measures to clothe banks with specific power to do that. It does
itself. It is one of the natural laws which works itself out ; and, if we do not put any
impediment in the way, it will take care of itself. That is my judgment about it.

"Secretary Gage. I agree with what Mr. Fairchild has said." Report, p. 135.
s



258 ESSAYS

diverge from her, and that the Bank of England conspicuously
acts with reference to them, are enough to account for the general
impression that the controlling power is to be found there.

But, besides these crude conceptions of the practical working
of English commerce, there is something more implied in the
common idea of England as "a creditor country." A creditor
can call for the payment of debts due to him, and can require
payment in money. Cannot England, then, call in her dues in
gold, the world's money .■' Of the fallacies involved in this argu-
mentative question, let us consider the fallacy of personifying
England, — of saying "England" when we really mean "some
Englishmen." By a figure of speech the country is presented to
the mind as a community having a single directing will, a single
interest and determining purpose, extending credit or collecting
debts from definitely formed policy, and capable of saying to itself
upon occasion that gold, and not commodities, must now be secured
in payment. This might be true, in a degree, if the EngUsh poHty
were communistic, and if a committee directed the operations of
the banks, the commerce, and the manufactures of England, and
made provision for her daily consumption. But the real case to
be kept in mind is that in which, instead of a single conscious will
governing her action, there are some millions of individual wills,
each determining within its own sphere ; and, instead of a single
clear line of chosen policy, there is only the confused outcome of
the varying interests and needs of vast numbers of men.

In this, the actual state of things, the demand of one class of
the population for cotton to spin, and the demand of others for
wheat or for beef, are not and cannot be subordinated to the desire
which any set of men or of institutions may feel to see gold flow
in. On the contrary, the requirements for consumption, deter-
mined by the occupations and relations of a great people, are funda-
mental conditions, to which financial interests and policies, under
whatever name, must of necessity conform their action. For illus-
tration we need not go farther back than the great export move-
ment of 1896, which between August i and December i brought
into the United States $74,000,000 of gold, $40,000,000 of it coming
from England. Although the Bank of England in seven weeks
raised its rate from two per cent to four, it could not stop the outflow
which in four months drained one-fourth of its specie from its vaults,



CAN WE KEEP A GOLD CURRENCY ? 259

so uncontrollable are the currents which take their rise in the needs
and habits of a whole people. The great trade movements of a
country like England can never be concerted or calculated move-
ments, as the language used about them often seems to imply.
They are the result of forces quite independent of each other in
origin and often in strong conflict, which the small fraction of men
known as the financial world cannot withstand or govern, but which
they can often turn to account.^

These considerations — no doubt sufficiently obvious, but often
neglected — apply to the action of England as a purchaser of
merchandise from other countries. They also have a close ap-
plication to her action as a holder of the securities of other coun-
tries. The class of Englishmen who hold foreign bonds or stocks
as an investment will, no doubt, act at times under a common im-
pulse of confidence or distrust, as investors do in our own country.
This action may seriously disturb the financial relations of their
own country with others and affect the movement of gold for a
time, between England and this country, for example, as it has
been seen to do. This is, of course, to be noted as an element of
instability in our international finance, which must be recognized,
although there may be a question whether a set of trade relations,
which already include many unstable elements, is, in fact, made
any more unstable by the introduction of another class of variables,
with its chances of compensatory action. But it concerns us to
notice that this action of English investors, although the result of
a common impulse, is no more a concerted action than the move-
ment in which English mill-owners buy cotton, eagerly or sparingly,
as the case may be. It is the action of a great body of individuals,
seeking advantageous employment each for his own capital, en-
couraged or disheartened by current opinion as to American
securities, and neither bidding against each other nor selling at a
loss in order to affect the general money market or turn the stream
of gold. Even the class of bankers and other temporary holders
of securities for speculative profit — a class of men as little disposed

^ How impossible it is even for a syndicate comprising " every banking house and
every bank in New York City, with important European connections," to control, be-
yond certain limits of time and favoring circumstances, the course of foreign exchange,
is well shown by Mr. Noyes in his account of the gold movement in 1895. "Thirty
Years of American Finance," ch. x.



260 ESSAYS

as any to sell their property at a sacrifice — act in the same man-
ner, according to the dictate of individual interest, and under no
leadership or control which could justify the conception of concert
and dangerous singleness of aim, which we have been considering.

It is perhaps hardly necessary to point out that, when we thus
take into account the complex influences which must at any given
time determine the course of dealing between England and other
countries, gold loses a part of the quahty as a quasi-\Qga.\ tender
for international trade, sometimes ascribed to it in current dis-
cussion. As a commodity, in universal demand at some rate or
other, it can always be used in payment by the debtor nation, if
offered on terms satisfactory to the creditor nation. But payment
in gold cannot be required by the latter so long as there is, among
the miUions of its population, any sufficiently large class of wants
demanding for their satisfaction the merchandise exports or the
securities of the debtor in preference to money. The legal tender
law of the place necessarily regulates the mode of payment in
London, to be observed by each individual debtor ; but, as has
already been pointed out, it is no part of that law, nor is it a neces-
sity of the case, that the debtor should have transported his means
of payment across the Atlantic.

The conclusions reached by these general considerations are
greatly strengthened, when we apply to them the test of observed
facts. England, France, and Germany are the countries upon
which the United States chiefly draw for gold, and by which the
United States are most heavily drawn upon, all three success-
fully maintaining their currencies upon the gold standard. How,
then, do the actual movements of gold into and out of the
United States, for a series of years together, compare with similar
movements as reported by the three countries named .-' For the
purpose of this inquiry the nine calendar years from 1882 to 1890
are first taken, as making up what can be called a fairly normal
period. They begin after the close of the great influx of gold which
insured the success of specie resumption by the United States, and
they end before the subsequent saturation of our currency with paper
and silver had caused serious disturbance. They include years of
great prosperity, and they cover the period of depression following
the financial crisis of 1884. Both the products and the imports of
gold by the United States are given, to show our total receipts from



CAN WE KEEP A GOLD CURRENCY ?



261



year to year ; and against them are set our annual gold exports.
Annual imports and exports of gold are also given for each of the
other countries, all being stated in dollars for convenient compar-
ison.

[In dollars, 00,000 omitted.]





United States


England


France


Germany




Prod't


Imp.


Exp.


Imp.


Exp.


Imp.


Exp.


Imp.


Exp.


1882 ,


• • 32,5


13,4


38,7


70,


58,5


54,7


39,1


6,8


9,3^


1883


. • 3°.


22,1


6,


37,7


34,5


12,5


26, 1


4,9


10, 1


1884


. . 30,8


28,


40,9


52,3


58,5^


24,6


15,8


4,4


7,9^


1885


. . 3i>8


23,6


11,4


61,3


58,1


47,


38,8


10,1


6,4


1886


• • 35,


41,3


41,3


63,


67,1^


50,4


38,2


11,2


5,5


1887


• . 33,


44,9


9,1


48,5


45,4


18,


49,8^


13,2


4,


1888


• • 33,2


II,


34.5


76,9


72,8


19,5


37,1^


39,9


23,9


1889


. . 32,8


12,


50-9'


87,2


70,4


65,2


25,


15,7


12,5


1890


. . . 32,8


20,2


24.1


114,8


69,6


22,6


48,3^


24,2


9,9


Total


5 . . 291,9


216,5


256,9


611,7


534,9


314,5


318,1


130,4


89,4


Avera


ge. . 32,4


24,


28.5


68,


59,4


34,9


35,4'


14,5


9,9



It appears that during these nine years the United States
parted, on the average, with about one-half of the gold received by
them from the mines or from abroad, and that England parted with
seven-eighths of the gold received by her. These two countries,
the United States as a mining country and England as the great
commercial centre, acted as the distributers of an immense addition
annually made to the world's stock of money, each retaining its
own proportionate share. In this operation, each country was, to
a great extent, a natural exporter of gold. Neither, in fact, could
avoid exporting heavily, so long as its trade or its mines brought in
a supply obviously so far beyond its power of healthy absorption.
Of the two, it is important to observe, the United States had the
firmer hold upon gold, so that this country was able to carry on an
accumulation which it had begun to make in the later years of the
long suspension, and thus to strengthen steadily the specie basis of
its paper currency. The annual supply of the United States was
also the more constant, its minimum being .y8 of its average and its

1 Export exceeds receipt.



262



ESSAYS



maximum 1.38, whereas the annual supply of England ranged more
widely, from .55 to 1.69 of its average. In the year of strongest
export by the United States, their ratio of export to supply was
scarcely higher than that of England in her strongest exporting
year ; and there were two years of the nine in which the United
States exported less than .12 of their supply, whereas in no year
did England export less than .60 of hers. Finally, England shows
two years with an excess of exports over receipts of gold, and only
one is shown by the United States.

As for France, her imports and exports of gold during these
nine years are remarkable for their great amount, for their extreme
irregularity from year to year, and for their close approach to
equality, taking the whole period together. Germany also exhibits
great irregularity of movement, with a constant accumulation in
progress for all but the earlier years, the amounts actually moved
being, for the most part, of but moderate importance.

Without pursuing further the comparisons suggested by this
table, it is clear that during this period the United States were not
only relatively, but absolutely, strong in gold, and gave full proof
of ability to maintain their currency upon this standard, and this
notwithstanding an infusion of nearly $300,000,000 of legal tender
silver. But the turning-point was reached by 1890. The accumu-
lated mass of silver coin, the issue of more legal tender paper for
the purchase of a vast weight of silver bullion,^ the gradual conver-
sion of that bullion into standard dollars, contemplated by the law
and set in operation, the loss of confidence in the stability of gold
payments by our government, and our increasing discredit abroad, —
all combined thenceforward for several years to loosen the hold of
the United States upon gold. Violent financial revulsion was the

1 The Secretary of the Treasury said to a committee of the House of Representatives,
December i6, 1897 '• " I have asked a gentleman in New York, . . . who has been Treas-
urer of the United States, and who has been Assistant Treasurer in New York for many
years, Mr. Conrad N. Jordan, about this. He is in a position where he watches pretty
closely the movements of foreign exchange. . . . He says it is the last $200,000,000
which has put us to the blush all the time, that has been our trouble. If we get rid of
3200,000,000, and get a sufficient gold reserve, we will not be troubled ; and the country
will not fear that we are going to break." " Hearings and Arguments before the House
Committee on Banking and Currency," 1897-1898, p. 23.

Mr. Jordan's $200,000,000 apparently represented the treasury not^s of 1890,
$114,000,000, and an increase of silver certificates from July, 1890, amounting to about
$8fj,ooo,ooo more.



CAN WE KEEP A GOLD CURRENCY ?



263



inevitable result; and, in the eight calendar years from 1891 to
1898 inclusive, gold moved between this country and Europe in
heavy surges, as shown in the following table, compiled on the same
plan as that already given for the years 1882- 1890 : —

[In dollars, 00,000 omitted.]




In this table the change wrought in every column by the excep-
tional year 1898 is so marked that it is worth while to consider the
facts as they stood at the close of 1897, when the footings were as
follows : —



United States



England



France



Germany





Prod't


Imp.


Exp.


Imp.


Exp.


Imp.


Exp.


Imp.


Exp.


7 years


298.8


327.1


534-4


949


761.8


456.4


242.9


313-3


196.2


Average .


42.7


46.7


76.3


135-6


108.8


65.2


34-7


44.8


28



The relation of the United State? to the three other commercial
countries then showed a remarkable change since the period closing
with 1890. Instead of being the greatest accumulator of gold, this
country had become the least, and France held the first place. In-
stead of our supply from all sources being the most constant of all,
the range between its minimum and maximum was the greatest;
and, in years of greatest export, our ratio of export to supply was
the highest. And yet, taken by itself, the exhibit for the United

^ Export exceeds receipt.



264 ESSAYS

States indicated a far greater power of resistance to a continued
drain than might be inferred from this comparison with other coun-
tries. Omitting 1896 and 1897, when the tide had turned again in
our favor, the five years, 1891-1895, showed a total net loss by the
United States of scarcely more than $65,000,000; and, even if we
add to this the estimated amount of gold used in the industrial
arts, we have an aggregate loss from our stock not exceeding
1^142,000,000 in five years of unexampled disturbance, — a loss
more than made up by the returning current of the next two years.^
After all, in the series of seven years in which our legislation might
almost be thought to be expressly designed to expel gold from the
United States, our exports were not quite seven-eighths of our
receipts from imports and mines. In the same years taken to-
gether, England also exported nearly in the same proportion, part-
ing with four-fifths of all her receipts.

Violent as the changes were in these years, the years of recov-
ery came with singular promptness. In 1891 and 1892 our exports
of gold were greater than our receipts ; and yet in 1893 the return-
ing current gave us a favorable balance for the three years. Both
1894 and 1895 carried out a balance of gold, but 1896 turned the
scale in our favor for another three-year period. 1897 practically
left us in possession of our own product, and then came 1898, with
such a tide in our favor as to completely distort the comparative
results of the first seven years of the period. Taking the average
for the eight years, 1891 to 1898, the United States again appear
as the greatest accumulator of gold, parting with less than two-
thirds of their gold receipts, whereas England in the same years
parted with more than four-fifths of hers.

How large the accumulated stock of gold in the Treasury, in the
banks, and in the hands of the public, has become in the twenty
years since specie payment was resumed, is a question as to which
the Treasury estimates may at least give us an approximation.
Starting with an estimate of about $213,000,000 in June, 1878,

^ The Treasury estimate of the stock of gold coin and bullion in the United States
gives the following sums : —

December 31, 1890 $704,100,811

December 31, 1895 597,927,254

December 31, 1897 752,316,476

Rep07-t of the Treasurer for 1898, p. IIO.



CAN WE KEEP A GOLD CURRENCY? 265

and following month by month, with great minuteness, the coin-
age and the movements of American coin in and out, the statis-
ticians of the Treasury gave us in the latter part of 1881 a stock
of over $500,000,000, and, with occasional relapses, brought the
estimates to $700,000,000 by 1888, and to $900,000,000 by October,
1898. The sums are vast, and it has never been easy to account
for the great amounts which must be supposed to exist outside of
the visible depositories. Still, the figures, when checked by the
operations of the mint and by the annual product and movement
in foreign trade, conform sufficiently well to the rough probabilities
of the case. They give a solid assurance that, as a support for
our monetary system, we have a stock of gold sufficient, and suffi-
ciently nourished by the resources of mining and commerce, to meet
the needs of a great and growing nation. Actual or probable inad-
equacy of supply cannot be alleged as a condition operating to our
injury.

This, then, is the state of the facts. Our gold is at times
drawn from us in considerable amounts, which, however, bear but
a low ratio to our total stock, and are drawn away in no small
measure by the aid of our own improvident legislation. The
recovery comes with no great delay, and with extraordinary com-
pleteness, as the result of economic advantages of which imprudent
policy may impair, but cannot destroy, the value. No reverse is
strong enough to wrest our gold currency from us. And yet,
judging from the past, two or three years may be enough to carry
us from our present extreme of confidence to the same dread that
the foundation is slipping from under us, that mastered the public
mind in 1893 and 1896. We have the material to build a system
as solid and as calmly enduring as that of England, but our failure
for twenty years to bring into order our piecemeal legislation
on this subject has cost hundreds of millions in shattered enter-
prises and stagnant industry. The foolish boast which some of
our public men were fond of making a few years ago, that our
currency system is the best ever known, and indeed perhaps
perfect, is not current at present. In fact, there are not many
who do not condemn the system for one reason or another. Still
there is a perilous delay in the work of reform.



THE CRISIS OF 1857I

Contemporary explanation of the revulsion of 1857 assigned a
leading place to the course of our foreign trade and directed atten-
tion to the rapid increase of our importations and to the heavy
exports of coin and bullion, made, it was said, to pay for imported
luxuries purchased under the stimulus of habitual extravagance.
A more careful examination of the facts, however, does not sup-
port the conclusion that during the years from 1850, when the
marked increase of foreign trade began, to the summer of 1857,
the people of the United States had purchased beyond their means.
It is true that in the seven years, 1850-1856, imports for domes-
tic consumption had doubled, the average at the beginning of the
period being about ^150,000,000, and the amount for one of its
last years rising to nearly ^300,000,000. But leaving out of view
the effect produced upon the valuation by the depreciation of gold
then in progress, owing to the immense product then coming
forward from California and Australia, this increase of foreign
purchases was the natural result of a rapidly increasing ability to
pay, caused by an unexampled development of domestic resources
and domestic industry and by the growth of the country in popu-
lation. This was reflected in a greater volume of exports of mer-
chandise, which increased from an average of about ^132,000,000
at the beginning to $217,000,000 in the year 1854. In the year
1856 net imports, i.e. for home consumption, rose to $295,000,000,



Online LibraryCharles Franklin DunbarEconomic essays → online text (page 28 of 40)