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With the

Compliments of the Author




Author of " The Natural Law of Money "

Individuality is left out of their scheme of government.
The State is all in all." — Burke.

Cbe ikiitcfcerbocket ipress

Copyright, 1898


Entered at Stationers' Hall, London

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T^HIS little book, begun in the summer of 1896,


1 was originally planned in the form of two
magazine articles, but I soon found that to fully set
forth my reasons for the changes I suggest in our
monetary laws would involve a more extended dis-
cussion of principles than could be compressed into
the space at command. This change of plan, oc-
curring when the excitement of a pending Presiden-
tial election made dispassionate and unbiased writing
as difficult as it was important, led to the laying
aside of the work for a time ; which fact explains
why the statistics given in the book are not alto-
gether up to date. But as the figures are used only
^ to illustrate my argument, and as the deductions
drawn from them would not be altered by later
statements, I have allowed them to stand.

The essential point of difference between the
theory of money here presented and the theories
upon which monetary legislation has generally been
framed, is the abolishment of a legally fixed ratio of

iv Preface

value for gold and silver coin. I am fully convinced
that if this theory were put into practice, its adop-
tion would place gold and silver money upon an
absolutely equal footing; it would take the Govern-
ment altogether out of banking business, and would
give to the currency the largest possible degree of
elasticity; and this without disturbance to business
and without inflicting injustice upon individuals
such as, under our present monetary laws, would
inevitably follow a suspension of gold payment.

In discussing the principles involved, I have found
it necessary to give a more definite meaning to the
word money, and to the term the circulation, than is
to be found in the dictionaries. The word money,
when not otherwise qualified, is used in the sense of
being the measure of value in common use. As
the copper, nickel, and minor silver coinage is used
only for making change, and is not the measure of
value, no special reference has been made to it.

W. B.

New York, January, 1898.



Introductory i-

An attempt to outline briefly a plan of monetary reorganiza-
tion for the United States on a scientific basis — What the
advocates of the different standards may justly claim —
Edward Atkinson's statement as to the annual product
of silver — Bimetallism — Lord Liverpool's Coins of the
Realm — John Locke on Lowering of Interest — How the
two metals may be retained in service — Token money —
The creation of a single standard of value — The Bank of
France — Co-operation of nations to establish a fixed ratio —
How the parity of silver and gold money is maintained —
What constitutes money — What is meant by the circulation
— The duty of the Government in regard to money — The
Greenback party — Importance of a self-regulating currency
shown by the panics of 1893 — Proposed reform in our
monetary laws.



The Gresham Law 34-41

"Good" and "bad" money — Stability in value the most
important quality of money — Effect of a legal ratio — Ex-
tended use of silver as money — Jevons on the Gresham Law
— Free coinage as a regulator — Evil effects of governmental
interference. •

vi Contents



Money, Capital, and Banking . . . 42-67
Characteristics and office of paper money — National and
State bank notes — How to modify the inelasticity of gov-
ernment paper money — Scotch system of free banking —
Canadian system of banking — The proper functions of a
bank — On bank-note issue — Floating and fixed capital —
Comparison of the note issue and the deposits of the Bank of
Dundee — Local paper money — Bank auditing — Comparison
of separate and independent banks with the parent system —
Objections to the parent system.


Arguments in Support of the Proposed

Legislative Changes .... 68-79

As to the discrimination between the different issues of
government paper money — How to ensure stability — Popular
preference for government notes — Normal relative propor-
tion of paper to metallic money — Why it is difficult to
maintain the gold reserve — The Bland Act — A review of
our monetary legislation.


The Precious Metals as Affected in their
Relative Value by Production and by
Demonetization 80-91

Cause of the variation in the relative value of the precious
metals — Elements which give stability to the precious met-
als — Dr. Soetbeer's tables of production of the precious
metals — Additional tables published by the Fourth Na-
tional Bank of New York — Deductions from foregoing
tables — Relative stability of gold and silver.

Contents vii



On the Standard of Value .... 92-107

First formal discussion of monetary standards in 1867 — The
signification of standard of value and of unit of account —
Advantage of a universal monetary unit — Decision of the
Paris Convention — Germany the first to demonetize silver
— Classification of nations according to their monetary sys-
tems — The demonetization of silver — Action of the Bank of
France in preserving relative value — The hoarding spirit in
France — Formation and object of the Latin Union — Gold
monometallism in England — Deterioration of silver coin in
England — Suspension of silver coinage in England.


Hybrid Metallism 108-126

Evolvement of a new system of metallic money — Its working
in Holland — The gold standard adopted by Holland in
1873 — England the only nation that fully maintains the
gold standard — Requirements of hybrid metallism — Powers
derived by the precious metals from their use as money —
Demonetization of silver in India — What would result from
making gold the universal standard — Effect upon silver of
demonetization — Effect upon gold of the demonetization of
silver — Temptation to adopt hybrid metallism — Objections
to hybrid metallism.


Credit as a Monetary Factor, Illustrated
in the Working of the English Mone-
tary System ..... 127-172

The function of credit — Over-production an effect, not a
cause — Effect of a sudden contraction of credit, and of a
sudden withdrawal of floating capital — Difference between
a capital and a currency panic — The floating capital of the



country largely owned by the working class, but administered
by the bankers — A superabundance of capital impossible
— What governs the rate of interest — The English banking
system considered — Monopolistic banking contrasted with
independent banking — Weakness of the one-reserve system
— Conditions in the United States favorable to the in-
troduction of a free system of money — Clearing-house
associations — Condition of economic knowledge in England
when the Bullion Report was made — Analysis of the Bullion
Report — Service rendered by the Bullion Committee
— Sir Robert Peel's bribe to the Scottish bankers — The
two departments of the Bank of England — Total issue of
Bank of England notes — Peel's theory of trade — Speculation
the only over-trading — Cause of the panic of 1847 — Effect
of restriction of interchange and of credit — Production
the final object of trade activities — Concluding consid-
erations of the banking law of England — The panic of 1S47
a capital panic — Bank of England's rate of discount — Eng-
land's supremacy in the financial world due to the sense of
security she inspires — How the silver question may be





THE following is an attempt to outline briefly and
in essentials only, a plan of monetary reorgan-
ization for the United States, which shall not only
be sound but practicable, in that it takes into con-
sideration the present condition of the currency, and
the varying or conflicting views of the different
political parties in regard to money, and also that it
aims to furnish a scientific basis for the solution of
the problem.

This work is undertaken in the belief that these
differences are rather seeming than real, and that a
careful consideration of the nature and function of
money, of credit, and of the distinction between

Open Mints and Free Banking

money and capital, would show that the view of
each party is founded upon at least one essential
monetary principle, and that a relinquishment of
non-essentials by each party would open the way to
a satisfactory adjustment of the whole question. It
is assumed that no plan would now be practicable
that does not embody first, the essential principles
of the advocates of the gold standard, second, of
the advocates of free-silver coinage, and third, of
that large body of American citizens who regard
government paper money as superior to bank-notes.

The advocates of the gold standard may rightfully
insist that our present circulation, which has been
upon a gold basis since January I, 1879, shall* when
retired, be redeemed in gold ; but it is not necessary
to the accomplishment of this end that the English
monetary system, which practically excludes silver
money, should be imposed upon this country.
That system is itself by no means perfect, and
neither adapted nor adaptable to the conditions
existing in the United States.

The advocates of silver may justly insist upon
free coinage as a monetary principle that should
never be violated ; but as this principle has in fact
already been violated — with honest intention, let us
admit — and as opening the mints to free coinage,

Introductory 3

so long as the law declaring a parity of sixteen to
one is still in existence, would bring disaster and
discredit upon the nation, the silver advocates
should certainly agree that provision must first be
made for the maintenance of the present circulation
until its retirement, at its nominal value in gold.

To the advocates of government paper money, it
may be said in passing, that under the plan of re-
form hereinafter set forth, no paper money can
come into general circulation that is not as sound as
government paper money ; nor can any paper money
displace the government money unless, in addition to
its soundness, it possesses a larger measure of elastic-
ity. Our paper circulation is now substantially all
government money, which flows in and out of the
Treasury, not in sympathy with the state of trade,
but dependent solely upon the receipts and expend-
itures of the government; hence this inflow and
outflow are of a purely mechanical character, and
the currency has no elasticity — no adaptability to
the requirements of trade. This lack of elasticity
in government money is at once a serious embar-
rassment to the Treasury Department, and a con-
stant menace to industrial prosperity.

National bank notes are practically a government
issue, the Government having assumed the entire

Open Mints and Free Banking

control of, and responsibility for them. The Na-
tional banks are under no obligation to redeem their
notes in the metallic standard, nor must these
specific notes be retired for the purpose of lifting
the bonds pledged with the Government for their
redemption ; for this may be, and usually is, done
with other than their own notes. Then the notes,
which are supposed to be retired, wander about like
so many tramps until it suits the convenience of the
Government to retire them. There are now in the
circulation about twenty million dollars of these so-
called " retired " notes, which have no more respon-
siveness for their special work of imparting elasticity
to the currency than tramps have for any work.

In order to appreciate the nature of our subject,
we must dismiss from our minds the idea, so com-
monly presented in popular discussion, that the de-
mand for silver money is of a purely personal
character, and that it is prompted solely by selfish
motives. For instance, it is usually assumed that
the silver-mine owners originated the movement
and are impelling it for their private gain ; also that
the debtor farmers see in a change to silver an easy
way of discharging their mortgage indebtedness;
but these assumptions will not bear dispassionate

Introductory 5

Edward Atkinson informs us that the annual prod-
uct of silver in the United States is not quite half
of one per cent, of the total annual wealth product,
and the same trustworthy authority, having investi-
gated the mortgage indebtedness of farmers, finds it
to be a mere fraction of the total interest that this
large class has in maintaining the monetary integrity
of the country. Moreover, it should be kept in
mind that the demand for silver money is not con-
fined to the United States, but exists in England,
France, Germany, and other countries which have
adopted gold alone as their monetary standard.
The silver agitation is too persistent, too wide-
spread, and has been too long continued to derive
its momentum or to find its sufficient reason either
in individual dishonesty or in narrow selfishness.

A more rational hypothesis is that both bimetal-
lism and monometallism, which have only come
into existence as distinctive systems within the last
eighty years, have in them radical defects which the
inexorable logic of events is proceeding to eradicate.
Bimetallism had previously a formative existence,
but could not properly be called a system as now
understood ; for though European governments, in
issuing silver and gold coins from the mints, always
ordered the taking of these coins at a fixed ratio of

Open Mints and Free Banking

value, the coinage laws were rarely enforced so as
to compel the taking of the pieces at such ratio. In
our own country no systematic effort was ever made
by the Government to maintain silver and gold coins
in circulation at a fixed ratio until the passage of
the Bland Act in 1878. The Act of 1792 did in-
deed declare the ratio to be fifteen of silver to one
of gold, and the Act of 1834 in like manner declared
the ratio to be sixteen to one; but in neither in-
stance were these ratios enforced in practice. The
only effect of the former Act was to drive gold from
the circulation because it was undervalued by the
ratio fixed, and the only effect of the latter Act was
to drive out silver for a similar reason.

Do not these examples furnish conclusive evidence
that the radical defect in the system of bimetallism
is the adoption of a ratio at which the two metals
shall be an equivalent tender ? With a fixed ratio,
one of the metals is sure to retire from the circula-
tion if its market value is not in exact accord with
the ratio, for no one will pay out the more valuable
coin if one of less value can be made to serve his
purpose. It was a recognition of this fact, coupled
with the idea that if the two metals were not held
at a legal ratio but were permitted to circulate inde-
pendently, there would be two diverse and discord-

Introductory 7

ant measures of value, which led England to adopt
gold for her monetary standard, with silver as merely
subsidiary coinage.

Though not altogether oblivious of the fact that
the market value of the precious metals regulated
the value of the coins, there was nevertheless a
vague sentiment pervading the universal mind,
through the whole period of monarchy, even down
to the present time, that the stamp of the Sovereign
upon the pieces did in some measure contribute to
fix their value. The essential fact is that the true
and only function of the stamp is to certify the
weight and purity of the precious metal in the coins.
The perception of this principle has been obscured
by the delusive theory that sovereignty can impart
value to the pieces. That the coined metals cannot
serve as a measure of value, unless the coins are
permitted to pass at the market value of the metal
they contain, is even now clearly perceived only by
the few.

It was not until after the publication, in 1805, of
Lord Liverpool's book entitled The Coins of the
Realm, that the views entertained in relation to
money had taken a form sufficiently definite to be
called a system. A careful reading of this book
shows that notwithstanding the author's recognition

8 Open Mints and Free Banking

of the preponderating influence of the bullion
market, he was still thoroughly possessed by the
common belief that the current value of the coin
was fixed by the monarch, whose unquestioned pre-
rogative it was. Experience had taught him, how-
ever, that a legalized ratio between the two metals
was frequently disturbed by the influence of the
bullion market ; he therefore came to the conclusion
that only one metal should be retained as the com-
mon measure of value, and that the other should be
deprived of that function. He selected gold as the
metal that should be retained, and his theory was
practically adopted and became the monetary law
of England in 1816.

John Locke, whose essays on the Lowering of
Interest and Raising the Value of Money were pub-
lished in London in 1691, had a much clearer per-
ception of the true nature of money than had Lord
Liverpool. Locke clearly realized that it was the
quantity of precious metal alone which gave coin its
specific value and its purchasing power. In his
day, silver was the money of every commercial
nation. Recognizing this fact, and the fact that
silver alone constituted the common measure of
value for these nations, he advised that no value
should be put upon gold coins when issued from the

Introductory 9

mints, but that they should be permitted to take
their current value from the bullion market.

Lord Liverpool states that it was by the advice
of Locke that the English government refrained
from enforcing the circulation of the guinea at the
mint indenture, which was twenty shillings. This
piece was first issued in the reign of Charles the
Second, and remained in circulation until the reign
of George the Third ; but during this long interval
it never passed for less than twenty-one shillings.
During the reign of William the Third (1689- 1702)
it passed for a time at a rate as high as thirty shil-
lings, not because the value of gold had risen,
but because the silver money, by which the value
of the guinea was measured, had been reduced
in weight, and consequently in value, by abrasion
and clipping. When in this reign the silver coinage
was restored to full weight (1696), the guinea fell to
twenty-one shillings and sixpence. John Locke
clearly foresaw that to force the taking of these
pieces at the mint indenture of twenty shillings
would drive them from the circulation, as the gold
coins would then certainly be melted or exported
by those who held them, but who were not per-
mitted to pay them out at their market value.

The fundamental principle of metallic money, so

io Open Mints and Free Banking

clearly set forth by Locke two hundred years ago —
that the stamp of the Sovereign cannot alter the
value of the coin, that it simply verifies the quantity
and quality of precious metal in the piece — goes to
the very root of our present monetary misunder-
standings. It is still a common belief that the
stamp of the Government is sufficient in itself to
maintain the parity of the two metals, and we fre-
quently read in leading newspapers of the Eastern
States such misleading statements as that free coin-
age would enable silver-mine owners to obtain for
their bullion, by coining it, the present current
value of the silver dollar instead of its market value.
Such statements are calculated only to widen the
breach between the East on the one side and the
South and West on the other, and to make the
question, already sufficiently complex, still more
difficult of solution.

Absolutely free coinage would place the silver-
miner in a similar position to that now occupied by
the gold-miner with reference to marketing his prod-
uct ; he would have to accept the market price for
his silver whether he coined it or not. When there
is a demand for gold coin, the gold-miner finds that
he gains a small percentage in price by coining his
bullion ; but that the mint is not always his best

Introductory n

market is evidenced by the fact that much of the
gold produced in the United States is exported in
bars. Nor are the silver-mine owners under any
delusion on this point. Senator Jones of Nevada is
doubtless a fair exponent of their views, and we
may learn what these views are from his published
speech, delivered before the United States Senate,
May 12 and 13, 1890. As a silver-producer he
neither asks nor expects to receive a bounty on his
product. 1 He claims that the demonetization of
silver by our Government, and by the governments
of the leading commercial nations of Europe, has
had the effect to advance the price of gold in the
markets of the world, but not to lower the price of
silver, and that consequently the purchasing power
of gold money has been greatly enhanced, while
that of silver money has remained stationary.

We need not follow Senator Jones through his
elaborate and evidently conscientious argument in
support of his theory, as it would lead us away from
our subject ; it should be added, however, that his
advocacy of free coinage is for both metals, and not
for silver alone.

1 " . . . coins, the value of which coincided with the bullion
value, which must necessarily be the case when free coinage is per-
mitted." — Printed speech, p. 9.

12 Open Mints and Free Banking

Other writers contend that the fall in price of
leading commodities (mainly farm products), which
Senator Jones quotes as taking place between the
years 1873 and 1889, was the result of cheaper
methods of production and of cheaper transporta-
tion, and not that gold had risen in price in those
years. The truth lies between these two claims.
That the demonetization of silver would necessarily
tend to advance the price of gold is unquestionably
true, and on the other hand that there has been a
cheapening in methods of production and in trans-
portation is also true.

The problem before the American people, so
urgently pressing for an answer, is how to bring
silver into monetary service on the same footing as
gold, and how to retain both metals in circtilation so
that they shall be equally sound money. In dealing
with this problem we are confronted at the outset
by two distinct phases of the question, one eco-
nomic, the other ethic. To bring these metals into
use so that they shall be equally sound money, in-
volves the economical side of the question ; to do
this without wronging any one, involves the ethical
side. That the people will insist upon the retention
of both metals can hardly be questioned, but that
they would adopt dishonest methods to attain an

Introductory 13

end which may be honestly achieved, is beyond
belief. Individual instances of narrow selfishness
and dishonesty are never lacking, but the nation, as
a body, is honest, and must be so to preserve its

Now there is but one way whereby the two metals
may be retained in service as money, and that is by
the repeal of all Acts which make them an equivalent
tender at a given ratio; the coins of both metals
would thereupon pass at their market value and
would be a legal tender only at that value. It may
be asked, " Could our monetary unit — the dollar —
be represented in the circulation by two coins of
unequal value without creating confusion ? " The
answer is that when coins of the two metals are left
free to circulate at their market value, both cannot
circulate as money in the same community, though
each will circulate in that community to which it is
adapted. The United States is a political but not
necessarily an industrial entity. Industrially it is
an agglomeration of diverse communities, and this
being a natural condition, each community would
select for use as money the metal best adapted to its

Money is not merely a medium of exchange, it is
primarily a measure of value, and it is only when

14 Open Mints and Free Banking

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