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538
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F974ea
PRICE, 25 CENTS.
search-light turned upon the present monetary and
king system, revealing it as the producer of panics
and the most potent factor in wealth concentration.
=
The Other Side
the Money Question
BY
JAMES A. FULTON,
SECRETARY OF THE AMERICAN MONETARY LEAGUE.
PUBLIC MONEY,
PUBLIC BANKS,
PUBLIC WELFARE.
Service at cost, unchangeable value, freedom of access.

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ARTES
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SCIENTIA
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538
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THE
OTHER SIDE
OF THE
MONEY QUESTION.
332
F97


BY
JAMES A. FULTON.
1908
HUTCHISON & BROADBENT,
MCKEESPORT, PA.
Entered According to Act of Congress,
in the year 1908,
BY JAMES A. FULTON,
in the office of the Librarian of Congress,
at Washington, DC.
33
5=97
To the memory of the many sterling patriots, who, com-
ing from every walk and condition of life - the heights of
affluence as well as the depths of poverty,-who were actu-
ated by high conceptions of their duty to the public, who
labored loyally and unceasingly in tract, pamphlet and press,
on the public platform and in the heart to heart talk with
their fellow-man for the establishment of what they deemed
to be more equitable conditions in money affairs, who had
the courage of their convictions even when the expression of
those convictions was the signal for a flood of the most un-
fair and brutal vituperation and ostracism, the following
pages are affectionately dedicated by one who considers their
lives, their labors and their unselfish adherence to principle
as a priceless legacy to the nation and an inspiration to the
cause of progress.
ex L1
01
redassed
198891
PREFACE.
When any comparatively inexperienced writer ventures
to put his thoughts and opinions into a definite form and
place them before the public, he is generally expected to pre-
face his efforts with an apology to his readers for attempt-
ing to trespass upon their time.
This is especially true if the subject to be treated is one
that has been much discussed by other and more seasoned
authors. Those who would invade such a field are supposed
to tread very softly and be very reluctant to advance any-
thing different from the general average of what has already
been written upon the subject.
That precaution is one that would be very pertinent if
there was somewhat of a consensus of opinion among the es-
tablished authors, but in the subject of "money," though
tens of thousands of books, pamphlets and tracts have been
issued and countless columns of newspaper space been util-
ized by scores and scores of writers, the views expressed are
so varied and contradictory that the comparatively inexperi-
enced may, without apology and even with some degree of
confidence, venture into the field, in the hope that he may
present something that will help in some degree to bring
about that which the established authors have signally failed
to produce after years of voluminous writings.
The text of the pamphlet will, I hope, be sufficiently
clear to not require any explanatory treatment in advance.
It endeavors to present in a definite form some of the
most salient features of the. "money question," as such ques-
tion, in the author's judgment, presents itself before the
people of today and it has been written somewhat particular-
Preface.
ly to make clear certain points that were hardest for him to
comprehend and which he humanly assumes may have con-
founded many others.
It does not pretend to be an exhaustive treatment even of.
those points discussed, much less a discussion of the whole
money subject, but is simply offered in the hope that in the
reading of it some will have their interest sufficiently
aroused to induce them to study the subject in all its vari-
ous phases.
The title, "The Other Side," had its origin in connection
with a paper read by the author recently before the Emerson
Club of this city. The subject for the paper was to be the
general one of "Money," but the management desired a more
explicit one to advertise. In my quandary I stated that I
wanted to discuss the other side of money, the side not
given so much publicity from press and platform. The sug-
gestion seemed to arrest attention, "the other side" was
adopted and, as this pamphlet is in the nature of an elabo-
ration of the paper read, and for want of a more suitable and
expressive one, it has been continued in that position.
MCKEESPORT, PA., January, 1908.
The Other Side of the Money Question.
CHAPTER I.
THE MONEY QUESTION IN THE CONSTITUTIONAL CONVEN-
TION CONSTITUTIONAL PROVISIONS-
HIGHEST
COURT DECISIONS UPON THE POWER OF
GOVERNMENT OVER MONEY.
After several important preliminary conferences,
there assembled in Independence Hall, Philadelphia, Pa.,
in the summer of 1787, one of the greatest conventions
ever held in the history of the world. It was remark-
able both for the purpose for which it had convened and
for the character and ability of its membership.
The purpose was to formulate a Constitution for
the Nation, to be submitted to the various States for
their approval and the membership of the Convention,
in harmony with such great purpose, embraced many of
the greatest intellects and devoted patriots of the day,
George Washington being chosen as Chairman of the
Convention.
The Convention was in session day after day until
four months had thus been occupied. Many and varied
were the measures proposed for incorporation in the
document. The discussion of almost every word or
phrase was quite extensive. Little was taken for granted
or accepted because proposed by someone of great pub-
lic standing, but everything was submitted to the fire
of criticism by those holding different views.
8
The Other Side of The Money Question.
Owing to conflicting opinions that were impossible
to harmonize, many things were omitted that were fa-
vored by some of the ablest members, while some things
were included that did not meet with their approval.
As was clearly inevitable from its inception, the pro-
duct was a compromise by those having varying opinons
on public questions in general, but each and all actuated
by a patriotic desire to get the infant Nation established
upon a solid and enduring foundation.
The Constitution, as they finally completed it and
as it was afterwards approved by the various States,
thus became the supreme law of the Nation.
It was the law of the people and it defined the gen-
eral manner and scope in which their government should
operate.
It was intensely radical in such respect, for at that
time in most nations the government was presumed to
be the fountain head of authority and dictated to the
people, or subjects, as to what they should or should
not do. In those days is was generally treason and po-
litical heresy for the people to say that they were the
rightful master and government their servant.
The Constitution provided for the Legislative, Exe-
cutive and Judicial branches of the Government and the
powers and duties of each, with the end in view of hav-
ing each become a part of one harmonious system, or as
nearly harmonious as the conflictions in public opinion
would permit.
The Other Side of The Money Question.
+
To Congress, as the Legislative body, was delegated
a large field of action. It was charged with the powers
of and the duty of providing many things for the nation.
Among these we find the following:-
Art. I. Sec. VIII. "The Congress shall have power
** ** To coin money and regulate the value there-
of, and of foreign coins ******”
In that Constitutional provision the people gave to
the National Government supreme authority over the
money of the nation and that provision remains unalter-
ed to the present day. No attempt has ever been made
to change the Constitution in such respect.
But as if to make the subject even more clear they
provided in-
Art I. Sec. X. "No state shall ***** coin money,
emit bills of credit: make anything but gold and silver
coin a tender in payment of debts.”
Thus the framers of the Constitution tried to doubly
emphasize the fact that the National Government alone
was to exercise the power of issuing money and that
the several States were not to interfere in such field.
Not being content with taking away all power to
issue money from the States and lodging it with Nation-
al Government, the provision to debar States from emit-
ting "bills of credit" was very evidently for the purpose
of preventing the States issuing anything intended to
circulate as money or as a substitute for money, for we
must remember that at that time a very large proportion
IO
The Other Side of The Money Question.
1
of the general business was transacted by the use of
"bills of credit" emitted by the various States.
It was proposed in the Convention to debar the Na-
tional Government from emitting "bills of credit," but
this was defeated, partly because it was impossible to
foresee the emergencies that the Government might
have to meet and partly because it might be construed
as a denial of the power of the Government to issue pa-
per money.
The advocates of paper money, under the leadership
of the illustrious Benjamin Franklin, were a strong fac-
tor in the Convention.
It was also proposed to give Congress a specific
power to emit "bills of credit," but this too was defeated,
mainly because it was believed that such specific grant
might be construed as an obligation upon Congress to
issue paper money and that such provision, if adopted
by the Convention, would arouse so much hostility on
the part of the money power of that day that it would
use its efforts to and perhaps prevent the adoption of
the Constitution.
As a compromise, the subject was ignored, the docu-
ment as completed giving Congress neither a specific
grant to emit "bills of credit" or containing any prohi-
bition of the same.
1
In after years the Supreme Court decided that Con-
gress has the power, under the Constitution and as the
highest legislative body of the nation, to emit "bills of
The Other Side of The Money Question.
II.
credit" and that such bills could be made a full legal
tender money.
Those clauses were not incorporated into the Con-
stitution blindly or with any feeling that they were com-
paratively unimportant. On the contrary we have every
reason to believe that the delegates were fully alive to
their importance.
Many of those conceded to be the ablest and best
posted upon monetary topics were active members' of
the Convention and all endorsed the proposal to make
the National government supreme in money affairs.
The many different measures by which the various Col-
onies and the different States under the Articles of Con-
federation had sought to maintain their money systems,
the general confusion and unsatisfactory conditions of
the same, were fresh in their minds and no doubt con-
tributed in large measure to bring about such unanimity.
of opinion.
The principle of giving the highest legislative body
of a nation supreme jurisdiction over its money is not
a principle original with this country and the members
of the Convention did not assume to be establishing any-
thing new in the government of nations when they
adopted such principle.
It was but the re-affirmation and incorporation into
the fundamental law of this country of a principle well
established and practically undisputed in nearly every
>
12
The Other Side of The Money Question.
م
age and nation from the earliest days of civilization—
viz-
That the issue and control of money is a preroga-
tive of government and can only be rightly performed
by the highest power in the land and that all private or
corporate use of money is subservient to the action of
that power.
The highest courts in all lands have uniformly and
repeatedly upheld such position and it is very seldom
openly or directly denied or questioned
Upon this point many decisions might be quoted,
but a brief mention of three or four of comparatively
modern date will suffice to indicate the general trend.
A complete text of the many decisions bearing upon.
such subject would fill many pages, or rather volumes.
The case known as "The Mixed Money Case" is one
of the greatest cases bearing upon money in the courts
of England and the decision in that case is one of the
most profound and exhaustive in all monetary history.
A resident of Ireland had, in 1599 purchased wares
of a London merchant to the amount of "one hundred
pounds sterling, current and lawful money of England"
and gave bond for the payment of the same at a later
date, in Dublin. Between the time of purchase and date
for payment, Queen Elizabeth had caused a quantity of
base pieces to be coined, with the royal arms and other
marks of authority upon them, made them a legal ten-
der and sent them to Ireland to pay off the royal army
The Other Side of The Money Question.
13
maintained there. At the specified date for payment,
the purchaser of the goods tendered, at the proper place.
in Dublin, one hundred pounds in the new money. The
seller of the goods refused to accept such tender and
sued the other.
The case being fraught with much importance on
account of the principle involved, it was transferred to
the highest English courts and was the subject of most
careful examination. The court did not restrict its in-
quiry to the one specific point at issue, but covered a
wide field of investigation. The decision, delivered in
1604. is a very lengthy one, embodying opinions and
decisions of the authorities for centuries, ancient and
modern.
In addition to deciding that the purchaser had made
a good legal tender for his indebtedness, the court, in
substance, declared that the Queen, as the supreme
power of the land, had complete dominion over its
money and could change it as often and as much as
she desired and that everyone using money contracts
must predicate their contracts upon the possibility of
such changes; that whatever the Queen decreed was
legal money at the time of payment was necessarily the
money of the contract and that no person could contract
himself out of the right to pay and the right to receive
payment of money contracts in the money legally cur-
rent at date of payment.
Such decision has continued unquestioned in the
14
The Other Side of The Money Question.
English courts and the fundamental principles then
clearly upheld have also been upheld by the Supreme
Court of the United States as being thoroughly in har-
mony with both the text and spirit of the Constitution.
Few, if any, controversies of that nature were raised
prior to the Civil War, but the issuance of "Greenbacks"
during the war was made the subject for several of such
decisions by the Supreme Court between 1864 and 1884.
The decisions unqualifiedly uphold the supreme
power of Congress and its right to make and declare any
money to be a full legal tender for debts, as its wisdom
may suggest. As a review of such decisions would oc-
cupy too much space for this treatise we suggest that
a careful reading of such decisions will make a verv in-
teresting study for those inclined to further investiga-
tion along that line.
Thus we find that the Constitution, supported by
the Supreme Court decisions, gives Congress unlimited
scope of action in money affairs.
'While at first glance it may appear as if the Consti-
tution is rather indefinite in its treatment of such a very
important subject, a closer study of the nature of that
subject will reveal that the very broad position taken is
in reality very essential.
Congress was given unlimited scope of power and
the methods and detail of executing that power were for
it to decide from time to time as in its judgment seemed
best for the general welfare. Had the Constitution im-
}
The Other Side of The Money Question.
15
posed any details, however wise such details might have
been in those days, the progress of the nation and meth-
ods of business might have afterward become such that
the measures, amply justified at the beginning, would
have become wholly inadequate or positively injurious
at a later period and yet could only be altered through
the slow and tedious process of first amending the Con-
stitution.
It is not only quite probable, but certain, that many
of the wisest members of the Constitutional Convention
clearly grasped the idea that fundamentally money is a
function rather than a material thing and that they pur-
posely omitted details that might apparently place the
function itself in a light secondary to the material thing
or instrument that Congress was to provide with which
to discharge the money function.
Congress may use whatever materials it wills in the
coining or issuing of money. It may use costly materials
or materials of least cost. It may use gold, silver, cop-
per, nickel, paper or any other material for such purpose.
It may invest any or all of such money with full legal
tender power and it may withdraw such legal tender
power whenever it so desires. It may in its discretion
demonetize any or all money and create others. It may
express the money in dollars, francs, pounds or such
other terms as it may select or inyent. It may make the
volume large or small, fixed or fluctuating. It may adopt
16
The Other Side of The Money Question.
whatever measure or system it deems best fitted for the
issuing and regulating of the money.
Every individual or corporate employment is always.
conditional upon the right and the possibility of Con-
gress making changes in money affairs.
1
CHAPTER II.
EARLY ENACTIONS OF CONGRESS UPON MONEY-FREQUENCY
OF CHANGES — PRESENT VARIETIES OF MONEY AND
THEIR DIFFERENT LEGAL POWER-SPECIFIC
CONTRACTS NO OBSTACLE TO AC-
TION BY CONGRESS.
In accordance with such Constitutional powers,
Congress has from time to time enacted many different
measures and made many changes in monetary affairs.
One of the laws passed by Congress soon after the
adoption of the Constitution was to provide for the es-
tablishment of a United States mint.
The law was
passed and approved by President Washington in April,
1792. Philadelphia was selected as the location and the
corner-stone was laid the same summer, such building
being said to be the first one authorized to be erected for
public use by the new government.
At the suggestion of Jefferson, the decimal system
of accounting was adopted by Congress, with the "dol-
lar" as the "unit" and such system has continued un-
changed to the present. The language used in the law
establishing such system is highly significant and cor-
roborates the view that those in charge thoroughly ap-
preciated the fundamentally ideal nature of money. A
section of the law says-
}
18
The Other Side of The Money Question.
"That the money of account of the United States
shall be expressed in dollars, or units; dimes, or tenths;
cents, or hundredths; milles, or thousandths; a disme
being the tenth part of a dollar; a cent the hundredth
part of a dollar; a mille the thousandth part of a dollar;
and that all accounts in the public offices, and all pro-
ceedings in the courts of the United States, shall be kept
and had in conformity to this regulation."
By action of Congress, gold, silver and copper were
adopted as suitable metals to use in providing the peo-
ple with a representative of the legal ideal money of ac-
count, in a form that enabled it to be circulated from
hand to hand, and, with many halts and hitches, such
metals have been continued through the intervening
years, with various changes respecting the quantity of
such metals to be used in coining a prescribed amount
of money and various changes in the legal tender power
of some of such coins.
Nickel and other metal, by authority of Congress,
have also been used to some extent in the coinage.
Changes have also been made in the denominations is-
sued, such as the non-coinage of silver dollars for a long
period of years, the abandonment of the gold dollar
issue, the twenty cent piece and numerous other coins
now existing only in collections. It would require much
space to merely enumerate the scores of changes that
have been made in the metallic coins since the establish-
ment of the Constitution.
1
J
The Other Side of The Money Question.
19
During the first half of our national existence, var-
ious kinds of coin of other nations were declared a legal
tender by Congress. Such laws were quite frequently
enacted and not finally abandoned until the year of 1857.
The paper moneys that have been directly and indi-
rectly issued by the government, or under governmental
authority, their various descriptions and legal tender
power, the many measures by which they have been is-
sued, the various processes of redemption, retirement or
re-issuance, the many measures that have dealt with the
various kinds of so-called "bank note currency," all com-
bine to form an aggregate that would be tedious to de-
tail.
Leaving the history of the monetary changes that
Congress has made from the date of the Constitution
and coming down to the present time, we find that there
are now provided by law-
Gold Coin
Gold Certificates
Silver Coin
Silver Certificates
United States Notes
Treasury Notes
National Bank Notes
Subsidiary Silver
Minor Coins.
As the laws are to-day these moneys have many
degrees of legal power.
}
20
The Other Side of The Money Question.
Gold Coin is a full legal tender for all public and.
private debts.
Silver Coin is a full legal tender except when other-
wise expressly stipulated in the contract.
United States Notes are a full legal tender for all
debts, except duties on imports and interest on the pub-
lic debt.
Gold and Silver Certificates are not a legal tender,
but are receivable for all public dues.
The National Bank notes are not legal tender, but
are receivable for all public dues except duties on im-
ports and may be paid out by the government for all
salaries and other debts and demands owing by the
United States to individuals, corporations and associa-
tions within the United States, except interest on the
public debt and in redemption of the National Currency.
The Treasury Notes are legal tender for all debts
except where otherwise expressly stipulated in the con-
tract.
Subsidiary silver and minor coins are legal tender
for small amounts only.
It is quite important that we fully grasp the mean-
ing of the law when it says that one money is legal ten-
der to a certain extent and another money legal tender
to a different extent.
On every hand we read of individuals and corpora-
tions entering into so-called "specific contracts." Though
in recent years the usual style of such contracts has
The Other Side of The Money Question.
21
been "gold coin, of present weight and fineness,” the in-
ference is that any individual or corporation could make
a binding contract payable in any specific money that
they might designate. Though we have already consid-
ered such subject to some extent, it will do no harm to
treat it just a little more fully.
As a matter of fact, such contracts are without much
standing in law insofar as they presume to be specific
and the question of whether they will be legally payable
in the money specified depends wholly upon the chances
of that form of money being a legal tender at date of
payment and whether the law gives the debtor any op
tion to pay in other form of money.
Apart from the subsidiary and minor coins, the only
kinds of money having legal tender standing to-day in
the settlement of contracts between individuals and cor-
porations are gold coin, silver coin, United States notes
and Treasury notes. With the exception that National
Banks are required to accept National Bank notes at
par, the other moneys are not legal tender and the debtor
could not be compelled to pay them or the creditor com-
pelled to accept them in payment for any money con-
tract.
Suppose that A entered into a contract with B in
January, 1907, by which he agreed to pay B in January,
1908, "one hundred dollars, lawful money."
Such contract could be met by tendering the amount
in gold coin, silver coin, United States Notes or Tréas-
ㄨ
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22
The Other Side of The Money Question.
{
ury Notes, or a combination of them, at the option of
A. B would have to accept such tender or be without
recourse.
If the contract read "one hundred dollars, gold coin
of present weight and fineness," A could tender the gold
coin if he felt so inclined, but he could also tender United
States Notes and B would have to accept, for they are a
full legal tender for all such contracts. A could not
tender silver coin or Treasury Notes for they are not
legal tender when otherwise specified.
If the contract read "one hundred dollars, silver coin
of present weight and fineness," A could tender silver
coin if he felt so inclined, but he could also tender gold
coin or United States Notes. He could not tender Treas-
ury Notes, for they are not legal tender when otherwise
specified
If the contract read "one hundred dollars, United
States Notes," A could tender the United States Notes
if he felt so inclined, but he could also tender gold coin.
He could not tender silver coin or Treasury Notes, for
neither are legal tender when otherwise specified.
If the contract read "one hundred dollars, Treasury
Notes," A could tender the Treasury Notes if he felt so
inclined, but he could also tender gold coin or United
States Notes. He could not tender silver coin, for it is
not legal tender when otherwise specified.
Were Congress at any time to change the legal ten-
der laws, the contracts would have to be adjusted ac-
cording to the change.
MoU
1
The Other Side of The Money Question.
23
}
For instance, if Congress was to take away all legal
tender from gold coin, silver coin and Treasury Notes
and lodge it exclusively with the United States Notes,
then all money contracts, regardless of specifications,
become payable in United States Notes, and the debtor`
could not be compelled to pay in the specified money,
nor the creditor compelled to receive the specified
money.
1
At the risk of being somewhat tiresome we have
thus portrayed money in its legal relations.
There is great need for a thorough understanding
of such phase of the subject, for there is a widespread
fallacious impression that the existence of a great vol-
ume of these "specific contracts" stands as an impassible
barrier, or at least a limitation of action by Congress.
A full knowledge of the actual laws upon the sub-
ject, both in theory and practice, will demonstrate that
all such "specific" features will not in the least degree
/hinder Congress in making whatever changes in money
that it may deem advisable for the general welfare.
Congress is to-day just as free to make changes as
it was to pass any laws upon the subject of money after
the adoption of the Constitution.
So far we have been dealing with the historical and
legal phases of money and their correctness may be
amply verified by the public records, though they are
opposite and hostile to some "orthodox" financial opin-
3
24
1
The Other Side of The Money Question.
ions held or maintained by a goodly number of our
people.
It may be asked-If the law relating to money is
so clear and explicit as you state, and it is not directly
denied, why is there a "money question" at all? If
Congress is conceded to be the rightful body to issue
money, why is not everyone fully in favor of it discharg
ing that duty? If Congress can make money and make
it legal tender why does it not do so and settle the con-
troversy? Why is the controversy kept up year after
year without getting much closer to a solution that
would place the money question in the category of
"closed incidents" instead of being at all times a pres-
ent question of such magnitude that many believe it
to overwhelm all others in importance?
To answer such questions it will be necessary to
ascertain what has interfered with or obstructed the
judgment of the people for so many years and which
continues to divide them into so many contending divi-
sions that progress to a solution is so exceedingly slow
and difficult.
Though other reasons may contribute to a slight
extent,the one great central reason is a diversity of opin-
ion as to what is money, what should be considered as
money, and therefore the subject for Congress to take
charge of.
4
CHAPTER III.
LAW DOES NOT DEFINE MONEY - CONFUSION OF OPINION
AS TO WHAT IS MONEY-ITS TRUE DEFINITION AS A
FUNCTION-FUNDAMENTAL HARMONY OF POPULAR
AND LEGAL CONCEPTIONS PUBLIC PRIN-
CIPLE IN MONEY ONLY APPLIED
IN LIMITED MEASURE.
The Constitution does not define money or prescribe
its scope of action. It authorizes Congress to issue and
regulate it, but it does not say how much or how little,
or in any manner indicate the field that it is intended
to fulfill in the affairs of the nation.
This silence upon the part of the makers of the Con-
situation was not due to ignorance, but was rather a re-
sult of their intelligent perception of the true nature of
the subject and from the fact that those men recognized
their inability to forecast either the extent or the meth-
ods of the development that the nation was to have in
after years and of course could not have, in advance,
prescribed the extent or the precise nature of the money
system that would be required in such progress.
They treated the question of money in much the
same manner that they treated other powers given to
Congress, for instance, the power to create and maintain
a navy. The Constitution makers did not attempt to
define the navy, say how many vessels it should consist
26
The Other Side of The Money Question.
of whether they be made of metal or wood: sailing or
steam vessels; side-wheeler, stern-wheeler or screw pro-
pellors; light or heavily armed; shallow or deep draught,
etc.
Many things now considered necessary to a well
kept navy were unheard of in those days and the assur-
ance of a progressive development was likewise in the
case of money, ample justification to omit details that
would more properly belong to the legislative field of
Congress.
If we turn to the works of the "orthodox" econo-
mists for light, we find that they are in endless confusion.
and contradiction. Hardly two of them give even ap-
proximately the same views.
"
Some have held that coined gold alone is money.
Others have held that both coined gold and silver con-
stitute the money. Others have held that various kinds
of circulating certificates, bank notes, etc., ought to be
considered as being a part of the money. But this view
is denied as strenuously by others, who have made a
distinction between what they call "primary" or "stan-
dard" money and what they call "currency."
The last mentioned school in general teaches that it
is right and proper for the government to issue the "pri-
mary” or “standard" money, but that it is not within its
rightful province to issue "currency," but that it should
be issued by private individuals or corporations, under
The Other Side of The Money Question.
27
some form of more or less stringent regulation by the
government.
There are others who contend that the term
"money" can alone be applied to that which is legal ten-
der, that it does not become money until such power is
given and that it ceases to be money when such power
is taken away.
The orthodox economists in general seem to have
no possible escape from their confusions and contradic-
tions, as their contentions are based upon arbitrary as-
sumptions which preclude the consideration of their po-
sitions from any common view-point.
Ask the people, individually to write or state
what they think is money and they will be found to be
of the utmost diversity of opinion, dividing very much
along the same lines as the economists are divided. It
is quite natural that a teaching of confused views by the
economists would result in the people having the same
confusion of views to a large extent.
Is there then no common grounds by which to as-
certain just what should be considered as money?
The altitude of any point on the surface of the earth
is reckoned from sea-level, with the approval of all. Is
there anything of an analogous nature by which we can
arrive at a true determination of what should be consid-
ered as money?
Yes, there is such a test, and strange as it may
seem, we find it in universal application in every day
28
The Other Side of The Money Question.
1
}
life and in every business transaction involving money.
Even the economists all accept and employ such analogy
in everything they do, except in their financial writings
and teachings.
On every hand people speak of "working for money,"
"selling goods for money," "paying money," "borrow-
ing money on a note or mortgage," "issuing bonds for
money," etc., in blissful disregard of the fact that in the
vast bulk of cases hardly a single dollar of gold coin,
silver coin, United States Notes, Treasury Notes, or any
of the circulating certificates or bank notes, (compris-
ing the range of money as usually outlined by the eco-
nomists) is actually handled or even transferred.
In the world of business "money" often becomes
"scarce," "tight" or even a "famine" while, according to
the definitions of the economists, it could be mathemati-
cally proven that it was more plentiful than ever. Con-
trariwise, money often becomes "plentiful," "easy" or
even a "surplus," while, according to the economists, it
could be mathematically proven that it was much scarcer
than ever.
It is a common expression of much truth that ninety-
five per cent of all business transactions are not made
with any of such forms of money, yet the people univer-
sally speak, think and believe them to be money trans-
actions.
Either the people, (including the economists as in-
dividuals) must all be mistaken, or the economists have
1
The Other Side of The Money Question.
29
been using the term "money" in a far too restricted
meaning and that a real definition of money would be
broad enough to cover the field of money transactions
as the people meet them in every-day life and business.
Thus we have a popular conception of "money" that is
vastly beyond the general teachings of the professed
economists.
Though perhaps quite unconsciously, the popular
conception of money is almost identical with the views
held by those who framed the Constitutional provisions
on money and who drafted the first laws dealing with
money under the Constitution, namely-That money is
a function rather than a material thing.
Francis A. Walker, one of the more advanced econ-
omists, sounds the public definition when he says:
"The sole test of money is the performance of the
money function. As has been said, that which does the
money-work is the money-thing. If it does this work
well, it is good money; if it does this work ill, it is bad
money."-Political Economy, Page 155.
Such a definition is thoroughly in harmony with the
popular use of the term "money" but it is vastly differ-
ent from the views of those economists who interpret
it in a restricted form.
Here and there in the teachings of the economists a
faint glimmer of the broad construction of money breaks
through the darkness, but the thought is not apparently
considered worthy of development and the entire subject
30
The Other Side of The Money Question.
is generally evaded or shunned as if it were a deadly
plague.
If this broad construction is true, it discloses that
the economists, while pretending to outline or discuss
the system of money, have in reality been taking into
consideration but a very small portion of the factors in-
volved, and consequently have not even approached to
a satisfactory solution.
They who would solve the question of money by
ignoring a majority of the factors involved and doing.
the money-work, are somewhat in the predicament of
one who would try to keep the cold winds out of his
house by keeping one certain window in good condition,
closing his eyes to the evident fact that there were many
others, equally large, that were wholly broken away.
In the early history of money, and even at the time
of the adoption of the Constitution, the limited definition
of the present-day economists was somewhat parallel
to the popular conception, and might have been applied
with approximate accuracy. That which they now de-
fine as money occupied practically the entire, or at least
the major portion of the field of money-work in those.
days.
But with the marvelous growth and multiplicity of
exchange in the past century, with the introduction of
so many exchanges requiring long periods of time to
fully accomplish, the field rapidly passed from one that
could be dovered by such limited construction of money,
The Other Side of The Money Question.
31
S
until to-day the money of the orthodox economists and
the money of the Constitutional times occupy but a very
small portion of the monetary field and do a very small
proportion of the monetary work.
In the face of a great advance in all lines of pro-
duction, which requires a like advance in the function of
exchange, the government continues to restrict itself to
an application of the public principle of money that
would perhaps be suitable to the exchanges of the Con-
stitutional days, but is wholly inadequate for that of
the present.
The public service not keeping pace with the de-
mand, such field has been, from necessity, very largely
`invaded and supplied in numerous forms, by private in-
dividuals and corporations, but such service has not
been altogether satisfactory, as the ever-present "money
question" bears positive evidence.
The public principle of money should be applied in
a manner broad enough to bring within its scope the
greatest practicable quantity of that which does the
money work. In such way only can the government
fully exercise the right to issue and regulate money and
the exercise of such power to the greatest practicable ex-
tent is the supreme money question of the day, and such
question will only become solved in the best interests of
the people and to such extent as the money service of the
country becomes public in fact as well as in theory.
In comparison with such real money question, that
32
{
The Other Side of The Money Question.
will call louder and louder for equitable solution,
all those incidental questions of money that have
been brought forward in the past few years and
still absorb a large part of public attention, such as the
relative merits of bimetallism and monometallism, the
National Bank Currency, the "Greenbacks," the emer-
gency currency, the asset currency, postal savings banks,
the guarantee of deposits, etc., while of some import
as matters of detail, become, as solutious, in like propor-
tion as an ant-hill is to the mountain.
Their principal bearing upon the money question
is in proportion as they aid or hinder in the work of
placing money upon a public basis and yet that fact is
seldom adduced as an argument and sometimes directly
denied.
Public attention is kept distracted by such rela-
tively minor matters, while the great central question,
of which they should be but contributory, is overlooked
and ignored and cannot even yet get a fair hearing in
the customary avenues of public discussion.
In recent years, however, there has been a steady
growth of conviction and expression that the money
troubles are of far deeper nature and importance than
indicated by the minor character of the monetary meas-
ures which have been absorbing the bulk of public at-
tention and a feeling that the settlement of any or all of
such questions, along the lines usually proposed, even if
they would do everything their advocates believed,
卤
​The Other Side of The Money Question.
33
would still fall far short of solving the real vital money
question.
The most advanced and most logical monetary
thought of the day has been steadily pushing its course
along those lines and in the not distant future is at least
possible that such school of monetary thought will make
such rapid progress as will ultimately effect a complete
re-organization of the monetary systems of the world.
But as this speculating upon what is to be, or ought
to be, or may be, is purely a matter of opinion and judg-
ment, in which all might find equal cause for alarm or
solace, let us leave it and return to the more immediate
question under discussion.
Money has by different writers been likened to a
mechanism and the illustration is quite a good one.
Let us examine the constituents of such mechanism
as it exists to-day, collect all of the important factors,
and thereby not only form a clearer idea of its magni-
tude, but get a better realization of the utmost import-
ance of having such mechanism made thoroughly public
in fact, to the utmost extent that such result is practi-
cable.
CHAPTER IV.
GOVERNMENT REPORTS OF TOTAL MONEYS
FIRST AND
SECOND DIVISIONS OF EFFECTIVE MECHANISM-METH-
OD OF MAKING LARGE DEPOSITS AND LOANS UPON
A RESERVE WHY BANKS ARE ANXIOUS
TO RETAIN THEIR CASH ON HAND.
In the U. S. Statistical Abstract for 1906, pages 111
and 112, we find the following statistics of the various
kinds of money in circulation and in the Treasury on
July 1, 1906-
Gold Coin
Silver Coin
In Circulation.
.$668,655,075.00
77,001,368.00
Subsidiary Coin
111,629,504.00
United States Notes
335,940,220.00
Treasury Notes
7,337,320.00
National Bank Notes
548,001,238.00
Silver Certificates
471,520,054.00
516,561,849.00
.$2,736,646,628.00
Gold Certificates
Total.
Estimated population
Circulation per capita
Gold Coin and Bullion
Silver Coin
Subsidiary Coin
United States Notes
Treasury Notes
.84,662,000
$32.32
In the Treasury.
$246,991,821.00
6,391,162.00
6,595,416.00
10,740,796.00
48,680.00
National Bank Notes
Total ..
13,111,122.00
$283,878,997.00
The Other Side of The Money Question.
35
The summary on page 113 of the abstract gives a
total of $333,329,963.00 in the Treasury. After vainly
trying to locate the discrepancy the writer wrote to the
Treasury Department for information. The inquiry was.
referred to the Bureau of Statistics for investigation and
reply was received to the effect that clerical errors were
responsible for a large understating of the amounts of
gold and silver held in the Treasury and that the cor-
rected figures were as follows:-
Gold Coin and Bullion
In the Treasury.
..$290,489,841.00
Silver Coin
12,344,108.00
Subsidiary Coin
6,595,416.00
United States Notes
10,740.796.00
Treasury Notes
48,680.00
National Bank Notes
13,111,122.00
•
$333,329,963.00
Total ...
The Treasury Department has in its vaults a much.
larger amount of gold and silver than given above but
the additional amount is simply held for the redemption
of corresponding gold and silver certificates in circula-
tion and the government reports rightly hold that it
would be erroneous to include it in both columns, so
the totals stand:
In circulation
In the treasury
$2,736,646,628.00
333,329.963.00
However the Treasury Department figures for the
36
The Other Side of The Money Question.
amount of money in the Treasury are calculated upon
the balance it has to its credit and does not take cogni-
zance of the fact that a part of such balance is not act-
ually held in the Treasury vaults, but is deposited else-
where.
The report of the Comptroller of the Currency for
1906, page 10, dated June 18, gives the following:-
Government Deposits in National Banks..$80,922,909.92
Deposits of U. S. disbursing officers
Total.
8,987,085.03
$89,909,994.95
That amount should be subtracted from the amount
of Treasury balance and added to the amount in circu-
lation. The figures thus revised to accord with the actual
condition would be as follows:-
In circulation
In the Treasury
.$2,826,556,622.95
243,415,968.00
Since the date of the report the government depo-
sits in National Banks have been increased to such an
extent that practically the entire Treasury balance is so
deposited, but, as we do not have uniform' statistics for
a later date, the inquiry throughout will be confined to
the date of the report, or as near such date as the var-
ious departments date their reports.
The money then actually held in the Treasury,
$243,415,968.00 in amount, was practically dead or dor-
mant, not doing any of the money-work of the country,
though of course it was available for such work when
The Other Side of The Money Question.
37
2
*
the government would so decide. But practically it was
for the time non-existent as a part of the money-mech-
anism, just as if it had been destroyed by fire or lost
in the depths of the ocean.
The "money in circulation" as the Treasury De-
partment so labels all money not in the Treasury, we
have seen was $2,826,556,622.95 but this amount is ad-
mitted to be largely overstated, as it includes vast sums
that have been lost or destroyed by fires, floods or other
accidents that have eliminated it as money and vast
sums of coin that have been melted and used in the arts,
etc. The amount that could fairly be subtracted from
the gross total in circulation is hardly capable of ascer-
tainment, but there is little doubt that it mounts into
the hundreds of millions of dollars.
But as the absence of data renders it impossible to
make accurate calculation, let us approach the subject
from a different direction and find out, as best we can,
just where and to what amounts we can locate the
"money in circulation."
Referring to the Report, page 50, date of June 18.
1906, we find that there was held by 6,053 National
Banks and 11,852 other banks and bankers reporting,
money as follows:—
Gold Coin
Gold Certificates
$158,294,060.00
329,998,217.00
Silver Coin
34,455,398.00
Silver Certificates
101,280,157.00
38
The Other Side of The Money Question.
Legal tenders (U. S. and
Treasury Notes)
262,263,412.00
National Bank Notes
37,664,741.00
Cash (not classified)
81,571,681.00
Fractional, unclassified specie,
Spanish notes and Philip-
pine currency
10,920,556.00
Total..
Less amount held by
$1,016,448,222.00
banks in island possessions. .5.661,868.00
Held by all banks and
bankers reporting in the
United States
•
$1.010,786,354.00
This sum practically comprises all the publicly
known large volumes of the money in circulation. The
remainder is presumed to be deposited in safety vaults,
the tills and safes of merchants, in the pockets of the
people, in trunks, old stockings, stoves, or in other form
of more or less safe hoarding place, or it has become lost,
destroyed or otherwise eliminated as money.
The volume remaining in such miscellaneous, un-
known and un-ascertainable whereabouts is larger than
the volume definitely located, being $1,815,770,268.00.
It being practically impossible to arrive at a fair
idea of the real amount that is in actual existence out-
side of the Treasury and all reporting banks and bank-
ers, for the purpose of this investigation we will accept
The Other Side of The Money Question.
39
the gross figures given and consider the entire amount
as in actual existence.
All the money in hand to hand circulation among
the people, whether coin or paper, the money of most.
retail and minor transactions, belong to such volume. It
is doing money-work and consequently is a part of the
money-mechanism of the country.
This is the first grand division of the money mech-
anism. It is a very large sum but at its maximum
limit it is of paltry insignificance when compared with
the total of money mechanism in use.
The second grand division of the money mechanism
consists of that portion of the deposits in the banks that
are used as "checking accounts" by the depositors.
The author does not have data respecting the vol-
ume of that portion of the total bank deposits that the
depositors generally consider and employ as "checking
accounts" and can therefore submit only as an estimate,
that one-fourth of the total amount is so used.
According to the Controller's Report, page 52, the
aggregate deposits in all banks were as follows:
National Banks
State Banks (.
Savings Banks
Private Banks
$ 4,054.677,558.00
2,722,922,028.00
3,299,544,601.00
109,947,509.00
Loan & Trust Companies 2,008,937.790.00
Total ..
$12.196,029,486.00
40
The Other Side of The Money Question.
One-fourth of the total deposits would give $3,049,-
007,371.00 as the sum of "checking accounts," the second
grand division of the money mechanism.
1
These accounts are being transferred back and forth
continually, though with much difference of rapidity
with persons engaged in different lines of industry.
Those working for stated money wage, as a rule, do
not have occasion to "check" as much or as often as
those engaged in buying and selling goods, etc., where
the checking account of the individual is subject to wide
and frequent variations.
In every respect the depositors use those accounts
just the same as if they were cash in their pockets, rather
than a credit on the bank's books, supported by a mar-
gin of cash; and insofar as the banks can calculate upon.
the average amount of all such checking deposits that
will remain with them, the banks treat them just the
same as if they were "time deposits."
}
>
These accounts are in a constant transfer of owner-
ship as they are "checked" around in payment for all
kinds of exchanges and, while thus changing owners
often and under normal business conditions always left
in the banks, during stress of financial disturbance the
depositors keep a large portion of cash on hand them-
selves, and in that way seriously reduce the aggregate
sum that the banks would otherwise have to work upon.
So long as such deposits are left in the banks, they
do double duty, as they are being checked from one to
The Other Side of The Money Question.
4I
the other, and at the same time being used by the banks
as a basis for loans and discounts.
{
The volume of the mechanism, as we have so far
considered it, is of the following proportions:
First Division-Circulating cash .... .$1,815,770,268.00
Second Division-Checking accounts.. 3,049,007,371.00
Total .
$4,864,777,639.00 *
Large as is the sum, it still represents but a very
small proportion of the total volume of money mech-
anism.
Before continuing our investigation into the volume
of the money mechanism, it may not be inopportune to
explain how the banks could have deposits of $12,196,-
029,486.00 when they only had $1,010,786,354.00 to work
upon, and at the same time explain how the banks could
loan out the large sum of $9.893,700,000.00 to borrowers,
(see Controllers Report, page 34.)
The banks carry about $12.00 of deposits and $10.00
of loans and discounts for every dollar of cash they have
on hand.
With many who approach the subject for the first
time, it is somewhat difficult to understand how such a
large volume of deposits and loans can be carried when
there is only a fraction of that amount of cash to work
upon. The subject is simple to those familiar with the
process, but it is rather obscured to those unacquainted
with it.
་
'
A
42
The Other Side of The Money Question.
If the banks simply accepted money on deposit and
stored it away in their vaults until the depositor called
for it, it is obvious that the "deposits subject to check"
would be the same amount as the "cash on hand,” and
that the banks would not have any loans.
The banks would be the loser under such an ar-
rangement to the extent of the expenses and as banks
、are not usually run as philanthropies of course no pri-
vate persons or corporations would embark in the bank-
ing business.
However, the banks, under authority of law, are
required to keep or store away but a small portion of
the deposit, in cash, and are permitted to loan out the
balance to those desiring to borrow it, which loan, in
the ordinary course of business, again becomes a depos-
it in the banks, the operation being repeated again and
again, each operation tending to increase the total of
deposits, loans and reserve required by law.
We will suppose that one dollar in cash is deposited
in a National bank. Such banks are best suited for illus-
tration, as they are uniform throughout the country,
while each state has different regulations for other
banks. The law requires National banks to keep fifteen
per cent reserve in banks of non-reserve cities and
twenty-five per cent in reserve city banks. If the depos-
it is made in a non-reserve city, the banks must set
aside fifteen cents and can loan out the balance. The
first statement of the operation would be as follows:
The Other Side of The Money Question.
43
}
}
Deposits $1.00, loans 85 cts, reserve 15c.
This loan of .85 if taken out of the bank in cash, say
by Jones and paid to Smith, becomes in turn a deposit
by Smith or someone else to whom he may have paid it.
As a matter of practice, little money is carried away
from the banks, as most business operations are carried
on by "checking" or transferring the account. The prin-
ciple is the same either way, the usual practice saving
the trouble and risk of handling the cash.
When the .85 becomes deposited, the bank retains
fifteen per cent (1234) and loans out the balance
(.724). The bank statement would then read:
Deposits $1.85. Loans $1.574. Reserve :2734.
This process carried out a number of times finally
results in the dollar all being in the reserve fund and
the deposits and loans reaching to relatively large pro-
portions. The bank statement would then read:
Deposits $6.66. Loans $5.66. Reserve $1.00.
This result is not simply a possible or probable one,
but it quite accurately depicts the actual condition of
banks under what is called a normal state of banking.
The state banks, savings banks, private banks and
trust companies are conducted along the same principle,
but there is no uniformity in those of different states.
As a whole they are not required to keep as large a por-
tion in reserve as National banks and this makes the
average reserve of all much lower than would be indi-
cated by the National banks alone.
44
The Other Side of The Money Question.
The Report, page 52, says:
"The percentage of cash to deposit held by banks
other than National appear to be less than one-fourth
the percentage held by National Banks, such holdings
being 16.80 per cent by National Banks and an average
of 4.04 per cent by all other banks."
While considering the manner in which loans are
made by banks, it is well to remember that even under.
ordinary banking conditions, in communities where there
may be several competing banks, each bank, before mak-
ing loans, endeavors to ascertain if the loan is to be
withdrawn in cash or left in the bank and checked over
to others who would still leave it in the bank.
If the prospective loan is to be withdrawn in cash,
the bank will often refuse to make it, though the secu-
rity be first-class and the bank be perfectly willing to
make the loan if it is not to be withdrawn in cash.
In such cases the bank officials are not actuated so
much by a fear that the money so withdrawn will not be
re-deposited in some bank, as by a fear that their partic-
ular bank may not get their share, as re-deposits, of
such loans as are withdrawn from the various banks.
Consequently the business prudence of each impels
it to remain on the safe side by not passing the cash
over its counter, thus favoring the applicants for loans
who will not withdraw in cash. Each bank endeavors
to "hold on" to all the cash it has and competes to get a
larger portion of that which other banks let go of.
*
The Other Side of The Money Question.
45
If the prospective borrowers, with first-class security
behind them, who intend to draw out the loan in cash,
would carefully analyze the effect upon the bank's busi-
ness of the losing of a portion of its cash on hand, it
would often reveal the real reason for many "unaccount-
able" refusals to be "accommodated."
>
As the several banks in a community thus compete
among themselves for the cash, so every movement to
take cash out of the community is of vital concern to
them as a whole, for it may for a time at least take away
the basis necessary for the loans and discounts of all the
banks in the community.
In the National field we find an evidence in the feel-
ings of anxiety attendant upon any considerable expor-
tation or importation of gold, not because the movement
would amount to much as a commodity, but because the
present system enables gold to be at will transferred
into money, and that such movement would mean either
losing the basis for a large volume of loans and discounts,
or the securing of additional basis to expand the loans
and discounts.
CHAPTER V.
LOANS OF BANKS AS THE THIRD DIVISION-INJURY OF UN-
CALLED FOR FLUCTUATIONS IN VOLUME-BONDS AND
MORTGAGES RENDERED POSSIBLE BY TRANSFERS
OF BANK DEPOSITS AS THE FOURTH AND
LARGEST DIVISION OF EFFECT-
IVE MECHANISM.
The third grand division of the money mechanism
consists of the loans and discounts of all the banks.
As noted in previous chapter, the loans and dis-
counts amounted to the sum of $9,893,700,000.00.
This vast sum is practically all in active use doing.
money-work. It is costing interest and the borrowers.
would not keep it out unless it was being used. It is
being transferred back and forth, paying debts and bills
of every kind and aiding in all kinds of exchanges in
much the same manner as the "hand to hand" moneys
of the first division, though in a field dealing more in
larger amounts. It is an extremely important division
of the money mechanism.
Though five times the volume of the first division,
it is almost impossible to get the third division of the
money mechanism fairly discussed by the orthodox ban-
kers, financiers and economists, and they especially
avoid all discussion if the other party to the controvery
wishes to discuss it in the light of fulfilling the same
general mission as the hand to hand circulating moneys.
The Other Side of The Money Question.
47
and therefore equally necessary to be placed under gov-
ernmental regime as far as practicable.
Every argument in favor of the governmental issue
and regulation of the circulating moneys applies with
equal force to the vast bulk of the loans and discounts
of banks. If it is wise for the public to issue and regu-
late the moneys of the first division, it would be equally
wise for the public to issue and regulate that vast field
of money mechanism that has arisen, since the adoption
of the Constitution, in the form of "loans and discounts.'
وو
Viewed in the light of the effect that such loans and
discounts have upon the value and stability of other
moneys, it will be found imperative to control that field
in order to keep the other money at a fairly stable ex-
change value, when compared with general property
and products. It will be impossible to maintain any
money at a stability so long as private individuals or
corporations can exercise the arbitrary power of making
the volume of loan and discount money large or small,
as their interests may dictate, without regard to the le-
gitimate needs and demands of the public in general.
The truth of that statement will be apparent to all
those who will for a moment consider the possible re-
sults if the banks would, in concert, reduce their dis-
counts to a large degree, or expand them to hitherto un-
known proportions. Such actions are not only possible.
but have often been realities, sometimes to the great dis-
tress of the general public.
}
48
The Other Side of The Money Question.
The power to loan and discount upon a reserve
fund, as possessed by banks, is practically the power to
issue money to that extent. Had banks never been per-
mitted to develop the discount upon reserve field, but
instead been given the power to issue circulating money
to an equal amount, they would not be enjoying any
privilege much different, either in principle or results,
than they now possess in the form of discounting power.
Had they ever proposed that the power be given
them to issue such a gigantic sum in circulating money.
they would have been "laughed out of court" for even
suggesting such an outrageous proposition, yet indirect-
ly they have secured and are quite firmly intrenched in
all the essential features of that very proposal and are
still seeking more power and privilege.
The power possessed by banks to at their will or
pleasure manipulate the vast margin between the possi-
ble maximum and minimum limits of discounting is so
great that it can, when exercised with some degree of
accord, substantially negative all the good results that
may reasonably be expected from a wise governmental
policy in the issue and regulation of the money volume
that circulates from hand to hand.
What protection or assurance have the people from
disaster when the bankers, sometimes for causes over
which they have no direct control, but at other times
purely from motives of selfish gain, suddenly contract
or as suddenly expand the volume of their discounts?
}
The Other Side of The Money Question.
49
}
We have no desire to quarrel or find personal fault
with the bankers who control this vast volume of "hocus
pocus money" as one able writer fittingly styles it. In
very many instances the evil results arise despite their
most earnest efforts, and they themselves be as much
or more the victims as the members of the community
at large.
It is the unstable nature of the system as a prolific
source of injury that we are opposing, for in the private
or corporate manipulation of that form of money we
find the initial definite movement of most commercial
and industrial- panics or depressions.
Neither are we unmindful of the great usefulness
of the work that it has performed and still performs in
the money system and we would, to the utmost, pro-
test against its abolition or curtailment, except as such
abolition or curtailment becomes possible through the
installation of a more adequate public system that will
preserve the good features while eliminating the injur-
ious ones.
The service that the people get through the medium
of the loan and discount system is of great value to
them and it would be a serious blunder to abolish or
curtail the scope of such system without at the same
time giving the people the desired service in a more sta-
ble and satisfactory form.
The effective volume of money mechanism as we
have thus far considered it, consists of three divisions:
50
The Other Side of The Money Question.
First Division-Circulating cash .....$ 1,815,770,268.00
Second Division-Checking accounts.. 3,049,007,371.00
Third Division-Loans and discounts. 9,893,700,000.00
Total ...
.$14,758,477,639.00
Truly this is a gigantic mechanism. Is it any sur-
prise that the "money question" is deemed highly im-
portant by those who give it study? Is it any wonder
that individuals and corporations plan and scheme to se-
cure possession of such a colossal power and with it the
opportunity of plundering the people by a selfish exer-
cise of that power?
But vast as is the sum, it is still but a portion of
the actual money mechanism in operation. A fourth
great section yet remains to be considered and that sec-
tion is of such stupendous amount that it is practically
equal to twice the combined volume of the other divis-
ions. It is a sum so vast that it would be denounced
as the vision of a dreamer were it not capable of being
demonstrated to be an actual existing fact.
This division arises almost entirely through the sys-
tem that enables the depositors in the banks to loan such
deposits to others, in which transactions the banks do
not directly figure except in a clerical capacity, to make
the transfer on their books. They as banks, do not de-
rive any income from or regulate the volume of such
transfers.
The bulk of the bonded and mortgage indebtedness
The Other Side of The Money Question.
51
}
of the country is maintained by means of this section of
the money mechanism, though a portion of it is trans-
acted through the loans and discounts of the third divi-
sion and a still smaller portion through some of the
transfers of the checking accounts of the second division
and through actual transfers of cash from hand to hand.
To illustrate the method by which this vast fourth
section is created and maintained, we will suppose that
Jones has a deposit to his credit at the bank, of one
thousand dollars. He is deriving three per cent interest
or perhaps even four per cent from the bank. The bank
has such deposit loaned out to its limit, so that it in turn
can make a profit from the margin between the interest
it pays and what it receives.
Smith wishes to borrow one thousand dollars, has
plenty of good security, and offers to pay Jones six per
cent interest if he will lend it to him. Jones is agreed,
Smith turns over a mortgage upon his security and Jones
gives Smith' a check for the thousand dollars.
Smith takes the check to the bank and either depo-
sits the check to his credit or takes out the cash. If he
takes out the cash, it will only be to deposit it in some
other bank or pay it over to someone else who will. If
the one bank is thus drained of cash, under normal con-
ditions of banking the bank recovers the amount by the
withdrawals from other banks that are deposited with it.
The net result to the bank is usually the same as if
the credit had been left in the bank and then transferred
52
The Other Side of The Money Question.
to others by check, and this is the customary practice in,
every-day business.
As the banks only transferred the account from
Jones to Smith, it would not affect the deposits, loans or
reserves of the bank and they would remain as before
the transfer.
Smith takes his check-book and pays out the account
now to his credit. It goes in many directions as the
reader will readily understand, becomes active in the
money-work and continues in such work until Smith
pays the thousand dollars back to Jones, has the mort-
gage cancelled and the transaction closed.
The making of the loan has put into effective oper-
ation an addition of one thousand dollars to the money
mechanism. The addition has been made without re-
quiring the bank to reduce its loans or enabling it to
increase them.
At this juncture, though a digression, it may not be
amiss to briefly note the subtle jealousy or confliction
of interests between the banking institutions that pro-
vide the mechanism of the third division and the indi-
viduals who provide the bulk of the mechanism of the
fourth division.
Until the millenium comes, the selfish instinct in
bankers will probably work its logical result the same
as with other persons, and this instinct will more and
more cause banking institutions to scheme and plan to
control the entire field of loans.
The Other Side of The Money Question
53
t
As the opportunities arise, the bankers will be apt
to promote every measure that will tend to drive pri-
vate loaners from the field of money service and secure
new privileges that will enable them to expand their
own field of action and give them a monopoly of the ser-
vice.
!
Banks will not always be content to act as custod-
ians or bookkeepers for private loaners, to be satisfied to
have the lenders of deposits skim the cream from the
money service profits, leaving them to be satisfied with
but a small portion of the net profits, while doing most
of the actual work.
Some day there will be a "battle royal" between
those interests, unless the people in the meantime take
action to place the money service upon a full public
basis.
In fact, it requires no very great powers of observ-
ance to notice quite a little movement already manifest-
ing itself among the banking element, along, the lines
of eliminating the depositor as a profit sharer.
The private lenders will do well to ponder over
such phase of the subject, or, in their anxiety to get as
much as possible from the borrowers, they may neglect
to realize that their co-partners of to-day may to-morrow
be riding rough-shod over them as well as the borrow-
ers, and the victorious banks will then probably wage
war among themselves in their battle for supremacy, and
U
54
The Other Side of The Money Question.
*
to determine the precise manner in which the big fish
shall eat the little ones.
D
To return to the illustration we were considering.
So far as the volume is concerned, it is virtually the
same as if Jones had been given power to issue one
thousand of money based upon his deposit, or as if Smith
had been given power to issue the same amount based
upon his security.
Practically they have "coined money." They have
created a volume of mechanism that is used as medium
for all kinds of exchanges, it pays debts on every hand,
though not a legal tender, and it exercises its propor-
tionate weight in determining not only the range of
average prices, but the exchangeable value of each and
every dollar of other form of money.
Every dollar of the amount is doing money-work as
certainly as the money volumes of the first, second and
third divisions, though it generally deals with the field
of larger amounts. Practically all the transactions in-
volving very large sums are by means of this section of
the mechanism.
It may be thought that such a second increase is a
"counting twice" rather than a real increase. Under
certain conditions it would be difficult to give valid rea-
sons for thus counting under both headings, but those
conditions seldom occur in real life. For instance, if
Smith borrowed the money from Jones at six per cent
and turned right around and loaned it to Brown upon
A
1
r
The Other Side of The Money Question.
55
equal security for the same rate, it would be a duplica-
tion in amount rather than a real increase of effective
volume. But practically that condition never exists, for
there is always some expense involved and Smith would
be the loser to that extent, for, rather than pay the ex-
penses of two loans, Brown would have dealt first-hand
with Jones, or some other person.
In the ordinary course of business, if money is bor-
rowed at one rate of interest and reloaned at a higher
rate, the difference in rates is an indication of a money-
work field that would not be supplied at the lower rate,
and of course both processes should be counted as the
mechanism used in providing such service.
The growth in the volume of money mechanism,
through the lending by the depositors of their accounts
in the banks, somewhat resembles the cumulative man-
ner in which a comparatively small amount of cash ex-
pands to large proportions under the system of discount-
ing upon a reserve. It differs in that, as there is no re-
serve required in the transaction, there is no limit to the
aggregate volume that may be thus created, except the
disposition of the owners of the deposits to lend and the
needs or demands of the prospective borrowers, while,
in the banking upon a reserve division, the maximum
limit of discounting is fixed by the amount that could
· be carried upon the volume of money available for re-
serve purposes.
The re-loaning of moneys is kept restricted by the
}
56
The Other Side of The Money Question.
very practical fact that subsequent borrowers at a higher
rate of interest cannot compete in business with the first
borrowers at a lower rate, thus naturally giving those
who have the real security and are willing to risk it the
advantage over those who have security a little less de-
sirable.
As in the third division, the borrowers in the fourth
division pay for and have the use of a great money ser-
vice that they could not otherwise secure under the sys-
tem as at present organized.
But suppose that at some past period, say ten or
twenty years ago for illustration, the depositors in all
banks had agreed to leave their deposits intact in the
banks and not to lend them to others.
It is evident that the depositors had a perfect legal
right to leave the deposits intact and such a course would
have been somewhat strengthened by the fact that the
deposits were drawing interest while so kept.
Such a course would have been largely immaterial
to the banks, as they loaned to the limit anyhow and it
would not cause them to reduce their volume of loans
and discounts.
But it is generally clear that such a course would
have prevented the expansion of the money mechanism
to the extent that has been required in the meantime,
and without such corresponding expansion in the money.
mechanism the business expansion could not have ex-
isted.
The Other Side of The Money Question.
57
For like reasons, if the present depositors in the
banks would refuse to loan their deposits, upon mort-
gages and bonds, but simply allow them to remain in
the banks drawing interest, it would largely tend to pre-
vent further business expansion and development, not
because the owners of the deposits were doing anything
of a wrongful nature by so refusing, but because under
the present system it would be impossible for the would-
be borrowers to get the money from any other quarter.
The borrowers need the service and its importance
in the economic field is so great that its denial or curtail-
ment would cause havoc in all the larger transactions
and such evil would quickly spread through all the chan-
nels of smaller transactions.
}
In the larger, as in the smaller fields of money, there
is an element of pure gambling that ought to be oblit-
erated for the same reasons that prompt the abolition of
common forms of gambling, but the vast bulk of trans-
actions are of real value in the economic of the country,
and under no circumstances should the present mode of
effecting such transactions be abolished or curtailed, ex-
cept as it may be rendered through the installation of a
more perfected system of money servic.
The aggregate volume of the mechanism of the
fourth division is practically equal to the entire bonded
and mortgage indebtedness of the country, national,
state, local, corporate and individual, less such propor-
tion of it as may be represented in the transactions of
the other divisions.
58
The Other Side of The Money Question.
The author does not have at hand authentic figures
for the amount of such indebtedness, but a conservative
estimate would be thirty billions of dollars.
Using that estimate as a basis and estimating that
five billions of it is represented in the other divisions, it
would leave an approximate aggregate of twenty-five
billions of dollars arising through the fourth grand divi-
sion.
The grand total of money mechanism of all divi-
sions, in round numbers, would be as follows:
First Division-Circulating cash .....$ 2,000,000,000.00
Second Division-Checking accounts.. 3,000,000,000.00
Third Division-Loans & discounts.. 10,000 000,000.00
Fourth Division-Bonds & mortgages 25,000,000,000.00
Grand total ..
.$40,000,000,00.00
This is truly a stupendous mechanism, and it is not
a creation of the imagination, but a vital effective reality.
The U. S. Abstract, page 650, estimates the true
value of every form of property, in the United States,
in 1904, at $107,104,211,917.00.
The mechanism of money requires that more than
one-third of the entire wealth of the nation shall be prac-
tically monetized.
Such mechanism is all in actual use performing the
, money function and necessary to the business of the na-
tion. It results in a direct benefit to those who employ
it and to the nation as a whole.
The Other Side of The Money Question.
59
3
Nine-tenths of it bears direct interest and so great
is its importance that the borrowers would sooner pay
the interest than be compelled to do without the service."
The welfare of all the people, those who do not di-
rectly act as borrowers as well as those who do, and in
the great majority of instances the lenders as well, is
inseparably connected with the maintainence of the
money mechanism in all its usefulness and its improve-
ment wherever possible.
Rightly considered, its large or increasing volume
ought not to be an indication that the people are poor
or becoming poorer, or that they are being loadened
with increasing weight of debt, but it should be simply
an indicator of the fact that development of exchange,
like development of production, constantly requires a
larger and larger aggregate mechanism to properly ful-
fil its economic mission, and that its growth is an evi-
dence of the ability of the people to produce an increas-
ing volume of all that ministers to their physical, intel-
lectual and moral advancement.
In these days when on every hand we find increasing
evidence of the necessity and economic advantage of
having government exert a wider range of influence in-
many spheres of activity, is it possible that, in the vast
field covered by the medium of exchange, it is the part
of wisdom for the public to permit that most ancient and
beneficient of public utilities to become less and less
public and more and more fully under the control and
dictation of individuals and corporations?
J
CHAPTER VI.
NECESSITY OF STABILITY IN MONEY
WHAT IS MEANT
BY STABILITY - EVILS OF RISING AND FALLING
AVERAGE PRICES-INADEQUACY OF
BOTH BIMETALLISM AND
MONOMETALLISM.
After thus portraying the total volume of the money
mechanism, it still remains to be demonstrated that it
should be provided by the public.
One of the prime reasons is that it is absolutely es-
sential for money to have a stable value and this is im-
practicable, if not impossible, except under a public sys-
tem.
Here the very important question arises "what is
meant by stable value?"
The economists have written volumes upon the
word "value" and they are still at it, for it seems to be
the most troublesome one that they have to deal with,
but there is somewhat of a unanimity of opinion that
: "value" means "relation in exchange.
Under such definition of value, a stable money
would be one that had a stable relation in exchange.
That is, compared with the thing it was to buy, or that
was to buy it, the relation would remain the same. For
instance a stable dollar would be one that would always
The Other Side of The Money Question.
61
preserve the same relation to a certain quantity of that
which it was to exchange for.
At this juncture it will occur to the reader that there
were a multitude of things that money was to exchange.
for, and that it would be impossible to have money re-
tain the same relation to each and every item in the list
of exchanges.
Quite true, and even if it was possible it would be
very undesirable from an economic point of view, for it
would take away the compensating influence that money
exerts in dealing with variations in the production of
things. For instance other things remaining the same.
a short crop of wheat means higher prices to the wheat
growers, and this tends to prevent them from sustaining
the entire effect of the reduced crop. On the other hand
an extra large yield means lower prices and cheaper
wheat to those who do not produce wheat. Thus the
public as a whole assumes part of the loss and gets part
of the advantage when anyone thing is abnormal in
comparison with other things.
It is equally true that if money only preserved its
relation to one item in the list of things that are ex-
changed, that it would be going to the other extreme and
would place the means superior to the desired end and
would not make for a stable money, unless it was ab-
solutely sure that the item selected would be one that
exactly preserved its relation with other things. No such
62
The Other Side of The Money Question.
item of wealth has ever been found and, in the nature
of things, probably never will or can be.
The true course lies between the two extremes. It
being impossible and undesirable to have money main-
tain its relation with each and every thing and equally
unfair to only consider one thing, justice solves the
problem by requiring average things to be the basis of
comparison with money. The people are engaged in
producing and exchanging a vast variety of things and
money is "stable" just in proportion as it preserves its
relation with the average of those things.
!
Stability of average prices, or average purchasing
power, is the test of stability in money. Alike necessary
for all business transactions and calculations, and for
the preservation of the equities of money obligations
and money savings, it is practically indispensable to a
proper working of the money system.
A
The one heavily in debt may, in his anxiety to be
released, close his eyes to the injury wrought by rising
prices that enable him to pay his debts with money of
less real value or purchasing power than he should.
The one with large balances to his credit in the
bank, or plenty of bonds and mortgages calling for a
specific number of dollars, may close his eyes to the in-
jury wrought by falling prices, for every fall increases
the exchangeable value of his holdings in like propor-
tion, without any effort on his part.
The spéculator may close his eyes to the injury
1
}
63
The Other Side of The Money Question.
wrought by fluctuating average prices, for in every fluc-
tuation he finds' opportunity for possible gain, depen-
dent upon his ability to forecast the direction of the
fluctuation.
But the welfare of the people as a whole is not ad-
vanced by either a rising, falling or fluctuating scale of
average prices. It imperatively requires a stable level.
With a stable level of prices the equities of all
money obligations remain at a just relation, savings are
preserved intact, and business affairs have a solid basis
for calculation, whereas under a rising, falling or fluc-
tuating scale of prices, business transactions really par-
take more of the character of a gamble in money rather
than a problem of the production and distribution of real
wealth.
Whether average prices shall be stable, rising, fall-
ing, or fluctuating depends wholly upon the extent to
which the supply of money is adjusted to the demand.
The principle of adjustment is somewhat similar to
the one employed by a man firing a boiler. He deter-
mines the quantity and intensity of his firing by keeping
his eye upon the steam-guage. If he is to keep a certain
pressure and it rises above it, then he checks his fire,
while if the guage falls, then he increases his fire.
So in money the volume cannot be absolutely known
in advance, but is determined by the guage of average
prices. When prices are stable, is. signifies that the vol-
ume of money mechanism is adequate. When prices are
64
The Other Side of The Money Question.
falling, it means that the volume is inadequate to the
demands upon it and should be increased. If prices are
rising it means that the volume is too full and should be
reduced.
The public as a whole is directly interested in main-
taining that stability of relation, but give the power of
determination to any individual or group of persons and
they would not keep such stability for they could amass
wealth far more rapidly by making the volume fall, rise
or fluctuate and by the inside knowledge that they would
have as to which way it was to go, they would regulate
their business transactions so that every variation would
mean more wealth to them.
Though the stability of money essentially depends.
upon the proper regulation of supply to demand, as indi-
cated by average prices, we find a large portion of our
modern bankers and financiers arranged in two classes,
the one class recognizing but one thing, gold, as an in-
dicator, the other class seeking for power to, as they say,
"issue just sufficient to fill the channels of business,"
disregarding what ought to be an evident fact that busi-
ness will absorb, by rising prices, all that may be offered
and that the channels of business would not be any more
filled than before.
The views of these two classes overlap and inter-
twine so that it is difficult to separate them, but they
are alike in that they both refuse to recognize the scale
of average prices as being the only true register of money
The Other Side of The Money Question.
65
and they are alike insofar as they have thus thrown
away the steam-guage, bolted down the safety-valve and
are firing the monetary boiler with a reckless disregard
of the true mission and work of the monetary mech-
anism.
It is fast becoming a grave and doubtful question
whether or not in the near future those "frenzied" finan-
ciers will be able to overcome the opposition of those
bankers and financiers who have comparatively true ideas
upon what a stable money is, and who recognize the
necessity of the proper indicator to be used in the reg-
ulating process.
Upon a basis of forty billions as being the amount
of the money mechanism on July 1, 1906, and that such
amount would have maintained the same volume of
business, upon a stable level of price, it is evident that
if the amount was arbitrarily reduced to thirty or twenty
billions, either business volume or prices would have to
be shrunk to fit. If the volume was arbitrarily increased
to fifty or sixty billions, then prices would rise in propor-
tion unless business increased sufficient to take up the
increase.
It is just like a boy with a slice of bread and a cer-
tain sized lump of butter. If the slice be small, he can
put it on thick, but if it be large, he must spread it out
thinner.
Throughout the evolution of money there has been
somewhat of a constant recognition of the necessity for
}
66
Questi
The Other Side of The Money Question.
1
a stable price level and of the importance of the money
volume as a measure to secure such stability.
Though space will not permit any extended discus-
sion along this line, it may be well to note that one of the
chief reasons always given for the adoption or continu-
ance of gold and silver as money metals, and for the pol-
icy of unlimited coinage, was that the annual production
was very small in proportion to the total stock on hand
and that this fact made those metals more nearly a rep-
resentative of average things than any other one or two
commodities would have been. That was a valid excuse,
if reasonably true, so long as the evolution of money
had not yet progressed to a point where it could dis-
pense with both and maintain a money volume that
would accomplish better results with less economic
waste.
The respective merits of the bimetallic and mon-
ometallic controversy essentially hinges upon the rela-
tive effect that each would have in providing the re-
quired money mechanism.
The supporters of each policy are under obligations
to establish that their policy will produce and maintain
approximately the required mechanism, no more and no
less.
That neither policy has ever done so will be evident
to those who review the history of average price move-
ments. Very great and frequent alterations have been
The Other Side of The Money Question.
67
made under metallism, with consequent disaster to the
people.
In times long past, under metallism, an addition of
the metals was just so much of a proportionate addition
to the total volume of money mechanism, for the mech-
anism was practically limited to the volume of metals.
Thus if the volume of metal offered for monetary pur-
poses was equal to ten per cent of the existing volume,
then its addition was in like proportion.
But in more recent times the expansion of the mech-
anism has been so great that the metallic portion of it
constitutes but a very small part of the whole volume
It being impossible to reduce the mechanism to the
amount of gold and silver, and very undesirable, even if
it were possible, at its best, metallism could not be urged.
upon broader grounds than as a basis for the total vol-
ume.
One of the problems confronting those who still
cling to metallism (either school) is to demonstrate that
the total volume invariably and in exact ratio responds
to every increase or decrease in the smaller volume.
They must demonstrate that the "tail will wag the dog"
whether it will or no.
Upon that basis alone can metallism have any stand-
ing in present day discussions of money.
If such result does not follow, then metallism be-
comes not only superfluous, but a source of positive evil.
If the smaller volume does not regulate the larger
68
The Other Side of The Money Question.
volume, then it would still be necessary to otherwise
regulate the larger volume, and this could be far more
easily accomplished with metallism wholly eliminated.
By some mysterious process of reasoning, many met-
allists base their views upon the belief that the people
cannot and will not, of their own volition, properly reg-
ulate the volume of money. So they conclude to let that
be determined by the productions of the metals, or
rather by that portion of them available for money pur-
poses.
Such method of neglecting to regulate the volume
of money has caused endless disaster and it would seem
as if the metallic economists ought to soon recognize the
absurdity of their position, and begin to develop and
explain to the people the advantage and necessity of
scientifically regulating the volume of money and not
longer to permit so important a thing to be determined
by the uncertain production of either gold or silver.
Metallism to-day occupies an anomalous position in
the money field. Wholly inadequate to supply the total
mechanism and becoming more and more inadequate to
control the total volume, it has reached the evolutionary
stage where it should be consigned to the realm of his-
tory, along with the stage coach, the hand scythe and
other things very important in their proper day, but now
discarded for things of more improved character.
According to the government reports already quoted
we have learned that there was approximately $2,000,-
The Other Side of The Money Question
69
000,000.00 of gold and silver, or about one in twenty of
the total volume of mechanism.
From the metallist point of view one dollar in the
metal field ought to mean just about twenty in the total
field. That if the metal field was cut in two the total
field would also shrink to half its volume, and if the
metal field was doubled the total volume would also be
doubled, and that the total volume would exactly re-
flect every change in the metal section.
From their point of view fixing the volume of what
they call "primary" or "standard" money must necessar-
ily establish the volume of the total, or they have no
case at all.
What are the facts upon this point?
Is the evidence not positive enough to convine all
that such method of fixing the minimum amount has not
and in all probability never will determine the aggre-
gate?
The aggregate may be anywhere from the minimum
to the possible maximum, and the various forces that de-
cide how much of a movement there shall be within this
vast margin is the power that determines what the
aggregate shall be.
Some of the leading forces that operate upon this
vast margin will be treated in the next chapter, although
in an incidental manner they have been touched upon
in previous chapters outlining the manner in which the
money mechanism has grown to its present proportions.
CHAPTER VII.
'
UNCERTAINTY OF BANKING UPON RESERVE DISASTROUS
EFFECTS OF "RUNS" BY DEPOSITORS PHYSICAL IM-
POSSIBILITY TO DO AS AGREED-INSURANCE OF
DEPOSITS-PANIC PRECIPITATED BY ACTION
OF SPECULATORS AND INSTABILITY
AS THEIR CHIEF ASSET.
As we have noted in previous chapters, the "depo-
sits" in banks are twelve times the "cash on hand."
These deposits are payable on demand if on "check-
ing accounts".or in varying lengths of time if on "sav-
ings" or "time" accounts, but it is all liable to be called
for within a very short period.
The depositors so believe it, or they would not.de-
posit in the banks.
The banks agree to do so.
The laws say the banks must pay or close their
doors and go into bankruptcy or liquidation the same as
any others who could not meet their obligations.
While the banks agree to pay all, their expectancy
is that they will never be called upon to do so by more
than a very small proportion at any one time. In fact
as a matter of practice they expect enough new deposits
to come in to make up for any withdrawals and their
normal business is contingent upon that happening.
The Other Side of The Money Question.
71
As the normal interests of the banks, being business
concerns run for profit, are not advanced by carrying a
large reserve above that required by law, the banks us-
ually do not carry much more than the legal require-
ment.
The fact that the normal interests of the banks will
impel them to loan up to the maximum seems to be the
chief argument of those who think that regulating the
volume of "primary" or "standard" money will regulate
the volume of the aggregate money.
But this is dependent upon two things-First, that
the banks will always have the required amount of such
"primary" money to work upon. Second, that it will al-
ways be to their interest to loan to the maximum limit.
Does the system at present give even approximate
assurance that the banks will always have the required
amoun't and that it will always be to their interest to
keep loaned to their limit?
With only one dollar in twelve being cash on hand
it is evident that it takes but a very slight drain from
depositors to encroach upon the reserve, for the one dol-
lar in twelve barely represented the legal reserve. If one
in twelve of the deposits is asked to be paid, the legally
valid request, if granted would take not only the extra
margin but the entire legal reserve as well, leaving all
other depositors stranded high and dry and the banks
out of business.
The slightest rumor of danger is the signal for many
72.
The Other Side of The Money Question.
to "draw out" so that they at least "will be on the safe
side." It is the most natural and reasonable thing for
anyone to do if he feels there is any considerable danger
of losing his savings. It is the same logic that impels
a man to begin moving when his neighbors' house is on
fire and threatening his own. It is the same logic that
prevents a man from using a bridge that in his opinion is
weak or insecure and which impels him to either use an-
other means of crossing or else not cross at all.
The inclination to "draw out" spreads. Other de-
positors, who had no fear that the banks were perfectly
solvent in the first place, fear that the demands of the
depositors will wreck them and they too join in the rush
to "get their money out" before the smash comes.
The reserves being encroached upon by the run, the
banks seeks to strengthen them. They try to get more.
cash on hand. But this is generally difficult and almost
impossible when other banks are being subject to a drain
or when they may be getting ready for a possible one.
Banks being unable to secure cash from each other, they
demand it from their borrowers. The borrowers must
pay up long before they had calculated upon and perhaps
long before the banks had expected when they made the
loans. No new loans and few renewals if the drain con-
tinues.
To get the cash which the borrowers must have to
meet their obligations, they must sell their property.
Few are in position to buy, as they cannot get the money
The Other Side of The Money Question.
73
a`mor
to buy with. Greater and greater sacrifices are made
to induce sales so that the borrowers at the banks can
save something from the wreck. Prices fall rapidly.
Commercial and industrial paralysis. All business cur-
tailed or prostrate. Workers willing and extra-anxious
to work but there is "nothing to do." Want and desti-
tution spread. Once more the cruelties of "hard
times" becomes a reality, while everyone deplores the
"lack of confidence" and talk about the probable length
of time that it will require to fully "restore confidence."
After a more or less extended period of time, in
which many are forced, through idleness, to consume
their savings, and in which many are simply shorn of
their equities in property, a period of time in which a
few may be in position to lay the ground-work for fu-
ture wealth, the situation slowly entangles, the money
gets back in the banks, business begins anew, and "hope
being eternal in the human breast," the people, less ham-
pered by their former accumulations, once more begin
the onward march to the same deplorable destination,
inevitable so long as the unstable features of the present.
system are permitted to continue.
Such is a brief sketch of the salient features of the
frequently recurring "panics" as they sweep the land
like a mighty tornado, leaving devastation in their wake.
Such is the logical result of trying to maintain a
banking system built like an inverted pyramid, whose
very existence depends upon the banks not being re-
74
The Other Side of The Money Question.
1
quested to do that which they agree to do, that to which
the depositors are perfectly entitled, and that which the
laws say the banks must do if requested.
Could anything be more ridiculous in both principle \
and practice?
Imagine the safety of a system that depends upon a
physical impossibility!
Is it remarkable that the people "lose confidence" at
times and become somewhat doubtful of the ability of
the banks to perform the evidently impossible things
that they agree to do?
If a performer on the stage would place twelve
bushel measures in a row and then announce to his audi-
ence that he proposed to fill them with one bushel of
material and fill them all at the same time he would be
considered the worst kind of a fakir, but is he really de-
pending much more upon the credulity of his audience
than the banks do when they aver to each and every de-
positor that he can get his money when he asks for it?
If a man raises more potatoes than his family eats.
during the summer and fall, it is quite natural that he
put his surplus potatoes in his cellar, to use during the
winter and spring.
But if he happens to have no cellar or other place
fit to keep his potatoes in, and chooses to sell them for
money, with which he expects to buy potatoes during
the winter and spring as he needs them, the modern
banking system practically says that he shall not keep
The Other Side of The Money Question,
75
the money in his own pocket or safe, if he feels so in-
clined, but he must put it in a bank. Failure to do so
renders him liable to be branded as an enemy to and
destroyer of the public welfare.
We may agree that the man may be unwise to keep
his money in his pockets or safe, for the bank may be
much safer from theft or destruction, but it is incredible
that there could be any inherent wrongful action on the
part of the man, if he felt like running the risks; much
less a crime of such magnitude as to brand him as an
enemy to public welfare.
If he wishes to do so, he certainly has as much right
to keep his money in his pocket or safe as he would have
to keep his potatoes in his cellar, but the present banking
system denies him that right, and conciously or uncon-
ciously, though his motives may be the best and not a
flaw found in the logic of his position, he really does oc-
cupy the paradoxical situation of being an enemy to the
public welfare when he choses to exercise a right that all
will agree he does and should possess.
There might be some justification for the public to
insist that the potato-seller deposit his money in the
safest place, as a matter of enforced protection for him,
but there is no real justification for compelling him to
deposit his money savings for the purpose of giving them
to others to use.
·
*
The grotesque inconsistency of such feature of our
system will be apparent to any who will for a moment
76
The Other Side of The Money Question.
t
consider the effect if those holding one-twelfth of the
deposits should conclude to keep their own money, in-
stead of intrusting it to the keeping of the banks.
In this connection it may be in order to suggest
that measures to make deposits more secure than at pre-
sent are very liable to cause injurious results, and the
more secure deposits are made the more liable injurious
rsults will be to follow, unless radical action in other
features of the banking system is taken to counteract
such probable injury.
The advocates of measures to insure deposits con-
tend that such proposals will prevent money in the
banks from being drawn out and they are probably cor-
rect in such contention.
They also contend that the insurance of deposits.
will cause vast sums to be deposited in the banks that
have not been so deposited. The secret boards that nei-
ther panic or prosperity has been able to force into the
banks are to be brought there by the potent influence of
absolute security.
There is no doubt that such would be the result, to
some extent at least, and to that extent it is fraught
with the utmost danger to a system that is unstable even
at best.
No one knows how much money is held in secret
hoards, but the amount outside of the Treasury and all
banks was, according to the government reports much
{
77
The Other Side of The Money Question.
larger than the amount in those places, the sum being
$1,815,770,268.00.
If from this sum we subtract the amount of the sub-
sidiary and minor coins and the National Bank Notes.
(which are not available for bank reserve purposes) we
still have a sum approximating $1,250,000,000.00 every
dollar of which could be used as a basis for banking
If the measures to insure the deposits would be suc-
cessful in bringing even any considerable portion of that
sum into the banks it would give the banks that much
more power to discount. If two-thirds of the sum would
be brought to the banks it would enable them to expand
their loans and discounts to almost twice their present
proportions. It would produce a colossal and wholly un-
called for inflation in the volume of money mechanism
and as such it should be given most careful considera-
tion.
If such a policy is to be adopted it will be necessary
to accompany it with measure to compel banks to pro-
portionately increase their reserves to take up the money
that will come from the supposed hoards, or the county
would be in the midst of a ruinous inflation.
From this digression we return to the subject of the
stability of the deposit upon reserve system.
Bad as this system would be if it were only subject
to be shaken or razed by any of the "runs" prompted by
well or ill-founded suspicions of the people in general,
it becomes immeasurably worse when it becomes the
78
The Other Side of The Money Question.
machinery by which a few evil-minded, selfish or reck-
less persons can despoil the many.
The big speculators and manipulators, the "mas- 1
ters of finance," use the very instability of the present
system as their chief asset when they wish to make a
raid upon the people, and the severity and duration of
such raid largely depends upon the extent to which the
system can be thus operated. To illustrate their opera-
tions.
L
A "bear" syndicate is formed among the "mag-
nates." They wish to hammer down the prices of secu-
rities, property and products. The first thing they do is
to get control of the money market as much as possible.
Large sums are practically withdrawn from the money-
work through the instrumentality of the financial insti-
tutions that they own or control. Money becomes
"tight." Borrowers cannot be accommodated as usual.
Property and securities must be sacrificed to get it, just
the same as when the people make a "run." The mar-
kets collapse. Prices tumble. The just equities of
money obligations crumble away and vanish with the
fall in prices. "Panic" reigns just as if the people had
made a general “run.”
1
When prices are down as low as the magnates have
power to send them, they "buy in" and become "bulls”
in the market.. The money is restored to its money-
work. Then banks resume their usual loans, etc. Prices
rise. They may make the money market plentier than
{
The Other Side of The Money Question.
79
it was before. Prices soar. Speculation runs rife. Every-
one hugging the futile hope that he will get rich by the
speculation of rising prices instead of by legitimate in-
dustry and economy. Once again the equities of money
obligations crumbles away. The mortgage that was for-
merly equal to a one-half equity is but equal to a fourth
and those who thought themselves secure for their de-
clining years waken up to the fact that the rise in prices.
has eaten largely into their supposed holdings.
When prices are as high as the syndicate can push
them, they sell out their holdings, and, having augment-
ed their fortunes at both ebb and flow of the tide, make
preparations to repeat the operation at the first favorable
opportunity, while many people hail them as "finan-
ciers," as paragons for the rising generation, and their
ill-gotten booty is pointed to as evidence of their "great
business ability," when in truth it more resembles the
proceeds of a dastardly and inhuman piracy.
Usually the fight between the bulls and bears is in
the nature of a drawn battle, but occasionally one or the
other secures the mastery and then the land is in the
throes of a "collapse" or "inflation," either of which is
highly detrimental to the welfare of the people.
Sometimes these movements are relatively short and
sharp. At other times they may occupy months or even
years. Generally they are much intensified by those not
in the speculative class, so-called, but who think to turn
an "easy dollar or two" by getting on the right side of
80
The Other Side of The Money Question.
what the recognized leaders are doing. No doubt the
"big fellows" largely base their calculations upon what
these "outsiders" will probably do.
It is due to many of the leading operators to say
that they are not actuated by motives of sordid greed or
avarice but by the fascination of the game they are en-
gaged in. They desire to be able to control, to have the
power, to be able to win out in the struggle. Though
they would leave no stone unturned to win, oftentimes
they would regret very little if their surplus riches was
to vanish over night. "To win" is their incentive, the
stakes are incidental.
Oftentimes the boldest and most successful mani-
pulators are ones who have done vast good in useful
productive lines, organizing industry on less wasteful
basis, etc.
But these considerations do not alter the fact that
their "game" is most hurtful to the welfare of the peo-
ple and that the public welfare should cease to be a game
for speculators to play with.
Another feature of the existing banking system.
which aggravates the difficulty of the "primary" or
"standard" money being a determiner of the aggregate
volume is the practice of permitting legal reserves, or a
part of them, to be deposited in other banks, such as we
have in the National Bank system. It is a pernicious.
practice but it is only a continuance of the principle es-
tablished in the depositing upon a reserve system.
}
i
The Other Side of The Money Question.
81
1
On pages 204 and 205 of the Report we find that the
National Banks were required to keep a legal reserve of
$975,761,920.29 and that the amount actually held only
exceeded the legal requirement by about $58 000,0000.
It is evident that the National Banks could not have
stood much of a drain upon their cash without encroach-
ing upon their legal reserves, and that the other banks,
with less than one-fourth as much reserve, in proportion
to deposits, were even in worse condition to stand a
drain.
It would seem impossible that the National Banks
alone could hold in "legal reserves" much more than the
total "cash on hand" of all banks but the seemingly im-
possible feat is accomplished by one of those inconsis-
tencies often met with in the existing money system.
Over a third of the total "reserves" held by National
Banks was not actual "cash in bank," but was "due from
reserve agents," the amount being $356,949,920.54.
National Banks are divided into three classes-
First-Those in the "central reserve cities," New York,
Chicago and St. Louis, the banks numbering 62 on June
18, 1906. Second-Those in "other reserve cities," such
cities being 38 in number, with 295 banks. Third-"Non
reserve" or "country banks" as they are sometimes call-
ed, comprising all banks not in the first and second class.
The banks of the third class are 5,696 in number.
The law permits National Banks of the non-reserve
class to deposit three fifths of their legal reserve with
82
The Other Side of The Money Question.
other reserve banks and permits banks of the second
class to deposit one half of their legal-reserve with banks
of the first class.
As such privilege is taken advantage of quite fully
on account of the interest that the banks thereby secure,
it results in reducing the amount of cash actually in bank
to much below the supposed legal reserve.
Such reserves become unavailable when most needed,
and after they become in use as the basis for a several
times larger volume of loans and discounts, they cannot
be returned to the original banks without direct injury
to the business that centers in the reserve cities and in-
direct but sure injury to the business of the localities that
are the rightful owners.
Human ingenuity would exhaust itself trying to es-
tablish that a deposit in a bank in a different city or
state is a safe reserve for another bank, but that is one
of the inconsistencies that find lodgment in the monetary
and banking system as at present organized.
If the wealth producing classes, the property own-
ers as well as those who own neither money or proper-
ty, the classes who constitute the real borrowers, were
enabled to get their money service without depending
upon the money owning classes, then speculations in
stocks and commodities upon a margin would practi-
cally be a thing of the past, insofar as it had weight in
determining what the prices of those stocks and com-
modities would be, while now the methods by which
The Other Side of The Money Question.
83
+
>
the money owning and speculating class control the
money supply, which the producers must have, is one
of the greatest factors in determining what the prices
will be.
Divorce the producers from that dependence, by
giving them the service in a more satisfactory form, in
a form that is not dependent upon the wills of the mon-
ey owners or speculators, and the speculators, if they
wished to continue their sport, would be simply gam-
bling upon what the future price of an article would be,
without any material power to affect the price. It would
put their gambling operations in the same class with
common forms of gambling, as with cards, a matter that
might be morally wrong and reprehensible, but one that
would not have material economic influence outside of
those immediately engaged in the game, while at pres-
ent the gambling in the stock and produce exchanges is
of the utmost import to the public at large.
Going into the larger field of money, we find that
anything which will tend to depress the prices of prop-
erty and stocks may cause the holders of deposits in
the banks to fear that eventually bonds and mortgages
may have to stand a share of the depreciation. This
feeling will to some extent, in fact a very large extent,
check depositors from investing in general bonds, or in
anything except the most "gilt-edged."
Th
By such refusal to invest, the money mechanism is
84
The Other Side of The Money Question.
subject to the most radical reduction in aggregate vol-
ume, both absolute and relative.
. On the other hand if the money volume is manipu-
lated so that general bonds may give appearance of ab-
solute safety, then the depositors in the banks, getting
a low or no rate of interest, will be anxious to buy bonds
and mortgages to get the higher rate of interest that
they would carry.
By such stimulated purchase, the money mechanism
is subject to the most radical increases, in aggregate
volume, both absolute and relative.
From whatever direction the subject is approached,
the investigator will find that the actual manipulation
of the vast margin between the so-called "primary" mon-
ey and the total volume of money mechanism, is so great.
that it renders ridiculous all pretense to control by that
means, and the conclusion is inevitable that if the pub-
lic is to issue and regulate money, it must do so by es-
tablishing a system that will do away with all necessi-
ty for the private service and forever protect the peo-
ple from injury at the hands of those who "lose confi-
dence" and those who use the money system of the
country as a means of spoliation or as a pastime.
CHAPTER VIII.
ENORMOUS COST OF THE MONEY SERVICE OUT OF PRO-
PORTION TO ACTUAL INVESTMENT-A PUBLIC MONEY
SERVICE AS A MEANS TO ABOLISH BULK OF
INTEREST CHARGES-FALLACY OF CLAIMS
TO "MORAL" OR "INHERENT” RIGHT
TO INTEREST OR USURY.
But there is another reason why the money service
should be made public that is perhaps even more impor-
tant than the question of stability, and that is the great
saving of cost that can thereby be effected.
One of the gifted poets has said:
"Ill fares the land, to hastening ills a prey,
Where wealth accumulates and men decay.'
And in those lines he voiced the historical truth
that it is equally as important to have wealth equitably
diffused as it is to have it produced.
History is replete with examples of nations halting
in the midst of their greatest productive powers and
turning into the paths of decay and extinction, largely
because of inequitable diffusion.
In the cost of the monetary service to the public,
the "interest" it must pay for the use of the medium of
exchange, we find the most potent and most continuous
of all wealth concentrative forces, for it exacts a direct
86
The Other Side of The Money Question.
#
profit that is equal to a very large portion of the net an-
nual increase of wealth.
The money mechanism of forty billions, nine-tenths.
of which bears direct interest, at an average rate of five
per cent, exacts a total tribute from wealth production
of almost two billions of dollars.
It can only be estimated what is the actual expense
involved in furnishing this service and what is net profit
to those who provide it, but we have one or two good
"straws" that may serve as indicators.
Banks are paying three and one-half and even four
per cent for deposits that they may loan them out at six
per cent, thus testifying that they can make a profit on a
margin of two per cent, even with the wasteful duplica-
tion of banking plants now found in many localities.
Again, the government charges the National Banks.
but one half of one per cent for their circulating notes,
such sum being presumed to pay the expenses of fur-
nishing the money and all expenses of the department of
the Comptroller of the Currency.
In view of these facts, a fair estimate of the actual
cost involved in the furnishing of the whole money ser-
vice to-day would be one per cent, leaving four per cent
as clear profit, or $1,600,000,000.00 exacted from produc-
tion, a sum almost equal to the entire corn and cotton
crops.
If one man or a colony of men provided the entire
service and lived in a foreign land, and demanded that
2
The Other Side of The Money Question.
87
this annual profit be sent in the form of products, the
wealth producers would simply have to produce $1,600,-
000,000.00 worth of products and ship them abroad to
keep from getting further in debt, getting absolutely
nothing in return for such great sacrifice that they could
not have provided for themselves at actual cost.
A comparison of the nation's exports and imports
shows that the exports are hundreds of millions more
than the imports. The difference simply goes to pay
profits to foreign holders of bonds etc.
Our "eminent" financiers call it a "favorable" bal-
ance when we send abroad more products than we re-
ceive in return,but if any private person was to run his
personal business upon that basis he would speedily be
bankrupt and in an asylum for lunacy.
If one of our millionaires, say one holding one hun-
dred millions of bonds paying five per cent, was to move
to Europe and concluded that he did not want larger in-
vestment here, but that he would collect the interest, it
would mean that this country would either have to ex-
port five millions of dollars worth of products more than
at present or import that much less. If all the million-
aires were to put their holdings in bonds. mortgages
and the "gilt edged" securities and move to Furope, it
would keep everything "a humping itself" to pay the in-
terest in products. The wealth producers would be com-
pelled to produce that much mo.e than they would be
88
The Other Side of The Money Question.
permitted to consume, truly a very "favorable” state of
affairs, for the other fellows.
The wealth producers would be sorely tempted to
wholesale repudiation if the nation was to ever get in
such shape but is the burden upon production really
much less because the millionaires reside in our midst?
Were the money service of the country nationalized
and systematized like the postal service, the actual cost
of administration would be far less than at present.
If thirty billions of the mechanism were placed un-
der a public system, at one per cent it would give an in-
come fifty per cent larger than the income of the postal
system, and not only pay ail its own expenses, but leave ·
a good round sum available for other purposes
We have many laws dealing more or less directly
with the profits that public service corporations can
make. Rates are supposed to be kept as low as consis-
tent with giving the owners a chance for fair returns.
But in the great utility of money service, private in-
dividuals and corporations, with no investment of actual
wealth except a few banking rooms, with vaults, furni-
ture, books and stationery, at an outside estimate not
aggregating more than one-half a billion dollars and ad-
ministrative expenses not aggregating more than one-
quarter billion of dollars, the people are required to pay,
in net profits, at the least calculation one and one-half
billions, or about three hundred per cent on all actual
investment.
The Other Side of The Money Question.
89
A railroad, with an annual expense roll of one hun-
dred millions, would be considered in good condition if
it cleared one-tenth of the amount, yet in the vast money
utility we find that the profits are five or six times as
much as the total expenses.
The net annual increase of wealth approximates but
four per cent, the average man rejoices when the balance
is on his side, but the public as a whole is apparently
unconscious or indifferent to the existence of this colos-
sal system that gathers such gigantic profits from such
small real investments.
The readers may say that the providers of the money
service have not such a small amount invested but that
they have upwards of forty billions invested and that
the profits on such sum are not out of harmony with
other business returns.
At first glance that may seem plausible but let us
look beneath the surface.
The lender of money simply changes the form of hist
security. He does not invest it in the general risks of
business. No prudent loaner ever loans except upon ad-
equate security and a little more. He is guaranteed by
the extra margin that the borrower first must lose, and
by the force of law that holds the security good or the
loan. The lender is more secure than he would be if he
kept the amount of cash in his pocket, for the chances of
loss, theft and destruction are much less.
The lending of money contributes to the process of
90
The Other Side of The Money Question.
{
ስ
production not a particle of additional natural resource,
machinery, sustenance or intellect. It simply contri-
butes a medium of exchange under our present system.
From the standpoint of the borrowers, they have the
real wealth, all they want, all they need and all they get,
is a representative of their own property in a form avail-
able for general exchanging.
But the reader may say that the money holdings of
the lenders represent just so much real wealth that they
have produced, or secured, and not yet consumed, or
that was bequeathed to them by those who had produc-
ed, or secured it, but did not consume it. That this sur-
plus of wealth was simply loaned to society, taking so-
ciety's receipt in the form of money. That by reason of
this form of withholding or delaying consumption, pro-
ductive society has had the use of real capital that it
would not otherwise have had and has by the use of that
capital been enabled to produce a much larger aggregate
of wealth than would have been possible had the lenders,
or those from whom they inherited, lived up to their full
rights to consume all they had produced. That such
denial gives than a moral right to a share of such extra
production and that. it would be very unjust for society
as a whole to adopt or even seek for measures that would
obviate the necessity to use and pay for the use of such
money holdings.
The people, not having access to a public supply of
the medium of exchange, have for so long been accus-
The Other Side of The Money Question.
91
tomed to depend for such service upon the using of the
money holdings of those who to that extent elect to
keep out of the property owning and productive classes,
that the custom has become somewhat surrounded by an
atmosphere of "inherent right."
We have no desire to enter into any extended dis-
cussion, but wish to offer a few suggestions in opposition
to all claims of "inherent" or "moral" right to such in-
crease, though of course we concede that it is unavoid-
able so long as the producers will not provide for them-
selves any money service except that secured by using
the money which is held by the owners to exchange for
future consumption.
Conceding that the producers have greatly profited
by the fact that others did not consume their full pro-
duction, and that it is possible for producers to produce
more abundantly by having the use of such real capital,
as it exists in the form of improvements of every kind,
let us see if there are not advantages derived on the
other side as well.
t
The first thing to be noted is the fact that without
such prior saving the money lender would not have any
claim upon society, but that he would have to work for
everything that he wanted to consume, but the present
system practically says that those who had saved have
the right to receive back more than they had saved in
the past.
I
Were a man isolated from his fellowmen, it would
92
The Other Side of The Money Question.
be practically impossible for him to save even for acci-
dents or sickness, much less for old age. No matter
how great his productive powers he could not raise food
to last him more than a very short time, for the ravages
of the elements would soon cause his surplus to decay
and become unfit for use, much of it lasting but a few
days or even hours. If he could even build a house to
live in during his old age, the same remorseless destruc-
tion would pursue his efforts. The house would hardly
be built before the disinfegrating forces would be at
their work.
་
To a man isolated from his fellowman it would be
exceedingly difficult to provide even shelter for his fu-
ture and simply impossible to provide food, clothing and
the thousand and one things that minister to the com-
fort and convenience. The isolated man, no matter how
great his productive ability had been, would speedily
die of destitution if he stopped producing. His necessi-
ties would respect neither accidents, sickness or old age,
but he must either work or die.
1
In a state of civilization, if a man is to be able to re-
tire in old age, or tide over accidents, sickness, etc., it
must be that he can get to consume those things that
others are then producing. This of course would be im-
possible to man in an isolated state, but the association.
of men with each other opens up a vast field of possi-
bilities.
It is reasonable to assume that if he is to consume
The Other Side of The Money Question.
93
part of the wealth that others will produce that he ought
to have some valid claim upon such wealth.
It is also reasonable to assume that he can only
have valid claims insofar as he has not consumed all of
his production, that he has permitted others to consume
or employ it, and that his sustenance in the declining
years of life or during accidents, sickness, etc., is really
but the return to him of an equivalent for a portion of
his product that he had not consumed.
One of the chief purposes, and benefits of society is
to give him that very opportunity, and with all its im-
perfections, it does so on quite a broad scale. In theory
at least, man is enabled to push his productive powers
to his highest capacity, consume a part of it, let society
at large consume or use the balance, and then have its
equivalent returned to him in his non-productive periods.
The system by which this is accomplished has been
of slow development and in modern times the most
prominent feature of such system has been money, the
medium of exchange. The establishment of a common
medium of exchange has made it comparatively easy for
man to sell his surplus or saving to society and then
afterwards buy it back.
The endeavor to have such medium of exchange so
regulated that it will buy back a fair equivalent to what
was sold, results in a greater perfection of money as a
medium of exchange.
The social organization gives man a priceless boon
94
The Other Side of The Money Question.
3
when it gives him the power and right to consume when
he no longer produces. He is well remunerated when·
society pays him back everything that he loaned to so-
ciety, perhaps at a time when he would be unable to
produce for himself. The service has been mutual. Both
society and the individual have been the gainers and no
"boot money" should be paid by either for a service
that has been mutually beneficial.
No one should be entitled to share in the increase of
production except those engaged in production. Those
who elect to get out of productive fields by putting their
claims in money form, are certainly not morally entitled
to any reward for thus denying the public the benefits
of their productive powers and no such reward can be
given except by reducing the natural wages of those
who remain in productive lines, viz-their product.
From time immemorial usury or interest taking has
been subject to widespread condemnation, principally
because it has always appeared to the people as being a
manner of "getting something for nothing," "reaping
without sowing," etc., volumes have been written in a
moralizing strain and countless measures have been
adopted to reduce or exterminate it, but, unfortunately
almost all of those measures have failed for the simple
but ample reason that they did not provide the people
with any alternative service and the efforts to reduce
interest were sometimes successful only at the expense of
a corresponding curtailment in the service.
The Other Side of The Money Question.
95
啤
​Common sense teaches all men that there may come
a time when he will not be able to produce and common
prudence teaches that some provision be made for those
days.
Physical inability to "keep up the pace" and a very
human instinct to some day "take life easy" will dic-
tate that a man put his possessions into a form that will
cause him the least trouble to manage, the least anxiety
about their safety and the greatest availability when he
may need them.
Society furnishes this means in the institution of
money and when a man parts with his property and
products in exchange for the advantages of money,
he
has no inherent claims upon 'society except that it pre-
serve the stability of the money so that he will not be
defrauded.
If there is any inherent right to interest then it
would only be necessary to make one saving, or accum-
ulation, equal to say, ten thousand dollars in order to
provide the means by which cne family could have an
income of five hundred dollars, at five per cent., for all
time to come. They could live in absolute idleness and
yet forever be consumers quite to the extent of what one
half of the producing families are consuming,
A fortune of but one million could establish one
hundred of such families for all time to come and they
would be a burden upon the producing families for all
future generations.
*
96
The Other Side of The Money Question.
}
By no method would it be possible for all to derive
benefit from interest. Even if every family owned ex-
actly the average share of money and all could lend it
to each other, everyone would be paying exactly as much
at one end of the process as they were collecting at the
other end.
It is possible for all individuals, by industry and
economy, to derive a benefit from society in the return
of their savings, but it would be but a striving to "lift
oneself over the fence by pulling on the boot straps"
upon a gigantic scale for a whole people to think that
any amount of industry and economy would put them
in a condition to permanently live upon or be benefitted
by interest, and the almost universal desire to attain to
such position is but a chasing of a "will of the wisp"
that if not checked will undermine the natural incentive
to production and economy that follows a definite knowl-
edge that the right to after-consumption is but equal to
the prior abstinence from consumption.
CHAPTER IX.
DOES THE INTEREST TOLL REVERT TO THE WEALTH PRO-
DUCERS ? ARE THE HOLDERS OF GREAT WEALTH A
BURDEN UPON PRODUCTION ? PROFLIGACY AND
COMPARATIVE ECONOMY OF THE WEALTHY
CLASSES CONTRASTED-EXTREME MEN-
ACE OF TRANSMITTING GREAT
HOLDINGS OF WEALTH,
It may be thought that the burden of interest pay-
ing is more apparent than real, that the producing class-
es are in great measure the lending classes as well and
that the toll of interest reverts to them.
It is very fortunate indeed that this is true to some
extent, every debtor having more or less creditor inter-
est, though sometimes it is very small. Thousands of
active producers have money loaned upon mortgages or
have funds in the banks drawing interest, or they reap
incidental benefits from other sources.
As it is simply impossible for all to come out “ahead
of the game," it would require some sort of cancellation
process to determine the approximate line of division.
that would place any individuals' selfish interest with
the debtor or creditor class.
Upon a volume of $40,000,000,000.00 and a popula-
tion of 84,662,000 the money mechanism would repre-
sent about $2,500.00 for each family of rive, that they
98
The Other Side of The Money Question.
must pay interest upon whether they are direct borrow-
ers or not. If they are deriving interest from that
amount they are just sqaure. If not, they are the losers
to the extent of the difference
With such a test, comparatively few will be found
upon the side of the creditor classes. The bonds and
mortgages held by the thirty or forty thousand million-
aires, together with their preferred stocks that by mo-
nopoly powers are virtually as burdensome as a mort-
gage upon the people, practically absorb the entire
amount leaving the vast majority of all others in the
debtor class.
But the reader may say that the evil effect of the
concentration of wealth is liable to be overdrawn by
those who deplore it, that the concentration is one of
titles or claims, rather than one of possession and con-
sumption, that the people have quite the same use of the
wealth as if they held the titles themselves, that the
average wealthy person, while living upon a scale far
more expensive than average persons, still lives upon
but a small portion of his income, and that the balance
goes into bonds upon or titles to more new houses, ;
factories, railroads, etc., which the people will occupy
and use much the same as if they held the bonds and
titles.
This is undoubtedly true, and the failure of those
who deplore wealth concentration to take proper co-
gnizance of its truth is responsible for a large measure
+
The Other Side of The Money Question.
99
of the public complacency and indifference with which
such concentration is regarded
On every hand we see the profligate expenses of
many of the rich. Great city castles will be built for
residences, costing enough labor to build comfortable
homes for thousands. Magnificient country estates are
added, to be occupied for three or four months in the
year, at a labor expense that would build good homes.
and barns for all the farmers within a hundred miles.
Great private collections of the choicest treasures of art
are reserved for the comparatively few, while the amount
expended ought to bring them within reach of the
multitude. Social functions representing the labor of
thousands of days are so frequently held as to be given
hardly more than passing notice.
A'vast aggregate of labor is practically wasted in.
providing the means for the diversions, foibles and va-
garies that the idle wealthy may invent, running all
down along the scale, sometimes to the extrcme of
dissipation and debauchery.
Still, such expenses, or waste by the wealthy class,
represents but a part of their income, the balance goes
to augment their fortunes, and so far as the immediate
present is concerned, is in the possession of and used
by the producing classes.
It is public knowledge that many of our most
wealthy do not live or rather waste, on anything like the
scale of their incomes. Some of them live upon a
100
The Other Side of The Money Question.
comparatively frugal and economical scale. They per-
mit their incomes to be added to the principal, or they
spend their incomes in providing various things that
the public makes use of in much the same manner as if
they were installed direct by the public. We find ample
evidence of this in the schools, colleges, hospitals, parks,
libraries, churches, etc., that have been erected through
funds contributed by the wealthy.
The writer is not contending in behalf of such meth-
od of securing public institutions, for we believe that
every such gift, however, noble the motive and however,
great its benefits along its particular line, is silently, but
surely working to the undermining and destroying of
the essential spirit of democracy, and to cast a doubt
upon the ennobling confidence of the people in their
ability to publicly provide their public institutions
gradually leading the people to a servile dependence
upon the patronage of private beneficience, to justify
wealth concentration as being the only available method
to secure such institutions, and, by holding up to view
the expected good results to follow, to indirectly hush
the public conscience to the manner and method by which
those fortunes are oftentimes accumulated.
Neither is the writer actuated by any feeling of ha-
tred for the wealthy classes, per se, for in their lists are
found many of the highest types of manhood and wo-
manhood and it is one of the most pathetic teachings of
history that the evils of concentration will fall upon
The Other Side of The Money Question.
ΙΟΙ
their descendants with even more tragic force than upon
the common people.
Considering the opportunities they have for doing
evil with their vast incomes, it is a flattering tribute
to them that they have so far been able to largely resist
such temptations to work evil, but have either permitted
their fortunes to grow or expended their incomes in di-
rections that have accomplished as much good and as
little harm.
4
But they are blind to the lessons of the past who
can with confidence expect that such fortunes will al-
ways be held by ones equally as frugal and equally as
liable to expend them in directions that will result bene-
ficially to the public.
The present great fortunes are largely held by those
who have "come from the ranks" or who are removed
but one generation, they who still have the active push-
ing productive spirit, who are still actual producers to
quite the extent of their personal consumption and who
are a real valuable factor in the progress of the nation.
If history teaches one thing clearly, it is the ex-
treme menace of transmitting fortunes to after genera-
tions. A new generation, freed from birth of all neces-
sity to engage in useful work, with their minds un-
occupied by the countless problems that arise in the
fulfiling of the injunction levied by both Nature and
Scripture. "In the sweat of thy face shalt thou eat
bread," has a constant and inevitable tendency to de-
102
The Other Side of The Money Question.
teriorate, to devote the time to those things which ulti-
mately wreck the finer instincts and appreciations and to
waste the energies of the people in ways that will give
no useful return.
History teaches that the time comes when the hold-
ers of concentrated wealth endeavor to live up to their
incomes by practically withdrawing the labor equivalent
of their incomes from work that is useful to the public,
and diverting it to the providing of a vast field of menial
services, to all the absurdites that toadyism and flunk-
eyism can invent, and to the erection of great memorials
to transmit the evidence of their power down to future
ages.
When such a period of living up to their incomes
becomes inaugurated, the great present injustices of
the accumulations will be but trifling in comparison.
If they who see little to fear in wealth concentra-
tion would but for a moment consider what would
be the real effect upon the people if the in-
comes from our largest fortunes were devoted to the
construction of vast memorials, and then consider the
teachings of both reason and history that concentration
of wealth does inevitably lead to similiar or worse prac-
tices, it would cause them to take a vital interest in all
of such measures as are intended to kept wealth more
widely diffused.
If history repeats itself in the United States, and
we ought not blind ourselves to its possibility, it will
The Other Side of The Money Question.
103
mean that the day will come when the holders of our
fortunes will pursue that very course, and the greater
the concentration, the greater will be the labor waste
when the holders begin to live-up to their incomes.
The more labor taken from the field of useful pro-
ductive work, the less will be the power of the re-
maining ones to provide the required sustenance and
every man taken from the building of homes, factories,
railroads and other things useful and profitable to the
people in general, and put into the field of wasted
labor, will represent so much extra burden upon the re-
mainder.
The standard of the living would collapse until
the masses of the people were in a condition approximate
to serfdom. It would require heroic remedies upon the
part of the people to prevent the entire fabric of modern
civilization crumbling to ruin and the progress of many
generations being swept away in the effort to gratify in-
satiable folly and vanity.
Egypt is dotted with Pyramids that stand as endur-
ing testimonials to a frightful waste of labor in ancient
days, a waste that would have brought joy and happi-
ness to nations of people had it been directed into useful
channels, into producing the comforts and conveniences
of life, instead of being a dead loss to the public, com-
pelled to live in abject poverty and doomed to unceas-
ing toil that the whims and yanities of kings might be
satisfied.
}
104
The Other Side of The Money Question.
MA
1
The labor was probably forced or drafted in the
ancient days, just as they would enroll a hundred thous-
and men to wage war upon a neighboring tribe, but is
it the less surely drafted or forced when accomplished
through a modern monetary system that gives the hold-
ers of concentrated wealth the power to exact an in-
terest from all production.
As the ancient kings deemed the whole land theirs,
the forced labor necessary to erect such useless things as
the Pyramids was but the ancient way of spending a
"reasonable income" from their wealth.
In a smaller scale, on every hand we can see this
process of profligate waste going on at the present time.
Tens of thousands of men are occupied at work that,
so far as any beneficial results to society are concerned,
is as useless as if they were engaged in carrying bricks
back and forth. The labor is wholly wasted, often worse
than wasted, and the most deplorable feature is that so
many think such form of labor is not much different in
results to the public than if it had been expended in lines
useful to both the individuals and society.
In addition to the sum that could be directly saved
to the wealth producers, a public money service at cost
would also result in indirect benefits that would also be
vast in the aggregate.
For instance, it will tend to largely eliminate the in-
terest factor from rents. Under the system at present,
those who own more property than they use, and rent
The Other Side of The Money Question.
105
}
out the surplus, calculate not only upon a return equal
to the taxes, insurance, wear and tear, depreciation and
a good margin as wages of superintendence, but they ex-
pect an additional margin of clear profit at least equal
to what they could secure by lending out a correspond-
ing amount of money.
A public money service at a nominal cost will enable
thousands upon thousands of those who have been rent-
ing to buy or build. They could see their way clear
to pay for their home once from their earnings, but
deem it impossible to pay for it twice, once in principal
and once in interest. An at cost system would stimu-
late the home-owning desire whereas the interest sys-
tem discourages it by making its realization so evidently
difficult.
Rents will come down to meet this new competi-
tion. The present private lenders of money, being
largely cut off from their source of revenue, will to some
extent invade the renting field to get some margin of
profit on their holdings and this will also tend to keep
rents down, without impairing the selling price of prop-
erty.
In many other ways indirect benefits will arise, all
tending to the same ends, viz-To enable wealth produc-
tion to be freed from the burden of paying an unjust
"profit" upon the deferred claims voluntarily held against
it, to prevent the savings of one generation from being
the means of oppressing a succeeding generation, to
106
The Other Side of The Money Question.
"weed out" some of the unnecessary middlemen, and to
put a lot of those now living from the returns of inter-
est to useful productive work. of benefit to themselves,
their descendents and society at large.
As in the existing large measure of private owner-
ship and control of the money mechanism we find one
of the greatest factors aiding wealth concentration, so
in the re-organization of the money system upon a full
public basis we find one of the most effective means to
arrest such concentrative tendency and to aid in the
diffusion of wealth ownership more equitably among the
real producers of the wealth.
CHAPTER X.
SIMPLICITY OF MEASURES NECESSARY TO INSTALL A PUBLIC
MONEY SERVICE PRESENT SYSTEM ESTABLISHES
PRECEDENTS-A PUBLIC MONEY SERVICE HAR-
MONIZES WITH OTHER PROGRESS.
Is it possible to adjust a thoroughly public money
system to existing methods so that the one would su-
persede the other without causing endless difficulties?
Is the proposal feasible or is it not too much of an ideal
to "work out" in actual life?
"Every cloud has its silver lining" and the silver lin-
ing of the money question storm cloud lies in the abso-
lute ease, safety and simplicity of the all-sufficient reme-
dies. They involve no great constructive enterprise like
the building of railroads and canals. They involve not
great system of complex and harassing administration,
such as the postal system is, or as the suggested nation-
alization of the railroads would be.
As a matter of fact the nationalization of the money
service would immensely simplify the money mechanism
and bring harmony where now confusion reigns su-
preme.
In actual practice it would mean but the establish-
ment of one great system of real public banks to take
108
The Other Side of The Money Question.
over the bulk of the business now transacted by many
private ones, and, through the operation of those banks,
the maintainence of the money mechanism so that con-
stant stability would be assured.
The establishment of a full public money service
would not cause people to change their methods of busi-
ness. Circulating moneys would still be used to what-
ever extent necessary. People would still deposit in
banks, and "check out" from the same. All of such busi-
ness could be done quite as easily and with far more safe-
ty under a simplified government system than under
the present one with all its uncertainties.
The money service would still be available for bor-
rowers upon deposit of adequate security, but it would
be placed upon a more stable basis, and the prospec-
tive borrower could go to the public source of supply
with the same feeling of independence that he goes to the
postoffice to transact postal business, instead of the
feeling of mendicancy and humbleness with which the
borrowers are now so often practically compelled to ap-
proach the providers of the money service.
A public money system would not be so much the
creating of anything new as it would be the populariza-
tion of that which is already in existence and every step
in such process would result in good to the public at
large.
Even in such system of lending upon security the
government would not be establishing anything new to
The Other Side of The Money Question.
109
f
itself, either in theory or practice, for at the present
time the government is a lender to the National Banks
almost to the extent of one billion dollars, about one-
fourth of the amount being the Treasury surplus, bearing
no interest, and the remainder being the circulating notes
of the National Banks, bearing only one-half of one per
cent.
It is one of the ironies of the situation that the
government, in its treatment of the present National
Banks, has already established the precedent for the in-
stitution of a full public money service. If the govern-
ment would treat the general run of people the same as
it does the present National Banks, giving them the op-
portunity to get their money service at cost, upon the
security which they possess and which constitutes the
real wealth and capital of the nation, the question will
be most effectually solved.
Would it be necessary to attempt to inaugurate the
system in full at one sweep?
Certainly not, nor would it be practicable. The
system could be established by degrees, the government
service taking over one field after another, until in a
few years it would be in possession of practically the
entire service.
Should the government enter the field of discount-
ing "accomodation paper," etc.? Not at all. The gov-
ernment service should be confined to the "sure" busi-
ness, that in which the security would be definite, be a
$
IIO
The Other Side of The Money Question.
matter of public record, where the officials of the gov-
ernment banks would have no power except to ascer-
tain the correctness of the security offered, and to make
the loan in harmony with the actions of the central or-
ganization that would from time to time regulate the
volume so as to maintain the stability of the service un-
impaired.
$
It would be impracticable and inadvisable for the
government to undertake to make loans upon personal
notes or security of doubtful value, for such loans largely
depend upon varied local conditions, honesty and busi-
ness ability of the borrowers, etc.
But as the government system would drive private
lenders from the field of "sure" business, there will be
plenty of opportunity for those seeking "accomodation"
loans to get them from private lenders and the competi-
tion to get such business will give the borrowers a far
lower rate of interest than at present. The money own-
ers would be seeking the prospective borrowers, just
as any person with goods to sell seeks the market.
It is probable that very little cash would be used
by anyone except in the retail and minor tranactions.
All business of any magnitude would be done with
checks. There would be no necessity to keep great re-
serves of cash money piled up in the government banks.
But any and all who wished to do so could draw out
their deposits and it would not in the least interfere with
the operation of the system, for it would be one of the
The Other Side of The Money Question.
III
strong points of a government service that the entire vol-
ume of money mechanism could, if required, be exchanged
into cash moneys without causing any injurious results.
"The money mechanism is more of a book-keeping
process than an exchange of cash moneys. The financial
troubles of the past few months bear ample evidence of
that. Though the depositors in the banks were to a
considerable extent wanting to draw out the cash, the
banks practically suspended cash payments and by so
doing, though it was illegal and an outrage that they
were under the necessity to adopt such course, they were
enabled to largely continue the vast book-keeping divis-
ion in operation.
For months the monetary business of the country was
transacted largely by book-keeping, little cash being
used. Such illustration was a striking proof of the
fallacy of money having socalled "intrinsic value."
When once in full operation and the average per-
centage of loan to security established, the system would
be almost automatic, the chief feature of administration
being the ascertainment of average prices and regula-
tion of the loaning margin so that the exact volume of
money service necessary to maintain prices would al-
ways be provided.
Under a public system, inflations" and "contrac-
tions" booms" or "panics" would be a thing of the past,
all the people would be selfishly interested in maintain-
ing a normal healthy condition of business and would
112
The Other Side of The Money Question.
be directly interested in having the money service prop-
erly regulated, just as they are now interested in hav-
ing a satisfactory postal service.
The ingenuity of the people has created an industrial
mechanism marvelous beyond all precedent and the fu-
ture no doubt is capable of even more rapid improve-
ment in such mechanism. Shall the people likewise re-
organize and construct their money mechanism upon a
public basis that will enable the industrial mechanism -
to be constantly employed at its highest efficiency, and
that will operate so that the wealth produced shall not
be diverted from those who are its real producers and
rightful owners?
}
To the reader who has thus patiently followed the
argument the author desires to express his kind appre-
ciation. Though all of it may be devoid of literary style;
though it may and no doubt does contain many errors
both in the premises and reasoning, if something has
been said that will cause you to take a greater interest
in the subject of "money" and to spur you on to further
investigation, the labors of the writer will not have been
in vain, whether you conclusions may in the main ac-
cord or be directly opposed to those herein expressed.

UNIVERSITY OF MICHIGAN
010
3 9015 06449 9117