FINANCIAL DEPARTMENT

(Continued)

cle. Some of the money and some of the muscle would remain unused, for the amount of coin we possess makes no change in the amount of metal the world possesses, and nothing else counts.

However, we do not use gold exclusively as currency, nor even as a greater percentage of our currency. Nine-tenths of our normal business legally avoids the use, not only of money, but of public or Government credit. The circulating media are private credit instruments. When the rush of optimism comes, a lot of people overvalue their ability, and sellers and lenders do not care to take too much of their private credit. To get business done they now need public media of exchange, and the cry arises that "money is scarce." If their business is sound, productive, and helpful, and they are selling or moving goods, they can get these media in the form of Federal Reserve notes, which are really private credit guaranteed by the Federal Government.

In the old days the Government issued its own credit-greenbacks.

In both cases prices rose and rose and kept on rising until the crash came and depression settled down; and the quantity theorists claim this as proof of their creed. Here in this country are several instances-1855, 1870, 1883, 1892, and 1919-where the supply of credit circulation was enormously increased and prices went climbing. To make it even stronger, 1919 found an unprecedented quantity of gold in this country. case seems to be plainly proved. And yet

The

In all these years the great increase in circulating "money"-and nothing but circulation can matter much-has been credit, not gold nor gold certificates. We know that gold-and so gold certificates -derives its price from its commodity power-in-exchange. We can raise or lower the price of a gold dollar suddenly only by Professor Fisher's method, by changing the amount of gold in each dollar. In this case, not the gold, but the standard dollar has changed. Instead of saying, "Each gold dollar is worth less," it is more correct to say, "Each dollar is worth less gold."

Just as the only way suddenly to change the price of a gold dollar is to change its metal content, so the only way to change the price of a credit dollar is to change its credit content. The world's supply of credit, or a country's supply, is popularly supposed to be infinite in theory; but it is not infinite. nor even indeterminate. It is merely. so far, undetermined in dollars-and-cents language. The exact total we cannot tell; but we know that it is measured by the amount of future goods we all control, by the total of the manufactures and crops and imports for the next one hundred and twenty days. "Hindsight" can tell us exactly what our total credit volume was last year. Records of several years past and trade barometers can tell us what it should be next year. As gold is our standard-and here is our big confusion-we must measure that

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When we start to issue our credit dollars, however, our checks, acceptances, commercial paper, greenbacks, and Federal Reserve notes, we have, as a rule, overlooked one corner of the triangular estimate. Consequently, we have now and then got into trouble by forgetting that both credit and goods must be measured in gold, not each other. We can control supply of goods, and so affect prices; but we cannot, with a given amount of certain future production, change the price measured in gold by an abundance of credit dollars. We can change prices to you and me by too much credit money, I grant; but I submit that that has nothing to do with it, for by doing so we abandon the standard. And it is a question of standard. When the total of credit dollars exceeds the gold-dollar price of the total credit in existence, we have merely depreciated our credit standard in terms of gold. Prices are not high because a lot of credit dollars are floating about, but exactly the reverse. A lot of credit dollars appear beIcause we have first made the gold price of credit dollars low. As soon as we do that we have two standard dollars, the gold dollar and the less valuable credit dollar. Gresham's law never fails, so we immediately have to use the bad dollars, and the good dollars drop into stockings and melting-pots. I believe that we can prove this by the same historical in

stances cited above in alleged support of the quantity theory.

In 1855 people had an idea that the only thing necessary to prosperity was high prices. They argued that a dollar was a dollar, and that every extra dollar was a community gain. The State banks, therefore, issued credit dollars by the bale. They kept no account of the true volume of credit, and they did not even accept gold as a standard. Consequently, the more they overestimated their credit, the lower the actual powerin-exchange of their dollars, and the more of them were necessary. Prices rose of course. Prosperity did not. In a little while (1857) Our creditors wanted payment, dollar for dollar; but they wanted good, gold dollars. We had only credit dollars worth about 35 cents in gold; and we crashed, and a lot of the world went down with us.

In 1870 we had been building railways at a feverish rate, working off the excess energy left adrift at the end of the Civil War. Governments and States helped these roads excessively. We needed a great deal of circulating currency, and thought we needed even more; for we again overestimated the future production which our new transportation would inspire. The National Bank Act helped a little, but it was limited by the supply of gold bonds. To make up the deficit, we again poured out credit dollars. We had learned one lesson-that private or State bank credit would not hold up its own price; so we issued Federal credit-greenbacks. The same thing happened. The total gold price of our one hundred and twenty days' production remained the same. We simply called a smaller fraction of that production a dollar's worth, depreciated the standard, raised prices and had to issue more money. The smash came on settling day, as usual, but we were still stubborn. It took three failures-1873, 1884, and 1893-to teach us that gold prices rule and that we cannot control gold prices.

The year 1919 was different. In that year the gold standard was generally accepted and was supposed to be in force. This was not true in Europe, for gold had been abandoned through dire necessity; and the countries of Europe had to mortgage, not merely one hundred and twenty days, but many years, of future production. Gold as a worldwide medium of exchange had ceased to function. Gold continued, however, to be the "common denominator," the standard, while the gold price of currency was driven down. At the same time, the production of goods fell off, lowering the credit total; and demand for goods increased violently, raising prices in terms of gold. Of course a huge volume of cheap credit francs and credit pounds and credit lire appeared. They had to; but they had nothing whatever to do with making prices. Goods were measured in gold; the use of gold had fallen off and demand was low, and the demand for goods was tremendous. That is the story of 1919.

How, then, did we avoid a panic in

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FINANCIAL DEPARTMENT

(Continued)

1920? Demand fell off, liquidation went ahead, all the symptoms of panic were there, but no panic. Because, blindly perhaps, we have set an automatic meter upon our credit dollar which keeps it at a steady price measure in gold. When business is hustling and prices go up (i. e., when the demand for goods outstrips demand for gold and relationships are changed), we supply the gaps in our circulating media with Federal Reserve notes instead of inconvertible greenbacks or Clearing-House certificates. A Federal Reserve note cannot be issued except on visible, irrefutable evidence that the credit total, the production of the next one hundred and twenty days, has been increased by the amount of the note and a little more.

This is the gist of the quarrel. The supporters of the quantity theory represent the present borrowers and future sellers they talk in terms of credit dollars. The opponents of the theory represent the present lenders and future buyers, and they are talking of gold dollars of 23.2 grains each at the current price of gold as metal. Of course they cannot agree. As long, however, as they do not try to influence the money legis lation which affects all of us, why should we greatly care? For you and I have still a third definition for money: "A balancer of accounts-something dependable which gets our business done."

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NEGRO paper quotes Stephen Graham as reporting in "The Soul of John Brown" that a Negro minister had complained to him of the absurdity of making pictures of white angels for the children of the black race. "You surely would not like them black?" said the interviewer. "We give Sunday-school cards to our children with white angels on them. It's wrong," was the reply. "Black angels would be ugly." "No more ugly than white. . . . Isn't it absurd for us to be taught that the good are all white, and that sin itself is black?" "It does seem to leave you in the shade," Mr. Graham admitted. "Expressions such as 'black as sin' ought to be deleted from the language. One might as well say, 'white as sin,'" argued the Negro. It would be interesting to know how native Africans picture their ideals of goodness. It is well known that they look upon a white skin as unbeautiful. "You who are black!" is said to have been a form of reverential address uttered in presenting a petition to the Zulu kings in olden times.

Apropos of the above paragraph, it may be noted that a holiday display of colored (black) dolls is to be seen in a Brooklyn store window in a section where Negroes live, with the sign, "Colored Dolls Sold Here."

Adam Smith, author of "The Wealth of Nations," was a keen student of current events. A letter written by him in 1776 and now offered for sale by a London bookseller reads:

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The apple, according to an exchange, is the most famous of fruits, for it has figured in at least four stories of worldwide fame-the apple of the Garden of Eden, the golden apples of Atalanta, the apple of the William Tell legend, and the falling apple which was seen by Newton and which suggested to him the law of gravitation.

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"The brightest feature of the British railway situation is found in the happy relations between the companies and their men," according to "The Engineer" (London). "Never, during the hundred years of railways, has this aspect of the railway position been so good. There is, at present, a noticeable esprit de corps among the men, a greater desire to give a day's work for a day's pay, both in the operating and the manufacturing and repairing branches. . . . We believe, and will almost go as far as to affirm, that the attitude of the men is the result of the unions having been recog nized and of the men themselves having been given a greater interest in the operation of the railways."

Recently, in Switzerland, according to the "Writer," a citizen was brought before a magistrate charged with failing to return a borrowed book, and sentenced to spend two days in jail and to pay a fine of forty francs, in addition to the value of the book. The magistrate in passing sentence said: "A book is a family utensil, like furniture, and is necessary to the welfare of the family." "The Writer" adds: "A practical way to secure the return of borrowed books is to put in the place of the book taken from the library shelf a piece of cardboard about the size of the book, on which is written the title of the volume. the name of the borrower, and the date when the book was lent." And, it might be added, when it is to be returned.