II

What is to be said now of the possibility of securing the adoption of such a plan?

An international agreement for its adoption seems to me in the highest degree unlikely. Let it be recalled how repeated were the endeavors, under stress greater than felt in recent years, to bring about an agreement for international bimetallism. A fall in general prices and in money incomes is a phenomenon much more unwelcome than a rise. The earlier fall in prices, moreover, was bitterly felt, not only by the debtor classes, but by all the protectionists. The movement for international bimetallism had powerful support in political circles as well as among the economists. Yet it never had a ghost of a chance. So great is the rivalry between nations, so intent is each upon its own advantage, so jealous are they of each other, so strong above all is the spirit of selfishness and mercantilism in their economic policies, that it seems to me hopeless to expect them to come to an understanding on a matter of this sort.

Even if, by some unexpected stroke, an international agreement were to be secured, it would rest upon the frailest basis. Any war would put an end to it. Any stage of depression in an important country would render it in the highest degree irksome, would lead to its revocation by some one country, and then would cause the whole structure to topple over. Not least, there would be differences concerning the index number of prices to be used in fixing the seignorage. Prices do not move parallel in different countries. It is inevitable that they should sometimes rise in one country while falling in another; or rise in one more than in another, or fall more. Which country's index number should govern? If indeed all countries were convinced that a disastrous depreciation of money were impending, and if they were resolutely determined to sink all differences and all selfish interests in order to prevent it, they might act on the basis of a compromise index number settled by an international commission. But the mere mention of these conditions precedent suffices to show how far they are from being present.

The question arises whether it would be feasible for one country to adopt the plan. It would be feasible in the same sense that it would be feasible for all countries together to adopt it. One country alone, carrying it out with unflinching consistency, might secure the desired result, subject to the qualifications which have already been

indicated. But that any one country would, in fact, adopt it alone seems to me in the highest degree improbable.

Consider for a moment the mode in which the scheme would work in detail if adopted by a single country. The immediate effect of a seignorage would be, as Professor Fisher points out, a readjustment of the par of foreign exchange. The exporter would find the par of exchange lessened, and in terms of domestic money (compensated dollars) he would receive less than he got before. All commodities of export would fall in price at once or fail to rise to the extent of the seignorage. The exporters would be as hotly indignant with the plan as if an excise tax had been imposed on their commodities without any possibility of their raising the price of their products. Consider for a moment what would be the state of mind of our cottonexporting South. Is it to be supposed that any set of legislators could resist the political pressure from the various exporting sections and carry out the scheme unflinchingly? Can we imagine a congressman telling his constituents that they need only wait a while, until all money incomes and all prices had adjusted themselves to the new conditions? that then nobody would be worse off or better off than before? To ask this sort of question is to answer it.

III

In view of all these complications, uncertainties, and political and sectional obstacles, the question presents itself whether the emergency is so serious, the evil so great, the gain to be secured so unmistakable, that it is worth while to press so far-reaching a change.

Professor Fisher has predicted that prices will rise further. He is disposed to believe that there will be, not only a rise, but that there will be a considerable rise. I hesitate to enter the domain of prediction. I am inclined to believe that the rise in prices will not cease for the next decade; but whether it will be considerable or moderate or negligible in extent I should not venture to say. Predictions concerning the output from the mines are to be taken with the greatest caution. We all recall the predictions which Suess made in 1892. The distinguished geologist believed that the prospects of an increased production of gold were of the slightest, and that the world must fall back on the use of both metals. How different the course has been from that which he predicted! There are those who believe that the output of gold, so far from continuing to increase, has reached, or is

approaching, its maximum. For myself, I should not be surprised if there were a cessation in growth, and should certainly be surprised if there were not a relaxation in the rate of growth.

Further: it deserves to be borne in mind that the total supply of the precious metals is now so much greater than it was twenty years ago that the same annual increment will have much less effect on prices. This is the familiar consequence of the durability of the precious metals.

Finally, a circumstance should be borne in mind which bears, not only upon the intrinsic desirability of a regulative plan, but also upon the attitude of the general public and the consequent political and industrial possibilities. The economist is thinking and reasoning about the change which has been of special interest for him, the general rise in prices. The man on the street is thinking about the exceptional rise in prices of one important set of commodities. Anyone who will examine with care the index numbers of our Bureau of Labor will see what a marked rise, much beyond that of the general index number, has appeared in the prices of farm products, and especially in the prices of meat. That special advance has taken place within the last three or four years. It is precisely within this period that general attention has been turned to rising prices. What the public has had chiefly in mind has not been the general change, but the particular change in the commodities of wide consumption. This, I believe, is the main cause of labor unrest.

Whatever be the particular causes that have led to the high prices of food, economists agree that these causes will operate irrespective of any compensated-dollar plan. This would simply serve, at its best, to keep general prices where they are, leaving each particular group of commodities to its own particular causes. If the compensated-dollar plan were to be adopted, and if the prices of food should continue to mount, there would be disappointment for the general public, but nothing to surprise the economist. And, conversely, it is entirely possible that the rise in the cost of living, that is, the special rise in the prices of foodstuffs, will reach its end irrespective of any monetary change whatever. The general rise in prices and money incomes, to repeat what has already been said, is not unwelcome to the great majority of people. Its incidental consequences are perceived and debated chiefly by the economists, such as the effects on the creditor class and the slowness of so-called fixed incomes to rise accordingly. The general public is concerned chiefly with the

conspicuous rise in the prices of foodstuffs, which is ascribable to causes very different from those that bring the general rise, and can be reached only by remedies very different.

In sum, I am not convinced that the evils of the present system are so great as to call for the extraordinary remedy proposed. If, indeed, consequences of the most serious sort were imminent from an overwhelming increase in the gold supply, we might feel disposed to move heaven and earth to prevent them. Obstacles from international jealousy, or from widespread misconceptions and fallacies, could then only spur us to greater exertions. But if the evils are as yet not unbearable; if those against which the public most rebels are due chiefly to other causes than the mere increase in gold supply; if the remedy proposed is one whose operation is far from certain, likely to lead to complications of its own, and in danger of being discarded on its first failure to work a cure, let us bear the ills we have.

VIII

THE EXISTING SYSTEM OF THE UNITED STATES AND PRINCIPLES OF REGULATION

Introduction

The present monetary system of the United States and the various provisions with reference to legal tender, redemption, etc., show at every hand the marks of our checkered monetary history. Many of the provisions that exist are mere survivals and are understandable only by reference to our earlier history. On the other hand, there are numerous important principles in use today that have been developed out of our varied experience principles which give to the present system as a whole a reasonable degree of safety and economy. The greenbacks, however, appear to remain a source of more or less apprehension, particularly since the passage of the Federal Reserve Act. But while the system is on the whole safe enough, it appears to be unnecessarily complicated and clumsy. The elimination of certain of the forms of currency in use and a thorough overhauling of the laws with a view to simplifying and unifying them would prove a very useful service.

All this, however, relates only to money that is issued or controlled by the government directly. Paper money issued by banks and checks, or deposit currency, remain to be treated as separate problems in themselves. It is these forms of currency that are designed to give the necessary flexibility, or elasticity, to the monetary system as a whole; and as such they give rise to problems of peculiar difficulty. The treatment of these forms of currency, however, must be reserved until the general principles of banking and credit have been discussed.

151. VARIOUS FORMS OF MONEY IN THE UNITED STATES'

A. GOLD COINS

While the gold dollar is the unit and standard of value, the actual coinage of the $1 piece was discontinued under authority of the act of September 26, 1890. Gold is now coined in denominations of Adapted from Circular No. 52 of the United States Treasury Department,

1910.