Absolute Money

Front matter

ABSOLUTE MONEY:

A NEW SYSTEM OF

NATIONAL FINANCE,

Preface

About two years ago I published a work, Liberty and Law under Federative Government now out of print, in which I purposed to point out such defects in our federal and state governments, in their representation and legislation, as had made themselves especially prominent during the history of our existence as a nation. One of these defects, and probably the one that touches men most closely, I conceived to be the lack of a true and scientific money system; and consequently I proposed to substitute for our irrational medley of bond money, legal tender money, national bank money, and gold and silver money—an absolute National Money, irredeemable in metallic coins or interest-bearing bonds, but convertible into all the commodities of the nation, by making it the exclusive legal tender money of this country. The whole plan of my work compelled me to treat this subject in a very condensed form; too condensed, perhaps, for general comprehension. This and the fact, that the appearance of my book was closely followed by the great financial crisis which I had foreshadowed in it, and the causes of which I had explained, brought me many verbal and written requests to elaborate that money scheme more at length, and remove the various objections that had been raised against it. The result is the present work, which will be, I trust, explicit enough to make any mistake regarding its scope and purpose impossible. But as this age is not one for voluminous books, and as especially in works of finance, it is necessary to cultivate the utmost possible condensation, in order to secure even a limited number of readers, I have left out everything that did not strictly pertain to the main point in issue, or illustrate the various phases of my system. On the other hand, I have endeavored to represent the chief features of that system from every standpoint, historical and critical, that seemed to me calculated to throw additional light upon it. If I have been at all successful in this, may I not hope that my work will receive the careful attention of our prominent financiers, and of the members in Congress to whom the establishment of a national money system has been entrusted by the constitution ?

Nearly one hundred years have now elapsed since the people of these United States were joined together into one grand nation by the bond of the Union. Various attempts have been made since by unscrupulous demagogues to loosen that bond, and we all remember how very near the last attempt came of being successful. Even apart from its financial merits, therefore, it seems to me that my money system ought to recommend itself to the people of the United States as the strongest safeguard against any renewed attempt to dissolve the Union. With a large national debt, such as we have now, the danger of disunion increases constantly; since the parties in favor of dismembering the Union can urge the powerful plea, that they would thus escape the payment of their share of the national debt and the oppressive taxation entailed by its interest account. But a conversion of that debt into a national circulating medium would make a separation of the

Union next to impossible. Producing a just co-operative financial system, every citizen would be interested in upholding the national unity and integrity, since their breaking up would plunge every one into poverty and bankruptcy. Many years ago one of the foremost of German patriots and philosophers John G. Fichte —the first of his age who foresaw and foretold the unification of the German states under the leadership of Prussia— urged the adoption of a money system similar to that proposed by me, mainly upon this ground, that it would cement a united German Empire closer together than any other measure could effect; and the renowned Minister of Prussia, to whom he dedicated his work, Von Struensee, far from dismissing the scheme contemptuously, as the impracticable dream of an idealist, gave it his careful consideration, and expressed to its author his high appreciation of the work. The proposition, indeed, is very simple: A nation requires a national money. It must be a separate sovereign financial body just as well as it is a separate sovereign political body amongst the nations of the earth. It cannot afford to be dependent upon foreign countries for its money medium of interchange; nor can it afford to be dependent upon the money monopolists amongst its own citizens. Omnipotent in executing its own laws, in calling forth armies, in building fleets and providing in infinite ways for the public welfare; ought a government to be impotent in that one matter of creating an absolute money, "without which it can execute none of those prerogatives.

This, however, is only a collateral plea in favor of my money system, which must stand or fall by its claim; that it is the only rational scheme of finance for a co-operative government, such as ours professes to be. This claim I have endeavored to substantiate to the best of my ability, firstly, negatively, by showing that all other systems of money —whether of gold and silver coins, or paper money issued on a so-called specie basis, or on collateral interest-bearing bonds, or on real estate mortgages— are inadequate, productive of financial disasters and oppressive upon the people; and secondly, affirmatively, by showing that my system of Absolute Money is adequate for all possible contingencies, subject to no fluctuations, and the cheapest, while at the same time the safest of all money issues.

This work is, therefore, divided into two parts: the first, mainly historical and critical; the second, mainly affirmative and explanatory of the new scheme. Having shown how gold and silver money proved inadequate to conduct the business of the world at an early stage of man's commercial history, I have proceeded to trace the various ways in which money of account was enlisted in behalf of commerce and industry, through the medium of credits, bills of exchange, settlements at the fairs, bank issues and government bonds, until it culminated in our own country in the issue of a legal tender currency during the late war. Whilst fully recognizing all the benefits that have arisen from these various phases of money of account, it has been my chief aim to point out their respective defects and inadequacies; and, I think, I have fully and fairly demonstrated, that in all cases where the establishment of such money has been followed by final depreciation and bankruptcy, the result has been due to the circumstance that the money purported to be redeemable in another kind of money, namely, gold and silver coins, in face of the fact that such money of account was issued simply because there was not gold and silver enough in the world to meet the demand for money, and that hence such redeemability in coin was an impossibility. In fact, the only reason why paper money has hitherto failed to realize the object of its issue, has been, that it has always been only money of a secondary nature; gold and silver remaining the primary money. This necessarily led to a competition between specie and paper money, and necessarily left the victory to the former, which was always the only legal tender recognized by law until the issue of the legal tender notes in 1862, by the United States.

Hence my system of Apso.uteE Nationa. Money provides, that after its adoption gold and silver shall no longer be a legal tender, and that the money to be issued by the federal government alone, shall be clothed with that sovereign prerogative. Under its operation there will consequently be only one kind of money in general circulation, and a conflict between it and metal coins will be impossible. Nor will there be any other kind of bank currency which could interfere with its systematic operation. The whole National Bank system will be abolished; the notes of those banks will be withdrawn from circulation and substituted by the Absolute National Money, which will be issued in place of the bonds held by those banks. This does not involve any interference with, those banks as banks of deposit and discount. It simply deprives them of the powers they previously exercised as Banks of Issue; and this, I take it, will be of equal advantage to both parties, the government and the National Banks. The government will save a heavy payment of interest, the banks will be freed from keeping a reserve fund of legal tenders, from irksome rules and regulations, from the federal tax on their circulation and deposits, and from the danger of being called upon in the future to redeem their notes in legal tenders or specie.

But it does not follow, that because my system of money abolishes coin as legal tender, gold and silver will become unpurchaseable. The United States absolute money will have the power to buy gold and silver as well as any other commodities, and I have no doubt, that in the course of time, it will be able to purchase these metals —which, as Benjamin Franklin justly remarks, "are intrinsically not worth as much even as iron or lead'"— at far lower prices than they command now, when their value has been artificially increased by their use as sovereign money. Any bank that desires to buy gold either for hoarding purposes or for foreign exchange, and any individual who likes the glitter of gold, or needs gold, will always be able to purchase it; but I believe the number of buyers will be exceedingly small. It is much more likely that the people will hasten to exchange their coins for government bank-notes; since the government will, of course, have to make such exchange for all coins that bear its stamp. The mints, it is true, would be stopped, and no further issue of American coins would be made; but those coins that are still in circulation, will have to be redeemed by the new government money.

I am well aware that my plan of an exclusively Legal Tender national money will meet much opposition. It is surprising, laughable, but none the less true, that although the business of this country has been carried on, ever since our existence as a nation, chiefly by paper money, to redeem which in gold and silver, has always been, and must always be, an absolute impossibility, the majority of the people, nevertheless, imagine that trade is really carried on by means of specie. It is quite safe to say, that not one thousand in a million of dollars of our business transactions has ever been paid in gold and silver, even when gold and silver money was the only legal tender; and yet the people firmly believed that we had a specie basis, and a large number of our financiers clamor now for a return to a specie basis, and have even succeeded in persuading Congress to fix the year 1879 for the repeal of the Legal Tender Act, and the restoration of gold and silver as the only money recognized by law. I think I have conclusively shown in this work that the pretence of having a specie basis is a fraud, delusion and a deception, and | challenge all critics of my scheme to point out to me how it can be other wise. Neither the Secretary of the Treasury, nor one of the members of Congress and senators who have spoken so loudly in favor of that act establishing a return to specie payments in 1879, have answered the question how it was honestly possible. For an honest specie payment means, that the government and the National Banks now in existence should have a specie dollar in their vaults for every dollar of their currency issue. No man in his senses will maintain that this is practicable. But if the government and the National Banks cannot keep on hand an amount of specie equal to their circulation —not to mention their deposits— is not the whole issue of that circulation, in excess of the specie on hand, a fraud and a delusion ? If a bank has only $100,000 of coin in its vaults, and an outstanding circulation of $300,000, is it not false to say that the $200,000 in excess are also based on specie ?

Before the passage of the Legal Tender Act, the great financial misfortune of this country was, that while the people of this nation carried on their business transactions almost exclusively by means of paper money, their government repudiated their money, and insisted upon the exclusive payment of gold and silver for duties and imposts. The people and their government were thus directly at variance with each other. What was money de facto, was not money de jure.

The passage of the Legal Tender Act was the first great step toward establishing harmony between the people and the government, and to proclaim officially the fact that gold and silver had been dethroned. How effectively this step eradicated the popular belief in the prerogative of specie, which the previous financial conduct of the government had still kept alive and fostered, has been shown repeatedly during the last thirteen years. There has never been a desire manifested in all those years to exchange the legal-tender notes for specie, except for special purposes. It is true that the price of gold and silver rose to startling figures at various times, but this was due partly to military reverses, though chiefly to speculation and coin gambling. The prices of other commodities neither rose nor fell as gold fluctuated in Wall street, and hence the real holders of the national bank-notes had no inclination and no interest to exchange their notes for gold. I consider it, there fore, a great national calamity that now, after the idolatry of gold has been nearly extirpated in this country, so many of our public men should have exerted their energies to revive it. The passage of the Legal Tender Act was the greatest blessing conferred upon the American people since the establishment of the Union; it would be nothing less than national suicide to repeal it now, and reinstate the despotic rule of specie. Has not the experience of the past been sufficiently instructive to warn us of the result which must inevitably follow a further reduction of our money medium, such as would be necessarily attendant upon a restoration of a gold basis ? The financial prosperity of this country never was so general, and commercial failures never touched so low a figure as during the years 1863-1867, when the volume of our currency was at its highest. Then the effects of Secretary McCulloch's policy of contraction began to be felt; and what has been the result ? A gradual increase of commercial failures at a rate simply frightful to contemplate, and a general paralysis of every business enterprise, which culminated in the great crash of 1873. The building of railroads has been stopped, our factories are closed, our commerce is languishing, our laborers are out of employment, and the tide of immigration from Europe has been checked by the reports of our financial distresses. And the reason ? There is work enough to be done, resources enough to be developed, and not only enough, but rather too many for the instrument wherewith to operate: Money! We want a larger lever for the work before us, a greater amount of money wherewith to undertake our enterprises again.*

We are told that the regulation of money does not pertain to the functions of government, but should be left exclusively to the people themselves, and that government should confine its activity simply to the protection of the life, liberty and property of its citizens. I fear, however, that this desire to limit the authority of the government as much as possible, overleaps its own object. The mere fact, that every nation has been compelled to erect mints, and coin the gold and silver brought to them, by impressing the government stamp upon the metals, shows that government cannot at any rate leave the entire regulation of the money question to its citizens. It must interfere to some extent, and the only question is how far its interference shall extend. I think I have conclusively shown, that government must take control of the whole subject of money issue, and forbid every outside interference with it. Under any other condition a scientific money system is impossible. The United States government might with equal propriety confer its political and sovereign prerogatives, to make war and to levy taxes, upon the states and private corporations, as to allow the states and banks to create money. The federal constitution speaks in unmistakeable terms on this subject. The founders and statesmen of our republic had no doubts in regard to it, as |

$ War-time prosperity was the result of huge government orders for war supplies. This government demand stopped in 1865. The exact-same people who gave you legal-tender and national banks, now gave you financial disaster.

have shown by quotations from Franklin, Jefferson, Calhoun, and others. They saw clearly the danger of giving the states and private corporations the right to create money. They wanted the nation at large to be the exclusive maker of this money; the nation, which alone could afford it adequate support by its wealth, sovereignty and power. But popular prejudice in favor of specie was still too strong for them at that time. Even as it needed "a great war and the most serious necessities of the state before the founders of the bank of England could introduce amongst the people of great Britain the blessings of paper money," to which, though it was irredeemable from 1797 to 1822, "that country has been mainly indebted” for its subsequent prosperity," so it required a great civil war and irresistible necessities to force our government in 1861-4 into the doing of what should have been done at the time of the formation of our Union; the issue of a national money, not redeemable in specie, but made by law a legal tender all over the country, and receivable by the government for all taxes and dues—with the unfortunate exception of duties and imposts, for which only the demand notes of 1861 and specie were made receivable. All that remains to be done now is to carry out that system of legal-tender money to its logical completeness, by making it also receivable for imposts and duties, by repealing the acts creating the National Banks, and redeeming their notes with the new government legal-tender money, and by issuing that money for the purchase and cancellation of our interest-bearing bonds, thus making it the only money in the country, and thereby demonetizing gold and silver forever.

The national banks will thus be divorced from the Treasury and from Congress; and it will be their interest to organize under state laws as joint stock banks. The issue of the national money by the Treasury, would be based on federal bonds, and the money delivered to the new banks would be subject to the safeguard of regular discounts passed upon by their Boards of Directors. The unthinking and ignorant may call this a visionary, impractical scheme, the mere suggestion of which would be received in Europe with laughter and ridicule. It may, therefore, not be inappropriate here to state that, apart from the proofs furnished by the critical and historical part of my book, which demonstrate clearly that the financial world has steadily drifted nearer to the adoption of such a money scheme as I have proposed, and apart from the open advocacy of such a national paper money system by the most brilliant American statesmen of every period of its history, from its foundation to the present time, it has numerous supporters amongst the foremost of European financiers. In illustration I will cite only one, Mr. R.H. Patterson, an Englishman, a tory and a thorough conservative, who is recognized as the ablest writer on finances in all England, and from whose writings I have quoted liberally in various parts of this book.

The gist of my whole money scheme lies in the true definition of money, as I have elaborated it in the chapters on AgsoLuteE Money; and this is what Mr. Patterson says on the subject:

* The Economy of Capital, by R.H. Patterson, page 456. ---What a way to prosper ! Start a war against Napoleon and print paper money. And destroy the chances of liberating Europe from the clutches of the international money power.

"The quality which gives to gold, paper and other substances their circulating power as money, is simply the agreement on the part of nations to recognize those substances, either of themselves or when presented in certain forms as representatives of wealth." See Economy of Capital, page 20. And again: "Demonetize gold, ..... and no man would give a dollar for a whole ounce of it. ..... It would descend from its high estate to the rank of an ordinary metal." And on page 25: "Demonetise the precious metals, and a labourer would no longer give a week's work for a bit of gold and silver, which he could do nothing with except to give to his wife as an ornament. Men would no longer consent to be paid in bits of metal, which no grocer, or butcher, or tailor would accept in exchange for his goods."

In another part of his work (pages 447 and 451), he expresses himself as follows:

"Paper money has already established itself as a representative of gold money; what it must next do is to establish itself as a substitute for gold money —just as the gold coins of old, from being representative of oxen, became by-and-by a substitute for them in commercial transactions, and invested with a recognized value of their own. ..... Startlingly various as are these forms of currency," (in various parts of the world), "they all agree in this, that they are recognized by the people as mediums of exchange, and this is the sole, indispensable requisite of any form of money.”

These unmistakable propositions of an eminently conservative financier, each of which is fully in accordance with my scheme, will, I trust, put an end to the flippant objection of coin worshipers, that a money system, which proposes to establish an irredeemable paper money, must have its origin in a visionary, impracticable brain, and result from ignorance of, or inexperience in the actual workings of the money market. Nay, | might go further and say, that many of the clearest-sighted, most experienced and prominent financiers in the whole history of the civilized world have advocated and approved of the principles upon which my money system is founded.

It is my opinion, that the carrying out of the specie basis act in 1879 will result in a repudiation of the national debt, and will force the great commercial and industrial classes of our citizens into bankruptcy. It will be the consummation of the bold, treasonable plan for cornering the nation in the interest of the bondholders, that I predicted in May, 1873, would result in universal financial distress. (See Liberty and Law, pp. 169-171.) I am not able to conceive of any other financial plan, than the one herein proposed, to prevent that impending disaster.

Let me, then, hope that if this work of mine is criticised, as it undoubtedly will be, criticism will not adopt the supercilious tone which seeks to dismiss a subject of such importance, by simply representing it as too visionary to deserve reply, but that I may be met by strict replies to the various propositions advanced by me. I think that I have stated them clearly enough; let those who oppose them state their propositions, by which mine are to be controverted, in language equally clear and precise, and with equal candor and fairness.

Britton A. Hit.

St. Louis, July 1st, 1875.

Part First. Metallic Money And Money Of Account

The long and short of it, without any need for long quotes and convoluted explanations, is, Mr. Hill uses the term “absolute money” for government-issued paper notes. These treasury notes would be spent into circulation; their number would be according to per capita. Observation indicates what number of units per person supported prosperity. The rate of unemployedness generally indicates the rate of shortage in currency.

Just as we need a unit of length, unit of weight, unit of volume, we need a unit of account.

The concept of money by quantity was known long before Mr. Hill.

Mr. Hill refers to John Calhoun (1782-1850). From Mr. Calhoun's three addresses on banking, treasury notes, and the independent treasury, the essence of his concept is clear: issue and spend into circulation non-legal-tender treasury notes to supplement silver coins. The non-legal tender status would act as a regulator against over-issue: if there are more than needed treasury notes in existence, people simply return it to the government in payment of their taxes and dues.

Mr. Hill would regulate the number of notes by statistics.

Mr. Hill himself cites that during the war a $50.00 per capita circulation supported prosperity ---therefore a $50.00 per capita circulation seems to be a good starting point; then experience and statistics will indicate if adjustment needed to be made.

Starting from 1848, mines in the United States produced enough silver to provide sufficient number of silver coins. Making the unit of account 400 grains of silver, and complimenting the silver coins with treasury notes and fractional paper currency, could provide the nation with a stable (in purchasing power) medium of exchange to facilitate all their productive transactions.

Mr. Hill very noticeably does not deal with the problem of banks and banking. As long as banks exist, they will regulate you, not you them. Bankers will always war against the government until they make the government their tool, and the people their indentured servants.

ABSOLUTE MONEY.

Chapter I. Nature Of Metallic Money And Money Of Account

Metatuic Money AND Money of ACCOUNT CREATION OF Money oF ACCOUNT TO FACILITATE EXxcHANGES — ITs DISTINCTION FROM MEtatiic Money — Sir James STEWART — Montesquieu — Marquis GaRNIER — STEPHEN COLWELL.

In the most ancient times gold, silver and precious stones were used as a medium of interchange to facilitate barter; partly on account of the smallness of their bulk, and partly on account of their rarity and consequent intrinsic value. To make their use for this purpose practicable, it was, of course, necessary to weigh them. If we assume that one horse was considered to be about an equivalent exchange for one pound of gold, and that two oxen were in like manner held to be an equivalent for one horse, and that a certain quantity of wool, or grain, or land was an equivalent for two oxen, then the gold-price of all these articles of trade was at once established; but for each minor quantity of wool, or grain, or land, the pound of gold had to be subdivided. This subdivision very naturally led to the melting and moulding of gold and silver into regularly shaped pieces of uniform weight, and in course of time to the stamping of them by the government of each separate nation, as an indisputable guarantee of the correctness of the amount of gold or silver declared by law to be contained in each piece; the earliest written mention of which we have in Genesis 24:22. In Exodus xxx. we have further mention of such governmental coin (the Hebrew shekel), as an interchange for actual commodities; that is, for the animals and spices, that were to be offered as a sacrifice to the Lord, and as a yearly tax levied by the priests on the children of Israel. A half shekel was annually demanded of every one " from twenty years old and above," as "an offering to the Lord," and "for the atonement of their souls." Strange to say, although the atonement of the souls required only a half shekel, ordinary commodities, more immediately necessary to physical life, demanded much higher prices. "A little while and man took the greatest stride of all in the march of civilization. He gave credit." (Lawson's History of Banking, p. 2.)

In other words, man, finding metallic, or, as it is called, "real" money, a very cumbersome means for the interchange of commodities, created an "ideal" money, a money of account, by means of which to conduct his most important commercial transactions. Who first invented this means of commercial inter-communication no one knows. His name is as unknown to us as the name of the still greater genius, who invented the alphabet, the medium of interchange of thoughts by written language. For he made possible the universal inter-communication between all parts of the world and all succeeding ages on all subjects; while the inventor of money of account could utilize the alphabet only for commercial inter-communication.

It is pretty certain, that the Jews, the Phoenicians, the trading towns of Greece, Carthage and Rome made use of money of account, in a sort of way, and that the Jews, after their dispersion, and after the downfall of Rome, at an early day introduced the system of drawing Bills of Exchange; but historically, the first systematized issue of money of account must date back to the establishment of the Bank of Venice, which was organized in the twelfth century, when the state of public affairs in Europe, so rudely shaken by the invasion of the Huns and Goths in the fifth century, and kept in a condition of constant turmoil and political convulsion for hundreds of years, was gradually being restored to comparative quiet.

As it is altogether immaterial for the purposes of this work, how money of account first gained historical recognition, we may as well take the Bank of Venice as the real originator of such money, first, however, establishing the distinction between its credits and the metallic money, previously in exclusive use.