# The Atlantic Monthly/Volume 14/Number 81/Currency

Featured in Volume 14, Number 81 of The Atlantic Monthly.
CURRENCY.
It is not only for gold that men labor, fight, and die. One labors long to perfect an invention; another, to illustrate a theory; a third, to express a sentiment; a fourth, to acquire real estate. With success, the first has a machine; the second, a treatise; the third, a poem; the fourth, a deed. Perhaps no other four persons would willingly expend the same amount of labor on the same objects; yet this difference of estimate effects no difference in the objects. Estimation, therefore, or value, is not a quality of those objects, but a state of mind in relation to them; accordingly, the poem has value as well as the machine,—the deed, as well as the wealth it defines. The value of the deed is, however, widely different from that of the wealth. The value of the wealth is based on desire, that of the deed on right, though in neither case exclusively, as, in a general sense, value always involves both desire and right, and is, therefore, a commercial relation, resulting from a state of society.
Men have the sense of right, and the intellect to define it, the will to defend, and the power to enforce it; and, for the more perfect development of these capabilities, they have instituted government. The functions of government are, therefore, the definition, the defence, and the enforcement of right.
The exercise of the function of ​definition led to the invention of two classes of commercial instrumentalities,—the real, consisting of weights and measures, and the ideal or representative, consisting of writing and notation. The exercise of the remaining functions of government secures the wealth these serve to define. It may, indeed, be true, in a rude sense, that possession is nine points of the law; but it is equally true, in a proper sense, that the remaining point is worth more than the nine; the defence and enforcement of right being an absolute and well-defined rule of government. In a state of barbarism men prefer fact to right, for an obvious reason; but as they advance in science and civilization, as their conceptions become more distinct, their definitions more exact, their defences more complete, and their enforcements more powerful, their faith in right increases, and their esteem increases with their faith, until right becomes of more value than possession.
Exchange, whether by barter or sale, is the result of differences of estimate or value. By barter, the articles exchanged are themselves the mediums; if, therefore, a given article be generally accepted to that use, it becomes a common medium; and if it be divided by government into well-defined quantities, suited and intended for that use, it becomes money. Money, therefore, in its original form, is a common medium of barter, that is accepted to that use by authority of law,—a medium which, considered distinctly from that authority, is simply an article of merchandise possessing qualities that make it preferable as a means of barter, and which, for convenience of use, bears the stamp of the government-inspector, defining the exact quantity contained in each piece, but which, inasmuch as it is authorized, and partakes of the nature of law, has ideal qualities that make it the means of sale: these are, right of use, nomination, and numeration. The ideal qualities of money serve to establish price, to create money of account, to make credits possible, and ultimately to produce credit-mediums of exchange, or bills, which, in a given form, though mere declarations of right to the wealth they are said to represent, become, in the hands of a civilized people, a species of currency that, with all its defects, has proved itself to be the most effectual means both of commerce and of government.
Wealth is that which may be used. Value is that by means of which wealth may be exchanged. A currency, therefore, should consist of representatives of value,—of representatives, because value, being ideal, is known only by that means,—of value, because it is only by differences of estimate or value that exchanges are possible. But, as these representatives are wholly nominal, and may, therefore, be issued in any quantity, and as their increase or decrease affects the value of credits, their issue requires regulation. The quantity of the currency may be well regulated by finding the rate per head of population during a favorable state of trade, and by adhering to that invariably.
That the people of the United States have reached the degree of science and civilization proper to the creation of such a currency is not yet evident; but there is reason to believe that they will take the lead in this as they have in some other actions indicative of advance,—that they will erelong understand the impropriety of attempting to measure value by means of merchandise, that is, by a means that is subject to variations of quantity,—a conclusion that may not appear obvious in this aspect, but it will be readily understood that in commerce a variable measure is absurd in theory and intolerable in practice. Yet this is precisely parallel with using gold, or any other article of merchandise, as a measure of value.
The elements of currency are value, a commercial relation derived from persons, and quantity, a property of things derived heretofore from the precious metals or their representatives. But this quantity is inconstant, and to use an inconstant quantity as a measure, is absurd. The quantity of the currency may, ​however, be rendered constant, both positively and relatively, by deriving it wholly from persons,—that is, by giving it an invariable quantitative relation to the population: a rule that is both simple and easy of practice, because value is already nominated and numerated, and the population is already sufficiently well known. The divisions of the currency should be the simplest possible, that is, binary, and the definitions of the parts should be as simple as those of coins.
With regard to the legal-tender currency, so called, it serves well for temporary use,—much better, indeed, than any of its predecessors; and as long as its promises are ignored, and as long as its quantity is not increased faster than the increase of the population, it is practically a value-currency, resting on its own inherent right of use, with the exception of the limitation defined by the law of legal tender.
One of the duties of the National Government is to supply the people with a currency. That this is to be used is sufficiently obvious; and that, being intended for use, and authorized by law, it has the right of use, is equally obvious; there is, therefore, little need of a law of legal tender to give it that right. Accordingly, however affirmative such laws may be in form, their intention is not so much to bestow as to withhold.
That the currencies of the world have great defects is so well known that the statement of the fact would be superfluous, except as introductory to an attempt to ascertain the nature of those defects, and to propose an adequate remedy,—an attempt suggested by the rapidity with which the people, profiting by their present tuition, are learning wisdom by the things which they suffer in the defence and enforcement of right.
Of a specie-currency the defect is want of constancy. This defect, derived from its material element, has a particular and a general aspect. The particular is the reduction of the quantity of metal in coins. The Roman money-unit—the as—consisted originally of a pound of bronze; that of England—the pound sterling—and that of France—the livre—consisted each of a pound of silver. The first Punic war caused the pound of bronze to be reduced to two ounces; the second caused its further reduction to half an ounce; and what now is the weight of the pound sterling? where now is the livre? and what of coins generally? Like these individuals, types of the class, they depreciate. The general aspect is, the occasional reduction of the quantity of coin in circulation. The merchant, believing it to be more immediately profitable, exports the coin,—that is, finding the currency to consist of an article of merchandise that suits his immediate purpose, he treats it accordingly,—though by so doing he causes a rise of prices where he buys and a fall where he sells, and to that extent nullifies his own business-intentions, and deranges those of others. If this derangement be sufficient, hoarding commences; and as this action multiplies itself, the currency is soon reduced to its minimum quantity, and business of every kind with it, until the industry of the country is reduced to a state of atrophy, until a mere commercial derangement is converted into an immense loss; because the rise in the value of the currency, due to its scarcity, causes a corresponding fall in the value of all the wealth of the country, and thus checks industry and stays production.
These defects are not pointed out for the purpose of preventing the adoption of a specie-currency. There is no probability of such a currency ever prevailing in this country, except in the neighborhood of the mines, and there only for a time. Much is said about it, as is usually the case with subjects that are little understood; but the driblets of specie that may be seen occasionally are not a currency; neither are those larger quantities held by banks and brokers. Indeed, a specie-currency in the presence of bank-notes is an impossibility, because the notes proclaim their own inferiority; consequently, the specie is retained and the notes circulated. Yet, the ​operations of the mint are continued, with the avowed object of creating a specie currency. This practice is, however, of some use. It serves to show that mind and matter are governed by the same general laws,—that either being put in motion wilt continue to move in the given direction, though the original intention may have ceased. That the original intention of coining has ceased when the use of the precious metals is confined almost exclusively to ornamentation and security is a plain case.
The National Government issues coin for currency, and the States create banks, with the privilege of using the coin as security, and of issuing in its stead a larger quantity of notes. These, diluted in value to the extent of the difference, form, with the authority derived from State laws, a species of currency that, because of its great convenience, derived from its representative character, has become, notwithstanding its defects, one of the greatest powers known to man. The defects of a bank-note currency are, that, being based on specie, it is necessarily inconstant, and being insufficiently based, it is necessarily insecure.
The precious metals are desired for three distinct uses,—ornamentation, security, and currency; they have, therefore, three distinct elements of value. By the creation of banks a portion of the currency is converted into security, and another portion undergoes the same change by reason of the insecurity of bank-notes. Thus, by the influence of banks, the precious metals are deprived of most of the value they had as currency, the specie and the notes depreciating together, and maintaining an equilibrium of value, until the exportation of the former to countries where its value is not thus impaired becomes profitable. Then, if the notes continue to depreciate, as is sometimes the case, the equilibrium is destroyed, and specie commands a premium. This causes the remainder to be hoarded, so that it then commands an additional premium as security, in view of the increasing insecurity of bank-notes.
A result of the inconstancy of a bank-note currency is exhibited in each of its several states,—as a diluted, as a depreciated, and as an irredeemable currency; but more especially in this its third state. But as it is not intended to be redeemed, except to a very limited extent, and as these several states are proper to it, and differ only in degree, it will be sufficient to point out the final result or climax. This is depreciation in relation to specie, because of the demand for that article, first for exportation, and then for security; and, at the same time, appreciation in relation to every other article of merchandise, because of the reduction of its own quantity, necessary to the restoration of the lost equilibrium,—necessary to the reëstablishment of its essential element, credit. Thus it appears that the results of a bank-note currency are similar to those of a specie-currency, but as much more disastrous as its expansions and contractions are greater and more sudden.
To avoid these disasters, it is proposed to issue a national currency that is constant, and that is therefore a standard measure of value,—an instrumentality that commerce has never yet been furnished with, though it is the only one capable of affording to the industry of the country proper, that is, invariable, encouragement. Not being empirical, it will make no pretence of furnishing the precious metals at less than the market-rate, either for exportation or hoarding; but it will have the effect of reducing them to their true position, that of merchandise, so that they may be exchanged for the products of other countries with profit. For the same reason it will not be redeemable. To redeem a currency is to replace it by another. What other? Specie? That is out of the question. However desirable specie may be as wealth, as a currency, except for change, it is a nuisance. Accordingly, merchants prefer a representative currency, even though its representative character be somewhat problematical. And government failing to supply a ​better, this becomes the currency of the country by a species of necessity. In short, because of its inconveniences and risks, specie is not used as a currency, and will not be, because, in addition to these obstacles, the representative currency in use, being without proper regulation, has increased to such an extent that there is not sufficient coin to replace it,—a fact that practically settles in the negative the question of the sufficiency of the precious metals for currency, in addition to their other use, in a country where civilization has established credit as a means of trade. Nevertheless, a specie-currency is advocated even by those who carefully avoid handling it, and who would be the last to consent to such a reduction of the currency as its exclusive use would require,—a confusion of mind due to the fact that the difference between value and wealth is not always distinctly recognized. Moreover, it is not the function of a currency to be replaced, but to be a means of payment. This the proposed currency will be by right of use,—a right inherent in a national currency, and respected as long as the government respects itself, that is, as long as the people govern wisely.
A dollar, value-currency, will always buy a dollar's worth of gold, but it may not always buy the quantity of gold contained in the gold dollar. How much it will buy depends on the quantitative relation of the currency to the population,—a relation which, though entirely optional, should never be changed, because, with whatever change, provided the proper relation of the parts to the whole be preserved, with little there will be no lack, and with much, there will be nothing over,—and because any change of that relation is injurious to commerce, inasmuch as it produces a corresponding change in the value of credits. And assuming a change to have been made, a return to the former rate, instead of being a mitigation, will be a repetition of the injury, except in regard to credits so extended that they embrace both changes. If, however, a reduction be insisted on, a suitable mode may be proposed. Twenty dollars per head gives six hundred millions. Assuming this quantity to be superabundant, if it be adhered to until the population reaches forty millions, the rate will be fifteen dollars per head, which may be assumed to be abundant. If it be adhered to until the population reaches sixty millions, which it will probably do in one generation, the rate will be ten dollars per head, which may be assumed to be convenient; and any attained rate may be continued, or made constant, by increasing the currency proportionately with the increase of the population. This mode of reduction, however, is possible with a national value-currency only. A specie-currency is incapable of regulation. The same may be said of any currency based on specie. Indeed, a credit-currency will necessarily collapse under a superabundant issue, unless its promises be ignored, or unless it be sustained at the expense of the nation,—an expense which the nation itself cannot sustain permanently.
The rate of the currency governs the value of wealth. It is important, therefore, that government have time to pay its debts before any great decrease of currency takes place; otherwise, that decrease will be equivalent to an increase of taxes, without producing a corresponding decrease of the public debt. For the portion payable in gold it will be better economy to pay the premium than to reduce the currency sufficiently to avoid it; because such a reduction will work a corresponding reduction of the value of all the wealth of the country, a sum much greater than the debt. It is scarcely necessary to suggest that the more currency the less taxes, and the greater the ability to pay them; or that, when the war is over, government will cease to spend several hundred millions per annum, and the industry this money supports will require time to rearrange and adapt itself to pacific demands; or that, if the currency be suddenly and ​largely reduced at such a time, an accumulation of distress will follow, such as is rarely seen. With the proposed currency, however, and the proposed mode of reduction, if a reduction be agreed on, the change from the condition of war to that of peace may take place without producing the prostration of business so justly anticipated, because so fully warranted by experience of a credit-currency, and so earnestly to be deprecated, because so evidently and so easily avoidable by the adoption of a national currency that is capable of regulation, and that, being properly regulated, cannot fail.
Though this currency, like that of bank-notes, is wholly nominal, the words of which it consists are those of a nation, and represent power. Accordingly, they give to the currency power to perform its allotted function; but they give it no other power. Has any other currency any other power? A specie-currency may be converted into ear-rings, but it is no longer a currency; it may be buried in iron pots, or locked in iron safes, but it is not then a currency; it may be exported to foreign lands, but it is not there a currency until reauthorized. Currencies, properly speaking, are ideas clothed in words,—the words of a nation, otherwise called laws. The merchandise attached to a specie-currency is an evidence of former barbarism,—a remain of the primitive practice of barter,—an incongruous element, tending to impede rather than to assist circulation, to destroy rather than to create a currency.
But is a value-currency possible? It is, to a people enjoying universal equality before the law, and knowing that every individual has a direct and immediate interest in it,—knowing that it is a part of the business-policy of each. And it is only such a people that will dare to inaugurate, and persevere to sustain it. Nevertheless, as it cannot but appear problematical to minds that have not given to the subject the most earnest attention, its adoption will doubtless be most strenuously opposed, by habits of thought, by modes of action, and by interests, as ancient, as universal, and apparently as fixed as the race itself. Yet, as M. Arago justly remarks in one of his biographies addressed to the French Academy,—"The moral transformations of society are subject to the laws of continuity; they rise and grow, like the productions of the earth, by imperceptible gradations. Each century develops, discusses, and adapts to itself, in some degree, truths—or, if you prefer it, principles—of which the conception belonged to the preceding century; this work of the mind usually goes on without being perceived by the vulgar; but when the day of application arrives, when principles claim their part in practice, when they aim at penetrating into political life, the ancient interests, if they have only this same antiquity to invoke in their favor, become excited, resist, and struggle, and society is shaken to its foundations. The tableau will be complete, Gentlemen, when I add, that, in these obstinate conflicts, it is never the principles that succumb."
This work was published before January 1, 1929, and is in the public domain worldwide because the author died at least 100 years ago.
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