The herald. [microfilm reel] (Los Angeles [Calif.]) 1893-1900, 1895-06-16

cesSity OF permanent and stable curren-
cy, it must follow that any depreciation
in the value of money will seriously af
lect trade land (, what is worse, will react
against the credit of any nation which
either from necessity or from the folly
of its government allows such depreoiat-
tion to take place. In former article
we have already alluded to the loss sus-
tanned by the United States through the
issue of inconvertible paper money dur
Ing our civil war. Let us now look at in
stances of the same evil which in the past
have produced equally disastrous results.
Before doing so, however, it might be
well TO point out that there are two ex-
treme theories as to the causes which de-
termine the value of money. One is that
the value of money depends on the will
of the sovereign; the other that the value
of money is entirely independent of state
control and determined by economic con-
ditions. The former is the fiat theory
upheld by the old Greenback party and
now supported by the advocat ties or free
silver" The latter is the view held by
believers in sound money" In dealing
with history OF depreciations this
must be kept in mind. as each successive
account more and more clearly ezplodes
any deal that the value OF money depends
on the will of the sovereign. In illustra-
ton. let us take the following from the
history of England:
In 1913 Henry WILL, having squan-
dered the enormous treasure which his
father had accumulated. and having also
disposed OF the lands and estates OF the
church, began an issue OF base coin. At
first the alloy was only one-sixth of the
silver; but in 1915 second issue was put
in circulation in which the alloy was
-ho1f in ha al n
third issue contained only one-third sill
yer. For seventeen years England suf-
cred from the evils of this base currency.
wnen, under Queen Elizabeth. it was
finally redeemed at low fixed rate. The
effect was disastrous in the highest de-
nation, and for long time disabled it
from filling that place in Europe which it
had occupied for centuries before.
= For another instance from the history
of the same country we must go back to
the end Of the last. and the beginning of
the present century. In the year 1897, by
what was called the restriction act tie
Bank of England was restained from
paying its notes in gold. There thus
came to be two separate and independent
currencies in the country. one OF bullion
and the other of paper. 1t had generally
been supposed, previous to the passing OF
the restriction act, thatsbank notes would
not circulate unless they were immedi-
ately convertible into cash, hut the event
showed that this was not really the
case. Though the notes of the Bank of
England were not at the passing OF the
restriction act declared by law to be legal
tender they were rendered such in prac-
tice by being received in cash in all pay
ments on account of government, by the
vast majority of individuals. For the
first three years of the restriction their
issues we're SO moderate that they not
only kept on par with gold but actually
bore a small premium. But in 1901 and
in the two following years, they were SO
much increased that they fell to dis
count of from to 10 per cent. In 1909
and 1910, owing to an increase of one
third on the bank notes in circulation
the discount rose to from - to ]6 per
cent. In 1872 paper was at an average
discount, as compared with bullion, of 90
per cent; in and 1914. when the maxi
mum of depreciation was attained. it was
at 25 per cent. In that and the two sue
ceeding years. no fewer than 240 country
banks stopped payment.
Perhaps the most remarkable instance
recited of deprecated currency may be
found in the history of France during the
eighteenth century. In 1716 there APP
named John Law. He found the
French government burdened with an
enormous debt and in imminent fear of
bankruptcy. 1t was therefore easy to
reach those in power. and the regent lis
tened earnestly to Law when the latter
assured him that the prosperity of a ma
tion depended entirely upon the size If
its circulating medium. France accord
ing to Law, by doubling its capital would
enormously increase its wealth and re-
sources pay off its debts. and become the
richest nation in the world To douple
it's capital all it had to do was to estab-
lish bank on the basis of the actual
property of the state. He had con-
ceived the idea" says Blanqu in his
History of Political Economy, "of COM
bining into one common association all
the capitalists of France, and putting I'M
der their control, as loan, all the ele
ments OF public wealth, from landed
property to the uncertain natures of colo.
nized trade. What could be finer mort
gage than France?" The government
having established the Royal bank with
Law as its director general, he at once be-
gan to put into practice his idea of unit
ing into one great mass, and using it as
basis upon which to issue an illimita-
BILE volume of notes. 'As a part of his
great Company OF the West" etc., as
below.
As part of his great Company of the
West he included his famous Mississippi
scheme. The Chevalier La Sale, in his
travels down the Mississippi river to the
Gulf OF Mexico, had taken possession of
all the territory through which it flowed
in the name OF the french king, calling
it, in honor OF Louis w., Louisiana. Law
obtained a concession of this district,
gave dazzling accounts of its unlimited
mineral and agricultural wealth, and
founded a commercial company upon 1t
with a capital OF one hundred millions,
divided into 200. 900 shares of 500 francs
each. Other trading companies, the
Canadian, Senegal, EastIndian. and China
were also taken into the bank, and each
made a basis tor the issYe OF notes.
Then one after another the royal mint,
the business. of collecting the government
= taxes, and the receipts of the royal in
come were included. Laws idea was to
get all. the receipts and a II the issues of
the nation into the same hands, and then
upon this vast basis this fine mortgage
of France tC issue notes at will.
The shares of his company were eagerly
bought. He began the issue of paper
money guaranteed by the government
and based upon the value of all national
property. ''Blls issued on land" he
said are in effect coined land. ANY
Foods that have the qualities necessary
in money may be made money equal to
their Va Iue. Five ounces Of gold is equal
in value to EGO and may be made money
70 that vafue and an acre of land is equal
70 go and may be made money equal to