Evening star. [volume] (Washington, D.C.) 1854-1972, 1902-12-22
AN ELASTIC CURRENCY
PLEA OF SECRETARY SHAW TO
BANKERS CLUB.
Every Dollar of Issue Should Be Ex-
changeable for Dollar
in Gold.
~ delivered

In dolQ.
Secretary Shaw of the treasury delivered
an address before the Bankers Club of
Chicago last Saturday evening on the need
Of financial legislation He said, in part:
The first paragraph of the financial act
Of March IA, 1900, contains this language:
"All forms of money issued or coined by
the United States shall be maintained at a
parity of value with this standard (25s
grains of gold, and it shall be the duty Of
the Secretary of the Treasury to maintain
such parity" How shall the Secretary do
this? Shall he exchange any form of money
ISSUED or coined by the United States for
any form of money so ISSUED or coined?' If
not, is there any act within his power. and Is,
or is not the duty thus imposed equivalent to
a mandate to exchange at par? have found
no one who questions the wisdom of the
provision l have quoted, though l know
several who object to the Interpretation l
have suggested, and who object more vigor-
ously still to an exchangeability statute In
specific terms.
The parity of the greenback with COIN
was assured only when the Congress direct
ed the Secretary of the Treasury to ex-
change coin" for greenbacks. Very soon
after the act was passed, and some months
before 1t went into effect, parity became an
the treasury.
In 1898 a widespread apprehension arose
that greenbacks would be exchanged for
piece Of silver, denominated dollar, but
manufactured by the government out Of "a
cents worth of metal, and, therefore, at a
profit Of over As cents. Then, for the first
time in our history, greenbacks became a
drain upon the treasury. Prior to 1879 they
had been a drain only upon business. No
one doubted the ability Of the government
to redeem greenbacks in "coin," for the
statute 50 directed but whether the re-
demption should be made in gold coin or
silver coin rested upon the discretion of the
Secretary Of the Treasury, and this want of
certainty caused alarm Lest the disaster of
1893 and 1894 should be repeated, Congress
very wisely provided. in the act from which
l have quoted that greenbacks and treasury
notes should be redeemed in gold. Had the
same statute included "all forms of money
issued or coined by the United States" all
possible danger of a deprecated currency
would have been removed and no addition
al burden would have been placed upon the
treasury.
Those who most strenuously object to ex-
changeabity are the ones who most vigor-
ously insist that no such law Is needed
They declare that CO cents of fiat in the
silver dollar is no menace to commerce so
long as the government accepts 1t at par in
the payment of revenues, but with equal
vehemence they urge that 1t would be a
menace to the government If it should ac-
cept the same dollar part in exchange for
gold.
The only objection to exchangeability of
gold and silver l have ever heard express
ed is that 1t would put again in operation
the endless chain" I am disposed to
think the greenback was made the scape-
goat in 93 and '94 to bear the sins Of silver |
If the statute had then provided for the
exchange of gold for all forms of United
States money, no gold would have been
boarded, and revenues would have been
paid largely in gold as they were before the
fear arose that silver would depreciate. Had
there been no greenbacks to redeem, the
Secretary of the Treasury would have been
compelled to redeem silver in gold, as he
expressed his determination to do, if nee
essary, or silver would have been sold at
a discount. People wanted gold, and they
would have bought it at a premium If 1t
had not been obtainable at par.
The government still assumes the re-
sponsibility of furnishing all the gold need
ed for domestic commerce, for foreign COM
merce, for boarding and for speculation.
and the two forms of money on which a
demand for gold can be predicated are
greenbacks and treasury notes. Certainly
no more gold will be needed for domestic
commerce, and no more for foreign COM
merce and more for speculation, II a
law were enacted permitting a demand for
gold to be predicated upon any form of
money. And with equal logic affirm that
no demand whatever for gold for boarding
will arise whenever all doubt as to the
exchanged bility of all forms Of money shall
have been removed. No run on a bank
d
teller at every wicket, but willingness to
promptly cash every obligation. however.
whenever or by whomsoever presented, has
many times restored confidence.
The most common objection to any adj
ditional currency legislation is that the
notes issued in the manner I have sug
gested would be unsafe. This objection
might be good If there were other secu-
rity proposed than the ordinary liability of
the bank of issue. Fortunately, however
one, far as ! know, proposes to stop
with this. Every friend of an elastic cur
rency, whether it be called credit cur
rency, asset currency, emergency cur
rency or gold reserve currency, proposes
that the bank of issue shall pay into re-
demption fund certain tax upon the
amount Of circulation maintained. The
lowest rate of tax suggested by any one
is vastly more than enough to cover any
possible loss.
Whether the government guarantees the
notes or not, so long it collects from the
banks several fold enough to make the gov
eminent safe, or whether the notes shall be
a first lien upon assets when there is a
fund created ample to cover all loss without
encroaching upon assets, is certainly imma-
terial. The one plan may be more scientific
than the other, but both plans are practical,
and about all we need just now is prac-
teal, easily worked system Of elastic cur
rency. Elasticity and safety are the es-
sentials. The details are not essential, pro-
vided our present system be not disturbed
and the country be protected against in
flation.
There is just as much need for contrac-
ton when money is not legitimately need
ed there is for expansion when more
money is required. And unless contraction
can be induced, expansion Is impossible.
The farmer requires fewer grain sacks dur
ing the summer months than at harvest
time, but unless he has some system for
retiring those he does not actually need
during the growing season he will find
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