The only test applied by those theorists of the specie-basis school has always been: Is there a drain of gold upon the banks? If so, it was held to be conclusive proof of over-issues and of overtrading; to stop which it was deemed necessary to punish over-issuing and overtrading by raising the rate of interest, contracting bank discounts, and rapidly diminishing the volume of circulating banknotes.

This whole theory is simply a fraud, a scheme invented by money-kings to harass trade and speculate upon the ruin of traders and manufacturers. The scheme is founded upon the idea that coin is the only possible base for a paper-money circulation, and that redemption in coin is absolutely essential to the validity and existence of paper money. Logically following their premises, those theorists. argued further, that their specie-basis scheme was only to be carried out by regulating the amount of bank-note issues by the amount of coin in the vaults of the bank. This was supposed to be a shrewd contrivance to protect the gold in the bank vaults from being withdrawn; but, oddly enough, the carrying out of this policy inevitably led to still more extensive runs upon the banks by bill-holders and depositors, since money became in still greater demand as the banks contracted their issues, and revulsions and suspensions followed as the natural result.

Ever since the adoption of paper money, by far the greater majority of the banks and bankers in all parts of the world have advocated and supported this false theory of finance, in order to perpetuate their power under the coin-despotism. Nearly all the monetary revulsions have been falsely charged to over-issues, overtrading, and overimportations, while the true cause of these monetary panics was to be found only in that false theory of finance which directly tended to produce them, and has in every case of its application brought a dearth of money upon traders and manufacturers.

It never occurred to the directors of banks that a run for gold could be stopped by enlarging the money issues of the banks. Even the British Parliament, in 1844, committed the gross blunder of enacting a statute that required the Bank of England to contract its bank-note circulation whenever a drain for gold commenced upon it. This was a solemn parliamentary recognition of that false theory of finance, and it brought on and aggravated the panics of 1847 and 1857. The destructive force and terrible consequences of the panic

of 1857 compelled Parliament to repeal the obnoxious act of 1844, so as to permit the Bank of England to issue bank-notes to prevent the run upon the bank for coin; and the repeal had the desired effect.

It had been believed as an article of financial faith that no drain of gold would commence unless there had been an over-issue of bank currency, followed by overtrading, and a consequent depreciation of the value of the bank-currency issues. Acting upon this naïve theory, the financiers of those days had but one common aim: to accumulate gold in the bank vaults and prevent the bill-holders and depositors from drawing it out. It was supposed that gold was the grand centre around which all financial operations - trade, commerce, and manufactures — revolved, and that without it financial chaos and ruin must set in. Hence all the bank acts and other schemes to protect gold in the bank vaults from removal, as the visible metallic centre of the world's finances. The innocent coin-worshippers never dreamed that any flaw could exist in their theory. They knew that gold was the beginning and the end of all financial operations, because they had received it as a sacred tradition from their ancestors. Holding, therefore, that gold must be kept in the vaults of the banks of issue, so as to support the issues and keep trade healthy and active, the general policy of all banks organized on a specie basis has been to contract the currency issue whenever, for any cause, a run was made upon the banks for gold.

But this contraction of the bank issues, far from having the supposed effect, as I have already stated, has in all cases only aggravated the run upon the banks for gold, and forced on a suspension of specie payments. Why have the financiers of the world been struggling with this problem for a century without solving it?

The obvious reason why panics occur in the monetary world is because the circulating medium becomes too small to carry on the trade of the world, which is rapidly increasing far beyond the rate of increase in money, and hence periodically causes a scarcity of money. When a scarcity of money begins to be manifest, the manufacturers and tradesmen immediately feel the pressing need of it, and seek to supply it for their trade from every money-channel open to them, and this necessity expands in every direction, until multitudes of people are simultaneously struggling in all directions to obtain money for immediate use. Everything, then, tends to increase the pressing

demand for money, while its volume is rapidly contracting. The people, driven by their great necessities, arising from this money dearth, go to the banks for relief. But the banks, being already well advised that money is scarce, —very scarce, refuse to discount bills and issue their paper money. Then the pressure becomes greater

than ever. And the banks now refuse even to renew the notes of their customers, hoping thus to draw in their circulation and save their gold. Then the people, in their desperation, start runs for gold upon the banks, and the result is general suspension, ruin, and bankruptcy.

Indeed, as the trade and business of the world increases, the narrowness of the gold basis becomes steadily narrower, the scarcity of coin becomes greater, and the revulsions called "monetary earthquakes" are more terrible. For, as the coin basis becomes more limited, in proportion to the gigantic advance of trade and manufactures, the money of account and bills of exchange must be enlarged to meet the demand. But, if the bank issues and credits are withdrawn, the immense volume of money of account and bills, that never have any specie basis, becomes wholly unmanageable, and trade is strangled for the want of any kind of money wherewith to carry on its operations. Although it is well known, that there is much less than one per cent of coin-money engaged in carrying on trade, and that, in fact, not more than two per cent of coin exists in the whole civilized world to represent bank issues, bills, and money of account, yet the majority of financiers pretend to believe, and perhaps do believe, that the trade, commerce, business, and manufactures of the world may be carried on upon a coin basis, which is simply impossible.

It seems to me, that this utter insufficiency of a pretended goldbasis, and the ruinous effects to which it gives rise periodically, have been now so clearly illustrated, both by theory and the experience of centuries, that no one, who is not wilfully blind, can refuse to acknowledge that the prosperity of mankind imperatively demands the abolition of specie as a basis for our money issues. The only safe money system is a national legal-tender currency, not based upon metallic coins, but upon all the manufactures, trade, and commodities of the nation which issues it, supported by all that nation's sovereignty, wealth, and power.

CHAPTER V.

A SPECIE BASIS NECESSARILY A DELUSION.

From all the foregoing, it is evident that the pretence of a specie basis for any kind of money of account is a mere fraud.1 If such a basis were real, every bank of issue must have one million dollars of coin in its vaults for every million of its circulation. But this it cannot keep, or where would be the profit in issuing paper money to represent the coin? Nay, the banks themselves confess that, at the very utmost, they keep only one-third of the amount of their circulation on hand in specie. Their "promise to pay" is, therefore, an acknowledged lie. But why then keep it up, especially as the only good which it does is to keep the money market in constant agitation, and make uncertain all business transactions?

It might be further suggested, in this connection, that there is another reason why gold and silver are unfit for the purposes of money. Not only are they merchandise, but a merchandise of great value, although subject to a great deterioration of that value through its mere use; the loss by wear on gold coin circulating as money

1 Mr. R. H. Patterson, in his work, "The Economy of Capital" (1865), estimates the amount of gold held by the banks in Great Britain at £20,000,000, of which the Bank of England holds £14,500,000, the Irish banks £2,000,000, and the Scottish banks £2,500,000. The deposits of those banks he estimates at £400,000,000. Hence the banks of Great Britain have only five per cent of their deposits on hand in gold.

I may add, further, what will seem a paradox to the coin-worshippers, that the wealthier a country gets, the less it cares about the possession of gold and silver. During the five years ending 1859–64, England received, according to Mr. Patterson, £140,000,000 of gold. Of this amount it exported £138,000,000, retaining, therefore, only £2,000,000 for home use. California and Australia have grown rapidly rich, by what? Keeping their thousands of millions of dollars of gold at home? On the contrary, by shipping them off. Only the Eastern and barbarous nations, who make no progress in wealth and prosperity, hoard and accumulate specie; the prosperous nations of the world get rid of it.

The gold and silver mines of the United States have produced since 1848-9 the sum of $1,640,000,000 of gold and silver, and yet Mr. Secretary Bristow, in his well-arranged report on the finances, of October, 1874 (p. 21), admits that we have only $166,000,000 of coin in the country. The balance, $1,480,000,000, has been exported to foreign markets.

being about three per cent per annum. A government coin of twenty dollars will, therefore, after the lapse of a few years, be no longer intrinsically worth twenty dollars, but perhaps only eighteen or fifteen dollars; and as the proposition is, that it must weigh twenty dollars' worth of gold in order to be a legal tender for that amount, it has virtually ceased to be a legal tender by having ceased to be of full weight. And, to tell the truth, the people do not really care to have gold money, except when in cases of panics the specie spectre terrifies them and renders them insane for the moment. Were there, indeed, no other reason not to use gold as money, its mere weight and continual loss by use would make it objectionable. The moving of any considerable sum from one place to another would always necessitate a dray or wagon; and who would keep a large sum of coin in his own house? Gold as a money medium, in short, has long since been dead; it only requires now an official burial and certificate of death.

To show how thoroughly this general insufficiency of a specie basis is understood by some of the ablest writers on the subject of finance, I quote from several of them. Mr. Charles Sears, a prominent political economist, says, in speaking of the inadequacy of a gold and silver money: "Independently of circumstances, and on its merits, the speciebasis hypothesis is the most disorganizing element that ever obtained place in society. On this hypothesis our monetary, industrial, and commercial systems constitute a huge pyramid, or cone, standing on its apex. Forty billions of property resting upon six billions of current production, which rests for its value upon, say, seven hundred millions of currency, which in turn for its value rests upon two hundred and fifty millions of specie, which, so far as our possession of it is concerned, depends upon the interest and goodwill of our rivals in industry and haters of our political system.

"Of course, on this system all people, in all times, have been insolvent. Production and trade have been carried on upon sufferance. So long as confidence continued unimpaired, the movements of property were kept up; but the exigencies of the war, of local trade, and of the stock and money speculators, and the natural system itself requiring periodical settlement, demonstrate the general insolvency. Within the last fifty years, say, a money crisis has come quite regu