Readings in Money and Banking Part 6

THE CONFEDERATE CURRENCY[14]

The financial system adopted by the Confederate Government was singularly simple and free from technicalities. It consisted chiefly in the issue of treasury notes enough to meet all the expenses of the Government, and in the present advanced state of the art of printing there was but one difficulty incident to this process; namely, the impossibility of having the notes signed in the Treasury Department, as fast as they were needed. There happened, however, to be several thousand young ladies in Richmond willing to accept light and remunerative employment at their homes, and as it was really a matter of small moment whose name the notes bore, they were given out in sheets to these young ladies, who signed and returned them for a consideration.

I shall not undertake to guess how many Confederate treasury notes were issued. Indeed, I am credibly informed by a gentleman who was high in office in the Treasury Department, that even the Secretary himself did not certainly know. It was clearly out of the power of the Government ever to redeem the notes, and whatever may have been the state of affairs within the treasury, n.o.body outside its precincts ever cared to muddle his head in an attempt to get at exact figures.

We knew only that money was astonishingly abundant. Provisions fell short sometimes, and the supply of clothing was not always as large as we should have liked, but n.o.body found it difficult to get money enough.

It was to be had almost for the asking. And to some extent the abundance of the currency really seemed to atone for its extreme badness. Money was so easily got, and its value was so utterly uncertain, that we were never able to determine what was a fair price for anything. We fell into the habit of paying whatever was asked, knowing that to-morrow we should have to pay more.

Speculation became the easiest and surest thing imaginable. The speculator saw no risks of loss. Every article of merchandise rose in value every day, and to buy anything this week and sell it next was to make an enormous profit quite as a matter of course. So uncertain were prices, or rather so constantly did they tend upward, that when a cargo of cadet gray cloths was brought into Charleston once, an officer in my battery, attending the sale, was able to secure enough of the cloth to make two suits of clothes, without any expense whatever, merely by speculating upon an immediate advance. Naturally enough, speculation soon fell into very bad repute, and the epithet "speculator" came to be considered the most opprobrious in the whole vocabulary of invective.

The feeling was universal that the speculators were fattening upon the necessities of the country and the sufferings of the people. Nearly all mercantile business was regarded at least with suspicion, and much of it fell into the hands of people with no reputations to lose, a fact which certainly did not tend to relieve the community in the matter of high prices.

The prices which obtained were almost fabulous, and singularly enough there seemed to be no sort of ratio existing between the values of different articles. I bought coffee at forty dollars and tea at thirty dollars a pound on the same day. My dinner at a hotel cost me twenty dollars, while five dollars gained me a seat in the dress circle of the theatre. I paid one dollar the next morning for a copy of the _Examiner_, but I might have got the _Whig_, _Dispatch_, _Enquirer_, or _Sentinel_, for half that sum. For some wretched tallow candles I paid ten dollars a pound. The utter absence of proportion between these several prices is apparent, and I know of no way of explaining it except upon the theory that the unstable character of the money had superinduced a reckless disregard of all value on the part of both buyers and sellers. A facetious friend used to say prices were so high that n.o.body could see them, and that they "got mixed for want of supervision." He held, however, that the difference between the old and the new order of things was a trifling one. "Before the war," he said, "I went to market with the money in my pocket, and brought back my purchases in a basket; now I take the money in the basket, and bring the things home in my pocket."

As I was returning to my home after the surrender at Appomattox Court House, a party of us stopped at the residence of a planter for supper, and as the country was full of marauders and horse thieves, deserters from both armies, bent upon indiscriminate plunder, our host set a little black boy to watch our horses while we ate, with instructions to give the alarm if anybody should approach. After supper we dealt liberally with little Sam. Silver and gold we had none, of course, but Confederate money was ours in great abundance, and we bestowed the crisp notes upon the guardian of our horses, to the extent of several hundreds of dollars. A richer person than that little negro I have never seen.

Money, even at par, never carried more of happiness with it than did those promises of a dead government to pay. We frankly told Sam that he could buy nothing with the notes, but the information brought no sadness to his simple heart.

"I don' want to buy nothin', master," he replied. "I's gwine to keep dis always."

I fancy his regard for the worthless paper, merely because it was called money, was closely akin to the feeling which had made it circulate among better-informed people than he. Everybody knew, long before the surrender, that these notes never could be redeemed. There was little reason to hope, during the last two years of the war, that the "ratification of a treaty of peace between the Confederate States and the United States," on which the payment was conditioned, would ever come. We knew the paper was worthless, and yet it continued to circulate. It professed to be money, and on the strength of that profession people continued to take it in payment for goods. The amount of it for which the owner of any article would part with his possession was always uncertain. Prices were regulated largely by accident, and were therefore wholly incongruous.

In the winter of 1863-64 Congress became aware of the fact that prices were higher than they should be under a sound currency. If Congress suspected this at any earlier date, there is nothing in the proceedings of that body to indicate it. Now, however, the newspapers were calling attention to an uncommonly ugly phase of the matter, and reminding Congress that what the Government bought with a currency depreciated to less than one per cent. of its face, the Government must some day pay for in gold at par. The lawgivers took the alarm and sat themselves down to devise a remedy for the evil condition of affairs. With that infantile simplicity which characterized nearly all the doings and quite all the financial legislation of the Richmond Congress, it was decided that the very best way to enhance the value of the currency was to depreciate it still further by a declaratory statute, and then to issue a good deal more of it. The act set a day, after which the currency already in circulation should be worth only two-thirds of its face, at which rate it was made convertible into notes of the new issue, which some, at least, of the members of Congress were innocent enough to believe would be worth very nearly their par value. This measure was intended, of course, to compel the funding of the currency, and it had that effect to some extent, without doubt. Much of the old currency remained in circulation, however, even after the new notes were issued.

For a time people calculated the discount, in pa.s.sing and receiving the old paper, but as the new notes showed an undiminished tendency to still further depreciation, there were people, not a few, who spared themselves the trouble of making the distinction.

I am sometimes asked at what time prices attained their highest point in the Confederacy, and I find that memory fails to answer the question satisfactorily. They were about as high as they could be in the fall of 1863, and I should be disposed to fix upon that as the time when the climax was reached, but for my consciousness that the law of constant depreciation was a fixed one throughout the war. The financial condition got steadily worse to the end.

The Government's course in levying a tax in kind, as the only possible way of making the taxation amount to anything, led speedily to the adoption of a similar plan, as far as possible, by the people. A physician would order from his planter friend ten or twenty visits'

worth of corn, and the transaction was a perfectly intelligible one to both. The visits would be counted at ante-war rates, and the corn estimated by the same standard. In the early spring of 1865 I wanted a horse, and a friend having one to spare, I sent for the animal, offering to pay whatever the owner should ask for it. He could not fix a price, having literally no standard of value to which he could appeal, but he sent me the horse, writing, in reply to my note:

"Take the horse, and when the war shall be over, if we are both alive and you are able, give me as good a one in return. Don't send any note or due-bill. It might complicate matters if either should die."

A few months later I paid my debt by returning the very horse I had bought. I give this incident merely to show how utterly without financial compa.s.s or rudder we were.

How did people manage to live during such a time? I am often asked; and as I look back at the history of those years, I can hardly persuade myself that the problem was solved at all. A large part of the people, however, was in the army, and drew rations from the Government. The country people raised upon their plantations all the necessaries of life, and were generally allowed to keep enough of them to live on, the remainder being taken by the subsistence officers for army use.

In the cities, living was not by any means so easy as in the country.

Business was paralyzed, and abundant as money was, it seems almost incredible that city people got enough of it to live on. Very many of them were employed, however, in various capacities, in the a.r.s.enals, departments, bureaus, etc., and these were allowed to buy rations at fixed rates, after the post-office clerks in Richmond had brought matters to a crisis by resigning their clerkships to go into the army, because they could not support life on their salaries of nine thousand dollars a year. For the rest, if people had anything to sell, they got enormous prices for it, and could live a while on the proceeds. Above all, a kindly, helpful spirit was developed by the common suffering, and this, without doubt, kept many thousands of people from starvation.

n.o.body formed any plans or laid by any money for to-morrow or next week or next year, and indeed to most of us there really seemed to be no future. We were not used to think of ourselves as possible survivors of a struggle which was every day perceptibly thinning our ranks. The coming of ultimate failure we saw clearly enough, but the future beyond was a blank.

The reader may find it difficult to believe that with gold at a hundred and twenty-five for one, or 12,400 per cent. premium; when every day made the hopelessness of the struggle more apparent; when our last man was in the field; when the resources of the country were visibly at an end, there were financial theorists who honestly believed that by a mere trick of legislation the currency could be brought back to par. I heard some of these people explain their plan during a two days' stay in Richmond. Gold, they said, is an inconvenient currency always, and n.o.body wants it, except as a basis. The Government has some gold--several millions in fact--and if Congress will only be bold enough to declare the treasury notes redeemable at par in coin, we shall have no further difficulty with our finances. So long as notes are redeemable in gold at the option of the holder, n.o.body wants them redeemed.... The gold which the Government holds will suffice to satisfy a few timid ones, and there will be an end of high prices and depreciated currency.

I am not jesting. This is, as nearly as I can repeat it, the utterance of a member of the Confederate Congress.

The matter of prices was frequently made a subject for jesting in private, but for the most part it was carefully avoided in the newspapers. As with the accounts of battles in which our arms were not successful, necessary references to the condition of the finances were crowded into a corner, as far out of sight as possible. The _Examiner_, however, on one occasion denounced with some fierceness the charges prevailing in the schools; and I quote a pa.s.sage from Prof. Sidney H.

Owens's reply, which is interesting as a summary of the condition of things in the South at that time:

"The charges made for tuition are about five or six times as high as in 1860. Now, sir, your shoemaker, carpenter, butcher, market man, etc., demand from twenty, to thirty, to forty times as much as in 1860. Will you show me a civilian who is charging only six times the prices charged in 1860, except the teacher only? As to the ama.s.sing of fortunes by teachers, spoken of in your article, make your calculations, sir, and you will find that to be almost an absurdity, since they pay from twenty to forty prices for everything used, and are denounced exorbitant and unreasonable in demanding five or six prices for their own labor and skill!"

There were compensations, however. When gold was at 12,000 per cent.

premium with us, we had the consolation of knowing that it was in the neighborhood of one hundred above par in New York, and a Richmond paper of September 22, 1864, now before me, fairly chuckles over the high prices prevailing at the North, in a two-line paragraph which says, "Tar is selling in New York at two dollars a pound. It used to cost eighty cents a barrel." That paragraph doubtless made many a five-dollar beefsteak palatable.

FOOTNOTES:

[8] Adapted from Wesley Clair Mitch.e.l.l, _A History of the Greenbacks_, Part II, The University of Chicago Press, 1903.

[9] Adapted from A. D. Noyes, _Forty Years of American Finance_, pp.

7-20. G. P. Putnam's Sons, New York and London, 1909.

[10] _Ibid._, pp. 21-22.

[11] _Ibid._, pp. 23-31.

[12] _Ibid._, pp. 44-47.

[13] A. Piatt Andrew, The Essential and the Unessential in Currency Legislation, in _Questions of Public Policy_, Addresses delivered in the Page Lecture Series, 1913, before the Senior Cla.s.s of the Sheffield Scientific School, Yale University, pp. 55-59. Yale University Press, New Haven, Connecticut. 1913.

[14] Adapted from George Gary Eggleston, _A Rebel's Recollections_, pp.

78-107. Hurd and Houghton. Boston, 1875.

CHAPTER VI

INTERNATIONAL BIMETALLISM

[15]... There are natural and commercial causes which may operate to produce either an incessant fluctuation in the relative value of silver and gold, or a wide and increasing divergence, from year to year, through a long period, from the ratio of exchange existing between the two metals at the commencement of the period. So far are the sources and conditions of supply of the one different from those of the other that, notwithstanding the influence of the durableness of the metals in giving steadiness of value to either by turns, and hence to the two in their relation to each other, it would be in the highest degree unreasonable to a.s.sume that the ratio of exchange between gold and silver would remain unaltered through any considerable term of years. The annual or monthly variations may take the form of oscillations, now on one side and now on the other of any historical ratio, or they may be c.u.mulative on one side of that ratio, producing a divergence increasing from month to month, and year to year; but variations in some degree, in some direction, are to be expected under the unrestrained operation of causes influencing the demand for, or the supply of, each metal.

The conditions, natural and commercial, which determine the ratio of exchange of the two metals being such, we have seen that government may enter, and, by making the two indifferently legal tender for debts at a ratio fixed by law, may, for the time, counteract the operation of any and all forces tending to produce divergence. So long as any country establishing such a principle holds a considerable amount of that metal which, under the natural and commercial conditions of supply and demand prevailing at the time, tends to become the dearer of the two, it is impossible that the cheapened metal should there, or in any market, fall far below that ratio. By the force of the bimetallic law, the subst.i.tution of the cheapened for the dearer metal will at once begin; and so long as that continues, the divergence of the market ratio from the mint ratio can never be wide. Why should any one in London or New York pay much more than fifteen and a half ounces of silver for an ounce of gold, when gold can, at any time and in any amount, be obtained for silver at the rate of fifteen and a half in Paris?

This operation of the bimetallic system can not be denied; but there is ground for dispute as to the degree of the advantages to result, and as to the cost at which those advantages are to be obtained. The monometallist, or advocate of the so-called single standard, is disposed to disparage the benefits to be expected, and to magnify the expense of this system. He points to the fact that the two metals do not actually circulate in the same country, at the same time, in any considerable degree; that it is always the one metal or the other which is used as money, according as the market ratio diverges to the one side or the other of the mint ratio, while the coin made from the dearer metal acquires a premium, and is exported or h.o.a.rded. Hence it is said bimetallism really means the use of but one metal in a country at a time. It is not a double standard, but an alternate standard.

To this the bimetallist replies that the concurrent use of the two money metals, side by side, in the same markets, is a matter wholly of indifference. The merit of the bimetallic scheme does not depend on this at all.

The object of bimetallism is, by joining the two metals together in the coinage, at a fixed ratio, to diminish the extent of the fluctuations to which the value of each would be separately liable, by generating a compensatory action between the two, by which the cheapening metal shall receive a larger use, while the appreciating metal drops partially out of its former demand, thus making the two fall together, if there must be a fall, or rise together, in the opposite case: or, conceivably, making the tendency of one to fall precisely counteract the tendency of the other to rise.

Thus we may suppose four successive cases to ill.u.s.trate the working of this principle.

The first is, where the demand for the use of either metal in trade remaining the same, a large increase in the supply of one metal, A, takes place, the supply of the other, B, remaining unchanged. In this case, without the bimetallic system, the value of A would tend to fall rapidly through a considerable s.p.a.ce, while the value of B would stand fast. With the bimetallic system, the joint supply of the two metals would be applicable to meet the joint demand for the two. Now, as the joint supply has been increased without any change in the joint demand, there must be a fall in value; but the fall will be in the two indistinguishably, except for a slight degree of delay and friction in exchange. Both will fall, but the depth of the fall will be diminished as the surface over which it is to take place has been enlarged.

The second is where, the demands of trade for both metals remaining the same, a diminution occurs in the supply of A, while the supply of B remains unchanged. Here, by the operation of the same principle, a rise in the value of money will take place, since the joint supply has been reduced without any corresponding change in the joint demand. The rise will be a rise of the two metals indistinguishably, the height of the rise being diminished as the surface over which it is to take place has been enlarged.

The third case is where, demand remaining the same, the supply of both metals undergoes a change in the same direction, either of increase or of diminution, at the same time. In this event, the fall or rise will again be of the two indistinguishably, the point reached being a mean between the points which would have been reached by the two severally.

The fourth case is where, demand remaining the same, the supply of the two metals undergoes a change at the same time, but in opposite directions, A through diminution, B through increase. In this case, the opposite tendencies will counteract each other. If of equal force, the value of money will be stable; if of unequal force, there will be movement in the direction of the stronger to the extent of the difference between the two. Instead of one falling and the other rising in value, the change will be wrought in the two indistinguishably.

It will appear from the foregoing statements that, under the bimetallic system, the value of money will be liable to vary more frequently than under the monometallic system. That is, a change in respect to either const.i.tuent of the money ma.s.s will produce a change of value; and it is apparent that the chances of change are greater with two const.i.tuents than with one. On the other hand, the variations under the bimetallic system are likely to be less extensive. Indeed, it is a matter of practical certainty that they will be far less extensive than they would be under the monometallic system, whichever metal were adopted as the standard of deferred payments.

But, again, the monometallist interposes the objection that the bimetallic system is only to be supported at great expense to the States maintaining it; that they lose by the exchange of the dearer for the cheapened metal, even though they acquire a certain premium in doing so, and that sooner or later the stock of the dearer metal in the bimetallic countries will become exhausted, and the system will collapse, the price of the two metals no longer being held closely or nearly at the former ratio by the possibility of exchanging them at that ratio, freely, in any amount.

How far a bimetallic country loses by the alternation of the metals in circulation, as now one and now the other becomes the cheaper at the coinage ratio, is a nice question.