This section is from the "The Science Of Wealth" book, by Amasa Walker.
Such were the estimates of the losses to the people and the government resulting from the use of a mixed currency up to 1841. There can be no doubt, in the minds of men who were in business during the period covered by these figures, that they are so far correct that they fail only by reason of being set too low, particularly those of the last item; viz.," losses by fluctuations, revulsions, and sacrifices."
Twenty-four years have elapsed now (1865) since the foregoing table was prepared; and, during that time, the currency has been doubled, the country has passed through several contractions and one or two explosions, and has suffered as much probably as in the preceding period. If so, the total loss would amount to seven hundred and sixty million dollars. But suppose it to be only five hundred million dollars: that amount would furnish gold and silver currency sufficient, not only to supply our wants at present, but for generations to come.
* See "Merchants' Magazine," vol. 1. p. 9.
Some have supposed that a great saving is made by the use of paper money instead of coin. But it is not necessary to have a mixed currency in order to avoid abrasion of the coin. A mercantile currency, based wholly on specie, would equally avoid loss from this cause, and yet secure all the advantages of a value currency.
But, in fact, the abrasion of paper currency is far greater than that of gold; that is, it costs more to keep out one hundred dollars of currency than it does to keep out one hundred dollars in coin. Gold and silver circulate themselves; but it requires a formidable machinery to circulate paper promises, — a machinery far more costly than the slow, wear of the precious metals. No banker would venture to say that a paper currency can be maintained for one-twentieth of one per cent per annum.
It may be said that the banks gain a considerable sum by the accidental destruction of their notes. Doubtless; but what they gain somebody loses. The amount estimated to have disappeared in this manner up to 1841, as we have seen in the table just cited, was put at seven millions of dollars. A very large proportion of this fell on the poorer classes, as also do the losses by counterfeiting.
But, if we would comprehend the question of economy, we must appreciate the expense of maintaining all the officers, managers, and subordinates of fifteen hundred banks, with all the incidental charges of their operations. At a moderate calculation, this would not average less than four thousand dollars to each bank, or a total sum of six million dollars per annum.
This argument of economy in the use of credit money was presented by Dr. Adam Smith eighty years ago. Even then the danger was apparent, though the system had not been developed to its proper character and consequences. Had the writer witnessed the great convulsions from 1797 to 1857, he would have dismissed, as wholly an idle fancy, the scheme of substituting the "Daedalian wings" (say, rather, the Icarian wings) of credit for the "solid ground" of value. He says:
"The gold and silver money which circulates in any country may very properly be compared to a highway; which, while it circulates, and carries to market all the grass and corn of the country, produces itself not a single pile of either. The judicious operations of banking, by providing, if I may be allowed so violent a metaphor, a sort of wagon-way through the air, enable the country to convert, as it were, a great part of its highways into good pastures and cornfields, and thereby to increase very considerably the annual produce of its land and labor. The commerce and industry of the country, however, it must be acknowledged, though they may be somewhat augmented, cannot be altogether so secure, when they are thus, as it were, suspended upon the Daedalian wings of paper money, as when they travel about upon the solid ground of gold and silver. Over and above the accidents to which they are exposed from the unskilfulness of the conductors of this paper money, they are liable to several others, from which no prudence or skill of those conductors can guard them."
This comparison is full and just in every particular. Nations have been trying to make a small saving by dispensing with the vital condition of all their wealth. These political farmers have always ached to be ploughing up and seeding down the very highways of their industry; far more intent on this than to improve the land already at their disposal. "A wagon-way through the air" is no violent, but rather a modest, metaphor for the schemes by which they propose to make nothing do the work of something. A man might as reasonably try to make a saving by selling his own blood as a nation gain aught by robbing its commerce of money. It is an attempt to cheat the house of its foundation, the animal of its food.
Nor is it even economy, at the first and on the face. Experience has shown that this extensive system of aerial railways is rather more costly in its outlay than the more natural one that rests upon the ground. Industrial ballooning has always been difficult and dangerous.
Fallacy 3d. That the use of mixed currency has been the cause of the great prosperity of the United States.