Democratic Sentinel, Volume 1, Number 31, Rensselaer, Jasper County, 14 September 1877 — LABOR AND FINANCE. [ARTICLE]

LABOR AND FINANCE.

Views of an Extensive Iron-Manufacturing Firm—Our Swindling Financial System the Cause of the Hard Times—Government Non-Interest-Hearing Paper Money an Industrial Necessity. The following letter of Reis, Brown A Berger, the great iron manufacturers of New Castle, Pa., in answer to a request of the Chief of the Bureau of Industrial Statistics at Harrisburg to give their opinions as to the causes of the stagnation of business, should be read by every workingman. It shows very clearly that our dishonest money system is the great cause of the poverty and degrsd’tiou resulting from the depression of trade • W. Hays Grier, Esq., Chief ci . uwiii of Industrial Statistics, Harrisburg, 1 a. Deau Sir : In your circular you request our “ ideas of the cause” of the present condition of trade, and then say, “Do not hesitate to express your opinions.” With this desire for our “ ideas” let us bo frank and say that the policy of the Government in trying to reach specie payments by contracving the lawful money of the country is the primary cause of the universal prostration which marks every branch of the productive industry of the country. Ten years ago every department of our productive power was fully employed and adding millions to the wealth of the nation. &It is a fact that the Government undertook to reach specie payments by contracting the currency ; and it is just as much a fact that from the time the contraction of the currency commenced the productive industries of the country have been declining. Here wo have the cause and the effect—the one so closely foPowing the other that the most stupid ought to sec the policy that is destroying our industries. The paper currency of the country is the means by which the consumer reaches the producer. And trade has always kept pace with the volume of this currci cy. When the rency was expanded business was expanded ; when the currency was contracted business contracted.

But the effect of the currency upon the productive industries of the country appears in the following table, showing the volume of paper currency for each year named and the total consumption of domestic iron and foreign iron and steel and the manufacture thereof in the United States : Year. Currency. Consumption. 1830 $61,325,898 $11,155,171 1837 149,185,890 23,298,530 1840 106,988,572 16,057,984 1841 107,290,214 16,554,148 1842 83,734,011 12,541,532 1843 58,763,608 10,217,865 1844 75,107,646 17,644,410 1848 128,506,091 35,802,467 1849 114,743,415 29,933,473 1854 204,689,207 58,895,419 1855 186,952,223 61,378,035 That which is true of iron and iron mauufacturcs is true of all our productive industries. Just as the Government provides the means by which exchanges are made, the demand for the productions of labor increases or decreases. Here is the power that stimulates the productive wealth of the nation. The people will consume all they are able to produce if the Government will only permit them to reach each other through their own natural channels. In connection with the foregoing table let the following figures be studied. This statement shows the volume of currency, including coin, number of hands, and wages paid for labor employed in the workshops of the United States for the years 1850, 1860 and 1870 : Hands Year. Currency. Employed. Wanes. 1850 ....$350,000,000 957,059 $239,933,473 1860 .... 425,000,000 1,311,256 378,878,966 1870 .... 800,000,000, paper. 2,055,996 775,584,343 These figures show that our productive power keeps pace with the increase of the currency, and bears no relation to the increase of population. Then take the product of the manufactures for each of the above years, and we see the enormous increase of our national wealth by promoting our industrial power. Production for 1850. $1,019,106,616; 1860, $1,885,861,070; 1870, $4,232,325,442. The primary lesson, however, to bo gathered from the foregoing figures teaches the advantages of a purely national currency. The wealth of a nation consists solely in its productive power. Build up the productive interests and the evidences of the wealth thus created can everywhere be seen in the building of roads, ships and telegraphs ; in the opening of mines, building of factories, and improvement of machinery ; in the clearing of hmd, building of houses, and education of the people. On the other hand, destroy the productive industries of the country (as we have been doing in trying to reach specie payments by contraction of the currency), and the ruinous effects can just as plainly be seen in the idleness, misery and crime which multiplies with every step we take in this mistaken policy. For several years this war upon the productive industries has been crowding our highways with tramps, our almshouses with paupers, and our prisons with criminals.

That paper currency is a necessity incident to the wants of trade is apparent to every business man. But must a paper currency be made to fluctuate with every change of the wind ? Is it possible that whenever we reach a condition of industrial prosperity we must, from necessity, have a panic, followed by the wholesale ruin of producers ? When we look into the nature of banks of issue, we see at once the danger of bank currency. In the first place, we provide that nothing but coin shall be lawful money. Then we authorize a few private adventurers to issue their own promises to pay for the purpose of providing the means of commercial exchange. These promises to pay are three, four or five times the paying power of the banks in coin. Business men are compelled to procure this currency, and just as these notes increase in circulation the business of the country increases. But the notes must be paid, and there are but two ways to pay—cither in coin or in satisfaction of loans; and the volume of t/iis currency is liable to bo contracted at any time to the limit of the paying power or specie basis. When contracted, the business of the country goes under just as certainly as the fact that $i will not pay $3 of debt. These banks of issue, however, contain a more pernicious power than that of contraction or expansion. That is, their power to absorb the productive capital of the country. Take, for illustration, our national banking system. Any man or company of men holding national bonds may get the power to issue bank notes to the extent of 1)0 per cent, of the actual value of the bonds. These bonds are an actual investment in themselves, and one of the best investments, as seen in their market value. Yet any man, by becoming the holder of these bonds and depositing them with the Comptroller of the Currency, may get authority to issue bank notes, and all the law requires of him is that he keep a lawful-money reserve of 25 per cent, and 10 per cent, at Washington with which to redeem his notes. Here, then, is his entire cash capital. Suppose he gets authority to issue SIOO,OOO. He is required by law to have of lawful money 35 per cent., or •135,000, which is the whole of the cash capital involved in the issue of the SIOO,OOO in currency. The manufacturer must have currency with which to carry on his business, and from necessity must go to the bank for it, and the bank loans the SIOO,OOO of its own promise to pay at 6 per cent., which is nearly 18 per cent. upon its entire cash capital. In five years (close banking) the bank will have doubled its cash capital, and in less than twelve years, by a careful manipulation of its discounts, will have absorbed the SIOO,OOO originally issued, and still hold the borrowers’ paper to the extent of every dollar of currency in circulation. Thus, this svstem of providing currency for the people is consuming the productive capital of the country, and thereby destroying our productive and commercial power. At 10 per cent, discount <the rate at which most of the banks put out their circulation) they will have doubled their cash capital in three years, and in less than eight will have absorbed every dollar of their issues, and still leave the country in debt to the banks for every dollar of currency in circulation. A more ingenious system to absorb the productive wealth of the people could hardly be devised. It requires no argument to convince the manufacturer that he cannot long survive with such a power preying upon his vitals. And here we have an explanation of the cause of lhe abundance of* currency in the hands of the banks. The borrower, after returning to the bank in the shape of discounts all the currency originally issued, is yet in debt for all he borrowed. He cannot double his loan every time the currency is absorbed or re-

turned to the bank in payment of discounts, and therefore must contract or suspend his business. In the meantime the currency remains without a market. To show the full force of this absorbing power, look at the overwhelming indebtedness of the country to the national banks. The report of the Comptroller of the Currency shows their loans or discounts to be nearly $950,000,000. Almost double the entire volume of currency in circulation. But how is the currency to be relieved? This question most interests every business man. There was no greater delusion than that specie payments can in any way relieve the manufacturing interests throughout the country. The manufacturer, to piosper, must have a paper currency adequate to the consuming power of the people. The history of the legaltender currency proves beyond controversy that it was in every way the best currency the country ever had. With it the productive power was develoi>ed as it never had been before. There are many reasons for this. In the first place, there is no antagonism between the power that issues the logal-tonder currency and the people. Banks of issue from the nature of the relation they sustain to the producer antagonize the productive power just as the wolf antagonizes the lamb. In the second place, there should be no two kinds of money. Every dollar in currency should be lawfid money, and a legal tender in the payment of all debts and receivable for taxes. Then the borrower and lender could be on even footing. 6 In the third place, with a legal-tender currency issued by the Government, the people are not exposed to the fluctuations incident to bank issues, which are but an expansion of credit upon a specie basis. Nothing can be more uncertain than the volume of this credit or its value. The bank may issue its notes to-day, and by so doing put every man to work and every wheel in motion. To-morrow a whisper of suspicion may send every dollar of those notes home for payment, thus withdrawing and contracting the currency and causing a suspension of business with-the correlative consequences, bankruptcy and rum. Until our representatives learn the purpose and nature of currency and the wants of American industry, this depressed condition of the people must continue. Let the Government provide a paper currency adequate to the industrial Wants of the country, making this currency lawful money for all purposes. Then we will have prosperity. Pursue the present policy but a few years longer, and wo will not only bo a nation of bankrupts and paupers, but will be a nation of repudiators. Respectfully yours, Reis, Brown & Beroeb, Iron manufacturers. New Castle, Pa.