Money is a public utility, created, or authorized, by the national legislative unit of each independent, sovereign nation, as a medium of exchange, and to pay lawful obligations.

To be a lawful money, it must be a full legal tender for all debts, public and private.

Its primary function is to facilitate exchange of labor and labor’s products, a medium of exchange.  Direct barter is now very limited.

Under our present system we must have the employer, merchant or middleman to whom to take our labor, or the product of our labor, and exchange it for a national order, or medium, that will be readily accepted by the person who may have the thing we need.

Like all other public utilities, it should be administered without private profit, as is our postoffice system.

Any charge for its use, in excess of the cost of administration, is a tax on labor and labor products that must be paid by the producer or consumer, and is the main cause of the present high cost of living.

The higher the rate of interest the greater the tax and cost of living.

We complain of any increase in taxation, school, municipal, state or national, but all combined is a mere fraction of the unnecessary, or super, tax imposed and collected by the two public service utilities of money and transportation, and appropriated by them as private profit.

Congress having reserved to itself the sole power to coin (issue) money, and having prohibited under heavy penalties any individual, combination of individuals, corporations, or states to make or issue money, is in duty bound to issue a sufficient volume to transact the business of the nation on a cash basis.

28 Money and its Functions

It becomes the life blood of production, industry and commerce, and to delegate to, or confer, a monopoly of its administration on any one class or business will enable that specially favored class, or business, to control and exploit every other business, or industry ;  yes, even the state and federal governments.

Money may be stamped on a metal, or an alloy of several metals, such as iron, brass, copper, nickel, silver, or gold, or on paper.

The value of the thing stamped is immaterial.  It is the fiat of the government making it a full legal tender for all debts, public and private, that gives it the value as a medium of exchange.  It then possesses a community, or legal value, regardless of its commodity value.

Our gold coin is a perfect money, or would be if there was enough of it, not because of its commodity value, but because our law makes it a full legal tender for all debts, public and private.

The gold certificate, based on the promise to pay in gold coin, even though the coined gold is stored in government vaults for that specific purpose, is not lawful money.

In fact none of the many different kinds of money that we have in the United States, except coined gold, is full lawful money.

The people have been grossly deceived in this respect.

Every dollar issued, or authorized, by the government, should be lawful money in every sense of the term.

To be issued by, and made an obligation of the government, and then made lawful money for one specially favored business, and not for all the rest of the people, is rank special privilege, and gross discrimination that cannot be defended in equity, or justice.

Strange as it may appear, that fact is true of nearly all of the money we have in circulation, and the lawful money, gold, is not performing its functions of money, because it is practically out of sight.

A Private Monopoly 29

“There’s a reason for it,” which will be developed later.

All our banks, state and national, are chartered as public service corporations—to serve the public.  In practice they have used the public machinery, and special privileges, to serve themselves, for their own private gain.

In the pursuance of private gain, they control legislation, both in state and nation, in and for their own special interests.

In the Federal Reserve Law, they have wrested from the people and secured for themselves the constitutional power to issue money and regulate the value thereof.

Supreme in the political and legislative arena, they secure the enactment of such laws as they want, and ignore, or violate with impunity, any laws that stand in their way.

There are a few very important things that must be kept constantly in mind in the discussion of the money problem, in connection with the great conspiracy, now so rapidly developing.  They are all parts of one great complete and most efficient scheme for the control of all business, and acquisition of wealth and property.

Any one of them would in time accomplish their object.

All being worked in unison at the same time will accomplish it much sooner.

Checked at any point, it will delay consummation, and give us the opportunity to wake the people up.

First :  By the contraction of our money, or currency in circulation, now in process, as I will show later, both by decreased amount, and increased demand, they will increase the purchasing power of the money which they control.

Second :  The dollar loaned today will have increased in value a few years hence, when due ;  that is, it will require more of the products of labor to buy

30 Money and its Functions

the dollar, to pay the obligation.  It will also enable the owner of the money to charge a higher rate of interest for the dollar.

Third :  Most obligations are being made payable in “gold coin of the present standard of weight and fineness.”

Gold coin is out of circulation the world over, and practically so in the United States.  Every effort is being made to demonetize our gold coin, by decoinage, and to retire, or destroy, our lawful money.

Fourth :  What we have left of gold coin and lawful money is being rapidly hoarded in the bankers’ vaults.

Fifth :  The Federal Reserve Law provides for a complete change in our monetary system from government money to that of bank ledger credits.  That is :  They will loan you a credit on their books, based on your good security, and take your obligation, payable in gold coin, something you did not borrow, and which they can demand in payment, when the obligation is due.  Where can you get the “gold coin"?

Sixth :  Whenever they think that they can make more by taking your property than they can by taking your labor, which they do in the collection of interest, they will simply demand payment according to the contract, and you will be at their mercy.

Impossible, you say, in a free country, where all men and some women are independent, sovereign citizens, that we could be robbed like that.

They will not call it robbery.  It can be done in the future, as it has been done in the past, legally, by and with your support at the ballot box ;  and as it was done illegally, in open, defiant violation of our laws, by this same group of men during the bankers’ panic of 1907.

In every movement for development and betterment, whether in production, transportation, distribution, marketing, as individuals, or co-operating with your neighbors, or if a tenant farmer, or a farm owner in debt, or if you wish to develop and improve your farm, hold your products for the consumptive demand,

Organization A Remedy 31

or to manufacture your farm products into food products, that you may sell to the consumers’ clubs direct.

Fear of a short crop, or crop failure, when you cannot make your payments, or meet your interest, and the danger of mortgage foreclosure is before you as a dreadful nightmare ;  in each and every case, you are at the mercy of the one business on which you have conferred this invaluable monopoly, as public servants, and thus permit them to become your autocratic masters.

What is true of agriculture is true of every other industry.

You cannot believe it, can you ?  Well, follow me through, and I will give you my evidence.

The House of Morgan is now in supreme control of our industrial, commercial and political affairs, by and with your consent.

All attempts to regulate or control under present laws, or through present political parties, is time wasted, while they continue perfecting their plans.

They are in complete control of the political machinery of the Democratic, Republican and Progressive parties.

It is useless to try to wrest any one of these parties from their control.

Their present, extraordinary propaganda for “preparedness” is planned far more for home coercion than for defense against foreign aggression.

This organized usurpation must be met by an independent organization of the people at the earliest possible date.


Direct barter, customary during the lifetime of many of us, is gone forever.  Civilization and progress demand a better system, that we may keep pace with inventive genius in production, by aid of labor-saving machinery whereby the man with the machine, plus electric power, can produce fifty times as much as the individual man could fifty years ago.

In addition, the woman can in many cases handle the machine as well as the man, and because unfranchised can be and is employed for less wages ;  and with still greater perfection of the machine, the child, who should be at school, is employed at still smaller wages to operate the machine.  The productive power of the family has been increased very many times.

Take agriculture as an illustration, and as a boy I used the tools and methods mentioned.

Then we plowed with a small walking plow ;  now we have the big gang and farm tractor.

Then we dragged with a home-made crotch drag ;  now we attach the big drag behind the gang plow.

Then we seeded by hand ;  now we seed with a large drill.

Then we harvested with a hand sickle ;  and twenty-five shocks of twelve sheaves each was considered a good day’s work ;  now we have the self-binder, the push binder and the header.

Then we threshed with a hand flail ;  now with a large separator.

Suppose that we had not increased the storage capacity and the means of transportation and distribution to correspond with increased production, what would we do now ?

The question itself shows the absurdity of the proposition.

Demenad for Use 33

Other conditions remaining the same, it would have been foolish to produce so much more, because it could not have been marketed for want of the increased medium and means of exchange and distribution.

There would have been no incentive to progress.

It may not be out of place to inject another thought right here.

This greatly increased power of production, should have had two beneficial results, if governed by the natural law of supply and demand, viz :  shorter hours of labor for the producer, and cheaper products for the consumer.  But owing to the neglect of the duties of citizenship on the part of the producer and consumer, private monopoly was permitted to step in and reap all the benefits, by securing control of the two public utilities, money and transportation, and in addition the means of distribution, and, by taxing to the limit, all the trade would stand in each, has actually greatly increased the price to the consumer, while the producer, on an average, is no better off, either as to hours of labor or net returns for labor.

But, as Kipling would say,—that is another story.

Now as to exchange.  I write of conditions in a well settled section of Eastern Ontario, near Ottawa, the capital of the Dominion of Canada, and I assume that to a great extent the same was true of all the Northeastern and New England states.  Home production and barter was the rule, and the medium of money the exception.

Farm tenants were very few.  I do not now recall one in the two large townships with which I was familiar.  I do remember well, though, that the farmer who had a mortgage on his farm had lost caste in the community, and the one man in the community who held most of the mortgages was called a usurer, and somewhat of an ogre.  He had few friends.

Now for my own family experience.  We raised our own wheat, and took it to the custom mill my grandfather had built and for each bushel of wheat dumped in the hopper my cousin took out one gallon ;  the rest we took home as flour, bran and shorts.

34 What The Volume Should Be

We had our own maple sugar bush, as most of our neighbors had, made our own syrup and sugar, and some to spare.  Of course we raised our own vegetables.  Wild berries of several varieties were abundant, and with a large family (I am one of twelve) we always had an abundance of fruit.

Instead of canning, we dried for winter use.  Coring apples and stringing them up to dry, and ringing pumpkins for same purpose, was an evening pastime in season.

We raised our own meat, and feasted on venison in season; fish close by and abundant.  When we did not have tame bees, we could find bee trees, and had plenty of honey.  For the table all we lacked was a few groceries, for which we exchanged farm products.

For clothing, there was comparatively little bought at the store, and such as was, was paid for with some farm product.  We had our flock of sheep, and father and we boys had a suit annually, of all-wool cloth.  The tailor would come to the house and fit out the men folk, taking some farm product home for his own family use.

Mother and the girls had their good warm flannel clothes, one-half wool and half cotton, no shoddy.  For footwear, we usually had one or more hides, which we took to the village tannery, and in due time received one-half of the tanned leather, ready for the shoemaker, who in season brought his bench to the house and remained until the family were all shod, and he was paid for his labor in large part, if not wholly, in barter.

We raised our own flax, and had our home-made linen for table, bed and clothing.  For summer wear we men folk had nice home-made straw hats for week days, and fine hay hats for Sunday.

I do not claim that every family was so fortunate, for mother was an exception as a mother and housekeeper, but the system of barter was the same for all.

Taxes were light.  The school teacher boarded around among the scholars, and we had not then developed the science of graft in public affairs.

Fixed Per Capita Absurdity 35

For the three counties adjoining Ottawa, and with which I was very familiar, there were many small towns, five to seven miles apart, and up to thirty-five years ago there was not one bank in those three large counties, neither was there a “poor farm” or charitable society.

There was no tax on the exchange of labor, or labor products, except the legitimate tax of the local merchant, and competition kept that reasonable.

I am not advocating going back to that system of barter; but to show that as our improved methods increase production, we should have an improved system of exchange, and that the medium should keep pace with the increased products to be exchanged, and administered without private profit.  Not only is “the laborer worthy of his hire,” but is entitled to all the product of his labor.

The moral of this illustration is to make plain and emphasize the absurdity of a fixed per capita for a medium of exchange.  We must also expect still greater improvements in methods of production during the next fifty years than have occurred during the past fifty.

Had we rigidly fixed the volume of money in the United States, as it was in 1860, at $13.85, or even as it was in 1879, as the Secretary continues to use in making comparisons, $16.93, without developing a credit system, how could we have handled our immense increased production.

The amount to be provided should be governed wholly by the demand for use, and should respond automatically to that demand.

Who should be the best judge of that need ;  the man who produced the goods and wants to make the exchange, or hold for the consumptive demand, or the man or business that has a monopoly of this public utility and uses it to satisfy their greed for gain ?  Money is scarce and dear, because limited in quantity and monopolized by one private business.  Our need is more money, and we must take another step in the evolution of our medium of exchange and base the

36 What The Volume Should Be
increased supply on “the best security in the world—productive land,” and in addition as needed on the non-perishable, stored products of labor.  We can no more have too much of the representatives of wealth than we can have too much wealth.

I believe that demand for use will automatically regulate the volume, if the federal government will charge a sufficient tax, or interest, for its use to prevent people borrowing unless they can make a profitable use of it.  And so long as it can be profitably used it means greater prosperity for the whole people.  When it ceases to be profitable it will be paid in to stop interest or tax.  But under the new system suggested by me I can see no more harm to the community, or the government, by some money lying idle, except to the borrower, than occurs now with postage stamps lying idle in your desk.

Our greatest need is a better understanding of the true functions of money.


If our theory is correct, that we may have a contraction of our medium of exchange as effectually by increased demand as by decreased supply, then conditions during the autumn of 1915 were ideal for a panic, because we had an unusual, or abnormal, increased demand and an unusual decreased supply.  This, too, under the Federal Reserve Law, that was to prevent all panics in the future, and had been in “successful operation” for almost one year.  Why was it not precipitated ?  It was in part, but, strange to say, it was not featured in the press, and those who suffered most did not seem to realize their loss, because of the good crop and abnormal demand for same at fair prices.

The House of Morgan, as financial agents of the Allies of Europe, and directly, and indirectly interested in the manufacture of war munitions and other supplies for them, found that new field more profitable.  Again, the wholly unexpected importation of gold threatened to postpone their carefully laid plans for the future exploitation of our own country as will be shown later.  The press reports indicated that it caused a near panic for the men who control.  They must have time to check the flood of gold imports, as shown by immense loans of credit, but in doing so they enlarged their vision to include a great part of the world in their conspiracy, by making these vast loans of credit payable in American “gold coin of the present standard, weight and fineness.”  They must also have time to demonetize the foreign coined gold imported, by decoinage, and the assay office in New York has been kept busy twenty-four hours a day melting and converting it into bullion.

The great manufacturing trusts, and industrial business being so closely identified with, in fact, being a part of and financed by the controlling element, and

38 Effect of Contraction

protected from foreign competition, could maintain and actually increase their prices, and of course they did, and their great prosperity is heralded as great prosperity for all the people.

Did this contraction of the currency have the effect we claim it must have on the price of the unprotected products of labor, free from monopoly control.

Agriculture is not recognized as a business, or industry, by officialdom, bankers, big business, or politicians :  just a lot of workers to be humored and taffied, but not taken seriously.  For confirmation, read the official reports, general hews, the political speeches of the practical politicians, the preambles of bills introduced, and the texts of the bills as enacted.  But as for the effect of contraction on agriculture, the one great, unaffiliated, unprotected industry governed as to prices by the world’s natural law of supply and demand, it was sacrificed, as usual, under such conditions, and more ruthlessly and relentlessly because of the greater opportunity.

We were assured then, and will be in the future, that there was plenty of money to move the crops.  In reply to Secretary McAdoo’s letter inquiring of the Minneapolis reserve bank :  “Will you please advise me if the federal reserve bank of Minneapolis is in need of government deposits for the purpose of assisting in the moving and marketing of the crops in the ninth federal reserve district,” Mr. Rich replied September 13th, in part :  “At this time the Northwest is amply supplied with funds, and rates for money are very low"—1915 Report Secretary of Treasury, p. 9.

So far as agriculture was concerned interest rates had not been lowered, and were very high.

The national banks of the nation were at that time hoarding in their vaults in excess of legal requirements over $800,000,000 of which the ninth district (Minneapolis) banks’ share was nearly $100,000,000.

To substantiate his claim Mr. Rich and associates would point to the fact that the crops did move, and were moving then.  True, they did.

Agriculture Sacrificed 39

They bought the dollar by giving more pounds of wheat for it.

The farmers were compelled to sell to meet pressing obligations, but at what a sacrifice.

The creditors were pressing and pressing hard for collections.

The Ninth Federal District Bank had no money for the farmers at any rate of interest, and there is no record that they had been urging the member banks to accept help to meet this urgent need of the farmers ;  but there is evidence that when the speculators of the grain exchange of Minneapolis and other markets had forced the price down to suit their views, there was “ample funds at very low rates” for the speculators.

The farmers were experiencing the full effects of a very severe panic.

By September 1st wheat had declined in price 60 cents per bushel, which meant $600,000,000 less to the farmers for their wheat crop.

Oats had fallen in price 20 cents per bushel.  A loss of $300,000,000.

Barley had fallen in price 20 cents per bushel.  A loss of $47,000,000.

Flax had fallen in price 32 cents per bushel.  A loss of $6,000,000.

A conservative estimate on corn would be a loss of $100,000,000.

Live stock, and all other farm products, except perhaps horses, had all fallen in price.  The total loss is too large to be realized by the average reader, but let each farmer who reads this figure out for himself just what that contraction of currency meant to him and his family.

Each prosperous landlord figure out for himself what he might have done with his share.  Of course, he did not need it, but he might have found a use for it.

And each local merchant might estimate how much more goods he might have handled.

40 Effect of Contraction

Yes; there was money enough to move your crop; provided that you would give enough of your products to buy the monopoly-controlled dollar.

Our public servants, the Federal Reserve Board, well paid to serve the public, proved either incompetent or unfaithful in the performance of their duty, and permitted this great sacrifice of agriculture.

Who benefited by this sacrifice ?  A comparatively few men who operate on our grain exchanges, and who by selling in April or May, for September delivery, 100 bushels in Minneapolis, or 200 bushels in Chicago, for each bushel that could be actually delivered, for 42 cents per bushel less than cash wheat was selling for, and still further bearing the price by September 1st, by another 18 cents, making a total decline of 60 cents per bushel, the world’s demands having grown greater during that time.

Let me repeat in hopes that you will remember, that under our federal reserve law there was “ample funds at a very low rate of interest for these specially favored gentlemen and their associates who bought at the decline in September and can already (February, 1916) sell at a profit of around 30 cents per bushel.

A great system, and judging by their votes, the farmers like it.

On my initiative the principle involved was adopted at the annual meeting of the National Farmers’ Alliance and Industrial Union, at Indianapolis, in 1889, and again at Ocala, Florida, in 1890.  Again, at St. Louis, at that historical meeting of twenty-one farm and labor organizations in 1891 I was a member of the committee on resolutions.  The principle was reaffirmed in the interest of labor quite as much as of agriculture.  In 1892, as President, I was requested to prepare a text book and did so in 1893, “The New Monetary System,” which was unanimously approved.  As

The Speculators’ Harvest 41

chapter XII on “A Flexible Currency,” deals with this phase, and includes some others with which I wish to deal, I will quote quite liberally.

Per Capita Base for Money.

“No fixed volume of money per capita can or will solve the money problem.  Demand for use is the natural law.  We can contract the volume of currency either by increasing the demand, or decreasing the supply.

“If there are seasons of the year when there is an abnormal demand and no increased supply there will be a contraction of money with its inevitable result, lower prices.  This is a law as unalterable as the laws of the Medes and Persians, and affects not only those who produce the cause (increased demand) but also all industries in the nation.

“The farmer is the disturbing factor, for the bulk of his year’s labor is rushed into the market in three months.  This is especially true of wheat and cotton.  The average farmer farms on credit.  His bills are made payable the first of October or November.  This necessity of forced sales by the farmer, and the inability of the consumer to buy more than for daily needs, becomes the harvest of the speculator.

Speculators’ Harvest.

“Taking the crop of 1891 as per the report of the Secretary of Agriculture, we had of cotton, farm value, $366,863,738, and of wheat $513,472,711, or a total of $880,336,449.  A conservative estimate would be that 80 per cent of this must pass out of the producers’ hands inside of three months, or $708,269,159.  One-fourth of the total amount will go into consumption, leaving about $500,000,000 worth of wheat and cotton alone to be carried over.  Add to this the other products of the farm sold and stored for future use by speculators, and the amount will be largely increased.  This makes a

42 Effect of Contraction

great strain on the money in active circulation which according to Senator Plumb was $500,000,000.  In summer it is all in use in the ordinary channels of trade and needed there.  With this sudden increased demand for its use, there can be but one result :  a violent contraction, with falling prices of the products that must be sold to buy the dollars, and a higher rate of interest for other industries.  The speculators understand the ease with which the money market can be manipulated or cornered at this period of abnormal demand for use.  Pervision must be made to meet this annual unsettling of values and interference with trade.  The remedy is an elastic and flexible volume of currency that will respond to the demand as needed.  Political economists realize this necessity and many plans are offered, but, unfortunately, most of them favor basing the currency on some form of credit.  The weak point in our currency now is, that it is entirely too much overloaded with credit.  The Comptroller of the Currency, in his annual report for 1892, page 32, says :  'Over 90 per cent of all business transactions are done by means of credit.  When the public lose confidence and credit is impaired and refused, over 90 per cent of all business transactions are directly affected.  It is easy to realize how impossible it is for the remaining 10 per cent of money to carry on the business of the country without monetary stringency and distress.’

“On the same page we find that of this 10 per cent less than 2 per cent is in gold, 5 per cent in promises to pay in gold, and 2 per cent in silver.

The Gold Base.

“Col. S.F. Norton puts the case in a nutshell thus :  ‘The gold base theory is a good deal like spinning a top ;  so long as the top is spinning around under the influence of the artificial force that is applied to it, it will stand up, but the moment that it touches a round place or comes in contact with any other substance, there is a panic

Base Money on Value 43

at once, and it falls to the ground ;  or when applied power (confidence) is gone, it stops whirling and tumbles over.’

“The credit business is overdone ;  the top is liable to tumble at any time.  The flexible, as well as the permanent, volume of currency should be based on wealth instead of credit, and it is imperative that it be done soon.  Ex-Secretary Windom saw the danger confronting us very clearly and stated it explicitly in his address before the New York Board of Trade January 31st, 1891.  He said :  ‘The ideal financial system would be one that should furnish just enough absolutely sound currency to meet the legitimate wants of trade, and no more, and that should have enough elasticity of volume to adjust itself to the various necessities of these people.  Could such a circulating medium be secured the gravest commercial disasters which threaten our future might be avoided.  These disasters have always come when unusual activity in business has caused an abnormal demand for money, as in autumn, for the moving of our immense crops.  There will always be great danger at such times under any cast-iron system of currency, such as we now have.  Had it not been for the peculiar condition which enabled the United States to disburse over $75,000,000 in about two and one-half months last autumn, I am firmly convinced that the stringency in August and September would have resulted in wide-spread financial ruin.’

“Secretary Windom still clung to a gold basis, but hoped to provide for an elastic currency in addition, that would respond automatically to demand for use, to be based on some form of bonds (more credit money).

Base Money on Value.

“Our plan is to base our currency on actual value—productive land—and the non-perishable products of labor to be exchanged.

44 Effect of Contraction

“As wheat and cotton are the great disturbing factors, as previously shown, we believe that currency—wheat and cotton certificates—issued on these stored products in sufficient volume to move them, is the best solution of the problem yet offered.  It would relieve manufacturers and business men from the strain put upon them every autumn because of the competition forced upon them to retain the money needed in their business, and that the farmers must have to exchange the product of their labor for tle things they need.

“This competition is disastrous, both to the farmer and business interests, in proportion to the value of the crop to be moved.

“The business men need the money ;  the farmers must have it.

“Whichever pays most for it in interest, or products, secures it.

“At the time referred to by Secretary Windom the competition was very keen.  On the 28th of August, interest ran up to 180 per cent in Wall Street and stocks fell in value until a panic was barely averted.  Wheat dropped 30 cents per bushel.  The necessity for an elastic currency will always come when we have an extra large crop.  Mr. Windom said :  ‘These disasters have alwas come when unusual activity in business has caused an abnormal demand for money, as in autumn, for the moving of our immense crops.  When the nation should be most prosperous, because of the vast increase in wealth produced by labor, DISASTER IS THREATENED, because of our present cast-iron system of currency.’  It is impossible to frame a stronger indictment against the present system.  The larger the volume of wealth produced, the greater the danger of financial disaster.

Danger of Great Production 45


“Chauncey Depew, in one of his happy after-dinner speeches said :  ‘We are now going to receive from the soil the enormous products made by the Lord and by labor, and this will make the country uncommonly rich.’

“Mr. Windom answers :  ‘There will always be greater danger at those times under any cast-iron system of finance such as we now have.”

“We have the natural resources, the brawn and brain to make this the grandest nation of the ages.  It cannot be done with a cast-iron system of finance that is at war with nature and nature’s laws.  We cannot illustrate this better than by using two diagrams prepared by S.M. Scott of Kansas in his work on ‘The Sub-Treasury Plan.’

46 Effect of Contraction


A represents the banks, which control the volume of currency.

B represents all lines of trade.

C represents the channel of trade through which the circulating medium flows from the banks to all business.

D represents the mountain of products before the channel of trade has been tapped, or before they commence to move.

The arrows represent the course the money flows, with no interruption on the part of products.

The above cut represents the banks, channel of trade, and business.  The arrows show the course of money from the banks through the channel of trade into the business of the country.  The center figure represents the products of the country before the channel of trade has been tapped and the crops commence to move.

You will notice the banks are full of loans and discounts, business has all the money there is in circulation, and no provision made for moving the products which the central figure represents.  As soon as the channel of trade is tapped by the movement of these products, then the course of money takes a change, which is represented by Diagram No. 2.

By Increased Demand 47


This cut represents an increase of business by virtue of the movement of crops, without a corresponding increase of money, in consequence of which business and products are depressed, but loans and discounts in banks remain the same.  Secretary Windom said in his New York speech, January 31, 1891 :  “There will always be great danger at those times under any cast-iron system of currency, such as we now have.”

A represents as before the banks.

B represents all lines of business.

C represents channel of trade.

D represents as before the products, which have commenced to move.

By tapping the channel of trade, we notice a complete change in the course of the circulating medium.  Instead of flowing into business it is now flowing into products, robbing business of her just deserts, compelling her to divide one-half of her life-blood to sustain the producer.  Thus we see business depleted, and products compelled to be pressed inside of the same volume of currency that was only adequate to transact the ordinary lines of trade.  Business and products sink as the volume of money finds its level ;  therefore, we find the banks remaining the same, from the fact that they control all.


The law of supply and demand applies to money just the same as to any other commodity.  We can contract the medium, either by increasing the demand without increasing the supply, or decreasing the supply, the demand remaining the same.  In either case it will have exactly the same effect.  The fact that under our present system we must first exchauge our labor or its products for money or credit is overlooked.

A contraction of currency (money or credit) means dearer money and cheaper products ;  that is, it will require more of the products of labor to buy the dollar.  Remember that in exchanging our products for the dollar we buy the dollar.

To illustrate :  If the price of wheat is $1.00 per bushel and advances to $1.50 it would require one-half more money to move the crop.

Exactly the same effect would be produced if the yield should be increased fifty per cent, the price remaining the same.  Now add all of the other farm products of the year and estimate if you can what it means.

Let us take the year 1915 for illustration.  There has been an abnormal expansion in manufacturing, more especially in war munitions.

Our exports have been enormous ;  the balance of trade in our favor will be over $1,000,000,000.  Here, then, was a great increased demand for manufacturing purposes.  In addition to this we had our record-breaking crop of small grain, our wheat exceeding the billion bushel mark, and other small grain in proportion.

In the Federal Reserve Bank Law Congress had delegated its sovereign power “to coin (issue) money and regulate the value thereof” to a department of government known as the Federal Reserve Board, and

Failure of Public Servants 49

Federal Reserve Banks.  They were given absolute control of this most important public utility, as public servants and trustees of the people, to administer it “in the interest of agriculture, industry and commerce,” in fact in the interest of all the people of the nation.

It was their duty to see that this great increased demand was served with an adequate increased supply, else there would be a severe contraction of money, with the inevitable result that it would require more of the uncontrolled products of labor to buy the dollar.

What provision did our public servants make to meet this great increased demand ;  and more especially to meet the so-called annual “emergency” to move our abnormal crop of small grain and cotton ?

There are two kinds of currency that our national bankers, specially, absolutely control, viz :  national bank notes and Federal Reserve bank notes.  They had the unlimited, sovereign power to respond to the demand.  A solemn promise had been made to the people that they would.  Now what is the official record, as gathered from the Department of the Secretary of the Treasury ?

From December, 1914, to June 1st, 1915, there had been a vast increase of manufacturing to finance and products to exchange.  What provision had been made during that period to meet this increased demand ?

The amount of currency in circulation which they specially controlled, national bank notes and Federal Reserve bank notes, had actually decreased by $177,715,326.  The total volume of all kinds of money and currency, including imports of gold which they did not control, had decreased by $102,830,052.  A great contraction of currency, both by increased demand and decreased supply.

Our crop movement begins in July.  The national bankers were warned by the Secretary of the Treasury of the “emergency,” and who offered them all the additional money needed, to help the farmers move their crop.

50 A Great Contraction

The response, for the month of June, of the special currency they controlled was a still further decrease of $497,812.

In July the crops began to move.  The Secretary of the Treasury remonstrated ;  the Federal Reserve law was on trial.  The administration had staked their future welfare on it ;  but there was another decrease of $2,144,604 by August 1st.

In August the crop movement was on in increased volume.  The Secretary of the Treasury now threatened and the volume of currency they specifically controlled was increased by the very small sum of $5,233,350.

For the three months of preparation, June, July and August, reminded, warned and threatened by the Secretary of the Treasury to do their duty, the increase of currency, which they specially controlled, was a paltry $2,590,941.

But there is still another source for contraction of money for the legitimate purposes of exchange, viz :  currency held in the national banks.  In all the reports of the Secretary of the Treasury, all of the money outside of the federal treasury, is classed as “money in circulation.”  This includes all money the law compels the banks to hold in their own vaults as “legal reserves.”  Of course, it cannot be locked up in the vaults and be in circulation at the same time.

Federal Reserve Law a Failure.

The Federal Reserve law was supposed to obviate the necessity of holding so much money in reserve in the national banks, by their ability to promptly discount their commercial paper, but conceding that it has failed in that as well as in every other feature, in so far as the non-bankers are concerned, and that the national banks must continue to hold the “legal reserves” in their vaults, or out of circulation, we have the right to assume that to hold any more in their banks than the legal reserve is hoarding money and keeping it from performing its functions as a medium of exchange.

Hoarding Money Indefensible 51

This hoarding of money by the bankers in time of stress is in violation of the spirit of the law, and wholly in violation of their duty as publc servants, administering a public utility.

Hoarding Money Indefensible.

That I am correct in this interpretation of law and duty, I refer to the series of telegrams sent to national bankers by the Secretary of the Treasury, during September, 1914, pages 21-22 of official report.  Just a paragraph or two :

"The reports of national banks now being received by the Comptroller of the Currency, in response to his call for a statement of their condition as of September 12, indicate an extraordinary hoarding of money by many national banks in various sections of the country.  I am astonished that so many of the national banks are pursuing a course so contrary to the public interest and so indefensible from any point of view.  There is neither occasion nor necessity for it. ***

Reports of National Banks Public Property.

“I intend to begin issuing daily a list of the banks which are hoarding money by maintaining excessive reserves,” the Secretary continues, “in order that the country may know how they are performing the public duties.

“The reports of national banks are public property anyway, and while they have been published in their respective communities the significance of their statements is not generally understood.  The public does not know how to analyze them.  My purpose is to focus attention upon the excessive reserves carried by these banks, for the reserves indicate whether or not the banks are using their full resources for the relief and accommodation of business in their respective communities. * * *

“The banks that are hoarding money should discontinue it.  Such action more than any other agency, tends to impair confidence and injure business. * * *

52 A Great Contraction

“Reports now being received by the Comptroller of the Currency from national banks throughout the country indicate that a money scarcity is being occasioned, in large measure, because of the hoarding of funds by many national banks, which are carrying reserves in some cases two or three times as great as required by law ;  and also that credits are being restricted and excessive rates of interest being charged to customers.”

The Secretary of the Treasury makes a few points very plain, viz:  First, that the national bankers are public servants, chartered to serve the public.

Second :  That many of them are unfaithful public servants.

Third :  That hoarding money in the banks in excess of legal reserve is a contraction of the currency.

Fourth :  That a contraction of the currency “tends to impair confidence and injure business.”

Fifth :  That publicity as a remedy is utterly worthless ;  for the report of the Comptroller of the Currency for 1915 as given elsewhere shows conclusively that the violations of law and public duty continued in an exaggerated form.

Sixth :  That the people most affected by the contraction of the currency and falling prices were farmers, laboring men and smaller industries in certain sections of the country, and they either approve of the policy, or do not understand the privileges and duties of citizenship.

The Scandinavian-American bank of Sioux Falls, S.D., was posted as one of the worst, hoarding three and a half times the legal reserve, and its president was elected United States Senator a few weeks later.  Query :  Will he support the recommendation of the Comptroller of the Currency to prosecute lawless and perjured bank officials ?

It is officially asserted then, that money hoarded in the banks is a contraction of the currency, and against public policy.

By September 1st the national banks had hoarded in excess of legal requirements the very large sum of

Gold Imports Create Near Panic 53

$876,082,647, making the total direct contraction of currency for which they were responsible between December 1st and September 1st, $1,053,797,973.

The indirect contraction, by increased demand, was very much greater.

It may be claimed that there was no need of an increased issue of bank notes, because of the large imports of gold from Europe.

What are the facts ?

From December 1st to June 1st the amount of gold coin reported in circulation had actually decreased by $45,986,339.  But as we are now considering currency only and not lawful money, we must also include the gold certificates now being issued against uncoined gold metal.  These had increased during the same period by $98,988,490, leaving a net increase from gold coin and bullion of $53,002,151.  By September 1st gold coin in circulation had again decreased by $15,854,171.  Gold certificates had increased $114,498,740, making a net increase of $98,644,569.  A total increase from gold coin and certificates from December 1st to September 1st of $151,646,720, the gold coin, or lawful money part having decreased by $61,840,510.

Including all kinds of currency there was an actual decrease from December 1st to September 1st (the very time we needed a very large increase), of $247,606,655.

Gold Imparts Create a Near Panic.

Strange to say, the increase of gold by importation created a near panic in the ranks of money monopoly.  It was interfering with their well laid plans, and to stop it, they were glad to loan the Allies of Europe $500,000,000 on their own terms.  We may expect this to be followed up by $50,000,000 a month to prevent further importations of this “precious metal.”

They are not entitled to any credit for the $213,487,230 increase of gold certificates, and in addition should be charged up with the demonetization of $61,840,510 of coined gold by decoinage.