that our obligations are redeemable, not upon demand, but if demand is quiescent. We shall not in all probability have to go to this extremity; for the holders of our promises, as soon as they break away from the domination of the gold myth, would prefer a scientific unit of value which will be as good in 1940 as it is today, unless they still delude themselves that deflation can be forced on a community which is organized politically as is ours.
Gold would be deprived only of its havoc-value within our boundaries. If the great financial nuncios care to go on playing the old game of shifting the center of gravity internationally, they are welcome. There will always be great zest for manipulation, hazard and domination on the part of a powerful few. It does not greatly matter if they play out-of-doors.[1]
- ↑ “Moreover, it has repeatedly happened that a feeling of distrust has spread over the entire country, so that there was need for more ready cash in every bank and banks were unable to help each other. The last time this occurred was in 1907. Under our banking and currency system at that time the amount of money in the country was practically a fixed quantity. The principal relief was by importing gold from Europe, to obtain which securities and products were sold at a sacrifice, and loans negotiated in large sums. By thus demonstrating the lack of elasticity in our currency system the panic of 1907 had more to do with the establishment of the Federal Reserve System than any other one cause. The Government is not equipped to supply currency upon the security of commercial paper except through some such organization as the Federal Reserve System.”—“The Money Question,” page 13. Bulletin, National City Bank, New York, April, 1922. (The italics are inserted.)
It is difficult to interpret the paragraph quoted in view of its context. It is put forward in a general defense of the gold standard, which is stated as follows:
“Moreover, as we have seen, the most effective way, and the only practical way, of maintaining a paper currency in conformity with the standard is by making it redeemable in the standard, or, in other words, by making them interchangeable. This should be kept in mind as the reason why provisions for redemption are necessary.”
If we assemble these proposals we find:
(a) That a valid currency must be redeemable in gold.
(b) That if this is insisted on we may get a panic.
(c) That if we get a panic, gold—“the standard of value”—must be purchased abroad at great sacrifice of real values.
(d) That the only way to prevent this is to permit the Government “through some organization” to issue currency based on credit—not on gold.
It would seem, therefore, fair to ask whether our currency is now based on gold or political discretion.
