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Page 24
It being now the unanimous opinion of English statesmen and financiers
that gold has greatly appreciated, and that such enhancement has already
wrought great evil, the important question arises, Will this process
continue? In the speech already quoted Mr. Giffen says: "I am bound to say
that all the evidence seems to me to point to a continuance of the
appreciation. It is impossible to suppose that the movement will not
extend to other countries. All these facts point to a continued pressure
on gold. The better probability seems to be, that the increase of the
purchasing power of gold will continue from the present time."
The Right Hon. A. J. Balfour, now the head of the British Cabinet, in a
speech delivered at Manchester, October 27, 1892, said: "We want two
things of our currency. We require that it shall be a convenient medium of
exchange between different countries, and we require of it that it shall
be a fair and permanent record of obligation over long periods of time. In
both of these great and fundamental requirements of a currency, our
existing currency totally and lamentably fails." After showing that within
fifteen years the money of Great Britain and Ireland had advanced in
purchasing power no less than 30 or 35 per cent., he went on to say that
of its further progressive appreciation "No living man can prophesy the
limit." A little later he spoke of it as progressing "steadily,
continuously, indefinitely," and closed his remarks on that subject in
these words: "If you will show me a system which gives absolute
permanence, I will take it in preference to any other. But of all
conceivable systems of currency, that system is assuredly the worst which
gives you a standard steadily, continuously, indefinitely appreciating,
and which by that very fact throws a burden on every man of enterprise,
upon every man who desires to promote the agricultural or industrial
resources of the country, and benefits no human being whatever but the
owner of fixed debts in gold."
In his work "The Bimetallic Question" Hon. Samuel Smith, M. P., presents
as an evidence of the hardships due to the increasing purchasing power of
money these facts: "The English landlords who borrowed �400,000,000 on
their property, agreeing to pay, let us say, �16,000,000 a year, interest
at 4 per cent., supposing that it represented one-quarter of their rents,
now find, owing to the fall of prices, that it represents one-third, or
even in some cases one-half of their rent.... The factory owner, the mine
owner, the ship owner, who thought it safe twenty years ago to borrow half
the value of his plant in order to find capital for his business, now
finds that the mortgagee is the virtual owner. Nearly all the profits go
to pay the mortgagee's claim, and in many cases he has foreclosed, and
sold out the unhappy borrower, ruined through no fault of his own, but
through the extraordinary sinking of prices. As a matter of fact, I
believe that if all the fixed capital engaged in trade in England could be
valued to-day at its real selling price, it would be found that it would
do little more than pay the mortgages and debts upon it. Trade is very
greatly and injuriously affected by sudden alterations in the standard of
value, especially when the alteration is, as now, towards increased
values. It arises in this way: trade is largely carried on by borrowed
capital, or, in other words, by the use of credit in some shape or other;
the vast banking deposits are mainly loaned to traders; a very great deal
of the invested capital of this country is lent upon mortgages upon
trading property such as ships, factories, and warehouses. A prudent
trader usually considers it safe to draw considerably beyond his floating
capital, and to borrow say 50 per cent. upon his plant or a fixed capital.
Now, the constant decline in prices within the last few years has
virtually swept away his own portion of the capital, and only left him
enough to pay the loans and mortgages. For instance, a ship or a factory
built at a cost of twenty thousand pounds, of which ten thousand were
borrowed, is now worth only twelve thousand pounds, or 40 per cent. less;
and so the mortgage represents five-sixths of the value instead of
one-half, the trader's interest having sunk to two thousand pounds in
place of ten thousand. Probably, if trade is unprofitable, he fails to pay
the interest and the mortgage is foreclosed; the property is forced off at
just sufficient to cover the loan and he is ruined. I have no doubt that
this exactly describes the condition that confronts numbers of traders in
this country and other countries having the gold standard. A great portion
of the commercial capital of the country has passed into the hands of the
mortgagees and bondholders who have neither toiled or spun. The
discouragement this state of things produces is intense. After it has gone
on for several years, a kind of hopelessness oppresses the commercial
community, all enterprise comes to a standstill, many works are closed,
labor is thrown out of employment, and great distress is felt, both among
laborers and the humbler middle class. Indeed, it strikes higher than
this; for multitudes of people who were once prosperous traders have now
become dependent on charity. I know many such myself."
How fitly that describes the condition of the United States to-day. This
was written some years ago, and so rapid has been the subsequent decline
in prices that it almost equals the decline he had estimated for the
fifteen or twenty years preceding the date of his work. And the end is not
yet.
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