The Paper Moneys of Europe.

by Francis W. Hirst.

THEIR MORAL AND ECONOMIC SIGNIFICANCE

No more severe reflection could be pa.s.sed upon the moral and political capacity of the human species than this: Five thousand years after the invention of _writing_, three thousand after the invention of _money_, and (nearly) five hundred since the invention of _printing_, governments all over the world are employing the third invention for the purpose of debasing the second; thereby robbing millions of innocent individuals of their property on a scale so extensive that previous public confiscations of private property through the adulteration of money--in ancient Rome, in Ireland under James the Second, in Prussia during the Seven Years' War, in the American colonies and the United States, in Portugal, in Greece, in various republics of Central and South America, even the a.s.signats of the French Revolution--seem pigmy frauds in comparison with the present vast inundation of counterfeit paper money.

In these times, when so much attention is given to what I may call the prehistoric history of mankind, it would ill become me, a mere adventurer in anthropology, to discuss the origin of money or to attempt an explanation of the curious fact that the art of coining money was invented and perfected a thousand years before the art of printing. The coins struck by the best cities of ancient Greece are a model and a reproach to our modern mints; and being for the most part of good silver, they fulfilled the two main functions of currency--as a measure of value and a medium of exchange.

Silver was well adapted for the purposes of currency by its ductility, durability, divisibility, portability, and value. Its value depended on three things. In the first place, it was scarce; in the second, it was much in demand for the arts and manufactures; and in the third place, its intrinsic value was increased and stabilized by the needs and demands of the mints.

Gold had similar qualifications, but it was too scarce and too precious until the nineteenth century, in the course of which (for reasons which I need not enter upon here), most of the great commercial nations adopted a gold standard. Copper possessed in a less degree the qualifications of gold and silver, but it was the first metal to be coined into money in ancient Rome. The Roman _as_ or _pondo_ weighed a Roman pound of _good_ copper, therefore possessed the two princ.i.p.al attributes of good money, a definite weight and a definite fineness. It was divided like our troy pound into twelve ounces of good copper.

The English Troyes or Troy pound was first used in the English mint in the time of Henry the Eighth. Edward the First's pound sterling was a Tower pound of silver of a definite fineness. Charlemagne's livre was a Troyes[1] pound of silver of definite fineness. The old English Scotch pence or pennies contained originally a real pennyweight of silver, one twentieth of an ounce and one two hundred and fortieth of a pound. The famous pre-war English sovereign, now demonetized and misrepresented by the depreciated paper pound, was itself also a weight; but the twenty shillings and two hundred and forty pence which exchanged for it were token coins depending for their value upon the gold sovereign.

[1] "The Fair of Troyes in Champaign was at that time frequented by all the nations of Europe, and the weights and measures of so famous a market were generally known and esteemed." (Adam Smith, _Wealth of Nations_, Book I, chap, IV.)

From the time of Charlemagne among the French, and from that of William the Conqueror among the English [wrote Adam Smith in 1776], the proportion between the pound, the shilling and the penny, seems to have been uniformly the same as at present, though the value of each has been very different; for in every country of the world, I believe, the avarice and injustice of princes and sovereign states, abusing the confidence of their subjects, have by degrees diminished the real quant.i.ty of metal which had been originally contained in their coins. The Roman as, in the latter ages of the republic, was reduced to the twenty-fourth part of its original value, and, instead of weighing a pound, came to weigh only half an ounce. The English pound and penny contain at present about a third only; the Scots pound and penny about a thirty-sixth; and the French pound and penny about a sixty-sixth part of their original value. By means of those operations, the princes and sovereign states which performed them were enabled, in appearance, to pay their debts and fulfil their engagements with a smaller quant.i.ty of silver than would otherwise have been requisite. It was indeed in appearance only; for their creditors were really defrauded of a part of what was due to them. All other debtors in the state were allowed the same privilege, and might pay with the same nominal sum of the new and debased coin whatever they had borrowed in the old.

Such operations, therefore, have always proved favourable to the debtor, and ruinous to the creditor, and have sometimes produced a greater and more universal revolution in the fortunes of private persons, than could have been occasioned by a very great public calamity.[2]

[2] _Wealth of Nations_, Book I, chap. IV.

John Stuart Mill follows his master in exposing and denouncing what he calls this "least covert of all forms of knavery which consists in calling a shilling a pound." But the opinions of Mill, the saint of rationalism, deserve and demand citation as they bring us directly to our subject. He writes:

When gold and silver had become virtually a medium of exchange, by becoming the things for which people generally sold, and with which they generally bought, whatever they had to sell or buy; the contrivance of coining obviously suggested itself. By this process the metal was divided into convenient portions, of any degree of smallness, and bearing a recognised proportion to one another; and the trouble was saved of weighing and a.s.saying at every change of possessors, an inconvenience which on the occasion of small purchases would soon have become insupportable.

Governments found it their interest to take the operation into their own hands, and to interdict all coining by private persons; indeed, their guarantee was often the only one which would have been relied on, a reliance however which very often it ill deserved; profligate governments having until a very modern period seldom scrupled, for the sake of robbing their creditors, to confer on all other debtors a licence to rob theirs, by the shallow and impudent artifice of lowering the standard; that least covert of all modes of knavery, which consists in calling a shilling a pound, that a debt of a hundred pounds may be cancelled by the payment of a hundred shillings. It would have been as simple a plan, and would have answered just as well, to have enacted that "a hundred" should always be interpreted to mean five, which would have effected the same reduction in all pecuniary contracts, and would not have been at all more shameless. Such strokes of policy have not wholly ceased to be recommended, but they have ceased to be practised, except occasionally through the medium of paper money, in which case the character of the transaction, from the greater obscurity of the subject is a little less barefaced.[3]

[3] Mill, _Political Economy_, Book III, chap. VII.

A few ill.u.s.trations from the past may help us to a critical contemplation of the present monetary conditions on the continent of Europe, which const.i.tute fraud and robbery on the most wholesale scale ever practised by governments (with the style and t.i.tle of democracies!) upon the miserable victims, called citizens, and supposed to be endowed with the blessings of self-determination.

Those who believe that war, if not a divine inst.i.tution, is at least an inevitable feature of human society may plead in extenuation of this species of fraud that it is usually the last desperate resource of a government which has pledged all its taxes and credit for war or armaments.

I remember reading in the Roman historian Sall.u.s.t of a financial crisis which was ended by debts contracted in silver being paid off in copper--_argentum aere solutum est_.

A few years before Adam Smith wrote his chapter on money, Frederick the Great, during the Seven Years' War, resorted to the Jew, Ephraim, who coined tin silver:

Outside n.o.ble, inside slim, Outside Frederick, inside Ephraim.

But Frederick, wiser and more honest than our European belligerents, made it his first care after the peace to restore an honest silver coinage.

A lively example from English, or rather Irish, history is supplied by Macaulay and belongs to the year 1689. It is one of the incidents in James the Second's brief and luckless government of Ireland:

It is remarkable that while the King [James II] was losing the confidence and good will of the Irish Commons by faintly defending against them, in one quarter, the inst.i.tution of property, he was himself, in another quarter, attacking that inst.i.tution with a violence, if possible more reckless than theirs.

He soon found that no money came into his Exchequer. The cause was sufficiently obvious. Trade was at an end. Floating capital had been withdrawn in great ma.s.ses from the island. Of the fixed capital much had been destroyed, and the rest was lying idle.

Thousands of those Protestants who were the most industrious and intelligent part of the population had emigrated to England.

Thousands had taken refuge in the places which still held out for William and Mary. Of the Roman Catholic peasantry, who were in the vigor of life, the majority had enlisted in the army or had joined gangs of plunderers. The poverty of the treasury was the necessary effect of the poverty of the country: public prosperity could be restored only by the restoration of private prosperity; and private prosperity could be restored only by years of peace and security.

James was absurd enough to imagine that there was a more speedy and efficacious remedy. He could, he conceived, at once extricate himself from his financial difficulties by the simple process of calling a farthing a shilling.

The right of coining was undoubtedly a flower of the prerogative; and, in his view, the right of coining included the right of debasing the coin. Pots, pans, knockers of doors, pieces of ordnance which had long been past use, were carried to the mint. In a short time lumps of base metal, nominally worth near a million sterling, intrinsically worth about a sixtieth part of that sum, were in circulation. A royal edict declared these pieces to be legal tender in all cases whatsoever. A mortgage for a thousand pounds was cleared off by a bag of counters made out of old kettles. The creditors who complained to the Court of Chancery were told by Fitton to take their money and be gone.

But of all cla.s.ses, the tradesmen of Dublin, who were generally Protestants, were the greatest losers. At first, of course, they raised their demands; but the magistrates of the city took on themselves to meet this heretical inclination by putting forth a tariff regulating prices. Any man who belonged to the caste now dominant might walk into a shop, lay on the counter a bit of bra.s.s worth threepence, and carry off goods to the value of half a guinea. Legal remedies were out of the question. Indeed the sufferers thought themselves happy if, by the sacrifice of their stock in trade, they could redeem their limbs and their lives.

There was not a baker's shop in the city round which twenty or thirty soldiers were not constantly prowling. Some persons who refused the base money were arrested by troopers and carried before the Provost Marshal, who cursed them, swore at them, locked them up in dark cells, and, by threatening to hang them at their own doors, soon overcame their resistance. Of all the plagues of that time none made a deeper or a more lasting impression on the minds of the Protestants of Dublin than the plague of bra.s.s money. To the recollection of the confusion and misery which had been produced by James' coin must be in part ascribed the strenuous opposition which, thirty-five years later, large cla.s.ses firmly attached to the House of Hanover, offered to the government of George the First in the affair of Woods' Patent.[4]

[4] Macaulay, _History of England_, I, chap. XII. "The Affair of Woods' Patent" is celebrated in Swift's Drapier letters.

But paper money offers far more extensive facilities to knavery than a metallic currency. In his _Essays on the Monetary History of the United States_,[5] Mr. Charles J. Bullock has described in sufficient detail the "carnival of fraud and corruption" which attended the paper money coined or rather printed by most of the American colonies in the century preceding the American Revolution. Thus, about the middle of the eighteenth century, the paper money of Ma.s.sachusetts fell to an eighth of its original value. People were driven to barter, and one writer observed that "the morals of the people depreciate with the currency." Parties were divided into debtors and creditors, and a New England writer in 1749 noted: "The Debtor side has had the ascendant ever since anno 1741 to the almost utter ruin of the country."[6] To this writer belongs the credit of discerning, at a time when even Benjamin Franklin was in error, that "the repeated large emissions of Paper Money" were responsible for its depreciation.

[5] Macmillan, 1900.

[6] Dougla.s.s.

"Not worth a Continental" is an expression which brings us to the next chapter in American experience of inconvertible paper currencies. The so-called Continental money was the means by which the Continental Congress and the individual colonies--too timid to tax--endeavored to finance the Revolutionary War. By 1781, a paper dollar was worth less than two cents in specie, and soon afterward it became practically worthless.[7] Robbery was legalized; rogues flourished; and their frauds were encouraged and protected by a government whose policy enabled debtors to pay their debts in valueless money. We hear of creditors running away from their debtors and being paid off "without mercy." Stories were told of creditors in Rhode Island leaping out of back windows to escape the attentions of their debtors.[8] In short, the law became an engine of oppression and destroyed the fortunes of thousands who had put their confidence in it. In the words of Breck, a friendly critic, "... the old debts were paid when the paper money was more than seventy to one ... widows, orphans and others were paid for money lent in specie with depreciated paper."

[7] Bullock, _Monetary History of the United States_, chap. V.

[8] _Ibid._, chap. V. In 1780 Congress actually adopted a plan to redeem its paper issues at one fortieth of their pretended or nominal value.

The astonishing thing is that all this knavery was devised, or winked at, not only by low cla.s.s politicians but by statesmen of renown. The maxim _salus populi suprema lex_ was relied upon not for the first or last time as a sufficient excuse for a crime far more pernicious than that of a private forger. But we have not yet realized, in our minds or in our penal codes, that public vices ought to be punished at least as vigorously as private crimes.

That, even as a desperate last resort for financing war, a flood of paper money defeats its own object was conclusively proved a few years later during the French Revolution. The French a.s.signats "have taken their place in history as the cla.s.sical example of paper money made worthless by over-issue. After their final collapse in 1796, French finance reverted perforce to a metallic basis." So Mr. Hawtrey, a British Treasury official, who has given us recently a lucid and sufficiently detailed account of this extraordinary incident--extraordinary but no longer singular, for the same course with the same results has been pursued during and since the war of 1914-1918 by Russia and Poland, and in a greater or less degree by most of the European belligerents.

The issue of French a.s.signats began in 1789 because the a.s.sembly would not vote adequate taxation, and Necker, the minister of finance, was unable to borrow enough to cover the deficit. In the two years from 1789 to 1791, the public revenue was 470 millions, and the public expenditures, 1719 millions, of livres. The deficit was covered by a.s.signats, or paper livres, bearing interest, in denominations varying from 1000 to 5 livres. Thus the a.s.signats may be regarded as a floating debt currency. In November, 1791, the a.s.signats were worth 52 per cent of their face value. In June, 1792, after the declaration of war on Austria, they rose to 57. After the victory of Valmy, in September, they rose to 72 and remained there till December. In January, 1793, the king was guillotined, and war was declared on England. By August, after violent fluctuations, the a.s.signat had fallen to 15 per cent of its face value. Thereafter the laws enforcing the acceptance of a.s.signats were strengthened.

It became an offence to sell coin, or to differentiate between coin and a.s.signats in any transaction, or to refuse payment in a.s.signats, or to negotiate a.s.signats at a discount. By a decree of the 5th of September the death penalty itself was imposed. Here was a forced currency indeed.[9]

[9] R. G. Hawtrey, _Currency and Credit_. Longmans Green & Co., London, 1919.

For a few months an artificial improvement was effected in the value of the a.s.signat by these ferocious measures; but in 1795, after the Terror, the system and the paper money collapsed. The gold and silver money, which had been h.o.a.rded, returned to circulation. In June, 1795, the quotation of the a.s.signat oscillated violently. On one day a louis of 24 livres would buy 450 paper livres, on another, 1000.[10] Paper notes which fluctuated so violently were useless as money. They could not serve either as a medium of exchange or as a measure of value.

Country people expressed their contempt for the a.s.signats by calling them _l'argent de Paris_.

A new currency of _mandats_ was tried, into which a.s.signats were made convertible. It was a complete failure. The _a.s.signats_ were wound up in 1796, and in February, 1797, there was "a general demonetisation of paper money."[11] The holders got practically nothing. France returned to hard cash, as Mexico has done recently. In 1918, when Mr. Hawtrey wrote, he was able to describe the decline and full of the a.s.signats as an 'almost unique' instance of "the currency of a great nation fading away into nothing." The Russian paper rouble has performed the same feat since 1918. So has the Polish mark. And now (December, 1921) the German paper mark is also fading into nothingness.[12] In Austria and in most of the new states of Europe, the inconvertible paper legal tender currency has lost almost the whole of its value, in comparison with the pre-war coin which it pretends to represent.

[10] Hawtrey, _op. cit._, chap. XV.

[11] A _turn_ which even a Polish Chancellor of the Exchequer might envy.

[12] In the second week of November the mark fell to 1300 to the paper pound, recovering a day or two later (Wednesday, November 9) to 980.

The real difference between the present monetary conditions and the American _continentals_, or the French a.s.signats, is a difference not of kind, but of degree and extent. The causes and the consequences, the motives of those who work the mint, the ruin and demoralization of the victims, the effects upon public and private debts and credit are the same. But a whole continent populated by four hundred millions of people is concerned. The commercial and moral fabric of European civilization is tottering. Three years have pa.s.sed since the war ended; but the currencies and exchanges of Europe are in a much worse condition than when peace was being negotiated.

At the end of June, 1921, I walked from my office in the Strand down to Messrs. Hands & Co., who deal in foreign money at Charing Cross. On the way I pa.s.sed the shop of a tailor, who had placarded on his shop window the announcement that he would give a hundred thousand roubles to every customer who bought a suit of clothes from him. He added that at the pre-war rate of exchange the one hundred thousand roubles would be worth ten thousand pounds. He did not add that they were at that time worth only two shillings.[13] On arriving at my destination, I asked to see specimens of the most debased currencies and eventually laid out ten shillings,[14] or, to be exact, 9_s_/10_d_. Here is the bill:

Ten German marks cost me one shilling A hundred Austrian crowns cost me one and sixpence A hundred Polish marks cost me sixpence Twenty-five Russian (_Czar_)[15]