October 20, 1888





The Record and Guide.





807





The Appreciation of Gold.

THB REASON rOR THE DKCLIKi: IN VALUES AND THE NUMEROUS FAILURES

KOW   TAKING PLACE-PROPOSITIONS FROM   THE BANKS   TO   UNITE

AND RUIN   THE BUSINESS COMMUNITY.

The following address was dehvered by Mr. E. C. Bohne, cashier of tbe
Third National Bank of Louisville, Kentucky, at the National Convention
of Bankers, on the appreciation of gold, as money, or representative of all
value aud all property; on the consequent depreciation of commodities;
on the infiueuce of that depreciation upon bonds, stocks, commerce and
traffic; with some suggestions as to the action of banks in the premises.
This address was suppressed by all the New York papers.

AUDHESS OP MR.  E.   G.  BOHNE,  OF KENffUCKY,  ON THE   APPRECIATION   OF

GOLD.

Whether or not it was wise for this country and several leading Euro¬
pean nations to adopt the monometallic system as the base and measure of
commerce of the world, thus wiping out a large part of the total currency
and making gold the sole standard of values in traffic intercourse, is a
question I cannot satisfacto'-ily answer. In my own judgment every
creditor has heen benefited by the introduction of the yold basis, and
every defctor's interest has been, damaged. As far a^ banks and other
moneyed institutions are concerned, the intrinsic value of their stocks has
been enhanced by the discarding of silver as money, because tbey are
creditors of the public. Whether or not their earning capacity would not
have been larger if the general prosperity (which suffered by the contrac¬
tion of tbe measure of valuea—monej) bad been greater, is an open ques¬
tion, I believe that the failure of the commercial powers to agree upon
some fixed basis of interchange of gold into silver and silver into gold,
which would have made bi-metallisio, practicable, was a great mistake,
because the maiority of tbe people are debtors. There can be no dnubt
but tbat such a fixed basis of interchange between the two metals cnuld
bave been from time to time revised and satisfactorily rearranged without
great disturbance of the monetary system. The Congress of Commerce
and Industry held lately at Amsterdam was of the sarae opinion. It passed
aresohiiion declaring that the principal cause of lhe depreciation of
commodities results from the demonetizing of silver, and expressed a
wish for the adoption of a common double standard throughout Europe
and America. While, in my opinion, the bulk of tbe people have not been
benefited by the adoption of monometallism, it is said, on the other side,
tbat tbe decrease of the cost of all articles of consumption and of luxury,

firoduced by tbe appreciation of money bas tended to decrease the cost of
iving to all classes, a benefit equally felt by tbe debtor and the creditor.
But it must be recollected that tbe manner and mode of living has been
raised; that people live better now than tbey did some time ago, and tbat
the increased expense of the present mode of life bas offset any savings
from the depreciation of commodities, and that the man with a fixed debt
on his shoulders has to make a greater effort now to pay interest or prin¬
cipal than what be bad to do formerly.

Leaving this barren field of speculation, I will now confine myself to
facts as we find them. Ir, took one billion dollars of gold to introduce the
gold standard into the United States, Germany and Italy, besides the
metal used by other smaller countries, wbich followed suit in the race
for monometallism. That is to say. it took more than one thousand mil¬
lions worth of gold metal to supply the currency demand of those
countries. Tbe supply of gold from the mines was one hundred and
eighty million dollars in 1852, and bas since steadily decreased until now
it is about one hundred millions per annum. Hence, lhe extraordinary
demand for the purpose of stocking the above countries with gold coin,
has absorbed the total supply of gold for ten years, and left nothing for
abrasionon coins or for the purposes of art and manufacture. Abrasion and
tbe arts are estimated to consume about fifty millions of dollars a year, and
taking those items into consideration, the billion of dollars gold, used
to replace demonetized silver, bave absorbed the present available yield
of tbe minea in the world for twenty years. Tuis extraordinary and
urgent demand for gold, upon a limited and decreasing supniy, bas had
the same effect that increased demand upon decreased supplies always
have—it has raised ihe j^f-rehasing capacity of gold, "s sole measure of
values, which rise bas been followed by a fall in the price of all commodi¬
ties. Neither bas this raise been materially affected by an increase of
economic machinery or other contrivance to save gold, suuh es increased
banking facilities, and such like might bave done, for neither in this coun¬
try, nor in the old world, nor in international transactions, has there been
such an expansion of banking, or interchanging facilities between debtor
and creditor, as to counteract in a measurable degree, the apDrec:ation of
gold money and tbe depreciation of commodities, caused by the discarding
of silver as money,

Tfje Right Hon. Georee J. Goschen, M. P., in his speech before the Insti¬
tution of Bankers, at London, used some statistics, compiled from best
information obtainable, on tbe world's traffic, which I make use of
here in support of my assertion. He compares the prices ruling for
certain commodities in the years 1S73 and 1833 with the following
results:

Brown sugar.................per lb.       in 1873,   8

Flnesugsr....................    '"               "

Comnion tea..................   "              "

Middling coffee................    "              ''

Cocoa..........................   "               '

Wheat ........................per bus,        "

Bice ..........................per lb.          "

Pepper.......................     "              "

Pig iron........................per ton         "

Lead.........................   "              "

Copper........................   "

Tin.............................    "

Wool, average ................per lb.          "

Cotton    "      .................   "              "

Hides      "      ...... ..........   "              "

Jute..........................per ton         "

Nitrate ofsoda................per lb.

Coal .........................per ton         "

Silk............................per lb.          ''

Tioiber..............per Eoglibb load         "

Staves...............         "          "            "

Mahogany...........         "          "            "■

EnKl'sb railway oars.............eacb         "

Boots and Bboes........per doz. pairs         "

This shows a depreciation of from 2 to 59 per cent., and an average
equal to say nearly 30 per cent., illustrating tbe great depression of com¬
modities. This list might, of course, be continued ad infinitum, and would
range over the whole list of valuables, with the exception of. perhaps, a
few articles of consumption, the extraordinary high price of wbich, com¬
pared with other articles, is due to other und especial causes. I have no
data as to tbe comnarative value of real estate throughout the commercial
world, but my personal observations in this country snd in Germany,
together with tbe experience of landlords in Ireland, Belguim and other
comtries, of which we read, (uctn'ttjif ■me in the assertion that the value
of landed estate has shrunk with the rest of projierty during the past
decade and since the introduction of the monometallic basis. Mr. Goschen,
in his address, goes on to show how prices have fallen, and the cost of liv¬
ing at a given rate has been reduced by producing figures from private
and public households, w^bich prove the increase of the purchasing power
of gold incontrovertibiy.

If, now, in the face of these statistics, we must take for granted the







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enhancement of the value of gold and the contemporaneous decrease of the
value of commodities, we cannot but reasonably conclude that the later
circumstance is tbe natural effect of the aforesaid cause. Gold haa appre¬
ciated, and commodities have, in consequence, depreciated.

Having thus proven tbe fact, I now desire to apply it to tbe finance of
the day. A farmer, whoowta ten thousand dollars, bearing interest at six
per cent., ten years ago bad to raise 357 bushels of wheat to pay the interest
on bis debt; now he has to rase 435 bushels to do tbe same thing. A wool-
grower, under tbe same circumstances, formerly liquidated his interest
with 1,000 pounds of wool, while now be has to give the value of 1,800
pounds. An iron miner, in the same situation, ten years ago paid his yearly
interest with about 21 tons of pig iron, now he has to pay the equivalent of
50 tons for tbe same item. And ail this increase in the quantity of com¬
modities, necessary to pay a certain stipulated debt charge, comes upon the
debtor in the race of a steadily falling market, making his prospects
gloomier every year, and decreasing his capacitv to get out of debt more
and more. Ou tbe other hard, the creditor of the farmer, who ten years
ago could buy but 357 bushels of wheat for tbe interest on his loan, can now
buy 435 bushels. The creditor of the wool-grower now receives the value
of 1,800 pounds of wool, where formerly he received but 1,000 pounds; and
tbe creditor of the iron man receives the equivalent of 150 per cent, more
pig iron, as interest on the same ten thousand dollars, than he did ten
years ago.

This short statement shows the effect of tbe appreciation of gold upon
the debtor and creditor, and proves what I said in the beginning about
the benefit to the creditor and the detriment to tbe debtor. It also carries
with it a lesson as to what should be tbe course of prudent men under the
circumstances. It shows tbat the burden of a heavy debt, the fictitious
supervaluatiou of all prnperty in basing an intrinsic value upon it, is
more than usually of evil at thia particular time. Capitalization of cor¬
porate companies should be reduced and individual indebtedness paid off
whenever possible. The interest rate on investments should be decreased,
as it perceptibly has during the past decade. Reduction, rather than
increase, in the production of commodities should be the rule, until the
supply aud demand of gold, as sole measures of values, has been ascer¬
tained more fully under the new circumstances by experience, and its
effects calculated, aa far as human foresight can caiculate upon such an
uncertain thing as what the supply of gold from tbe mines will be in tbe
future. At any rate, the practical workings of the needs and demands of
the different commercial nations will be ascertained by statfstics, the
effect of the coinage of silver in the United States, a^ disturbing ele¬
ment to monometallism will be known, and the mind of the commercial
nations will be finally made up as to whether or not tbey will positively
and for ever abolish sdver, and use gold only as money. Then some basis
will be reached upon wbich the relative interchanging value of gold and
commodities will be more definitely establisbed, and then it will become
safer to make calculations ahead, and costs and profit can be more readily
aod surely determined.

But, in place of this desirable reduction aud retrenchment dictated by
prudence, what do we see?   What are, in fact, the financial tendencies of
the day?   Excessive capitalization of  corporate properties, extravagant
and reckless increase of the debts of the  States, counties and municipal¬
ities    wbich,     in    many     instances,     tend    to    certain    bankruptcy.
Business    was    being    pushed    and    credits    were    extended    almost
without   reflection   of    a    day    of    reckoning,    until    the    late    dis¬
turbance,    caused    by    an    alarming   increase   of    failures,     checked
tbe    tendency   of   expansion    to    some    extent.      We     see    bonded
debts   and   share capital   increased   by  some   meaus   or   other,  mort¬
gages and trust indebtedness heaped upon   property,  according to its
"earning capacity," as Jay Gould aays.    Experie^nce shows tbe iofiation
to bave been often much above that chimerical capacity.     The financial
raanag'-rsofinstilutions, following Ihe inflation policy, do noi seem to consider
that, what is enrniitg capacity to-day may nol be earning capacily in lhe future.
With the enhancement of money, the products or services of these corpo¬
rations will go down just like any other commodity.     Successful competi¬
tion, based upon plants of actual, considerably lower value, or legislation,
compelled by tbe demand of the people for cheaper services, will reduce
the earning capacities and will squeeze the water out of inflated securitiea,
bringing ruin  to many innocent holdera of such properties.     Earning
capacities are a fickle basis for estimates upon the indebtedness of a corpo¬
ration,  valuable privileges to-day may become less valuable, or be abol¬
ished in the future,  and he who bases hia calculations as to the actual
value oi securities upon such unsubstantial foundations, loses solid ground
and is very apt to drift beyond hia debt.    Corporation indebtedness sbould
ba reduced, the amount of bonds and stocks brought down to the basis of
depreciation wbich now rules all values, when weighed by the gold stand¬
ard, the charges for services or products should be reduced in order to
reduce   the   cost   to   the   public   in   the   same   ratio   in    which   other
commodities   are   cheapened   to   the people.     As   a   rule,   only   those
corporations    can     be    considered     solid    beyond    a    doubt,    which
either    reduce   tbe   rate   of   interest   upon   their   bonded    indebted¬
ness,   or   which   reduce   the   principal by a sinking fund.     The   same
principle   holds   good   aa   far   as   industry   and traffic   are   concerned.
There can be 'no   good reason to increase the production of at-licles,   con¬
stantly   sinking   in   value,   beyond   lhe   actual   demand for   oonsumption.
The late   disturbances in manufarturing circles are simply the natural
sequence of a forced over-production upon a sinking market.    Traffic
should also be reduced.    The sroallness of profits upon commercial trans¬
actions, so much complained of now, are caused not only by increased com¬
petition, but are the natural results of the general shrinkage in value, of
wbich shrinkage the margins for profit bear the brunt.    Credits should be
curtailed, rather than extended in a time when the fact of indebtedness is
so particularly unfavorable to the debtor.    Cash should be as much as pos¬
sible the basis of reduced commerc-al transactions, and traffic sbould be
brought down to actual demands and to short settlements.    The present
want of speculation in all branches is a very healthy sign of the times, and
is.iamy opinion, but a logical consequence of the awakening of the people
to the fact tbat all values are, and have been, for the last decade, depre¬
ciating wben measured with gold.    Tho inactivity which has now so long
prevailed on Wall street, is but a symptom of the deceased condition of
our inflated bond and stock values when  compared   with the world's
money, gold.

Now, then, having shown the facts and their workings, the question
arises, whether or not it is tbe duty of bankers to interfere with the resulta
which have fiown from the appreciation of money and the concurrent
depreciation of commodities and the great strain upon gold; whether the
financial representatives of the people should stand by and quietly await
such legislation as the law makers will see flt to enact, and, in the mean¬
time, let things take their own course, or whether they shall use their
influence and help to ease the burden of the debtor and to educate^ the
people to a better knowledge of the subjects at issue ? I believe that it is
the duty of banks to act with prudence and in accordance with tbe facts,
as we find tbem for the benefit of their stoekholdera and of the commu¬
nity. Their policy should be to keep their sails well trimmed during the
prevailing storm, that they should curtail the granting of credits and lend
substantial financial aid to only those who understand the situation,
and \vho act prudently and in accord with the natural forces notu at
work in leveling values and in approaching the final eguilibriutn of val¬
uables, or until new discoveries of rich gold mines may turn tbe scale in
favor of commodities against gold, in favor of the debtor against the cred¬
itor, and until fair weather sets in again, I believe that it is tbe duty of
prudent bank managers to discourage any infiation or speculation, to
scrutinize the basis of value of any collateral they may advance upon, tak¬
ing into consideration only actual and solid cash values for properties in