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Real estate record and builders' guide: v. 22, no. 556: November 9, 1878

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Real Estate Record AND BUILDERS' GUIDE. Vol. XXII. NEW YOEK, SATURDAY, NOVEMBER 9, 1878. No. 556. Published Weekly by Che %ml (ÜDstatc %tcoxij ^ssodatbit. TER3IS. ONE YKAU. in advance___SlO.OO. Comiuunicaiious should be addressed to C. \V. SWEET, Nos. 345 AND 347 Broadway INFLATION—WHAT IS IT? Iu the face of recent political eveuts, we may safely disiui.ss from our minds all serious appre¬ hension of those calamities which u certain por¬ tion of the pre.ss preteuded to regard a.s threut- oniug the business interests of the country. In spite of assurauces piled mouutain high and reit¬ erated upou every formal utterauce of the public voice, the partisan press of either party delights iu coujuring up certain grave spectres lUs likel}' to be exorcised or let loose upon the community iu the event of the success of the opposite parties. With the dis.sipatiou of the latest scare, we may address oureelves to the cousideration of what coustitutes iullation. Wheuce does the ellect so deuomiuated derive its euergy or priuial cause? In tbis cüuutry, we are apt to work theories out iuto praetical Solutions, whereas, iu other countries, uuder hui-sh autl des- potic govemments, the people eau ouly theo- rize and dream dreanis. If tho praetical experi¬ ment which has beeu made iu this country of paper mouey expansion is not conclusive und deteriuinativo to all vilally interested in the tineatiou, we may well despair of ever attaining auy positive resuits. The couuuou sense of tho country has spoken so fretptently and so eniphat- ieally upou this subject, that we am entertain uo doubt that the large majority of its praetical business eleiueuts are agreed with one luind in favor of a stable aiul couvertible currency. The discussioiis und agitations which have raged about this question of late years, have familiar- ized the public mind with many of its iutricacies. We have learned well and thoroughly that there ure two necessary elements of a good currency: security and convertibility. Of course, metallic currency, whether of gold or silver, presents automatically both of these conditions, being in- triiisically valuable und of recognized commer¬ cial value throughout the world. In the abseuce of suflicieut metallic currency aud through iu- conveuience of handling, the necessity for paper money is created. The lack of one or the other of these mediums of exchange would be as keen a want as could be feit iu the minor transactions of life. Modem civilization has simpliSed and facilitated ordinary dealings by the use of bank checks and bills of exchange. Yet for the gi-eat masses of the people, those who are inno¬ cent of bank accouuts, aud ignorant of tha luethods of attaining thom, reliance must be had upou an authorized currency. To say that gold and silver afford indisputable and indispensable measures of value ls to assert the simplest prin¬ ciple of political econom}% aud the one most readily recognized by business men throughout the world. In the abseuce of a sufUcieucj^ of precious metals for the purposes of trade, inodem fiuancial ingenuity has devised the paper tokeu, worthless in itself though posse.ssing an aciiuired value through the corporate or governmental guarantee %vhich accompanies it. fo render it as serviceable as the metal, of which it should be the representative, the paper tokeu must be readily couvertible iuto coin. The que.stion then arises: what limit shall be placed upon this paper cur¬ rency, and how maj' its prompt convertibilitj- be assured.' An Obligation to redeem it in coin is of itself a restraint upon its volume. The exact balanciug of paper dollars with coin dollars would be a mere Substitution of one for the nther, a degree of restraint which is unnecessarj- and impractiaible. In practice, large amounts of colli tokeus or currency .ire stored awaj' and withheld from circulation; and, according to tho experieuce of tlie whole civilized \vorld, of the amount kept in aetive circulation oulj' a lixed aud definable proportion is ever likelj' tc> be pre¬ sented for actual conversion iuto coin. Hence, sound tinaucial practice Warrants the creatiou of apaper currency equal to four times thu amount of gold coin held iu reserve for redemption. That i.s, experience teaches that out of a given volume of paper currencj-, uot more thau oue- quarter of it is ever likelj' to be presented for rödemptiou und uot all of this at oue time. In coutradistinction to this secured, couvertible aud restricted currency, the experiment was made duriug the war of issuing paper tokeus detlcient iu all but oue of these qualities. Then, the neces¬ sities of the Goverument, owing to a state of war, facilitated the issue aud reissuo of these tokeus, whose acceptance bj- the people was uudei-stood to be un expres.sioii of patriotic devotion to the needs of the Government. The Government theu suddenly becume not oulj- the largest consumer of almost all lu-oducts and manufaetures, but for a time at least became the steadj-, prompt-paj-iug and cash paj-ing custoiner. Theso conditions combined to infuse iuto the business of the coun¬ try a Stimulus and resulting activitj- such as it had never before experienced nor is likelj' to soon again experience. The talk of further inflation which may be indulged in at the present time, so far as predicated upon hopes of a repetition of former experiences, is utterlj' groundless and delusive, because even if such measures were enacted by Congress, were approved bj' the Executive aud were re-affirmed bj' tbe Supreme Court, ordeals through which we maj' hardly suppose thej- would successfuUy pass, they would still eiicounter an iusuperable obstacle through a lack of distributing power. Even tho embarkation of the general government iu extended public works would af¬ ford onlj' limited and local distribution, and while beiieätiug certain trades and seetions, would se- riouslj- embarrass the majoritj' of the people. The superadded inflation, which was practised by the Government and tolerated by the people dur¬ ing the J'eai'S immediately following the clo.se of the war was like the addition of fuel to a fire al¬ ready raging. The Stimulation of Government purchases duriug tbe war was supplemented and intensifled by the enormous projection of rail¬ roads and public works which took place during the five j-ears following the close of tho war. These railroad projectors particularlj- were large nnd liberal borrow-ers, aud as tbej' did not object to accept the paper monej' of the countrj-, and wero willing to pay handsomelj- for its use, the lenders accepted usurious benefit, aiida füll meas¬ ure of the risk which was involved. The large depreciation and extiuguishmeut of railroad securities siuce the panic will serve to point the moral of our tale. Borrowers at excessive inter¬ est ou loug credit are alwaj-s livelj- aud cheerful fellows. aud do much w-hile their monej* lasts to luako things aetive. For a w-hile the paj-inent of interest may be made outbf the principal of the loan, but when the monej- has exhausted itself, the leuder is apt to learn a profitable lesson in the science of Investment. We have no Intention of traciuR the füll elfects of Inflation as presented in tho different markets of the country. It will auswer our purpose to studj- its eQ*ects upon our own commoditj-. We recently preseute»! to our reader.saconuuu- uicatiou from u correspondent who undertook to trace u coincidence between the rise of the gold premium aud the inflation of real estate values. In our comuieuts upon that commmiication, we pointed out the fallacj- of an attempt to draw any such parallel. In point of fact, real estate values were at their lowest wheu the gold premium was thu highest aud nice cer.iu, values of real estate rose as the premium on gold declined ; aud these values fuiallj- touched their greatest altitude at a timo when the gold premium was below ten per cent. Eveu uow, when the gold premium is but a fracticn of oue per ceut., the values of Standard real estate are uot below the values which pre¬ vaiied when the premium was raugiug between ÖO aud 40 per ceut. We have reason to belie\e that this sume aiiom- ulj' has prevaiied in other great markets of the couutrj'. For the Solution of the problem of the rise in value of manj- of the leading commodities aud staples of life, we mu.st look to some other theorj' than the measuring effect of gold premium or auj' mere eulargemeut of the volume of cur¬ rency. The law of supplj' and demaud has more direct connection with and energetic control over the appreciation and depreciation of values than the mere volume of currency and its gold value when depreciated. We are strongly led to question the power of iullation and contraction of currency to influence prices at all times, and invariablj- for good or for ill without the co-operation of other causes. The gold premium is uot alwaj-s a fixed measure of the excess of current values in a country dealing with au acceptable paper cur¬ rencj-. Supply aud demand and other causes aro the principal raotoi-s in elevating or depressing these values. The gold premium is a faithful index to the plethora or scarcity of the metal itself, and dominates foreign exchanges, while the prices demanded for goods which are to be paid for in paper currency are the indices to the de¬ gree of confidence reposed by the public in the soundness and circulating power of the currency. Following the recent hisioi-y of real estate, we flnd that the highest values of lots, inflated and speculative of course, were attained independ- eütly of the gold market, and in consequence ot au unusually aetive demand. But it may be easily