America's Money Machine

A Measure of Expediency 37
that account. They were: Is there a moral justification for confusing
"circulation" with "capital," that is, of treating as equal and tangible,
both banknotes that are the fictitious creation of a financial institution
and money, which is a form of tangible capital (or the certificate of title
thereto), such as gold and silver or gold and silver certificates? What were
the economic and juridical effects, upon the relative ownerships of
wealth, of the process of creating purchasing power through fictitious
money issued by a central bank? If one man may buy in the market only
by the exchange ofgoods won at the cost ofsome human labor and effort,
while another need only rub the Aladdin's lamp of banking and thereby
draw purchasing power from the air in the form ofcrisp banknotes, what
are the effects upon the prices of goods in the market, the distribution
ofownership ofthese goods, and the state ofcontentment or discontentment
among the several classes ofthe citizenry as they are affected by this
process?
Various alternative proposals now began to appear. Congressman
Charles N. Fowler of New Jersey, a close associate with Aldrich on other
matters, proposed a comprehensive reform including the retirement of
the bond-secured circulation as well as the remainder of the Civil War
greenbacks (which had no specific backing) and the issue of "national
bank guaranteed credit notes" secured by reserves, in the form of"lawful
money," of 2 5 per cent for central city banks and 15 per cent for other
banks. The American Bankers' Association recommended a currency
expanding and contracting with the needs of business and secured by
"the property for the exchange of which they were issued."
During the following months the Treasury applied every pressure and
influence to induce the banking system to increase the circulation-a
campaign that recalls that exerted by the government upon the steel
industry in the late forties to increase steel production capacity. The
bankers resisted, as the steel industry did later, for so rapidly had confidence
been reviving that money was returning from the countryside into
the city banks in such quantities as to create a plethora.
Among the more influential voices heard above the din of argument
was that ofPaul Warburg, whose views gained more and more adherents,
and which we will look at further on.
Andrew Carnegie and William Jennings Bryan debated the issue extemporaneously
when they jointly addressed the New York Economics
Club-Carnegie roundly damning the existing system as "the worst in the
world" and Bryan retorting that time did not permit an "answer to all the
heresies that have been presented by Mr. Carnegie," or allow him "to