America's Money Machine

38 PART I / THE ROOTS OF REFORM
defend the honest dollar from all the attacks that have been made upon
it." Of one thing he was certain, he asserted with a wry reference to his
own political defeats, the conditions described arose from nothing with
which he had anything to do. Bryan, oddly enough for the moralist and
humanitarian that he was, seemed to play into the very hands of those
who would manipulate the money system to their profit, by deriding the
view that currency should be backed by gold. There was not sufficient
gold for the purpose, he declared, and implied that the system ofissuing
money against only government bonds was both adequate and honest.
Opposition to the Aldrich bill also came from the Merchants Association
ofNew York which began a concerted campaign against it, condemning
"as essentially unsound the principle that a currency should be based
on fixed securities of any description."5
More violent opposition to the Aldrich proposals came from the Wisconsin
firebrand and "liberal," Senator Robert M. La Follette, whose
position was grounded in the prevailing antipathy to the railroads. He
urged that the bill gave them an indirect subsidy by making their bonds
legal reserve for note issue. It was dangerous, he argued, to legalize
railroad securities as a basis for currency unless the actual value of the
property which the bonds represented were established.* He held correctly
that without such valuation and without strict control over"capitalization"
(i.e. the issue ofnew securities), a vast inflation ofrailway securities
would ensue which would in turn impede any effort to reduce railroad
rates. His point was that the attractiveness of railway bonds as a backing
for note issues would run up the market price on all railway issues, both
bonds and stock, and that investors paying such higher prices for the
issues would in turn demand higher dividends, which in turn would
compel the maintenance of high freight and passenger rates.
To placate La Follette, Aldrich agreed to accept an amendment to his
bill to this effect, but he stipulated that the valuations should he limited
to the physical valuation only of the properties securing the particular
bonds used as note issue reserve. La Follette declined to accept this
compromise, since he had long been agitating for an appraisal of the
entire railway system.
The La Follette attack served to raise the deeper issues in the Aldrich
*The attempt to evaluate the physical assets ofthe railways as distinct from the valuation
oftheir earnings subsequently became a mammoth and ineffectual project that gave a career
employment to a corps of economists and accountants.