Note 1 — Chapter IX · War with the Cannibals, and What Came of It.

Although, to all who have investigated the subject, the evidence is conclusive that an irredeemable fluctuating paper money is always made an agency for taxing with special severity all that class of consumers who live on fixed incomes, salaries, and wages, it has, nevertheless, always been a somewhat difficult matter to find illustrations of the fact so clear and simple as carry conviction by presentation that it does thus act to the classes most interested. With a view of obtaining such an illustration, application was made some months since to an eminent American merchant, whose large and varied experience abundantly qualified him to discuss the subject; and the result of the application may be thus stated:

Q. In buying in gold and selling in currency, what addition do you make to your selling price, in the way of insurance, that the currency received will be sufficient—plus profit, interest, etc.—to replace or buy back the gold represented by the original purchase?

A. We do but very little of that now; hardly enough to speak about.

Q. But still you make insurance against currency fluctuations an item in your business to be regarded to some extent?

A. Why, yes, certainly; it won’t do to overlook it entirely.

Q. Well, then, if you have no objections, please tell me what you do allow under existing circumstances?

A. I have certainly no objections. We buy closely for cash; sell largely for cash, or very short credit; and, within the comparatively narrow limits that currency has fluctuated for the last two or three years, add but little to our selling prices as insurance on that account—say one to two per cent. for cash, or three months’ credit; and for a longer credit—if we give it—something additional. During or immediately after the war, when the currency fluctuations were more extensive, frequent, and capricious, the case was very different. Then selling prices had to be watched very closely, and changed very frequently—sometimes daily. My present experience, therefore, is exceptional; and to get the information you want, you must look further. I think I can help you to do this. We buy regularly large quantities of a foreign product—let us suppose, for illustration, cloth, for the large manufacturers and dealers in ready-made clothing. We buy for gold, and we sell for gold, and do not allow the currency or its fluctuations to enter in any way into these transactions. But how is it with my customers? I allow them some credit; and the amount involved being often very large, I, of course, must know something of the way in which they manage their business. They transform the cloth, purchased with gold, into clothing; and then sell the clothing, in turn, to their customers—jobbers and retailers—all over the country, for currency, on a much longer average credit than they obtain from me for their raw material. As a matter of safety and necessity, these wholesale dealers and manufacturers must add to their selling prices a sufficient percentage to make sure that the currency they are to receive at the end of three, six, or nine months will be sufficient to buy them as much gold as they have paid to me, or as much as will buy them another lot of cloth to meet the further demands of their business and their customers. How much they thus add I can not definitely say. There is no regular rule. Every man doubtless adds all that competition will permit; and every circumstance likely to affect the prospective price of gold is carefully considered. Five per cent., in my opinion, on a credit of three months would be the average minimum; and for a longer time, a larger percentage. If competition does not allow any insurance percentage to be added, there is a liability to a loss of capital, which, in the long run, may be most disastrous—a circumstance that may explain the wreck of many firms, whose managers, on the old-fashioned basis of doing business, would have been successful. The jobbers and the retailers, to whom the wholesale dealers and manufacturers sell, are not so likely to take currency insurance into consideration in fixing their selling prices; but to whatever amount the cost price of their goods has been enhanced by the necessity of insurance against currency fluctuations, on that same amount they estimate and add for interest and profits; the total enhancement of prices falling ultimately on the consumer, who, of necessity, can rarely know the elements of the cost of the article he purchases.

Q. So Mr. Webster, then, in his remark, which has become almost a proverb, that “of all contrivances for cheating the laboring classes, none has been more effectual than that which deludes them with paper money,” must have been thoroughly cognizant of the nature of such transactions?

A. Most undoubtedly; for such transactions are the inevitable consequence of using as a medium of exchange a variable, irredeemable currency.

The illustration above given, therefore, in the place of being imaginary, is based on the actual condition of business at the present time—January, 1876.