involving heavy fixed charges that producers are impelled to continue operations without regard to the state of the market. It is only when large reserves of capital can be drawn on that it is possible to sell below cost, on a great scale, for the sake of winning a strategic advantage. In Ricardo's time these conditions did not exist in any trade or manufacture. If, then, combinations deal effectively only with competition below the solvency line, are not the essential Ricardian principles as true to-day as they ever were, and are not Mr. Bagehot's predictions verified? The competition that wastes resources and ruins competitors is an abnormal process that in a sound industrial system will necessarily create reactions against itself. Such competition will probably encounter an increasingly perfect resistance. The competition that forces production to supply fully the social demand, and forces prices down to an equivalence with the cost of production, is normal. Limitation of the range through which the series of competitive acts may extend but increases the amount of normal competition, since by preventing the wasting of capital it increases one of the chief competitive forces.

FRANKLIN H. GIDDINGS.

THE

THE GREENBACK IN WAR.

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HE valuable paper by Professor Henry C. Adams in the September number of the POLITICAL SCIENCE QUARTERLY, on the relative merits of taxes and interest-bearing loans as financial resources in war, suggests a consideration of a third and an extremely plausible and pernicious measure of war finance, the levying of a forced loan under the guise of an issue of government paper, most plausible and pernicious when it has the quality of legal tender affixed to it. We may disregard the notions of the extreme "greenbackers," although they have not yet ceased to wield some influence in politics; but there remain some facts that we cannot afford to disregard. A large proportion of the people of the United States believe that the issue of paper money in the civil war was a necessity, and that its legal tender quality did help it to circulate and to meet the demands of the government. The Supreme Court of the United States has affirmed the constitutionality of the "greenback" in peace as well as in war, and it has declared Congress to be the sole judge of the necessity that warrants the issue of legal tender notes. The extreme ease of obtaining money by printing it, without directly taxing the present generation or seeming to leave to the next a debt to be paid by taxes, will always make it the first device thought of by a finance minister when a large quantity of money has to be raised at once.

The value of the legal tender quality in a government issue can be very readily disposed of. Money is used to pay debts and to make purchases. Current accounts need not be considered, for they are usually settled every thirty or sixty days, and the fluctuations of the currency while they are running are comparatively small. The legal tender notes were available by law for the settlement of debts. This did the government no good. The government did not need money to pay debts with;

it wanted money to make purchases with. The legal tender notes enabled debtors to settle for less than they borrowed, but the government had no interest in this; and the use of money in paying time loans is so small compared with its use in making current purchases, that the legal tender quality of the notes could not add appreciably to their general utility. In the making of purchases, whether by the government or by an individual, the legal tender quality availed nothing, for the seller of the goods wanted the currency to make other purchases with; buyer and seller simply bartered so many government notes for so much flour. But here we come to a question which is much debated, even among persons whose ideas on finance are in general what are called sound. Prices rose during the war; the greenbacks were depreciated; but was not the advance in prices due mainly to the destruction of material by the war and the enormous purchases by the government? At the same moment that the government confessed bankruptcy by making its notes a legal tender, it depreciated its notes by refusing to receive them at custom houses; did not this create a special demand for gold that enhanced its price?

I have made an effort to answer this question by a comparison of prices as given in the Treasury reports, month by month, with the gold premium during the war. The following is the method employed for ascertaining the course of prices, or the variation of the legal tender note's purchasing power. The following twelve staple articles were selected for study: wheat flour, corn meal, anthracite coal, copper sheathing, American window glass, Buenos Ayres hides, common English bar iron, pig lead, hemlock leather, mess pork, mess beef, and common wool. Such a quantity of each of those articles was taken as cost, January 1, 1860, $8.333. The whole list, then, on the date given, cost $100. For each month following the same quantity of each article was taken and multiplied by the price then quoted, and the twelve results added. At the date given, 1.581 barrels of flour, 4 hundredweight of bar iron, 21.36 pounds of wool, and so on, were taken. This method, it would seem, ought to give a correct idea of the variations of prices, or the

depreciation of the legal tender note, not in gold, but in commodities. The following table gives the fluctuations of prices. obtained in this manner, month by month, and the monthly premium on gold, for purposes of comparison. But the prices are taken on the first of each month, while the gold premiums The table is designed to show the rela

are monthly averages.

tion of prices on the first of any month with the premium on gold for the average of the preceding month.

What these figures show in detail, the following diagram shows more graphically. The dotted line which runs from point to point shows the variations of prices as taken on the first day of each month for the years indicated on the margin. The line consisting of horizontals and perpendiculars represents the premium on gold averaged month by month. The lowest line obliquing from point to point represents the quotation of the 6's of 1881, taking the mean quotation for each month. The base or par line, indicated by the figures 100, represents, for this diagram, the legal tender notes, in terms of which the prices of bonds, merchandise, and gold are expressed. The