In 1931 F. A. Hayek wrote that although the quantity
theory of money as such is an oversimplification, "it would be one of
the worst things which could befall us if the general public should ever
again cease to believe in the elementary propositions of the quantity
theory." His point was that the fundamental idea-that any increase in
the supply of money will raise commodity prices in general-is good
enough to guide the voting publics of Western nations, even if the
unalloyed quantity theory lacks important Austrian insights into the
behavior of relative prices. If only the voters understood even that
much today!
The lively and colorful memoirs of Noah Smithwick,
nonagenarian, ex-North Carolinian, early Texas pioneer, and eventual
Californian, take us back to a time when Americans could grasp essential
truths about the nature of money. His book, The Evolution of a State or
Recollections of Old Texas Days, reflects the original value system of
the mobile and ambitious Americans of the early nineteenth century.
Sometime in 1827 Smithwick set off down the Mississippi River on his way
to Texas. Owing to some complication arising on the riverboat, he lost
his grubstake and had to take a temporary job as a "mechanic" or
"finisher" in an industrial concern in New Orleans. He immediately
became the object of resentment on the part of the older, established
workers for being too productive. Cautioned to go slower, he responded,
"Our employer pays me for my time: do I not owe him all that I am
capable of doing in that time?" The other workers' attitude was that
"'No sprig of a boy must presume to set the pace for us,' and so I was
forced to slow down and drift with the tide. This was Labour Unionism in
its incipiency."
Smithwick, born in 1808 in North Carolina, went on to
Texas-then part of Mexico--as soon as he could save enough money in New
Orleans. He lived through the tumultuous days of the Texan Revolution,
the Texas Republic, the Mexican-American War, and the secession crisis
of 1861. At that time, the "integral nationalism" that he shared with
Governor Sam Houston led him to leave Texas for the more favorable
climate of California, where he remained. His eyesight failing him, he
dictated his recollections to his daughter in 1899. Smithwick died the
next year.
Willingness to Work
Noah Smithwick's life may well stand as an example of
what is rapidly disappearing from the American character. Willing to
work hard and with a natural mechanical ability, he tried numerous
enterprises: blacksmith, gunsmith, soldier, mill owner, critic of land
fraud (perhaps the first big "industry" in Texas), independent inventor
of the circular saw, and diplomat. (He negotiated an Indian treaty,
promptly violated by both sides.) He would undertake any kind of honest
work, which probably explains why he was never much of a politician.
As an active and ambitious pioneer, Smithwick calls to
mind the "venturesome conservatives" of the Jacksonian period (to use
Marvin Meyer's phrase). A canny observer of, and participant in, the
economic life of early (Anglo) Texas, he makes sharp comments on many of
its aspects, Alongside his interesting passages on ethnic and cultural
groups he came to know of (Mexicans, Indians, blacks, Germans, and
Mormons), some of his best material and most amusing stories focus on
the nature of money.
Smithwick describes the crisis caused in the Texas
Republic by the government's issue of inflationary "scrip" (a sort of
constant with new regimes). In a textbook demonstration of Gresham's
Law, coin (that is, real money) disappeared. He recalls: "I received a
hatful of new, crisp, one-dollar bills in payment for a horse lost in
the San Saba Indian fight, which I immediately turned over to a creditor
[!], without ever having folded them. People would almost rather have
anything else than the commonwealth paper."
In Travis County, people came up with an alternative:
"Under those circumstances, we established a currency of our own, a kind
of banking system as it were, which though unauthorized by law, met the
local requirements. Horses were generally considered legal tender: but
owing to the constant drain on the public treasury by the horse-loving
Indian, that kind of currency became scarce, so we settled on the cow as
the least liable to fluctuation." Private bills were written against
cows (valued at $10 per animal in real money). The system apparently
worked well enough as long as it was needed. (Yearlings were also used
as a medium of exchange.)
Meet "John Doe"
An even better example of Smithwick's empirical Texan
monetary views is found in his discussion of counterfeiting in the
Redlands just before Texan independence. In 1831 he ran afoul of the law
in San Felipe. Texas was still part of Mexico, and Smithwick thought it
best to shove off to the Redlands, which bordered on the American state
of Louisiana. There he came to know the local counterfeiter, on whose
premises he worked, although he never took part himself in the
counterfeiting portion of "John Doe's" business. Doe's product was a
copper-sandwich version of the Mexican silver dollar, calling vividly to
mind the "Lyndon Johnson" dimes and quarters introduced sometime in the
mid1960s.
Smithwick says of Doe: "There was nothing of the
desperado about him. On the contrary, he was pleasant and peaceable and
generally liked, and, so far from being looked upon as a malefactor, was
considered a public benefactor, in that he furnished the only currency
to which the people had access. The country could not be said to be on
either a gold or silver basis, copper being the basis of Doe's coinage
......
Doe would occasionally call in his worn sandwich
dollars and restamp them with a veneer of silver. He made doubloons as
well. Clearly in touch with the policy debates of his last years,
Smithwick remarks: "Doe's currency furnishes a good example of the
practical working of the populist idea: it was all right in domestic
transactions, but when they attempted to discharge foreign [that is,
non-East Texan] obligations with it, it got them into trouble."
Doe did not do well when he extended his operations
into western Louisiana. On one occasion, however, he won a sizeable bet
by stamping a pure silver coin with the same cracked die he used for his
copper-sandwich coins and sending a crony into a saloon to spend it. A
skeptical bartender announced that the coin was clearly counterfeit, but
put to the test, this coin of course proved to be unadulterated silver.
(Doe won $500 on the bet.) With this windfall, Doe removed himself west
of the Sabine River, where, as Smithwick puts it, "his efforts were more
appreciated."
As a moneysmith, says Smithwick, Doe "added materially
to the wealth of the colonies . . . by restamping the old hammered
dollars, a single blow of the hammer adding 25 cents to the value of
each. There were thousands of them thus rehabilitated." (There was
apparently no debasing with copper in this operation.) Doe was finally
put out of business by counterfeiters in Louisiana, who printed up fake
U.S. banknotes and floated them in East Texas. Smithwick observes:
"Paper and ink being cheaper even than copper, Doe's currency was given
the go-by." Copper, after all, was fairly valuable and Doe, at one time,
had to break up a still to keep his copper-sandwich undertaking going.
Smithwick's experience with the counterfeiter suggests
a corollary to Gresham's Law: worse money drives out merely bad money.
It is refreshing to read the memoirs of a pioneer who could grasp an
essential point about the nature of money and use it to cast light on
his times.
At the time of the original publication, Joseph
Stromberg was a part-time college lecturer in history who has
contributed to the Journal of Libertarian Studies, Reason, Independent
Review, and other publications.
Reprinted with permission from The
Freeman, a publication of The Foundation for Economic Education, Inc.,
July 1999, Vol. 49, No. 7.
Yourname@libertyhaven.com
