Hntt (QnUcge of Asricultttte At (Hamtll Ittiuetsttg ^^ miSSiiU™,*""""''''^ 'eaa' tender pape 3 1924 013 815 430 Library The original of tliis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013815430 \ -.«^.': WM. A. BERKEY, President of Phoenix Furniture Company, GRAND RAPIDS, MICH. The Money Questk^. THE LEGAL TEIsTDEE PAPER MONETARY SYSTEM OF THE UNITED STATES, An AiSTALTSis OF THE SpEciE Basis oe Bank Cuekency System, and op the Legal Tender Papee Money System; together with ^N Historical Ac- aouNT OF Money a.s-Tt has bees' Instituted .IN" the Principal Nations pF Europk AND in the 'United States. --t'l By WILLIAM A. BE R KEY. GRAND RAPIDS, MICH.: W. W. HART, STEAM BOOK AND JOB PRINTER. 1876. Entered according to Act of Congress, in the year 1876, by WILLIAM A. BBEKBY, In tlie Office of the Librarian of Congress, at Washington, D. C. PREFACE. In appearing before the public in the character of a ■wiiter, upon what is commonly supposed to be a very- abstruse subject, a word of explanation seems to be neces- sary. For over a quarter of a centuiy I have been actively engaged in business, as a manufacturer, and have naturally been led to enquire into the laws which govern the produc- tion and distribution of wealth. It was a matter of perplexity to me why it was that a nation possessed of the wonderful natural resources and the enormous productive powers that are possessed by the American people, should not enjoy general and uninterrupted prosperity; and, knowing that wealth is chiefly the product of labor, that the industrial classes of society are unable to retain anything like a fair proportion of the wealth produced by their labor. The fai-mer, usually considered the most independent of moitals, is engaged in a never-ending struggle to secure a mere com- petency; the same is true of the mechanic, the laborer, etc.; and the merchant, the manufactm-er and others engaged in the production and distribution of wealth, aided by capital, are oppressed with a consciousness that their capital may at any time take to itself wings and fly away, no matter how wisely or prudently they may conduct their affaii's. On the other hand, wealth is seen flowing in a constant stream into the laps of those who do not employ their capital in any wealth producing pursuit, but use it, in tlie shape of money, as an instrament to control jjroperty and labor. This certainly is guflScient to justify the suspicion that the unequal distribu- tion of the products of labor which is constantly going on in the land, gi-eatly to the disadvantage of society, is due to the mamior in wliich money is instituted; and the questions arise, in Avliat respect is money improperly instituted, and what is the remedy? If it had not been for the experience furnished during the Hebellion, the great body of the American people would doubtless have continued to struggle on, in entire ignorance of the fact tliat it is possible to establish a monetary system on any other principles than those inculcated by the advo- cates of the specie basis or bank currency system. Fortu- nately, however, it was then fully demonstrated that a system of moitey, such as was suggested by Jefferson and other eminent fonndci'S of the republic, could be instituted upon entirely different principles; a system that would distribute the jDroducts of labor in entire harmony with the laws of trade, and far more equitably than could possibly be done through the instnimentality of bank currency. The masses undoubtedly realize the truth of this, but are at loss to give a reason for the faith that is iji them. This is not at all strange. The wealth, intelligence and ability of the nation, as well as the jjower of the press, are arrayed on the side of the banks, precisely as the same elements were arrayed on the side of the United States Bank in th« memorable contest between that institution and the people, under the f)atriotic leadership of General Jackson. Even professors of political economy arc dragooned into the same ignoble service, and compelled to distort the principles of the science, to which they profess to be devoted, for the purpose of deceiving the public. In pursuing my own investigations, I found, to my surprise, that, except Kellogg's admirable work, written some years before the war, there was no book extant of a ,j)Opular chai-acter, from which anything like a clear under- standing of the questions involved in the present crisis could be obtained; and that the jjublic was entirely dependent PEEFACE. upon tlie fugitive writings of the ivw earnest and able men, who have espoused the cause of the people, for information upon the subject. It was in view of tliesie circumstances that this work was undertaken. I would have been glad, indeed, if some one, who was better prepared for the duty, had undertaken it; but as that did not seem probable, and,, knowing the great want of such a work from my own expe- rience, I determined that it should be written at all events, in order that tho American people might have a fair oppor- tunity to decide intelligently upon this all important ques- tion. No claim is made to originality, nor has there been any effort made in regard to style. My sole aim has been to jjresem the facts and principles relating to the subject correctly, and in plain, simple language; and, as will be observed, I have not hesitated to quote extensively whenever it could be done to advantage. In preparing the work for the press I have also availed myself of competent assistance, in order that the subject matter might be presented to the j>ublic as forcibly as possible. Special care has been taken to give credit to those whoso ideas or language have been adopted, but I am much indebted to the fugitive writings above referred to, and I desire in a general way to express my acknowledgments for the same, and especially to Hon. "W. D. Kellqy, General Wm. Brindle, Henry Carey Baird and E. M. Davis, of Philadelphia; Peter Cooper and Pliny Free- man, of New York City; John G. Drew, of New Jersey; and to the Cincinnati Enquirer, the Chicago Industrial Age and the Indianapolis Sun. WILLIAM A. BEPJvEY. GuAxu Kapids, jncii., * May 20th, 1S76. $ CONTENTS. Page. CHAPTER I. — The Wealth and Resoueces op the United States. — ^Why the Amekican People do NOT Enjoy General Peosperity. 9 CHAPTER n.— Money and its Functions. 25 The Nature of Money 26 The Intrinsic Value of Money 30 The Uses of Money 37 Systems of Money 48 The Power to Make Money a Governmental Function. . 53 How Paper Money issued by the Government Repre- sents V alue 70 CHAPTER HI.— Banks and Banking. 75 CHAPTER IV.— Banks of the Old World. 80 The Bank of Venice 80 The Bank of Genoa 87 The Bank of Amsterdam 87 The Bank of Hamburg 88 The Bank of England 88 The Banks of Scotland 97 The French System of Finance 100 CHAPTER v.— Paper Money and Banks op the United States. 109 Early Colonial Currency 109 Continental Money 112 State Banks of Issue 117 The First Bank of the United States 119 The Money Panic of 1809 124 The Money Panic of 1814 125 The Second Bank of the United States 126 The Money Panic of 1819 127 The Money Panic of 1825 133 The War with the United States Bank 133 The Money Panic of 1837-1839-1841 150 The Money Panic of 1857 153 The Suspension of 1861 154 State Banks of Issue Supplanted by National Banks. . . 158 Vlll. CONTENTS. CHAPTER VI. — History of the Paper Money Issued During the IIebellion. 161 The Fii-st Loan Acts 164 Treasmy Note bearing interest and not a Legal Tender. Ill Full Legal Tender Treasury Note, not bearing interest. 172 Secretary Chase's First Annual Report 173 The First Legal Tender Bill 175 The Greenback 199 Temporary Deposits in the Sub-Treasury 203 Certificates of Indebtedness 203 The Second Legal Tender Act 204 The Second Annual Report of Secretary Chase 204 The Third Legal Tender Act— 1900,000,000 Loan Act. 206 The National Bank Bill. 209 Public Debt Statement, 1863 210 Amount and kind of Paper Circulation, June 30, 1864.. 215 Bonds Exempted from Taxation 216 Greenbacks Limited to $400,000,000 216 Fessenden Appointed Secretaiy of the Treasury 216 McCullooh Appointed Secretary of the Treasury 217 Debt and Circulation of the United States, 1865 '219 McCuUooh's Contraction Policy 219 Amount Contracted, July, 1868 222 Act of Congress Suspending Contraction of Greenbacks 223 An Act to Strengthen the Public Credit 224 Refunding the Public Debt. 230 Public Debt Statement, November, 1875 231 CEfAPTER VIL— The National Banking System. 244 Secretary Chase Recommends a National Banking Law. 244 National Bank Bill Reported in the Senate 245 The National Banking Law 246 Of the Organization of National Banks 247 The Profits of National Banks 250 The Panic of 1873 251 The Cost of Bank Currency 263 Failures in the Country since 1863 264 Extravagance — Over Production 266 An Act to Resume Specie Payments and Make Bank- ing Free to Bondholders 270 The Little Tariff Bill — an Act to Enable the National Banks to Monopolize the Currency 271 CONTENTS, IX. CHAPTER VIII.— Resumption or Specie Payments.. 273: How Interest on Government Bonds is Paid 274 The Specie Resumption Act 279" The Amount of Gold in the Country 281. Resumption Impossible 2821 The Consequences of Forced Resumption 289>' The Experience of Great Britain in 1819 — 1823 290 The Consequences of Forced Resumption in the United States 30a CHAPTER IX. — A MoNETAEY System Founded upon Sound Principles. 305 The Real Issue in the Impending Crisis 311 An Analysis of the Specie Basis or Bank Currency Sy.-*- tem of Money ". . 312 The Cost of the Credit System 324 Commercial Crashes and Money Panics 32& An Analysis of the Legal Tender Paper Money System. 330i What is a Dollar? ." 33^ Money of Account 334 The Legal Tender Question 341 How Much Money a Nation Should Have 344 How Interest Should be Regulated 349' The 3.65 Bond Plan 352 How the Public Note is Put in Circulation 355 The National Debt 356. Conclusion 35& APPENDIX. Horace Greeley's Famous Editorial on the 3.65 Bond Plan 363 The Legal Tender Bill as it passed the House of Rep- resentatives, Feb. 6, 1862 367 The Legal Tender Act of Februai-y 25, 1862 370 Speech of the Hon. Thaddeus Stevens in the House of Representatives, December 19, 1862 373 Table Showing the Monthly Range of the Gold Pre- mium since 1862 381 The French Assignats 382 CORRECTIONS. The table s:lven on page 231 exhibiting the amount and character of the pablic debt, hearing Interest, on the 30th day of November, 1875, is Incomplete. By an oversight the currency bonds Issued to the Pacific Railroads were omitted. The amount of the currency bonds outstanding at that date was $64,633,512, which, Added to the amount given on page 231, would make the total public debt, bearing interest, November 30, 1875. $1,758,874,812. On page 88 for " out,"' the last word on the page, read '■'■ about." On page 17, in the seventh line from the bottom of the page, substitute '"•April" for "March." THE MONEY QUESTION. CHAPTER I. THE WEALTH AND EESOUKCES OF THE UNITED STATES. WHY THE AMERICAN PEOPLE DO NOT ENJOY GENERAL PROSPERITY. The prosperity of a jieople depends chiefly on the use which they are enabled to make of their natural resources. It frequently happens that nations j)ossessing great natural advantages fail, through want of projierly directed industry or defective laws, to attain even a reasonable degree of prosperity; and, on the other hand, that nations possessing but linuted resources succeed, under wise laws and by means of well directed energy, in achieving great Avealth. History abounds in instances illustrating the truth of this statement. At the present time Ireland and Holland may be cited as caj^es in point. Ireland possesses a fertile soil, salubrious climate, fine harbors, noble rivers, and a population naturally brave, quick and capable of great labor; but her people, by reason of unequal laws and bad government, are chained to poverty and ignorance. Holland, a land reclaimed from the ocean and held only by sleepless vigilance, was orig- inally destitute of even ordinary advantages; but under enlightened laws, industry and art have accomplished the most marvelous results. " Below the level of the sea, and the surface of adjacent rivers and canals, have been created 10 BESOUKCES OF THE UNITED STATESi. V by human art, fat pastui'es teeming with flocks and' herds, rich artificial garden land, nourishing the industrious and thriving population of innumerable cities, towns and villages. The very coast is an artificial fortification against the ocean, the ancient and natural monarch of the couutiy. Here he' is defied by leagues of artificial sea banks — there by iiiik-s of granite masonry. Rivei'S and canals are made tQ rini many feet above the level of the country. Armies of indefatigable wind mills are perpetually pumping and draining. Amster- dam and, Rotterdam, populous, opulent and splendid cities,. rest on piles driven into the mud." Thus, by well diroc ted industry, under wise laws, have the peojjle of Holland been enabled to achieve a wondei'ful victory over the forces of nature, and to clothe themselves witli general prosperity. The people of the United States are peculiarly ri^h in all the bounties of nature. They possess a land wliose area exceeds 4,000,000 of square miles. Within its boundaries are embraced eveiy variety of soil and climate; inexhaustible mines of iron, coal, copper, lead, zinc, gold and silver; im- mense forests; grand lakes and mighty rivers. A better idea of its great extent may be formed by comparing some of the States of the Union with the kingdoms of Europe, California, for example, is equal in size to England, Scotland,, Ireland, Wales, Belgium, Holland and Portugal; and Texas, is equal to France, Holland, Belgium and Denmark. The' mineral resources of the country are almost beyond compu- tation. For example, it is estimated that coal enough has already been discovered to supply a population of 1,000,000,- 000 for 60,000 years. Other minerals, comparatively speak- ing, are equally abundant. The gold producing region of the country coiners an area of over 1,000,000 of square miles.. Prior to the discovery of gold in California in 1849, the- gold yield of the world did not exceed $20,000,000 a year.. EESOUfeCES OF THE UNITED STATES. 11 Now the United States alone pi-oduce annually over $75,000,000 worth of bullion. The agricultural resources of the country are equally boundless. In almost every section the soil yields bounti- fully, while in some regions, £is in the great States of the West, its fertility is unsurpassed. The agricultural produc- tions of that region alone have reached an almost fabulous amount. The great natural advantages possessed by the country have enabled its manufacturing interests to make great progress, in spite of the ever changing and illy devised tariff laws, which, for the greater part of the time, have disfigured the statute books of the nation. While agriculture and manufactures flunrish side by side, in all parts of the country, greatly to the advantage of both, it happens that the peculiar facilities and advantages enjoyed by different sections of the country have cixused their industries to vary greatly in character. Thus, the people of the Eastern States arc devoted chiefly to manufactures and commerce; the people i)f the Middle States, although engaged largely in com- merce, manufactures and agriculture, are also occupied extensively in dealing in iron, coal, lumber, salt, petroleum, etc.; the people of the Western and South Western States, while possessed of large mineral and other interests, as yet find their chief profits in the vast agricultural resources which they enjoy; the people of the Southern States are engaged principally in tlie j)roduction of the valuable staples common to that section, such as cotton, rice, sugar, tobacco, etc.; and the people of the Pacific States, besides their immense agricultural and commercial interests, find a wide field for employment in developing the rich mines of gold, .silver, etc., which have rendered that region famous throughout the world. 12 KESOUECES OP THE UKITED STATES. To glance briefly at a few details, the assessed value of the fai-ms and stock in the United States in 1870 was nearly $11,000,000,000, and this sum did not cover one-half theii- actual value. The following statement, gathered from the Census Report of 1870, gives a partial view of the agricul- tural operations of the country during the preceding year: Farm products, including additions to stock. $2,500,000,000 Farm wagesjincliiding value' of board 310,000,000 Wheat. 288,000,000 bushels. Rye 17,000^000 " Indian Corn 761,000,000 " Oats 282,000,000 " Barley 30,000,000 " Buckwheat 10,000,000 " Flax Seed 1,700,000 " CloverSeed 600,000 Grass " 600,000 " Potatoes 144,000,000 " " Sweet.- 21,000,000 Peas and Beans 5,500,000 " Cotton 1,200,000,000 pounds. Flax 27,000,000 " Hemp 25,000,000 " Hops 25,000,000 " Rice . . .■ 74,000,000 Wool 100,000,000 Tobacco 263,000,000 " Butter 500,000,000 " Cheese 23,000,000 " Hay 27,000,000 tons. And' the following statemeiiit 'presents a general view of the manufacturing interests of the country in 1870: Number of manufacturing establishments... 252,148 Number of operatives 2,053,997 Capital invested $2,118,000,000 Annual salaries paid 776,000,000 Raw material used 2,488,000,000 Products 4,232,000,000. RESOURCES GF THE UNITED STATES. 13 In considering the resoui-ces and advantages of the coun- tiy, it is proper to notice the labor saving machinery, largely the result of American ingenuity, which now performs such an important part in all the departments of labor. In Great Britain the power of the machinery of that country is esti- mated as equal to that of 600,000,000 of men. In this country it probably does not reach that amount, but it is suiEciently large to add enormously to the productions of the country. In many sections one thousand acres of land can now be cultivated with no more cost than was formerly required to cultivate one hundred. The great and varied industries of the country are rendered vastly more useful and profitable by reason of the channels of communication, natural and artificial, which extend in every possible direction. In addition to the many lakes and rivers, which traverse the countiy, it is covered with a net- work of railroads from ocean to ocean, affording ample means of transportation to gather and distribute the products of the nation. From this outline of the wealth and resources of the United States, it is apparent that the American people are possessed of vast advantages, such as are hardly possessed by any other nation on the globe. It is estimated that the United States are capable of sustaining a population of upwards of 350,000,000, while the population of the country now scarcely exceeds 40,000,000. If enabled by wise laws and well directed industry to make a proper use of their advantages, the people of the United States ought to enjoy general and unintemipted prosperity. And, as the govern- ment of the United States is republican in form — ^based upon the theoiy that all power emanates from the people, the responsibility of any failure on their part to attain wealth and prosperity must rest with the peojDle themselves. 14 NO GENERAL PEOSPEKITT. DO THE AMERICAN. PEOPLE ENJOT GENERAL PROSPERITY? Notwithstanding their boasted industry, intelligence and enterprise, and the vast resources which they possess, the people of the United States, as a nation, have failed, utterly and disgracefully, to attain anything like a reasonable degree of genei-al prosperity. We shall not resort to any elaborately prepared statistics to establish the truth of the assertion, but will simply call attention to a few important facts, the consideration of which, we believe, cannot fail to produce conviction. Ten times within the past sixty years has the country been visited by commercial crashes and money panics, accompanied or followed by general stagnation of business, ruin and bankruptcy. From 1814 to 1861 the country suf- fered NINE TIMES in this way, and only once, from 1841 to 1857, did it escape a financial crash for a longer period than ten years. At the present time the country is suffering from the crash of ISVS, or rather from the same causes that produced that crash. These commercial crashes have invariably paralyzed all forms of productive industry, bank- rapted business men, stripped the debtor class of their j)roperty, and occasioned want and distress amongst nearly all classes of people. When we look back over the past half centmy, we find that, as a matter of fact, the people at large have never had an opportunity, even between these seasons of financial disturbance, to enjoy more than a glimpse of prosperity. They have been kept busy, either sti'uggling to avoid impending ruin, in view of a commercial crash, or laboring to rebuild their shattered fortunes, after the panic had subsided. And now, the Centennial year, 1876, soon to be celebrated with great pomp on the banks of the Schuylkill, under the auspices of a great city writhing under the heel of a cori;upt King, finds the people, in the XO GENERAL PKOSPEEITY. 16 imidst of plenty, distressed, exhausted aud poor. And how 'does this hapjien? Has nature frowned upon the husband- man and refused to respond to his toili* Has the earth declined to yield up her precious stores? Has the hand of the artisan or mechanic lost its cunning, or the arm of the laborer its strength? Not at all. The graneries of the West are bursting with the products of the soil; the valuable rstaples of the South are as ready as ever to respond to the "touch of labor; tlie mineral wealth of the earth lies exposed on every hand; the wheels of the workshop and the factory are faithful as ever; and the mechanic and laborer are not only able and willing, but anxious to work. The cause of the whole trouble lies concealed in the siraiDle word — Money. In civilized nations at the present day a circulating medium 'of exchange, called money, is as essential to the production and distribution of wealth in all its forms as railroads and wagons are to its transportation. In 1873 an epidemic .among the horses, for a few Aveeks, seriously interfered with trade and travel. Were all the railroads and canals of the •country to suspend operations for a single season, it is not difficult to surmise the amount of disaster and distress that would ensue. ^Vnd the public might as well try to conduct the affairs of life without railroads and wagons, or the far- mer try to cultivate the soil withovit implements, as for a nation to attempt to develop its producing forces, or carry •on successfully the operations of trade, without an adequate .amount of money in the channels of circulation. The business affairs of the country during and after the ilate war increased largely. The wealth of the nation, in spite of the ravages of war, increased from $16,000,000,000 in 1860 to $30,000,000,000 in 1870. All the money and •evidences of indebtedness of the government, which could be used as a circulating medium of exchange, were actively .employed. The people, for the fiist time in their histoiy, 16 NO GEXERAL PROSPERITY. had an abundance of money in circulation and were enabled to develop the resources of the country and add to its wealth in a corresponding degree. The increased production in every department of labor rendered the burdens of taxation light, and, at the same time, increased the revenues of the government to an enormous extent. Tlie government, in consequence of its largely increased revenue, was enabled,, at the close of the war, to begin the reduction of the public debt at a rapid rate. The people, notwithstanding the bur- den of taxation which Ihey were compelled to bear, were, individually, out of debt. But matters began to change. The channels of trade became stagnant or sluggish, busi- ness began to languish, factories and workshops were obliged to sus2)end or reduce labor and wages, real estate fell in value, and enforced idleness began to grow common; ^nd, as in times prior to the war, the climax was capped by a financial panic. The cause of this astonishing change in the condition of the country — from activity and prosjjerity to inacti\ it\ and distress — will be found in the following statement, taken froia the books of the Treasury Department by Hon. Moses W. i'ield, which exhibits the contraction of the circ'ilitiug medium of the country that took jolace fronx September 1, 1865, to December 1, 187-3: Amount of money, currency, and circulating medium, Sep- tember 1, 1865, (exclusive of coin:) United States Notes $433,160,56^ Fractional Currency 26,344,742 National Bank Notes 185,000,000 Compound Interest Legal-tender Notes 217,024,160' Temporary Loan Certificates, (10-d-d,) 107,148,713 Certificates of Indebtedness 85,093,000 Treasury five per ceiit. legal tenders 32,536,991 Treasury Notes, past due, legal-tenders, and not presented 1,503,020' State Bank Notes 78,867,575 Three year Treasury Notes 830,000,000 Total Sept. 1, 1865 11,996,678,770 NO GENERAL PROSPERITY. IT Circulating medium, exclusive of coiu, December 1, 1873. United States Notes $367,001,685 PVactional Cui-rency 48,000,000 Certificates of Indebtedness (bearing Interest) 678,000 National Bank Currei^cy 350,000,000 Total December 1, 1873 1765,679,685 Contraction from Sept. 1, 1865, to Dee. 1, 1873, (causing a money panic) $1,230,999,085 From the foregoing statement it appears that the circula- ting medium of the country (or evidences of indebtedness of the government used as such) was contracted over $1,200,000,000 in eight years. The greater part of this amount consisted of the Three year Treasury Notes ($830,- 000,000.) These notes were called in and bonds substituted in their stead prior to 1868. The crash of 1873 followed as an inevitable consequence. It won't do to say that it was the result of the war, or of extravagance, or of over produc- tion, or of anything of the kind. Crashes and money panics just like it occurred before the war, on an average, every 'dve years, and this crash did not occur until eight years after the war. The periodical money panics, which occvuTcd before the war, were the natural results of the specie basis system of money; and the panic of 1873 was caused by enforcing the j)olicy of contraction, which was planned at the same tiine 'that the National Banking system Avas projected, in order that the specie basis system might be re-established. The act of Congress' of March 12, 1866, authorizing a contraction of the cm-rency, was adopted on the recommendation of Hugh McCulloch, Secretary of the Treasury. It gave him unlimited control over the finances of the country, and he did not fail to use the power placed in his hands, to the fullest extent, in aiding the money power, with which he was in league, to rob the country and 18 NO GKXERAL PEOSPEEITY. the people. When McCuUocli's infamous betrayal of the high trust rej^osed in him becomes fully understood, his name will be used as a by-word and reproach throughout the nation. ' ' Apart from commercial crashes, or money panics, it is evident that there is something radically wrong in the monetary system of the country — that there is some con- stantly operating cause, which tends "to fertilize the rich m.an's field by the sweat of tlie poor man's brow." The masses toil, day after day and year after year, seeking to secure a competency and scarcely succeed in obtaining a subsistence. The better classes may succeed in building up homes, but they are never secure in their possession, until they have amassed sufficient property to at least enable them to outlive a season of financial depression. The profits -of labor flow in a steady stream into the hands of non- producers, who are engaged in manipulating money. It is not difficult to discover the reason. Money is essential to the •development of the producing forces of the country, and to the distribution of its products. It is far more necessary that money should be abundant and cheajj, than that there should be abundant and cheap means of transportation. The contrary, however, has been the general rule since the American people have constituted a nation. They unfortu- nately inherited the British system of banks of issue, which clothes the moneyed classes with unlimited control over the circulating medium of a country. Money should be the servant and not the master of wealth, and then it will flow in the channels of trade, in obedience to the natural laws of supply and demand; but the people have permitted the power to furnish the circulating medium of the country to be filched from the nation and given over to individuals and corporations to be used as a monopoly. At present money NO GEXEKAL PEOSPEEITT. 19 has ceased to fill the channels of trade, and, refusing to perform its oiRces, has taken refuge in the banks in the commercial centers. Statesmen, like Senator Christiancy, may tell the people " to go to work in any and every form of jjroductive industries," and command it to return, and imagine that they are uttering a great deal of wisdom, but where are the productive industries? If Senator Christiancy had been in Moses's place, the Jews, possibly, would have been at no loss how to "make bricks without straw," but as such wisdom is not available in this country, it is to be regretted that he did not turn up in Egypt a few thousand years ago, instead of in the United States Senate at the present time. It is of course mere matter of speculation as to what would be the condition of the country now if gold and silver had been its circulating medium in fact as well as theory, or if a legal tender paper money had been adopted at au early period^ as uj-gcd by Franklin, Jefferson, Calhoun and others. AVith nothing but gold and silver the progress of the country would midoubtedly have been slow, but the people generally would doubtless be better off than they are now. With a legal tender ptiper money, in the light of late exi^c- rience, it is more than probable that the United States would to-day be the richest, most^powevful and most prosperous nation on the globe. Neither system of money, however, was adopted. The government allowed the circulating medium to be taken out of its hands and erected into a gigantic monopoly in the hands of individuals and corpora- tions. The gold and silver -ERAL PROSPEEITY. 23 ments prostrated die industries of the kingdom, ruined the farming, manufacturing and business interests, and plunged the entire nation into bankruptcy. The masses of Great Britain, whose labor and valor had just enabled the British government to prosecute to a successful tennination one of the most gigantic wars of modern times, were hurled by an act of Parliament, at the instance of the money power of the kingdom, in the most heartless manner and without the slightest grounds of excuse, from a state of prosperity into the depths of ruin and poverty. At the demands of the same power the people of the United States are now being subjected to like treatment. With but little gold, scarcely $100,000,000, in the country, with the balance of trade against the nation, with a large public debt mostly held abroad, and with a difference between gold and jjaper money of over twelve per cent., enforced resumption of specie payments has been decreed to take place in 1879. In the light of English experience under vastly more favorable circumstances, the people of the United States can look forward to nothing else but cpntinued and increasing jn-ostration of all forms of industry, and, when the fatal hour for resumption arrives, a general crash, burying the entire nation in its ruins. The people of the United States are a forbearing and long suffering people, but it is scarcely possible that they would continue to submit in silence to the exactions of the money power, if they were fully apprised of the nature and extent of the robbery to which they have been, and are still, subjected, by reason of a false and corrupt monetary system. The public debt of the'United States in 1865 was $2,682,593,026; on September 1, ISVo, it was i5!2, 127,393,836, showing a reduction of $555,199,190. Besides this $555,199,190, the people liave paid in the past ten yeaks, for interest on the 24 NC) GEXEEAL PROSPERITY. public debt, navy, war, ci\il service, pensions and Indians, $3,324,560,785, or in all the enormous sum of $3,879,759,- 975, which is one-half more than the original amount of the national debt, or a sum greater than the national debt of Great Britain. This vast sum has been paid principally by the producing classes, for the bondliolder and money power generally bear no part of the expenses of government. It is high time that the burdens of taxation should be more equally distributed. This can be done only by the imposi- tion of a graduated income tax, than which nothing can be more just. President Grant suggested in his last annual message that the Centennial year would be a fit time to inaugurate reforms. We agree with him. Let the people take a lesson from experience and reform their monetary system. As it is the year for the general elections, something might also be done in the way of purifying the admirtistration of public affairs. The Centennial year can thus be rendered doubly memorable in the annals of the countiy. The celebrated Junius said: "The ruin or prosperity of a State depends so much on the administration of the govern- ment, that to be acquainted with the merit of a ministry we need only observe the condition of the people. If we see them obedient to the laws, prosperous in their industry, united at home and respected abroad, we may reasonably presume that their affairs are conducted by men of experi- ence, ability and virtue. If on the contrary we see a universal spirit of distrust and dissatisfaction, a rapid decay of trade, dissensions in all parts of the empire, and a total loss of respect in the eyes of foreign powers, we may pro- nounce, without hesitation, that the government of that country is weak, distracted axd corrupt." CHAPTER IT. MOXET AND ITS PUXCTIONS. In a state of civilization money performs an important pai-t in the production, distribution and accumulation of wealth; it is necessary, therefore, that it should be based on sound principles. A great deal of nonsense has been written about money and its " hidden power," partly through ignorance and partly through design. So widely have political economists differed in regard to its nature and functions that it is not surprising that people h:i\e been willing to ascribe to it some mysterious powei-, or that they should have almost despaired of being able to comprehend the principles on which it is founded and by which its movements are governed. And this delusion has been encouraged in every way possible by the moneyed and gov- erning classes, who are thus enabled to found systems of money on the false theory that money is the master and not the servant of labor and proj^erty. But the age is characterized by a. spirit of jjrogress, and old systems are rapidly yielding to new ones. The signs of the times indicate that the hoary tyranny of the money power, whicii has exorcised despotic sway for ages over the masses of mankind, will, sooner or later, be compelled to succumb to the influences of an enlightened public senti- ment. A distinguished English writer,* in commenting on the imjjerfect and rudimentary condition of the science of political economy, says: "The steam engine, steam naviga- tion, railways, mechanical inventions, the electric telegraph, *Sir John Barnard Byles. 26 MONEY AXD ITS FUNCTIONS. modem clieiiiistiy, have not appeared for nothing. A' science of political economy will yet dawn that shall perfomi as well as promise — a .science tliat will rain the riches of nature into the lajjs of the starving poor. Men do not yet dream of the prosperity which is in stoi-e for all orders of the people." A large and increasing nmnber of leading thinkers, statesmen and philanthropistsof the day arc calling public attention to the unequal and unjust distribution of the products of industry that is constantly going on through the agency of a false and corrupt monetary system, and their views have already made a profound impression on the public mind. The ignorant masses of Great Britain may be deluded into believing, as is taught by the dismal school of English political economists, "that it is natural, and if natural, proper — though we may not see the reason — that poverty and want and disease and misery should be next door neighbors of wealth and unbounded prosperity;" but the intelligent farmers, mechanics and laborers of the United States are not so easily convinced that the surplus wealth, which their labor produces annually, should natul-ally be owned at the end of the year by the financiering and non-producing classes of the country. When people find themselves being robbed, they are apt to try to discover the offender and the means by which it is accomj)lished. A very moderate amount of investigation, we think, will satisfy any candid mind that the theory, that the money power is the robber, which deprives labor of its just reward, and that a coiTupt monetary system is the instrumentality, by means of which the robbery is perpetrated, is based on sound , reasons. THE NATURE OF MONEY. Money, in its ordinary signification, is an agency of trade. Civilization has developed a great variety of wants and THE NATUKE OF MONEY. 27 industries, and labor has come to be divided into innumera- ble forms, requiring a constant exchange of commodities. Individuals are dependent on their fellow men for every thing, excejjt the particular product of their own labor. One class furnishes food, another the material for clothing, another builds houses, etc., e.tc, and each class is susceptible of innumerable subdivisions. When we come to individ- uals, each one has to give his labor, or the product of his labor, or the product of the labor of others, for that which he needs or desires. This exchange is effected through the agency of money. It is necessary, therefore, that money should possess a legal representative value. It must possess representative value to be the equivalent of the commodity or labor for which it is exchanged, and its representative value m.ust be established by law, otherwise its acceptance by a creditor would be optional. As the value and power of money depend on law, its institution and regulation are dutie^ which devolve uj^on the legislature or governing power of a nation. The adoption of m«ney or a medium of exchange was undoubtedly ©ne of the first steps in civilization. In a simple state of society, as in newly settled countries now, the exchange of commodities took place by means of baiter, but the necessity of a medium of exchange becoming apparent, different representatives of value were adopted, according to the wants, tastes and possessions of the communities or nations concerned. Thus the Spartans adopted ii-on, the ancient Romans bars of copper and cattle, the North Ameri- can Indian beads, and the East Indian and African shells. At an early age gold and silver came to be regarded as the most suitable materials for the purposes of money for many reasons, among others on account of their possessing large value in a small and compact form. Coins or tokens made 28 THE NATUEE OP MONEY. of these metals next appeared, but originally possessed no other power than that which they derived from the intrinsic value of the materials of which they were made, which was determined by weight, as is the case now, when used in commerce between different nations. Governments next assumed the right to make and regulate the value of money, in consequence of the necessity of establishing a common representative of value to be used in the payment of debts and taxes. As civilization progressed and wealth increased, requiring a more rapid and extensive exchange of commod- ities, it became necessary that the medium of exchange should be increased in the same proportion. It was impose sible to obtain gold and silver in sufficient quantities to answer the purposes of money, and it would seemingly have been but the part of wisdom to have adopted new systems of money, but history gives but one or two instances whej'e anything of the kind was attempted. The scarcity of money led to the use of credit, which now plays such an important part in the commerce of the world. Bills of exchange were invented, it is believed, by the Jews of Lombai-dy in the 7th century. In the 13th, l4th and 15th centuries the greater part of the commerce of Europe was accomplished at peri- odical markets or fairs. Merchants and traders, or their Tsrokers, would meet at these fairs with their accounts or bilans (balance) made out, and by transferring debts and credits from one to anothei-, effect a settlement with the use of no more money than was required to settle balances. In many parts of Europe these fairs are still held, although they have lost most of their former imi^ortance. Various other devices to increase the circulating medium of exchange have been resorted to by different nations, sxtch as reducing the amount of bullion in their coins fi-oni time to time, until now they contain but a fraction of the value which then- THE NATUEB OF MONEY. 29 names originally called for. In the days of William, the Conqueror, the "pound" actually "vvas a pound weight of silver, and a shilling was a twentieth part of a pound, but at the present time a pound of silver is coined into sixty-six shillings. The legal money of England has been regulated or altered in this way by the English government one hun- dred and eighty-four times. The specie basis system of Great Britain, which was adopted nearly two hundred years ago, owes its origin to the same cause — the necessity of increasing the medium of exchange. The effect of the system is to centralize wealth. In Great Britain it has enabled the aristocratic and moneyed classes to acquire enormous wealth, and has reduced the industrial classes to a condition of abject poverty. In the United States it has had the same tendency. The only peojDle of former times, who seemed to fully understand the nature of money, were the Venetians. In the 12th century they adopted a system of money, based on the wealth and credit of the people, which lasted over 600 years. Inscriptions on the books of a bank, established by the State, which were, divisible to any desired amount and transferable on the books of the bank from one to another, formed the chief medium of exchange during the period named. These inscriptions of credit were not redeemable in coin, but, notwithstanding that, they commanded a high premium over gold and silver. The Venetians were enabled, principally through their enlightened system of money, to attain great prosperity, which they enjoyed for centuries, and commercial crashes and money panics were unknown amongst them. (See Chap. IV.) The French people manage their financial affairs with more wisdom than any other nation of the present day. When specie is scarce an irredeemable legal tender paper 30 THE NATUEE OF MONET. money is used in its stead. Great pains are taken by the French government to keep every section amply supplied with a circulating medium of exchange, in order to develop the producing forces of the country — a policy that has been crowned with niarked success. The American peofile have had some experience in regard to the advantages of a legal tender paper money system since 1861, but the notes of the government (greenbacks) wei-e issued in such a mutilated form, and the workings of the system have been so materially interfered with by the money power, by means of corrupt legislation, that as yet they have had no fair opportunity to judge of its real merits. From an early period, then, money came to derive its power, as an agent to represent, measure and exchange value, from public authority. Individuals and nations seek to exchange and accumulate property and commodities, and money is desirable only on account of the power, with which it is clothed by public authority, to command property or labor. It is not useful of itself, for it cannot be used as food, or clothing, or shelter. It must be parted with before any seiwice or value can be obtained from it. In an accumu- lated form, as caj)ital, it can bring no income until it is put to use — parted with. It is, therefore, the immaterial princi- ple or power to represent value that is the essence of money, and this it can only derive from law. "Money is then," in the language of Kellogg, " a legal existence, being consti- tuted a national representative of property; consequently it is a public lien on all property for sale in the nation, a public medium for the exchange of products, and a tender in payment of debts." THE INTEINSIC VALUE OE MONEY. As money is a legal public medium of exchange, possess- ing representative value, it is not necessary that the material J THE INTKrSSIC TALTJE Or 3I0XEY. 31 of which it is made should ^possess intrinsic or commercial value. To use again the language of the author last quoted, *'The value of money perpetually depends upon its power to represent value and not upon its material, because money never reaches a point at which it can be used as an article ■of actual value." The -\ aluc of the material can add nothing to its power as money; it can only render its value more •certain, as when money is issued by a weak and irresponsible government, or by a nation possessing few or no products for which it can be exchanged. When is.sued by a stable and responsible government, whose people possess ample property and valuable products, its value corresponds to tlie value of the products of the country for wliich it can be exchanged. If money made of paper will procure the same property or commodities, as if made of a material possessing intrinsic value, like gold or silver, it possesses the same power in one instance as in the other. If A. has a ten dollar gold piece and B. has a ten dollar legal tender note, and the gold piece and paper money will each purchase the «ame article of value, in parting with them A. does not part with anything more than B., although A's money possesses an intrinsic value and B's does not. And as long as the gold i^iece is used as money, it is not possible for any one to derive any more use or value from it, than that which ■belongs to it in its representative capacity by virtue of law. Dr. Walker, a political economist of the bullionist school, in speaking of money as an instrument of exchange, says: "Anything which by general consent, or in obedience to law, all receive in exchange will answer the purpose (of money.) So far as this function is concerned, it is of no consequence whether the article has value or not; safety and convenience arc the only considerations of impoitance. Money in this respect is simply a counter, token or imiversal dsquivalent." 32 THE INTRINSIC VALUE OF MONEY. < The power of money, then, whether made of a material possessing value or not, depends on its ability to represent value. How a piece of pajjer, possessing little or no intrinsic value, can acquire the power to represent value, will be explained further on. In the meantime it will appear from a slight examination that it is a disadvantage to money to possess an intrinsic value, and that gold and silver, however suitable they may be to adjust balances between nations, are not the proper substances out of which to make the circula- ting medium of a nation. If money possesses an intrinsic, as well as a representative value, it is then a commodity, as well as money, and is subject to two different and often antagonistic sets of laws. As money it seeks to perform the functions of money and to fill the channels of trade, while as a commodity it is compelled to obey the "uncontrollable laws of supply and demand." In commerce gold and silver are commodities and are taken in exchange for products, when they are preferable, in a business point of view, to other products or commodities, or in the settlement of balances, after an exchange of products has been made. They are thus liable to be taken at any time from the channels of circulation by the demands of commerce, and this can be done most readily when they are stored in bank vaults as the basis of bank notes. In this way the amount of the circu- lating medium in a country is rendered dependent on tiie wants and whims of other nations, and is, consequently, unceitain in amount and fluctuating in value. It may be safely asserted that there was scarcely ever a time in the history of the United States, when the specie basis system was in existence, that the Emperor of China could not have occa- sioned a commercial crash and money panic, by simply decreeing that the idols and images worshipped by his subjects should be made of gold. THE IXTKIXSIC VALUE OP MONEY. 3S Gold and silver money are objectionable on account of the inconvenience and risk which attend their use, and for many other reasons, but the chief objection to gold is its scarcity, which also renders it expensive. There is not sufficient gold money in circulation to answer the wants of any one of the leading commercial nations of the world, and for all to seek to use it as an exclusive medium of exchange is simply an absurdity. It is true the difficulty is remedied in part in some countries by issuing paper notes based on gold, but these notes are not legal representatives of value, but merely representatives of the credit of those who issue them, and constitute, as experience has proved, an unsafe and unreliable medium of exchange, as will hereafter more fully apj)ear. As compared with the vast amount of money requii-cd to pay iutercst on debts, national, state, municipal and corjiorate, and the expenses of governments, and to carry on the transactions of hun(h'eds of millions of people, the amount of gold in use as money is as a grain of sand to a mountain . And when properly considered the intrinsic value of gold and silver is comparati\'cly trifling. These metals owe their chief value to their use as money. If that use were discontinued to any considerable extent, their value would depreciate in a corresponding degree. Only recently Ger- many demonetized silver, and it depreciated so rapidly in value that it became a matter of importance to the German government to dispose of its supply at the earliest moment possible. In 1764 the British Board of Trade objected to the use of legal tender paper money in the colonies, doubt- less because it rendered the people of the colonies independ- ent of the money power of Great Britain, on the gi-ound that " every medium of exchange should have an intrinsic value, which paper money has not." To this Dr. Franldin replied: 34 THE INTEINSIC VALUE OF MONEY. " However fit a particular tMng may be for a piirticular pui-pose, whenever that thing is not to be had, or not to be had in sufficient quantity, it becomes necessary to use some- thing else, the fittest that can be got in lieu of it. * * Bank bills and bankers' notes are daily used here [in England] as a medium of trade, and in large dealings perliaps the greater j)art is transacted by their aiicans, and yet they have no intrinsic value, but rest on the credit of those that issued them, as j)aper bills in the colonies do on the credit of the respective settlements there. These (bank bills) being payable in cash upon sight by the drawers is, indeed, a circumstance that cannot attend tlie colony bills, for the reason, just above mentioned, their cash (bullion) being drawn from them by the British trade; but the legal tender being substituted' in its place, is rather a greater advantage to the possessor, since he need not bo at the trouble of going to a particular bank or banker to demand the money." "At this very time even the silver money in England is obliged to the legal tender fur a part of its value; that part which is the difference between its real weight and denom- ination. Great part of the shillings and six-pences now current are, by wearing, become five, ten, twenty, and some of the six-pences even fifty, per cent, too light. For this difference between the real and nominal you have no intrinsic value; you have not so much as pa])er; you have nothing. It is the legal tender, with the kno^^iedge that it can easily be repassed /or the same value, that makes three x>enny- worth of silver pas«s for slx-peiiceP " Gold and silver are not intiinsically of equal value with iron, a metal in itself capable of many more benefits to mankind. Their value rests chiefly in the estimation they happen to be in among the generality of nations, and the credit given to the opinion that the estimation will continue. THE INTEINSIC VALUE OF MONET. 35 Otherwise a pound of gold would not be a real equivalent for even a bushel of wheat." [Franklin's Works: Duane's edition, 1809; volume 4.] Gold or silver, or both, however, are used for the pur- poses of money by nearly all nations, and hence ii is that these metals have come to be used in the commerce of the world, Jttot as money, but as commodities, under the name of bullion, possessing an established and universally recognized • ■ value. Gold at the present time is a commonly accepted equivalent for all other commodities. It will be borne in mind, however, that this general recognition of the value of gold dojjends chiefly upon the fact that gold is a legal tender, when coined into money, in all nations where it is used. No law exists compelling citizens of different nations to Tcceive from each other gold in payment of debts, but people will .always take that in payment of debts which they can in turn apply to the same purpose. It is incorrect, therefore, to speak of gold as the " money of the world." No such money has ever been established, nor can be until all n.itions adoj)t a uniform unit of value as well as of monej^ Different units of weight, length, value, etc., have grown up in different nations, in the same manner as different languages, manners and customs have grown up, and it would be almost as easy to establish a universal language as;to induce the various nations of the world to adopt a common system of money. A person who takes -$100 in gold, coined in the United States, to England, is obliged to sell his coin, just as he would sell a bale of cotton, in order to oTstain money which will pass cm-rent in that countiy; and if he crosses over to France he is obliged to sell English coin in the same way. And it may hajjpen, ' and frequently has happened, that a person may be unable tto obtain money for gold or silver. During the financial 36 tHE IXTEINSIC VALUE OP MONET. crisis in England, in 1847, it was impossible to borrow a £5 note on thousands of dollars worth of silver, because silver was not a legal tender for an amount over forty shillings, and was, therefore, practically useless for the pui-poses of money; and in Calcutta, where silver money is the legal tender of the country, during the stringency of 1864, it was impossible to borrow money on gold. It is well authenti- cated that, during that crisis, persons, with as much as $100,000 worth of gold in their possession, were obliged to allow their notes to go protest, because they could not borrow |10 in silver money on a bushel of gold. Another clap-trap name given to gold and silver, now in common use, is " honest money." Money is honest or not honest according to the uses it jjerforms and the manner in which it performs tliem. Gold or silver may perform the uses of money in an honest manner — it is then "honest money;" but it has been, and still is, the misfortmie of these naturally honest metals to be made the basis of all the rascally systems of money ever founded. And it may be well, loo, to notice briefly another pet name vhich is much relied upon by the bullionists to deceive and influence a large and intelligent class of people. In the memorable fight between the people, under the fearless and patriotic leadership of President Jackson, and the money power, rej)resented by the United States Bank, the term "hard money" became deservedly popular. Gold and silver coin were then the people's money — the "honest money" of the country, as the greenback is now; and the gist of the controversy was then, precisely as it is in the pending struggle now, whether the peoj)le should retain the control of the circulating medium of the nation in their own hands, where it is placed by the Constitution of the United States, or should permit individuals and corporations to usurp THE INTRINSIC VALUE OF MONEY. 37 the functions of the general government, and, in its stead, make and regulate the medium of exchange of the country. (See Chapter V.) If gold and silver were demonetized Ly the principal nations of the earth, they would owe their value as commod- ities to the use that could be made of them for other pur- poses, as for ornaments or in the arts; and as they could then be had for such jDurposes in abundance, their value would doubtless diminish to but a fraction of what it is now. THE USES OF MONEY. The uses of money correspond to its jjowers or properties, viz: to represent value, to measure value, to accumulate value and to exchange value.* Actual or real value Ijclongs to property or products, which are necessary or desirable, and money is the legal medium by A^liich it is represented, measured and exchanged. In an accumulated form, as cajjital, it represents accumulated property or labor, and is capable of acc-umulating value in the same manner tliat the property or labor which it represents could be used for that purpose. It measures value because it is the legal standard of value established by la-w, just as weights and measures to determine the Aveight, length and bulk of articles arc cstab- -tablished; and if based on sound principles, it would prove as unvarying, as a standard of value, as are the standards of measurement of weight and quantity. The value of prop- erty and products would then rise and fall in obedience to the laws of supply and demand, but the standard of value, money, would remain the same as previously determined by the law which instituted it, provided the law emanated from a responsible source. This may be illustrated in a measure by the greenback now in use, though not with the same degree of force and certainty tliat it could be done, if the •See Kellogg, page 4C. 38 THE USES OP MONEY. greenback had not been mutilated and dej)reciated by law. The value of property and commodities is now measured by the greenback, because the value of the greenback corres- ponds to the idea of value carried in the minds of the people of the United States. The unit of value in the United State* is the dollar, and this unit of value is fixed in the mind, just as the units of measurement expressed by a pound, a bushel, a yard or a degree, are fixed there, that is by use and custom. Partial legal tender paper money (the greenback) is now the money or medium of exchange of the country, and cor- responds to the idea of \alue fixed in the minds of the people. People think in greenbacks when estimating value. If told that the price of a horse is $100, the amount or value is instantly referred to the greenback standard of measurement. The price of particular commodities, as well as the price of gold, may change daily without affecting the prices of other commodities, as measured by the greenback standard, which could not be the case if it wore the green- back that fluctuated. Hence it may be inferred, among other things, that editors of newspajsers, who quote green- backs as worth so many cents on the dollar as compared with gold, are either grossly ignorant of the nature of money, or have become entangled in the toils of the money power. But it is of the uses of money in a less technical sense that we wish to speak. Money has come to be a vital ele- ment in production, in the operations of trade and in the business details of life. In a simple state of society, as in new countries even now, individuals and families are for the most part self-supporting. The farm sujjplies food and the material for clothing, and the spinning wheel and loom are found in every household. But where tlio advantages of civilization and a medium of exchange have once become common, a very different condition of affairs exists. The THE USES OF MONEY. 39 merchant, the tailor, the carpenter, the shoemaKer, the blacksmith, the doctor, etc., etc., have made their appearance, and individuals and families are no longei- self-supporting, but -wholly dependent upon each other. Money is then a necessity. Food, clothing, rent, fuel, light, taxes, insurance, railroad fares, etc., etc., require cash, and a general scarcity of money will occasion want and suffering, even in the midst of plenty. How dejjendent individuals are upon each other in a state of civilization, is thust set forth by Kellogg: "The necessity for the exchange of commodities is gen- erally acknowledged. Few, however, even among thinking men, are aware how indispensable these exchanges arc to the subsistence and comfort of the human family. Men are social beings, and mutually dependent. To appreciate this important truth, we must consider the inability of each man to provide for the numerous wants of his nature; and the ignorance and discomfort to which each would be exposed, were he not benefited by the labor of others. If every man could build his own house, furnish his own food and cloth- ing, and make all the instruments and utensils that he needs to use: if the materials for all these things were placed upon every acre of land, and every man, woman and child, were endowed with sufficient skill and strength to produce them, there might be no need of an exchange of commodities. But all men are, in many, in most things, ■ dependent on the labor of their fellow men. For example, take the farmer, who is acknowledged to be the least dependent of men, and see for how many things even he is indebted to the labor of others. He must have implements for the cultivar tion of his farm, a 23I0W, harrow, shovel, hoe, sickle, cradle, scythes, a fan, or fanning mill, and a cart or wagon. The farmer is dependent on the miner for the iron ore; on the collier to dig the coal; on the furnace worker to smelt the 40 THE USES OF MONET. iron ; on the forger and the smith to make liim his iron and steel instruments. He is dependent on 'the wagon maker for his wagon; on the machinist for his fanning mill; on the carpenter for his house; on the nail maker for nails; on the glass manufacturer for glass; on the stone cutter and the mason for mason work; on the brick maker for bricks; on the cooi^er for barrels, tubs and pails; on the saw maker for a saw, and on the rolling mill to roll out the iron or steel for it; on the tin-plate worker for kitchen utensils; on the moulder and caster of iron for iron pots; on the miner of copper, and on the copper and brass founder for brass and copper kettles; on the pump maker for a pump, etc., etc. He is dependent on the needle maker, the pin maker, the button maker, the silk grower, the tanner, the shoemaker, the hatter, the saddle and harness maker, the cabinet maker, and the type maker, type setter and printer. Not one of these artisans, in attending to his particular employment, produces his food and clothing; and all would be destitute of them, unless supplied with them by the labor of others. The farmer raises all of his food, except salt, tea, cofEee, sugar, molasses, spices and the like; these, and the shij)S to transport them, must be furnished by others. These wants call into emj^loyment ship carpenters, sailors, compass makers, surveyors, chart makers, etc. The fanner must raise wool, cotton, liemp or flax, or else be dependent on others for clothing. If the farmer, who is the least depend- ent of men, receives from others so many supplies, how is it with the hatter and shoemaker? The former makes an article to cover the head, the latter one to cover the feet; and all the additional suj)plies of both must be furnished by the labor of others. Artisans, too, depend upon each other for the different parts of their work; the cotton manufac- turer must be assisted by others to carry forward his manu- THE USES OF MONEY. 41 facture. Many articles, such as watch springs, are useless unless they are combined with other parts. It is, then, of paramount importance that no obstacles be thrown in the way of a ready exchange of commodities. A certain quantity of one kind of jDroduce is worth as much as a certain quantity of another kind; and all civilized nations have adopted some medium by means of Avhich all kinds of produce may be more easily exchanged than by direct barter. We hear it sometimes asserted that there is no need of a medium of exchange. But the articles of trade could not be divided and distributed to supjsly the numerous wants of a people without a representative of value through which the distribution could be made. For example, a man brings to market iive huncbed bushels of wheat. The pur- chaser tenders corn in payment; and they agree that seven hundred and fifty bushels of corn are worth as much as five hundred bushels of wheat. The seller can use but a small j)ortion of the corn, and finds a purchaser, with ^^hom he exchanges the surplus for hams. He disposes of the hams for hats and shoes. If he endeavor to di-\ide the hats and shoes, and exchange them for tlie articles that he needs, he may si^end two years before he can return to his fann to raise a second crop of wheat. Yet he is fairly dealt with. All those with whom he exchanges, give him, as nearly as possible, an equivalent of actual ^alue for the actual ^ alue that they receive; and all the articles arc such as all need. In fact, all trade is simply a barter of one useful thing for another. A person who produces more of an article than he needs for his own use, exchanges his surplus for the surplus articles of others. If the farmer had sold the wheat for money, the money would have been a tender for any other article that he wished to purchase." In the large operations of trade, as with foreign counti-ies 42 THE USES OF MOXEY. and between different sections, of the couiitiy, \':ist sums of money are constantly required. Tlio foreign trade of the United States in ordinary times amounts to nearly $1,000,- 000,000 a year, and the. trade between the different sections of the country amounts to probably five times that sum. It is true that, in the trade with foreign nations and between different parts of the nation, the transfer and re-transfer of money from one to the other is rendered unncecssaiy by the use of cheeks, drafts and bills of exchange, except to settle balances; but in the production, transportation, repeated handling and distribution of the comnioditicr, repi-esented by the vast sums referred to, the amount of inoney required is enormous. For example, in the movement of the crops of the Western States alone more cash is i-cquii-ed each year than can be had for the purpose; and in the days of the specie basis system the Western banks, as is well known, were in the habit at such times of issuing their notes without any regard to legal limitations. President Grant in his message of December, 187-3, after the panic and before he liad become debauched by the money power, called the attention of Congress to the fact in the following language: " It is patent to the most casual observer that much more currency or money is required to transact the legitimate trade of the country during the fall and winter months, when the vast croj^s are being removed, than during the balance of the year. With our present system, the amount in the country remains the same throughout the entire year, resulting in an accumulation of all the surplus capital of the countiy in a few centers, when not employed in moving ci'ops, tempted there by the offer of interest on call loans. Literest being paid, this surplus capital must earn the interest paid with a profit. IJcing subject to 'call,' it can not be loaned, only in part at best, to the merchant or man- THE rSES OF MONEY. 4S iifactui'er, for a, fixed term, lleneo, no matter how much cm-rency there might bo in the country, it would be absorbed, prices keeping pace with the volume, and jjanios, stringency" and disasters Avould ever be recurring with the autumn. Elasticity in our monetary system, therefore, is the object to be attained first, and next to that, as far as possible, a pre- vention of the use of other peoi^le's money in stocks and other species of speculation." Money is also an important element of production. When the channels of circulation are supplied with money, the- industries of the country are quick and active, and the entire- nation becomes engaged in adding to its wealth. It has been well said that "A nation, whether it coniuraes its own products, or with them purchases from abroad, can have no more value than it jJroduccs. The supreme policy of every nation, therefore, is to develop the producing forces of its own country. What are they? The workiiigmen, the land, the mines, the machinery, the water power, etc."* The- producing forces of a country can be developed only slowly and laboriously without the aid of money. The productive soil, the iron, the coal, the timber, the water power, th& machinery, the labor, etc., may all be at hand, but until touched by the vitalizing current of money, as it circulates in the channels of ti-ade, they can give forth but a feeble spark of the life and power which they possess. At an early day in the history of the colonies the inhabi- tants were subjected to great drawbacks for the Avant of a legal medium of exchange. Dr. Franklin, in iVGi, stated to the British Board of Trade that: "In 1723 Pennsylvania, was totally stripped of its gold and silver. * * * The diificulties for want of cash were accordingly very great, the chief part of the trade being carried on by the extremely •Sir John Barnard Bj les. 44 TUB USES OF MONEY. inconvenient method of barter, when, in 1723, paper money was first made there which gave new life to business, promo- ted greatly the settlement of new lands, whereby the province has so greatly increased in inhabitants that the export from thence thither [to England] is now more than ten fold what it then was." In 1755 Virginia was badly in need of money or a medium of exchange. A paper money bottomed on a specific tax was issued, which afforded abundant relief, and, as we learn from Jefferson, never depreciated a farthing in value. But ii more m.arked instance of the value of money as an element of production is furnished by the experience of Pennsylva- nia during the jjrcsent ecjitury. In 1841 the people of Pennsylvania were on the verge of bankruptcy. The State was imable to pay interest on the public debt, or even pay the wages of laborers for work done on the public works. Corporations wei;e bankrupt, and merchants were in nearly AS bad a situation. There was no money, and consequently trade and production were completely paralyzed. The State of Pennsylvania in this crisis issued $3,100,000 of what were called i-elief notes, bearing simply a pi-omise that they ■would be received by the Treasury of the State in payment of all taxes and other obligations due to the State. " These notes were taken greedily by the peojsle. Banks inserted in the front of their books an agreement that the dejjositor should receive on check the same kind of money ho depos- ited, and then took these notes. They discounted paper with them. The wheels of industry were set in motion by these notes, which promised nothing but that they would be received in payment of State taxes. The State paid her domestic creditors, and these hastened to pay theirs or to supply their wants by purchase. Crops, for which there had been no market, moved; the loom -ind the spindle were THE r.SKS OP ilO-VEY. 45 again heard; labor, lifted from despair, found work and wages, and with the great resources of Pennsylvania under full and free development, she was soon exporting more than she imported. Gold and silver flowed in upon her; and the broken banks resumed specie payments. We then did," says tlie Hon. William D. Kelley, of Pennsylvania, from whom we quote, "what France does; we were wise enough then to know that it is labor, not coin, that main- tains the public credit and gives prosperity to the people." But the peojjle of the United States ha\-o had ample proof, during the past few years, of the great advantages to be derived from an abundance of money. The activity in all forms of jDroductive industiy during and immediately after the war, which constituted an inexhaustible fountain of strength to the Federal Government, and which, in spite of the ravages of war, enabled the country to double its wealth in ten years, from 1860 to 1870, was attributable entirely to the vast amount of money, or e\-idences of indebtedness of the government used as such, that then filled the channels of circulation. The condition of the country then, when money was plenty, and now, under the policy of conti-action, which has withdrawn the circulating medium of exchange from the channels of trade, is thus eloquently portrayed by the distinguished statesman quoted above (Kelley), in a recent address to the citizens of Philadelphia: "You have seen a strong man, full of life, rise in the morn- ing as a lion shakes the dew from his mane and go forward to the battle of life, full of vigor, full of hope, full of energy, full of enterprise. His braivny nether limbs bear his stout body ably; his muscular arm and his cunning hand go glibly and gladly to their duties, performing their functions. But an accident happens, an artery is cut; the blood does not ooze, but flows from him. Tlie surgeon comes just in time 46 THE USES OF MONEY. to save liis life. He staunches the wound and binds it up. But the man is anothei- being, he lies there pallid and shrunken. His sturdy limbs will not even bear his wasted body. His muscles are flaccid, and his fingers liave lost their skill. His energy is gone, and he dreams not of enter- prise. This is our condition to-day as a peo2:)le. lu 1865 and 1866 every man in America who had the skill and the will to labor could earn wages to su^jport his family and lay something by. All industries were quick and active. Pro- duction ran on. The American peojjle waked up each new morning to feel that there were great duties before them; that there were mines to be opened, forges and furnaces to be erected to work the iron, the copper, the silver and the gold. New houses were built. Skill, energy, science and genius were taxed to quicken and cheapen produeti^e pro- cesses. Our wealth grew as it, or that of any other peoi:)le, had never grown. We were moving onward, when one Hugh McCulloch tapped a great artery and let nearly all the blood flow from the body politic. Diseased, paralyzed, shrinking from day to day, what American has the energy to engage in developing anew mine? Pennsylvanians, who of you are i-eady to construct a new forge or a new furnace? Where are factories building to-day? Your laborers — moody, sullen, in want — are begging the poor j^rivilege of earning a day's food by an honest day's labor. Tlieir homes are being stripped of everything they cherish. Go through the suburbs of your city, halt before the houses where of a Sunday afternoon you would, a few years ago, have found the family gathered about the melodeon or the cheap piano, singing the jwaises of Him who had given them their lines in these pleasant places. Ah! the house is silent now; the father is out of emj)loyment, the sons are in idleness, the daughters have no work; the melodeon or piano is gone. THE USES OF MONEY. 47 Aye, worse than that, the most cherished mementoes, though of little value measured in dollars and cents — the cheap jewelry — the trinket that the young lover toiled in over hours that he might buy and see it grace the person of his sweetheart, the amulet he hung upon the neck of his bride — the silver cujj that marked the birth or christening of their first born — cherished by all, but they have gone to the pawnbroker or jeweler to bring them food. Courage gone, hope gone, despair crushing him to the earth, and destroy- ing all the pride that made the American mechanic the boast and honor of his country, how many a man to-day, longing for honest work but powerless to obtain it, creeps and crawls from town to town, foot-sore, ragged, dusty, to besf from strangers rather than from those who know him and will remember it — to be denounced as a 'tramp' and ■commended to the custody of the j)oliee!" As the end and object of money are to exchange com- modities and promote production, it sliould bo increased in amount in proportion to the increase of population and trade. BuUionists assert the contrary, but they can furnish no sound reason or proof \rpon which to base their theory. They invariably rest their argument on the fact that nations have increased in wealth and population without adding to their monetary circulation, and most always cite Great Brit- ain as a case in point. Properly considered the experience of Great Britain does not sustain their theory. How does Great Britain manage to conduct its large and increasing business without a corresponding increase of money? The answer is by means of inflated bank credit. On account of the want of a sufficient medium of exchange, the British people are compelled to use and pay for the credit of banks to an enormous extent. This is a heavy tax upon the indus- trial classes of that kingdom, and explains why the wealth 48 THE USES OF MONEY. of the people is constantly flowing into the hands ' of the few. We find the following statement used by Dr. Walker, a political economist of the bullionist school, to show how ' nicely the people of Great Britain can get along with but a limited amount of money. We submit that it shows much more forcibly to what a desperate use of inflated credit that nation has been driven by a false monetary system. He says: "As an illustration in point, Sir John Lubbock gave, in a paper read before the Statistical Society, in June, 1865, an analysis of £19,000,000 paid into his banking house in a few days, as follows : ' Checks and bills £18,395,000, or 97 per cent. Bank of England notes 408,000 ) Country notes Y9,000 V 3 per cent. Coin 118,000 ) From which statement it appears that only tiK'ee per cent, were paid in the form of money, i. e., notes and coin together, of which a little more than one-half of one per,^ cent, 'was in coin." The buUionists pretend to be very much afraid of the evil consequences of inflation; but when the mask is torn off, it is apparent that they are only con- cerned about retaining the power to inflate in their own hands. SYSTEMS OF MONEY. Every nation has its own peculiar system of finance, the difference consisting more in details than iu principles. The financial system of the United States is now composed of the Independent Treasury Bureau for the receij)t, custody and disbursement of the revenues; of the Treasury proper, which maintains an issue of about $370,000,000 of Treasury notes (greenbacks), constituting the legal tender medium of the country, and about 145,000,000 of fractional currency; of the Xational Banks, over 2,200 in number, with a circulation SYSTEMS OF MONEY. 49' of over $360,000,000; and a nmiibcr of State Banks, estab- lished under State authority. The medium of exchange of the United States, it Avill be observed, is comj^osed of Treasury notes (greenbacks) and bank notes. It is imjDortant to notice the difference between the Treasury note and the bank note, because they belong to two entirely different and distinct systems of money; and a clear percei^tion of the difference is essential to a proper vmderstanding of the money question and of the political issues, growing out of it, which now agitate the country. A bank note is a bill of credit, promising payment in law- ful money on demand, issued by and resting on tlie credit of a private corporation established by law. Being payable or redeemable in money on demand, it represents money and circulates as such, and performs nearly all of its func- tions. Private corporations, therefore, upon whom the privilege or power to issue bank notes is conferred, are jjractically invested with the authority and power to make and put in circulation a medium of exchange. If the bank note is secured by a deposit of stock or bonds to insure its payment and maintain its value, as is the case with the National Bank note, Avhich is secured by a deposit of United States bonds in the Treasury of the Federal Government, it will form a j)erfectly safe, uniform and convenient medium of exchange. But a bank note possesses two peculiar features, which do not belong to money, (of any kind, whether made of gold, silver, or paper) and which render it a costly medium of exchange. One peculiarity of a bank note is that it enters into cir culation encumbered with interest, and constantly accumulates value, whether it is in use or not. Its very existence, therefore, is a tax upon production and trade. The other jjeculiarity, which grows out of the one just mentioned, is that a bank note is not free to obey the 50 SYSTEMS OP MONEY. natui'al laws of trade, but is subject to the will and control of the corporation which j)uts it in circulation. This can be made perfectly clear by supposing two notes, a greenback and a National Bank note, to be j)ut into circulation at the same time and observing the course taken by each. A greenback dollar is paid out by the United States govern- ment to A. for its equivalent in labor or value. A. iya,js it to B. for a dollar's worth of commodities, B. lends it to C. for thirty days at 6 j)er cent interest. C. pays it to D. for a debt. D. retains it ii? his possession for three months and then puts it in circulation again. It passes from hand to hand, until finally it reaches Z., who pays it to a collector of internal revenue, when it is returned to the Federal Treasury, to be iised over and over again in the same manner. While performing its- use as a medium of exchange, it bore no interest. When held by D. for three months in a state of idleness, it accumulated no value for any one. It is true B. lent it to C. for thirty days at 6 j^er cent, interest, but that Avas an individual transaction and extended no further than the parties concerned. As soon as C. put it in circulation again, it went on its way, as free and unencumbered as when it left the Treasury of the United States. But it is veiy different with a bank note. The bank, which' issues it, lends it to A. for sixty days at say 6 per cent, interest, and A. puts it in circulation. At the expiration of sixty days, A., unable to return the identical note which he borrowed, j)ays the bank with a greenback or another bank note. This note in turn is immediately lent to B., and the process goes on indefinitely. The original bank note thus constantly realizes interest and accumulates value for the bank, whether it circulates in the channels of trade, or reposes in the vaults of the bank as a dcj)osit, or lies rotting at the bottom of the ocean. This interest comes out of the profits of production, / SYSTKMS OF MONEY. 51 and is a tax uj)Ou the community at large. Tlie tax thus imposed upon the public for a medium of exchange is a greater burden than industry can bear, and every few years labor is driven to the wall and production, excej^t of the necessities of life, ceases. To promote production, or in other words, to "develop the producing forces of a country," -It IS, as we have seen, more essential to hav-e a cheap medium of exchange, than it is to have cheajD transportation; but a bank note is the most expensive medium of exchange that could possibly be devised, because it is accumulating value all the time, whether it is performing tlie uses of money or not. The bank note is subject to the will and control of the corporation which issues it, because when the bank ceases to discount paper, as it usually does whenever there is a money stringency, and calls in its circulation, it is obliged to leave the channels of trade, no matter how much its services are needed as a medium of exchange, and return to the bank. But this is not all. The tax which banks arc thus authorized to impose on the medium of exchange issued by them, enables them to control not only their own notes, but the money of the country, whether coin or legal tender paper money, as -nill be more fully explained in another chapter, and thus it happens, as at the present time, that the circulating medium of the nation every few years becomes concentrated in the money centers of the country. A bank note medium of exchange, whether redeemable in coin, as in England, or in greenbacks, as in the United States at the present time, it will, therefore, be obsei-ved, constitutes a peculiar and distinct system of money, and one, it may be added, that has proved an infinite som-ce of dis- aster and weakness in both England and America. It was for these reasons, in days gone by, that JefEersou insisted that " Bank paper must be sujjpressed and the circu- 52 SYSTEMS OF MONEY. lation restored to the nation to whom it belongs;" that John Adams denounced bank paper as a vile freak of those who were shapen in Toryism and British idolatry; that Jackson waged war on banks of issue; that Calhoun labored to establish a legal tender pajaer money, to be issued by the Federal Government; and it is for the same reasons that a host of the foremost statesmen, political economists and philanthropists of the country are to-day urging the people of the United States to assert their rights and prevent the money power from desti-oying the greenback, in. order that they may sub stitute the National Bank note in its stead, and thus secure the entire control of the medium of exchange of the nation. A Treasury note issued by the Federal Government repre- sents the property and productions of the country to the amoimt or value inscribed on its face. It rests on the credit of the government in the same manner that a bank note rests on the credit of a corj)oration, and represents the property and productions of the country (including gold and silver) for which it is exch angeable, just as a bank note represents the coin or Treasury note in which it is j)ayable or redeemable. The foundation of the Treasury note is the same as that of a United States bond, which secm-es the payment and maintains the value of the bank note, and it, therefore, possesses the highest and best security that a medium of exchange can possibly have.* A bank note is a promise to pay money, but a Treasury note, being a legal representative of value (property and products), is money. It is not, therefore, a promise to pay — it would be more accurate to describe it as a joromise to receive. It is true that the present legal tender money of the United States (the greenback) j)rofesses to be a promise to pay, which is a *See note at the end of tliis chapter. SYSTEMS OF JIOXEY. 53 misfortune, because it misleads people, even professors of political economy,* but the promise is an empty phrase, wholly foreign to the nature of the Treasury note and the principles upon which it is based. It was spread on the face of the greenback at the instance of the money power, which was unwilling to recognize any other kind of money than that based on bullion, and for the purpose of depreciating its value as a medium of exchange. It is apparent, therefore, that legal tender paper money or Treasury notes and bank notes belong to two separate and distinct systems of money, based on entirely different prin- ciples. In the one case the medium of exchange is furnished by the government and subject only to the natural laws which govern trade. In the other, it is furnished by private corporations, Avho tax; the public heavily for its use, and is subject, not to the laws of trade, but to the control of the coi-porations issuing it. In Great Britain, where the system originated, the legal tender money of the country, in which bank notes are payable, is gold and silver, as was the case in the United States prior to the war, and hence the system is commonly known, and is generally referred to in these pages, as the specie ■ basis system. When the medium of exchange is limited to gold and silver, or paper m.oney based on gold and silver, the public is compelled, on account of the scarcity of these metals, to use bank credit, which explains why the money power is now striving to force the American people to submit to a return to specie payments, no matter at what sacrifice. THE POWER TO MAKE MOKBY A GOVBEIflEENTAL FUNCTION. The power to make and regulate money has long been recognized as a governmental function, or, in the language of Tooke," In every civilized countiy supplying and regu- •See Professor Newoomb's silly comments on this polat in Appendix. 54 THE POWER TO MAKE MONEY lating tlio circulating medium is a function of sovereign javei-ogative." The reason of this is obvioiis. Money to be a public medium of exchange must possess legal representor tive value, and this can be derived only from the sovereign or law making power of a nation. The buUionists do not concede this, but profess to believe that the government is vested simply with the power to coin gold and silver, because " the State can do the work best, * * as no attestation (of the weight and purity of coin) furnished by private jDersons can comjjete in authority with the stamp imposed by the government mint."* This view of the matter grows out of the peculiar ideas in regard to the nature of money held by those who advocate the specie basis system. Bonamy Price, Professor of political economy in the University of Oxford, England, says: "Coin, metallic coin, alone is true money and notliing else is, unless it be a commodity, as an ox, a cow, or a j^icce of salt," — precisely the same theory of money, it will be observed, as that held by the ancient Romans, who used bars of cojjper and cattle, and by the American Indian of the present day. The Constitution of the United States confers upon Con- gress the following, among other, powers, viz: "To lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; * * to borrow money on the credit of the United States; * * to coin money, regulate the value thereof and of foreign coins; * * and to make all laws which shall be necessary and proper to carry into effect the foregoing powers, etc." It also prohibits the I States from coining money, emitting bills of credit, or mak- ing anything but gold or silver coin a tender in payment of debts. The exclusive power to make and regulate the *Currency and Banking, by Bonamy Price, page 17. A GOVERNMESTTAL FUNCTION. 55 medium of exchange, therefore, devolves upon the Federal Government At the time the Federal Constitution was framed the money question was one that had to be handled with great delicacy. The money power, then as always in fact, was on the alert, and care had to be taken not to incur its hostility, lest it might prevent the ratification of the Con- stitution by the several States. When it was proposed to insert a clause in the Constitution empowering the Federal Government "to emit bills of credit," it was boldly stated on the floor of the Convention that " the moneyed interest would oppose the plan of government if i>aper emissions (bills of credit) be not prohibited," and the clause was rejected by a vote of nine States against to two for. As "bills of credit" are promises to pay in lawful money and belong to the specie basis system of money, it is fortunate that no such provision was inserted in the Constitution. In this respect its framers, perhaps, "builded better tliaii they knew." As the Federal Govei-nmcnt is clothed with no power "to emit bills of credit," and States ai-e ex2)ressly prohibited from doing so, it is a very pertinent question as to how either the Federal or a State go\ernment can dele- gate that jjower to a jarivate corjjoration. Individuals can issue promises to pay, because they are in the nature of a common contract, but when it comes to corporations issuing promises to pay (bills of credit), under special authority of law, which are clothed with the attributes of money, it is a very different matter. The well known legal maxim that what one "does through another he does himself," would seem to fit the case pretty closely. But the jjeople can not afford to waste time with constitutional quibbles. They can compel their Representatives in Congress to extinguish banks of issue and " restore the circulation to the nation to whom it belongs,"* and if it is Jiecessary to amend *Tliomas Jeffersou. 56 TUB PCWER TO MAKE MOlSrEY the Constitution in order to accomplish that purpose, they can also do that. But there seems to be no difficulty so far as the Constitu- tion is concerned. That the framers of the Constitution, when they refused to emj)ower the Federal Government "to emit bills of credit," did not intend to prohibit j)aper money or in any way curtail the legitimate functions of government with respect to making and regulating the medium of exchange of the country, is apparent from cotemporaneous history, as well as the subsequent course of the govern- ment. Mr. Madison, who was a member of the Convention which framed the Constitution, in speaking of his vote against empowering the Federal Government " to emit bills of credit," says: "The vote in the affirmative by Vii'ginia was occasioned by the acquiescence of Mr. Madison, who became satisfied that striking out the words ['to emit bills of credit'] would not disable the government from the use of public notes, as far as they could bo safe and proper; and would only cut off the pretext for a paper currency, and particularly for making the bills [of credit currency] a tender either for jjublie or private debts." [See " Madison Papers."] Mr. Jefferson repeatedly urged that banks of issue should be suppresed and that public notes issued by the Federal Government should be substituted for bank notes as a medium of exchange. In a letter dated June 24, 1813, to his son-in-law Eppis, who was a member of the committee of ways and means of the national House of Representatives, urging this point, he said: "In the war of 1755, our State availed itself of this fund, by issuing a paj)er currency, bottomed on a specific tax for its redemption, and to insure the credit, bearing an interest of five per cent. Within a very short time, not a bill of this A GOVEEXMENTAL FUNCTION. 57 emission was found in circulation. It was locked up in the chests of executors, guardians, widows, farmers," etc. "We then issued bills bottomed on a redeeming tax, but bearing no interest. These were received, and never depre- ciated a single farthing." "In the revolutionary war, the old Congress, and the States, issued bills, without interest and without tax. They occupied the channels of circulation very freely, until those channels were overflowed by an excess beyond the calls of cu-culation. But although we have so improvidently suffered the field of circulating medium to be filched from us by private individuals, yet I think we may recover it, in part, and even in the whole, if the States will co-operate with us." " If Treasury bills are emitted, on a tax approjiriated for their redemption in fifteen years, and (to insure preference in the first moments of com23etition) bearing an interest of six per cent., there is no one who would not take them in j)reference to bank paper now afloat, on a principle of patri- otism, as well as interest, and they would be withdrawn from circulation into private hoards to a considerable amount. Their credit once established, others might be emitted, bottomed also on a tax, but not bearing interest; and if ever their credit faltered, open public loans, on which these bills alone should be received as specie. These oper- ating as a sinking fund, would reduce the quantity in circu- lation, so as to maintain them in an equilibrium with specie. It is not easy to estimate the obstacles which, in the begin- ning, we should encounter in ousting the banks from the j)ossession of circulation." Mr. Jefferson's plan, it will be observed, is identical in principle with the much derided 3.65 inter-convertible bond plan, so ably advocated by Pliny Freeman, Judge Kelley, 58 THE POWER TO MAKE MONEY Horace Greeley* and a host of able and earnest friends of the American masses. The issue of Treasuiy notes under the Constitution accord- ingly began at an early day, though not without meeting with fierce opposition from the money power, and their legality has been sanctioned from the first by all depart- ments of the government. The first issue of Treasury notes was made in pursuance of an act of Congress of June 30, 1812. Further issues were authorized by the acts of Con- gress of February 25, 1813; March 4, and December 26, 1814; October 12, 1837; January 31, and August SI, 1842; July 22, 1846; and January 28, 1857. The validity and constitutionality of these acts were tested and affirmed in the Supreme Court of the United States, in the case of Thorndike against the United States. Judge Story, in delivering the opinion of the court, said: "By the statutes of the United States, under which the Treasury notes have been issued, it is enacted that such notes shall be receivable in payment to the United States for duties, taxes, and sales of public lands, to the full amount of the principle and interest accruing, due on such notes. It follows, of course, [that they are a legal tender in payment of debts of this nature, due to the United States; and, by the very terms of the acts, public officers are bound to receive them." When the act of Congress of October 12, 1837, author- izing an issue of Treasmy notes, was pending, Mr. Calhoun advocated the measure in strong terms. The following extracts from a speech delivered by him September 19th, prior to the passage of the bill, confirm the distinction which we have made between j)ublic notes and bills of credit, and explain what was meant when "we stated that it would be *Horace Greeley's famous editorial on tlie 3. Co Eoud plau will lie foimd In the Appendix. A GOVERNMENTAL FUNCTION. Sd' more accurate to describe u greenback as a promise to receive than a promise to jpay.* He said: "It is, then, my impression, that in the present condition of the world, a paper currency, in some form, * * is almost indispensable in financial and commercial operations of civilized and extensive communities. In many respects it has a vast superiority over a metallic currency, especially in great and extended transactions, by its greater cheapness, lightness, and the facility of determining the amount." * * "It may throw some light on this subject to state, that North Carolina, just after the revolution, issued a large amount of paper, which was made receivable in dues to her; it was also made a legal tender, but which, of course, was not obligatory after the adoption of the Federal Constitu- tion. A large amount, say between four and five hundred thousand dollars, remained in circulation after tliat period, and continued to circulate, for more than twenty years, at par vsdth gold and silver during the whole time, with no other advantage than being received in the revenue of the State, which was much less than one Innidred thousand dollars per annum." "No one can doubt but that the government credit is better than that of any bank; more reliable — more safe> Why, then, should it mix it up with the less perfect credit of those institutions? Why not use its own credit to the amount of its own transactions? Why should it not be safe in its own hands, while it shall be considered safe in the hands of eight hundred private institutions, scattered all over the country, and which have no other object but their own private profit; to increase which they extend their business to the most dangerous extremes. And why should the community be compelled to give six per cent, discount *See page 52, 60 THE POWEK TO MAKE MONEY for the government credit, blended with that of the bank, ■when the superior credit of the government could be fur- nished separate, without discount, to the mutual advantage of the government and the community?" * * * " Believing that tliere might be a sound and safe paper currency, founded on tlio credit of the government exclu- sively, I was desirous that those who are responsible, and have the j)ower, should have availed themselves of the oj)portunity." * * " We are told the form I suggested is but a repetition of the ' old Continental money; a ghost that is ever conjured up by all who wish to give the banks an exclusive monojjoly of government credit. The assertion is not true; there is not the least analogy between them. The one was a promise to pay, when there was no revenue; and the other a jDromise to receive in the dues of government when there is abun- dant revenue." " We are told that there is no instance of a government piaper that did not dej)reciato. In reply, I affirm, that there is none, assuming the form I propose, that ever did dei^re- <3iate. Whenever a paper, receivable in dues of government* had anything like a fair trial, it has succeeded. Instance the case of North Carolina, referred to in my opening remarks. The drafts of the Treasury, at this moment, with all their incumbrance, are nearly at par with gold and silver. * * * The case of Russia might also be mentioned. In 1827 she had a fixed paper circulation in the form of bank notes, but which were inconvertible, of upward of one hun- dred and twenty millions, of dollars, estimated in the metallic rouble, and which had for years remained without fluctua- tion, having nothing to sustain it, but that it was received in the dues of the government, and that too with a revenue of only about ninety millions of dollars annually. I speak on A GOVEENMEIS^TAL FITSfCTION. 61 the authority of a respectable traveller. Other ingtances, no doubt, might be added, but it needs no such support." " It has another strikhig advantage over bank ch-culation, in its superior cheapness, as well as greater Stability and safety. Bank paper is cheap to those who make it; but dear, very dear, to those who use it, fully as much as gold and silver. It is the little cost of its manufacture, and the dear rates at which it is furnished to the community, which gives the great profit to those who have a monopoly of the article. Some idea may be formed of the extent of the i^rofit, by the splendid palaces which we see under the name of banking houses, and the vast fortunes which have been accumu- lated in this branch of business; all of which must ultimately be derived from the productive powers of the community, and of course adds so much to the cost of production. On the other hand, the credit of government, while it would greatly facilitate its financial operations, would cost nothing, or next to nothing, both to it and to the people, and of course would add nothing to the cost of production; which would give to every branch of industry, agriculture, com- merce and manufactm-es, as far as circulation might extend, great advantages, both at home and abroad." Subsequently, March, 1838, Mr. Calhoun, in his speech on the Independent Treasury bill, said : "I now undertake to affirm positively, and without the least fear that I can be answered — what heretofore I have but suggested — that a paper issued by government, with the simple jDromise to receive it in all dues, leaving its creditors to take it, or gold and silver, at its option, would, to the extent to which it would circulate, form a perfect paper cir- culation, which could not be abused by the government; that would be as steady and unifonn in value as the metals them- selves. I shall not go into the discussion now, but on a 62 THE POWEK TO MAKE MOJTEY suitable occasiou I shall be able to make good every word I have uttered. I will be able to do more — to j)rove that it is within the constitutional power of Congress to use such a pajier, in the management of its finances, according to the most rigid I'ule of construing the Constitution; and thatthose at least who think that Congress can authorize the notes of private corporations to be received in the public dues are estopped from denying its right to receive its own j)aper." The United States Treasury notes, issued jirior to the war of 1861, had never been made a tender in payment of jjri- vate debts, nor had they been issued in a suitable form to use as a cLi'culating medium of exchange. But when the Re- bellion broke out in 1861, the necessity for an increased amount of money became imperative, and it became neces- sary to issue public notes better adapted to the wants of the times. The banks of 'New York, Boston, and Philadelphia, soon after the war began, agreed to lend the Federal Gov- ernment $150,000,000. After the loan had been negotiated, the Secretary of the Treasury, unexpectedly to the banks, required it to be jjaid in specie instead of bank notes, and the result was that the banks throughout the country were obliged to suspend specie payments. The government stood in need of soldLers, ships, gun- boats, cannon, guns, ammunition, commissary stores, quarter- master stores, transportation, etc. The jDeople at large were obliged to supply the wants of the government, and fortu- nately possessed both the ability and willingness to do so, but it was impracticable to accomplish the ends desired except through the instrumentality of a medium of exchange — money. Congress, by virtue of the sovereign prerogative inherent in the people, and as their representative duly authorized by the Constitution, enacted a law authorizing .and directing the Treasuiy Depai-fcment of the Federal Gov- A <;oveknme:xtal fuj^ction. 63 ernmeat to is&iie public notes which should bo a legal tender for debts, both public and jjrivate. As they were issued by the people in their collective capacity, and represented the property and products of the nation, it was eminently just and proper that they should declare that what they did in- their collective capacity should be binding uj)on them indi- vidually. In fact, in no other way could the people all have been put upon the same platform with respect to the wants of the government, in the exigency which then existed, than by declaring their public notes a legal tender in ijaynieut of debts. These notes, as we have said, represented the prop- erty and products of the nation, and by virtue of their legal tender property tliey naturally and necessarily conformed ti> the unit and standard of value of the country. The}- there- fore possessed the power to measure and exchange, as well as to represent value, and consequently possessed all the attributes of money — in a word were money, in .every sense of the term; and the American people found themsehes, unexpectedly, it is true, in the enjoyment (to use the language of President Grant) " of the best currency that was ever devised." When public notes Vi't'r.e issued, the peojjle in a collective capacity in effect said to those who wei-e able to supply tlio wants of the government: " Give the government all the guns, ships, food, transportation, etc., tliat is required, and the rest of the peoi^le will make good to you whatever amount you may contribute over and above your share out of any other property or products which they may possess that you need or desire." As it was a matter of compulsion 'on the part of the people to supply the wants of the govei-n- ment, it was an act of supreme folly in them to encumber their circulating medium ^Ylih interest directly or indirectly, AS was done, Avliicii can only be conipared to a man paying 64 THE POWEK TO MAKE MONET somebody else interest for the privilege of using his own money. It simply made it the prey of speculators and money dealers, greatly to the disadvantage of the nation. That it was unnecessary appears from the fact that green- • backs to the amount of hundreds of millions of dollars cir- culated in the channels of trade and performed all the uses of money, as effectively as gold or silver could have done, for more than a year before the United States bonds, bearing six per cent, interest in gold, with which they were interchange- able, were issued, and continued to do so after their inter- changeability was taken away by act of Congress. Mr. Spaulding, chairman of the sub-committee of Ways and Means of the House of Representatives, in a speech on Jan- uaiy 12, 1863, said: "The Secretary has paid out nearly $250,000,000 legal tender notes, being all that he was author- ized to issue; and notwithstanding he has had authority for the last ten months to sell $500,000,000 of five-twenty six j)er cent, bonds at the market price, he has only disj)osed of about $25,000,000, and has still authority to sell $475,000,000 at the market price, and' take his pay for them in legal tender notes. One of the reasons why more of these bonds have not been disposed of is, that there has been no redundancy of currency, and it has been difiicult for the Secretary of the Treasury to get legal tender notes on a sale of the bonds and seven-three-tenths notes that he has already negotiated." In other words, the people needed greenbacks far worse than anything else, and could not spare them to invest in five- twenty bonds, which have since been paid both principal and interest in gold. At this time gold ranged from 134 to 160. Had Congress not yielded to the demands of the money power, but passed the legal tender act as originally framed and offered in the House of Representatives, that is to say, had made the greenback a full legal tender (receivable for A GOVERNMENTAL PUNCTION. 65 duties on imports as well as other public dues), and not made the interest on the bonds, with which it was intended to be interchangeable, payable in gold; and resorted to a judicious system of taxation, using the bonds only to sustain the greenback in case its credit ever faltered, liy receiving it alone as specie for bonds, there is every reason to believe, from the experience of the country at that time and since, that the war could have been carried through successfully without incurring but a fraction of the debt now owed by the Federal Government, and that the debt, A\hatever it might be, would be held mostly at home instead of abroad. But no sooner had the legal tender act made its appearance in Congress than the money power was uj) in arms against its passage. Delegations of bankers from Xew York, Boston and Philadelphia hurried to "Washington; and formally organizing, by selecting one of their number chairman, they summoned the Finance Committee of the Senate, the Com- mittee of Ways and Means of the House, and the Secretary of the Treasury into their presence. In the end the money 2>ower, although it did not succeed in jireventing the passage of a legal tender act, secured a complete triunipli. The interest of the bonds was made payable in gold in order to create a demand for gold, and then duties on imports were made payable in gold in order to get the gold to pay the interest on bonds. A premium on gold was thus established, and the jjublic notes of the gov- ernment were dishonored by the government itself; and, as we have seen, the premium on gold was run up to 160 before ever the gold interest hearing bonds of the government were issued. A National Banking law was also enacted to enable the money power to regain control of the monetary affairs of the nation. This was the beginning of the most stupendous robbery, boldly and openly planned and remorse- 66 THE POWEE TO MAKE MONEY lessly executed, to be found in the annals of any nation, of either ancient or modern times, the details of which will be accurately set forth La a coming chapter (Chapter VI.), and the end is not yet. The legal tender acts passed during the war not only received the sanction of every department of the govern- ment, but met Avith the universal approbation of the wealth producing classes of the nation. Their validity and consti- tutionality, which were of course contested by the money power, have been affirmed by the Supreme Court of the United States, and by the Supreme Court of fifteen States, and only in one instance has a State Com-t failed to endorse their constitutionality. The Constitution of the United States does not in express terms confer upon Congress the authority to make anything a tender in payment of debts, the word tender being no where mentioned in that instru- ment, except in the clause prohibiting States from making anything but gold and silver a tender, but the right to do so is so clearly an incident of the general powers of Congi-ess over the currency of the country, that it has never hesitated to enact such laws xipon the subject as the interests of the nation required. The right to declare by law what shall be a tender in payment of debts has thus been exei'cised by Congress in twenty-four statutes f)assed dming the adminis- trations of Washington, Jefferson, Madison, Monroe, Jackson, Tyler, Polk, Fillmore, Pierce, Lincoln and Johnson. But driven out of the Supreme Court, the money power is now busy striving to inculcate the doctrine that Congress could only make public notes a tender in payment of private debts in time of war. A distinguished lawyer,* who has made himself conspicuous of late in his efforts to mislead the public upon this subject, says: "That the only currency *J:loii. Heverdy Johusou. A GOVERNMENTAL FUNCTION. 67 known to the Constitution is gold and silver, or paper con- vertible into it on demand," and gives it as his opinion that the Supreme Court did not intend to go so far, in the legal tender cases decided at the December term, IS 70, as to decide that such an act would be constitutional if passed in time of peace. As the framers of the Constitution, as lias already been explained, refused to authorize Congress ''to emit bills of credit," (paper convertible into gold or silver on demand) it is evident that this distinguished advo- cate of banks of issue, in asserting that such a currency is "known to the Constitution," has allowed his zeal to outrun his judgment, and he is no less in error in regard to the opinion of the SujDreme Court. Mr. Justice Bradley, one of the Judges of the Supreme Court, who read an oi^inion in the cases referred to, says : ■"Another ground of the power to issue Treasmy notes or bills is the necessity of providing a proper currency for the -country, and especially of providing for the failure or dis- appearance of the ordinary currency in times of financial pressure and threatened collapse of commercial credit. CmTcney is a national necessity. The ojaerations of the go^'- ernment, as well as private transactions, are wholly depend- ent upon it. The State governments are prohibited from making money or issuing bills. Uniformity of money was one of the objects of the Constitution. The coinage of money and regulation of its value is conferred upon the General Government exclusively. That government has also the power to issue bills. It follows as^ a matter of necessity, as a consequence of these various provisions, that it is specially the duty of the General Government to provide a national currency. The States cannot do it, except by tlie charter of local banks, and that remedy, if strictly legitimate and constitutional, is inadequate, fluctuating, uncertain and 68 THE POWEK TO MAKE MONEY insecure, and operates with all the partiality to local interests, which it was the vei-y object of the Constitution to avoid. But regarded as a duty of the General Government, it is strictly in accordance with the spirit of the Constitution, as well as ill line with national necessities." (12 Wallace's Keports, 562.) The necessities of peace may be as great, though of a dif- ferent character, as those of war, as the American people are experiencing at the present time. For several years the nation has been suffering a daily loss of millions of dollars, by reasor of its inability to develop the producing forces of the country, as they might be developed under wiser laws. Nor need anyone indulge the hope that "times will change," because there can be no change, except from bad to worse, until the cause which has produced the present prostration of all forms of productive industry is removed. The repeal of the act decreeing specie resumption January 1, 1879, which rests as an incubus upon the industries of the country, might afford temporary relief, and would certainly avert the general bankrujjtcy, which is inevitable if its provisions are carried out, btit to jalace the affair's of the nation on a sure foundation something more is required, viz., the extinction of banks oi issue and the adoption of a monetary system based on sound principles. Specie circulation would then come naturally as soon as the nation produced a sufficient surplus of products to cause its return. This was witnessed in France after the late war with Germany. Stimulated by an abundance of irredeemable legal tender paper money, the French people bent every energy towards producmg weaWi, and in less than three years astonished the world by paying off the German indemnity of $1,000,000,000; and specie now circulates there side by side at par with irredeemable pajier money. The immense sum paid by France to Ger- A GOVEENJIEXTAL PUNCTIOIf. 69 many was not paid in actuiil gold, but in bills of exchange, etc., which, represented the proceeds of French industry. It is a common error in the United States to suppose that interest on the public debt is paid in gold, and that therefore it is neces- sary to require duties on imports to be paid in gold. It is a mere fiction. The interest of American securities held abroad are paid in products, and products do not sell for a farthing more or less in foreign markets, on account of being measured and exchanged in the United States by greenbacks instead of gold. The premium, however, on gold, which exists by reason of the law requiring duties on impiorts to be paid in gold, is a disadvantage to all classes, except the bondholder and money dealer, which should be remedied. If the green- back were made a full legal tender, and sustained by an interest-bearing bond with whicji it was interchangeable, there is every reason to believe that the premium on gold would almost totally disappear. In 1861, by the acts of July 17 and Augusts, the Treasury Department was authorized to issue $50,000,000 in what were commonly known then as de- mand notes. An additional issue of $10,000,000 was author- ized Feb. 10, 1862. These notes were recei\able for all public dues, duties on imports included, and were subsequently made a legal tender for private debts, and the res^ult was that they commanded the same premium over the ordinary greenback that gold did, and \\"ent up Mith gold, step by step, to the enormous premium of 285. Could any better evidence than this be required to prove that a greenback made a fidl legal tender would circulate at par, or nearly so, with gold? These " demand notes " were of course very obnoxious to the buUionists, because they gave the lie to all their theories about paper money, and accordingly they were got out of the way at the earliest moment possible — all excejjt about 175,000, which are jDrobably lost and, if such is the case, constitute a gain of that amount to the people at large. 70 HOW PAPER MONEY ISSUED BY THE HOW PAPEB MOXEY ISSUED BY THE GOVEENMENT KEPEE- SENTS VALUE. The nature of money has been so constantly and generally misrepresented that, as we liave already suggested, it is not surprising that people find it difficult to understand how a piece of paper issued by the government represents value. This can be fully understood by considering briefly the atti- tude of the individual with respect to his duties and obliga^ lions to the government. In an organized state of society the controlling power, or sovereignty, is exercised for the common good through the agency of a government. As the sovereignty in the United States resides in the people at large, the duties of the individual may be said to be self- imposed. The powers mth which the government, whether Federal, State, or local, is vested, imjjly a corresponding duty on the jDart of the individual. It is the duty of the Federal Government to provide for the common defense and general welfare. In time of peace it imposes taxes to defray the expenses of government and discharge^ its obligations; and in time of war it can demand the personal services of the individual. Thus the entire wealth of the nation is held subject to the needs of the State. Private property is taken daily, no matter how much it may be endeared to the' indi- vidual by association, for public uses, as in the case of roads, streets, etc., and the tax warrant takes precedence over aU other liens, without respect to priority. The expenses of the government are paid out of the earn- ings of the people at large. When the government needs money it has to look to the people for it; taxes are laid and the people are obliged to respond. But if there is no money in the country, people are miable, not only to caiTy on private transactions, but to supply the necessities of the government. They may possess property and products in G0VERX5IEXT KEPEESEJfTS VALUE. '71 abundance, but they can not be made available for the uses of the government, excejjt through the instrumentality of a medium of exchange, and it is necessary, therefore, that a medium of exchange be devised. The government might borrow gold or silver, or the credit of corporations in the shape of bank notes, by paying interest; but why should the people be compelled to j)ay interest for the use of a com- modity like gold, when they have abundance of other commodities at the service of the government, which only require a medium of exchange to be made available, or for the credit of corporations, when their own credit is much better than that of any corporation? Through the agency of the Federal Government, upon ■\^■hom, under the Constitu- tion, that duty devolves exclusivcl)', the joeople in a collecti\o capacity can issue their own notes, which cover the entire property and wealth of the nation, including gold, silver — everything, in a word, that can be reached by a tax warrant. These notes represent property to the amount inscribed on their face, which the government was entitled to demand in the way of taxes at the time the notes \\'ere issued. It was in this sense that Calhoun declared that they were in reality "promises to receive," and bore no analogy to notes prom- ising payment in money. As between citizen and govern- ment they are the same as money, and, if the individual in turn is not obliged to receive them as the representative of property to the amount inscribed on their face, it is tanta- moimt to the people repudiating individually what they have done collectively. It is, therefore, but a matter of simple justice and equity that Congress should declare the public notes of the government a legal tender. It is also a matter of great advantage to the people, for when a public note is made a legal tender it acquires all the fmictions and serves all the purposes of money. The public note is 72 HOW PAI'EB MOXEY ISSt'ED BY THE not, then, oiic thing to the governnieut and another to the people, but its value becomes fixed and certain, as determined by l.nv. A dollar legal tender note of the government then represents a dollar's worth ofjjroperty — neither more nor less. It consequently corresponds to the unit of value fixed in the minds of the people by usage and education, and is a measm-e of value. It has, therefore, i-epresentative value and the power to measure and exchange property; in other words, all tlie attributes or functions of money. As it rep- resents a dollar's worth of property, it cannot vary as a standard or measure of value, except as the unit of value may vary in the minds of the people. This is not the case with money possessing intrinsic value, because its power as money then depends chiefly upon the value of tlie material of which it is made, and as that will fluctuate according to the laws of supply and demand, it cannot be used as a fixed measure of value. Thus gold fluctuates in value, and is itself, whether in coin or bullion, a thing to be measiu'ed. That a measure of value must possess intrinsic value is a dogma of the schools, which men of science, out of a desire to be consistent perliajjs, adhere to — notwithstanding the faci, that they are furnished with abundant proof to the contrary in almost every transaction of daily life — with as much per- tinacity, as the men of science and the cliurchmen of the 17th century adhered to the opinion that it was the sun that revoh'cd around the earth and not the earth around the sun. Wlien the F'cdcral Government pays out a dollar legal tender note for ^-alue received, it will be asked hoM', when and where is the holder to obtain the property or value which it represents? The Federal Government could say, this note rejjrcsents jiroperty, which the government is now entitled to I'cceive, and a tax warrant can produce the property any moment, if it takes the last dollar's worth GOVEES^IIEXT EEPKESENTS VALUE '73 in the country; but the government is constantly receiving property, or its equivalent, in the shape of revenue, and there is no necessity to make a special levy of taxes to pay this jjarticular dollar; nor is there any necessity to fix a time for its redemption in property. Being a legal tender, every individual in the nation will take it at the value inscribed on its face, and in the natural course of events it ivill redeem ' itself, in one sense, by returning to the Federal Treasury in the form of taxes or revenue. It was for this reason that, in the case of North Carolina, mentioned by Mr. Calhoun, several hundred thousand dollars of legal tender paper money, issued by the government of that State, circulated for years at par with gold and silver, with no otlier advantage than being received in the revenue of the State, which was less than one hundred thousand dollars per annum. The wealth of the United States is estimated at over 140,000,000,000. The annual expenditures of the Federal Government amount to about $300,000,000, requiring a corres- ponding revenue. The amount of public notes, based on sound principles, which the Federal Government, backed by $40,000,000,000 of property, with a revenue of $300,000,000 a year, could safely issue, is a matter of opinion, arri\ed at in much the same Avay that the credit of an individual is meas- ured. The amount of money required by a nation is just w^hat can be used safely and profitably in carrying on its affairs, public and private. It will vary in different years and at different seasons of the same year, through the operation of causes existing in various parts of the world. Hence the necessity of sustaining the legal tender note of the government with a bond, with which it may be inter- changeable in times of redundancy; and it might be possible, if the government were out of debt, to accomplish the same end by increasing or diminishing the rates of taxation as occasion required. 14= GOVEENMENT SECUEITY THE SAFEST. NoTE.-^On page 62 we stated that "the foundation of the Treasury note (greenback) is the same as that of a United States bond, which secures the payment and sustains the value of the bank note, and it, therefore, possesses the highest and best secm-ity that a medium pf exchange can possibly have." Professor Bonamy Price, although he seems to think that notes issued by a government are not as good as bank notes, because "there are no means for compelling a government; to pay money, if it choses to say that it has none," (Currency and Baukuig, jjage 45) never- theless, is of the opinion that no guarantee for the solvency of the notes of a bank is so natural and safe as a deposit of government securities. He says: "Bank notes circulate largely among the poor and uneducated, and when the bank breaks, the loss is severe and distressing. These facts supply ample warrant to the State to require of issuing bankers, not only that they should pay their debts to the utmost extent of their fortunes, as any other person, but further that they shall lodge such security as shall always provide for the payment of the debt acknowledged on the note. A guaran- tee for the solvency of the notes may be obtained in various ways, but none seems so natural and so simple as a deposit of government securities with some officer of the State. It combines two advantages — safety, and a natural and fitting^ profit for the banker from the interest accruing on the bonds or stock. The old Exchequer bill of the English government was an excellent specimen of this kind of security. It could always be paid in for taxes, bore a daily interest, and was thoroughly trusted, and with reason, by the whole commu- nity." (Currency and Banking, page 53.) It is a bad cause that obliges a professor of political economy to blow hot and cold in this manner. CHAPTER III. BAIfKS AND BANKING. Banking had its origin at an early period in the history of commerce, and a banker originally was simply a dealer in money. In the New Testament mention is made of a bank in which money could be placed at interest, and only recently the tablets of an ancient banker, with their inscrip- tions nneffaced, were brought to light by the explorations: now being made amongst the ruins of Italy. In England, until as late as the beginning of the 18th century, the busi- ness of banking was carried on by goldsmiths. Banking,, however, as it is now conducted, is an institution of modern, growth. The check, certificate and bill of exchange have- come to perform an important part in the work of exchange. It is not the intention to enter into a consideration of the principles and details of banking further than is necessary to a proper understanding of the question of money, with which it is intimately connected. Money, as has been explained, is an agency of trade, and, in an accumulated form as capital, an instrument of production. The first thought of the possessor of money is safety and the next profit. Money cannot accumulate value of itself, and consequently has to be put to use in order to bring its owner a return. When hoarded it is not only useless to the owner, but society is deprived of the advantage of an important agency of exchange and of production. It is, therefore, a matter of importance to society, as well as to the individual, that money should be afforded every opportunity to occupy the channels of trade and perform the uses for which it is •Y6 BANKS AXD BAXKING. designed. The interests of society, as we have seen, are best promoted by a division of labor. One class is devoted to agriculture, another to manufactures, trade, education, etc., etc., and each class is again subdivided into innumerable forms of industry. In this way it happens that a class has grown up which is specially engaged in the collection, custody and investment of money, and in dealing in debts and credits based on money. The banker offers reasonable safety and rejiayment on demand, or moderate interest, and in turn lends the money for the purposes of trade. The offices of a bank are to receive money on deposit subject to order, to collect money, to invest money, to lend money, and to buy and sell securities and exchange. The check and l)ill of exchange are invaluable aids to business and com- merce, and for many purposes are preferable to money. The great facilities which a bank affords for the transaction of business, as well as its ability to promote the circulation of money and foster enterprise, render it an agency of trade, second in importance and usefulness only to money itself. Like' all other human institutions, banking is of course liable to abuses, but when legitimately and properly conducted there is no other institution so closely connected with the well being of every individual, or one which is capable of ren- dering so much service to society. It is, therefore, impor- tant that banking, like money, should be based upon sound principles. Banking legitimately conducted is purely a matter of private enterprise, as much so as dealing in grain or lumber, and the relation, which the banker sustains to the community, differs in no respect from that of an individ- ual, following any other pursuit or profession. Banking should, therefore, be free, and subject only to general laws, such as the laws under which partnerships are conducted. The generally recognized and acknowledged BANKS AXD BACKING. 11 importance of banks, however, Iiave led individuals to seek and governments to bestow upon them powers and privi- leges, such as are bestowed upon the vocation of no other class of society. We refer more particularly to the power, with which banks are clothed by law, of issuing promissoiy notes, nominally payable on demand, to circulate as money. There is no reason why bankers should be invested with this authority any more than any other class of society. The temporary relief which, by reason of this privilege, they are enabled to afford to individuals, and from which the community derives a benefit, has blinded society to the far greater evils which flow from the custom. A distin- guished writer* upon the subject of money and finance, in speaking of this feature of banking, says: "The bad practice which originated with the Bank of England was an agree- ment to pay gold on demand for its inscriptions of credit. This was to undertake to do an impossibility. The general debts of a bank are redeemed by its genei-al resources, and these consist mostly of loans and discounts which mature in the future. A more flagrant violation of sound banking was never conceived. It has repeatedly involved the banks of the United States in fatal embarrassments, and brought ruin upon thousands of merchants who were otherwise able to pay their debts and retain a handsome surplus." It is not alone the excessive and unfair profits which this system (banks of issue) enables those engaged in it to reap from the public, but the periodical derangement of business and trade, so fruitful of disaster, which it leads to, that renders it so .obnoxious. Jefferson, who never failed to warn his countrymen against the evils of the system, in a letter upon the subject in 1813, said: "But it will be asked, 'Are we to have jio banks? Are merchants and others to be deprived •J. S. Gibbons, in Johnson's Universal Cyclopedia. ?78 BANKS 4.ND BANKING. of the resouiTce of short accommodations found so conven- ient?' I answer, let us have hanks; hut let them he such as are alone to ho found in any country on earth, except Great Britain. * "" No one has a natural right to the trade of a money-lender hut he who has the money to lend. Let those, then, among us who have a moneyed capital, and who prefer employing it in loans rather than otherwise, set up banks, and give cash, or national hills (United States Treasury notes) for the notes they discount. It is from Great Britain we copy the idea of giving paper in exchange for discounted hills; and while we have derived from that country some good principles of government and legislation, we unfortunately run into the most servile imitation of all her practices, ruinous as they are to her, and with the gulf yawning before us into which these practices are precipita- ting her." The dependence of the government upon a medium of exchange for its revenues has contributed largely to the abuses of the banking system, to which we refer, but since the Ti'easury note, made a legal tender, has been found to ■answer all the purposes of money, much better than gold, silver, or the bank note, there is no longer any reason for tolerating banks of issue. That this theory in substance feids able advocates, even in England, is manifest from the following extract from an article in the Westminster Heview of October, 1873, entitled, "The Mint and the Bank of England:" " In breaking this monopoly of the bank, we should bo taking great strides toward the attainment of that ideal sys- tem of currency which Sir Robert Peel must have had iu heart when he passed his cun-ency laws; a system under which the State shall be the sole fountain of issue; under which no money shall circulate on credit, or if it does, shall BANKS AND BAKKING. 79 •circulate on the credit of the State, all bank notes, as well as coins, bearing the image and superscription of the head of the State, and under which all profits upon the issue of money shall form part of the imperial revenue. * * The power of issue, now exercised by the Bank of England, and by the English, Irish and Scotch banks, [all private 'corporations,] is a relic of feudalism. * * The manufacture of coin has been suppressed long ago, but the manufacture of paper money still remains, and the profits of this manufacture are allowed to remain in private hands, the State taking upon itself the manufacture of the only part ■of the currency upon which there is, or can be, a loss. It is high time this state of things ceased; that all rights of issue were gathered into the hands of the State; that the debt of the Bank of England was paid off; that aU notes but those of the State were suppressed; that the powers of issue, now exercised by the banks, were vested in the royal mint, * * and that the profits upon paper currency were claimed by the State, and appropriated * * * to the reduction 'of taxation." Public banks in the United States are conducted solely for private gain, and are free from governmental connection ■or control. They are, however, as we have already observed, invested with extraordinary privileges and franchises of a public nature, intended for the public good. While they are eminently successfiil in enabling theu* corporators and stockholders to secure their own ends, they are far from being beneficial to the public. The languishing condition of the country at the present time demands that the right to make a circulating medium of exchange shall no longer be suffered to remain in private hands, but shall be restored to the nation, to whom it belongs, and by whom alone' it can "be exercised in a sj^irit of equal and exact justice to all. CHAPTER rV. BANKS OF THE OLD WOKLD. Important lessons can be learned from the teachings of experience. A brief glance at the banks of the old world wUl be found useful at the present time, as ^'ell as interest- ing. Tlie first bank of which history gives an authentic account is the Bank of Venice, established in the year 1171, and which, strange to say, furnishes an example of success that has never been equaled. THE BANK OF VENICE. The Bunk of Venice was established under peculiar circumstances. The Venetian government, under the Duke Vitale Michel II., was engaged in a war with the Grecian Emperor, on account of an outrage perpetrated in his empire upon Venetian merchants, and also in a war with the Emperor of the West. Standing greatly in need of means, the Venetian government resorted to a forced loan, and required its wealthiest citizens to contribute to the support of the government according to their ability. A chamber of loans was organized, of which the creditors were constituted the managers, books were opened and an inscrip- tion of credit entered for the amount jjaid in by each, on which the State agreed to pay interest at the rate of four per cent, a year. These inscriptions of credit were made transferable in whole or in part on the books of the bank. The government entered into no obligation to repay the money, but, to quote from Colwell, "reimbursement of the loan ceased to be regarded as either necessary or desi- BAXKS OF THE OLD WORLD. 81 rable. Every creditor was reimbursed when he transferred his claim on the books of the bank. From being convenient and valuable as an investment readily obtained, and as readily disposed of, it became, by a natural process, a medium of payment in transactions of commerce. That fund, which was desirable to all seeking investment, Avould be willingly, in many instances, accepted in payment of debts already existing, or for goods just purchased. There is good reason to believe that this fund was largely used in this way for centuries before the final arrangements were made, of which our accounts are more clear. * * There is no question, although we have not the details, that the government had found it j)erfectly easy to enlarge the amount of the original loan or stock of the bank, as the demand for its funds generally exceeded the supply. All money depo sited for the purpose of obtaining a credit in bank was accounted an addition to the original loan, and as such taken into the public treasury as money lent the State. Every such investment increased the stock of the bank, and replenished the treasury of the rejjublic. If indi\iduals could make purchases and pay debts by transfers in bank, the piublic treasury could well afford to receive, in j)ayment of its dues, credits in bank, as that would only be equivalent to taking up its own obligations. Thus, the more these credits were emjaloyed, the more the demand for them inci-eased, the more rapidly money flowed into the treasury, and the more readily the government could afford to receive payment of its revenues in the funds of the bank." The history of the Bank of Venice is presented by Mr. Col well, in his able work entitled, "The Ways and Means of Payment," in such a clear light, that Ave can do no better than to continue 1o quote from him at length as follows: " The way Avas opened, by the experience of two centuries 82 BANKS OP THE OLD WOELD. and a half, for the next chief characteristic of the Bank of Venice. In the year 1423, in the administi-ation of the Doge Thomas Mbncenigo, it was decreed that all bills of exchange payable in Venice, whether domestic or foreign, should be paid, unless otherwise stipulated and so expressed, in the bank; and that all payments in gross, or in wholesale transactions, should be effected also in bank. This at once brought the mass of the payments of that great commercial city to the bank. Whatever irregularities, and whatever confusion had prevailed, this introduced a unifonn and, from long familiarity with the bank, an intelligible system. The endless diversity, and bad condition of the coins circulating in Venice were a sufficient recommendation of the new regulation to all who had not very special reasons, indeed, for disliking it. This measure at once created a great additional demand for the funds of the bank, and brought large sums into the public coffers. The government, how- ever, no longer paid interest for the sums received from the bank. The funds obtained in this way Avere brought to the bank for the payment of bills of exchange, and were j)aid in for that pm-pose, and not with a view to interest. The rapid succession of payments occurring at a j)oint where all the payments of Venetian commerce were accomplished, made the intervals during which the funds remained in the hands of any pne merchant too short to make him solicitous about interest on balances or dej)osits. As all payments of the kind above designated were, by law, to be made in bank, unless othenvise agreed, and as that mode of payment was far more convenient, it became almost the exclusive usage of trade. All who had engagements to meet, found them in the bank: of coin-se, all such provided the bank funds necessary to meet them, or carried to the bank the amount of coins requisite for the purpose. Tlie government con- BANKS OF THE OLD WOELD. 83 tinued to take all money paid in as a consideration for allowing an inscription on the books of the bank to the credit of the depositor. The sums which thus flowed through the bank into the treasury would, with the previous bank funds, make up the quantity needful for the convenient discharge of the commercial payments of Venice. As this amount fluctuated from, year to year, and during each year, with the course of commerce, a very effective mode of accommodating the supply of bank funds to the exigency of the demand came obviously into use. When the payments ih bank were heavy, and the bank funds in great demand, money flowed freely into bank, and the credits were propor- tionably increased. "When an occasional demand for the precious metals arose, the holders of bank funds could readily dispose of them at a slight reduction for coins. The purchasers of bank funds M'ere sure of meeting soon a demand for them; for the demand for a medium in which the ever-recurring payments of debts were made so much exceeded in intensity the occasional demand for specie for ■exportation, or any other use, that during the whole existence of the bank, with very slight exception, the bank fund was at a large premium over coins, so large that it was finally fixed by law at 20 per cent." "The republic could well afford to maintain a liberal policy towards an institution so important, both as a fiscal and commercial agent. That the inhabitants of Venice were satisfied, we cannot doubt, as not an objection was ever made to the bank, at least none is extant; neither book, nor speech, nor pamphlet, have we found, in which any merchant or dweller in Venice ever put forth any condemnation of its theory, or its practice. There was no hesitation in caiTying money to the bank, so long as it was not doubted tiiat the bank funds would purchase specie without a loss, 84 BALTICS OF THE OLD WOELD. whenever it might be needed; and the uniform premium of bank funds settled that point. Under such a system, the regular payments of trade would proceed with a rapidity and economy previously unknown, so far as the history of commerce informs us." * * " It is worthy of remark, that this very efficient mode of adjustment discovered and used so largely, at this early period in the history of commerce, was not dependent for its efficacy on the guarantee of the reijublic. That guarantee sprung out of the mode in which the bank originated: this convenient method of liquidation sprung from the use of this new substitute for money." " The facility of payment furnished by the bank, whicli made it the admiration of Europe, honorable at once to the government and merchants of Venice, and a support to the pride and power of its people, consisted in substituting, as a medium of payment, the debt of the republic for current coin. * * * The government took the coins one time for all, giving therefor a corresponding credit in the bank; and allowed the depositor or lender to transfer his claim upon the republic in payment of his debt, in place of ti;ansferring over the coin in each payment. Whatever men can employ in payment of debts, they will be willing to receive in payment, and this independent of any legal com- pulsion." " Experience soon evinced the power and convenience of this mode of payment. These bank credits were divisible to eveiy desirable degree, and they could be transferred with a readiness, speed and safety, beyond all comparison, superior to any mode of paying in coin. The same sum or credit might be kept in such rapid circulation, as to effect an amount of payments, in a specified time, far beyond any possible movement of coin. This rapidity became a great BANKS OF THE OLD WORLD. 85 economy, for a much less sum of credits -svas made to effect a given amount of payments Avith far greater sj^eed than could have been attained with coin. But this economy resulting from an increased speed and power of circulation was still more important, arising from the fact that the coins which were deposited as the basis of the credit were very soon again restored to the usual channels of circulation by the payments of government. Thus the coin was not with- di-awn from its proper functions, and the credits remained a perpetual fund, to be employed in large payments. This system of payments was so well adapted to the exigencies of commerce, that it was maintained in full vigor, in the great commercial city of Venice, for almost four hundred yeaj-s. It was an institution or device of the credit system, for by its aid payments were effected, and that to a vast amount annually, without any use of coins or bullion. It only perished, when the city itself fell, at the conquest of Italy by Napoleon; but the conqueror carried off no coin, no penny of prey. The credits of the bank were crushed under the rude touch of an invading foe. They were lost to the pi'oprietor, but no equivalent passed into the hands of the destroyers. If the holders of these credits suifered, the invaders were not enriched. In assuming the sovereignty of Venice, the conqueror assumed the right and duty of making good these bank credits." The Venetian government was careful at all times to provide for the wants of the public. In course of time it became necessary to establish in the bank a department for the custody of coin or bullion, which the owner might desire to use. Deposits of this kind were subject to the order of the owner, who could reclaim them at pleasure, or transfer them in the same manner as bank credits. This featm-e of the bank prove eminently useful to the public, but did not 86 BANKS OF THE OLD WOELD. lead to any diminution in the funds of the bank itself, as the demand for inscriptions of credit was always greater than the supply. The original capital of the bank was 2,000,000 ducats, but it rose to about 5,000,000 in the 18th century, and to over 14,000,000 (about $16,000,000) at the close of its long and remarkable career. i The history of the bank of Venice establishes several imjiortant facts of deep significance to the American people at the present time. The inscrij)tions of credit of the bank were simj)ly evidences of indebtedness of the government, bearing no interest, which constituted a medium of exchange. The law which required all bills of exchange j)ayable in Venice to be paid at the bank, unless otherwise expressly stipulated, was apparently an arbitrary requirement, but it worked no injustice; on the contrary it inci'eased the strength of the bank inscriptions, and resulted in greatly promoting the facilities of commerce and in making Venice the commercial metropolis of the world for centuries. The evidences of indebtedness, which the government in the first instance required its creditors to take, it in efi^ect made a legal tender for private debts, which was no more than just. The large premium which these inscriptions bore was not due to any act of the government, but to the value attached to them by the j)ublic. It rose to as high as 30 per cent., when the goverment found it necessary to impose a limitation, which was fixed at 20 per cent. This premium on inscriptions of credit in a bank, which were not redeem- able or payable in gold, (mere "rag money" they might be styled) which existed for centuries, is inexplicable on any theory which can be advanced by the buUionists. The Venetians were enabled, by the use of their irredeemable inscriptions of credit, to achieve a degree of jDOwer and prosperity, whicb they retained for centuries, that proved a BANKS OF THE OLD WORLD. 87 constant source of envy and wonder to the rest of the world; and durir.g the wiiole time they never once suifered from commercial crashes or money panics, such as are experienced in England and the United States every six to ten years. It has been a matter of suqn'ise that other nations witnessing the prosperity of Venice did not imitate her example, but that is not half so strange as the fact that the people of the United States, having experienced the great advantages of even partial legal tender paper money, should blindly cling to the rotten and disastrous specie basis system of banks of issue. THE BANK OP GENOA. The Bank of Genoa was established early in the 13th century, and, like the Bank of Venice, had its oi-igin in the necessities of the State. The loans upon which it was based were not, however, forced, but were the spontaneous offerings of the people. The creditors of the bank became a veiy powerful body. In the course of time the bank adopted various new devices, and its system became greatly comjili- cated. According to Cohvell, the Bank of Genoa A\as the first to originate the bank note, which has since played so important a j)art in tlie affairs of the ■world. It met with the same fate that befell tlie Bank of Venice at the time of the French invasion under Xapoleon. 'J'lIE BANK OF AJISTEIIDAJI. The Bank of ^Vmsterdam was established in 1609 on the theory that deposits once jnade could never be withdrawn. For nearly two centuries it enjoyed great credit, and con- tributed largely to the prosperity of Amsterdam. Coin and bullion were also receiAcd on special deposit, and could be reclaimed by the owner at pleasure. The fact that deposits once made could not be withdrawn, resulted in tlie bank 88 BANKS OF THE OLD WOELD. accumulating a vast amount of money, but how much was ke2Dt a secret. When the suj)ply of credits based on deposits exceeded the demand, the excess was bought up by the bank, through brokers, at a premium of four per cent. In 1790 it was discovered that, during the j)receding fifty years, large loans had been secretly made to the East India Com- pany, the Provinces of Holland and the city of Amsterdam, and thal^ there was but little treasure left in the bank. It consequently failed through the unfaithfulness of its oiEcers. THE BANK OF HAMBUEG. The Bank of Hamburg was established in 1619 on the model of the Bank of Amsterdam. It is still in existence, and is a useful and flourishing institution. THE BANK OF ENGLAND. The next great bank established in the com-se of time was the Bank of England, an institution which has exercised, from its organization, a jjowerful influence in the commercial and financial affairs of the world. Its charter was obtained in 1694, and it went into operation January 1, 1695. Its charter conferred on it full authority to borrow or receive money and give security for the same under seal, buy or sell bullion, gold or silver, etc., etc. No special power was granted to issue bank notes, but the authority to do so was assumed as an incident to the general powers with which the bank was invested. It was, in brief, chartered as a bank of deposit, loan, discount, issue and circulation. The whole amount of the caj)ital stock originally subscribed, £1,200,000, was handed over to the government as a special loan, the interest on which was secured by certain taxes designated for that purpose, and the sum of $20,000 a year was allowed by the government to the bank for the management of the loan. The capital stock of th e bank is now out BANKS OP THE OLD WOKLD. 89 £14,000,000, and tte accumulated profits about £3,000,000 — in all about $88,000,000. It can issue bank notes to the amount of $70,000,0000, not under £5 ($25) in denomination, against that amount of government securities, and also to the amount of gold and silver held in its vaults for their redemption. At an early period in the career of the bank, it took a bold and dangerous step, which introduced a new feature in banking. By its charter the bank was authorized to deal in Tbills of exchange and promissory notes, and, as has been mentioned, it also assumed the right to issue its own notes. Bills of exchange and promissory notes, then as now, entered largely into all commercial transactions, and usually had some time to run before they were payable. In order to acquire favor with the public and increase its business, the bank adopted the custom of giving its own notes, jjayable on demand, for discounted paper, payable in the future. This custom was adopted on the theory that the small bills of the bank would pass into circulation, like money, and be dispersed throughout the kingdom; that they would become indispen- sable in business transactions, which would be greatly increased by the number in circulation, and that consequently they would not be returned suddenly, or in large amounts to the bank for redemption. The unsoundness of the principles of banking, adopted about this time by the Bank of England, and upon which the specie basis system of banking has been built up, is fully demonstrated by Colwell, from whom we again quote as follows: "Upon such considerations, the bank decided to issue notes payable to bearer on demand, in exchange for individual paper payable at a future day. The bank thus undertook to do an impossibility, in the hope that it would not be called upon to redeem the promise or make the 90 BANKS OF THE OLD WORLD. attempt. What the bank could do was to give its own notes, of convenient denominations for circulation in exchange for individual paj)er and jaayahle at the same time; and in doing this alone, the bank could have rendered a great sei-vice to the public with small risk. The bank had not the monej^, and could not, therefore, purchase the paper offered; the notes ofiEered by the bank were not money, though a much better substitute for money than the notes of individuals, which could only circulate to a very limited extent as a me- dium of payment. The bank issued notes payable to bearer, without endorsement, and this certainly added to the facility and convenience of their passing rapidly from hand to hand as a cm-rency. It departed from sound principles, ivhen it made these notes payable on demand in gold or silver; for it must be contrary to sound princij)les to undertake to do what cannot be done. The bank notes were nothing more, and should not have been held uj) lo the public as anything more, than the mere promissory notes of the bank, conven- ient in fonn for cii'culation among all those who chose to take them, not as money, but as promises to pay money. The promise should have been only such as the bank could perform. Strictly speaking, the bank could only pay in coin when it received in coin. It could exact payment for the note received of every individual only ■^^'hen the note ma- tured and not before. The accommodation between the bank and its customers was mutual in this exchange of notes; the bank received a profit, and the customer received the bank notes, a better medium of payment, one which would be received out of bank as well as in it, in payment of debts or in making of purchases. But it should never have been imagined for a moment, that by this process between the bank and its customers they manufactured money. * * This advantage, (notes payable on demand,) which the BANKS OF TUB OLD "WOKLD. 91 Bank of England only offered in the first instance to attract business, and to give currency to their notes, has bfeen paid for sinciJ by the people of England, in a, series of pressures, revulsions, and currency fluctuations, which have inflicted injuries and losses ujjon the government and people of Great Britain, in comparison with which the present national debt may bo insignificant. ******* "But the bank was still more daring; it discomated notes largely, and carried the amount of the proceeds 1k> the credit of the party, as so much money deposited; tliat is, in the same column in which the bank gave its customers credit for gold and silver deposits, it gave thein credit for the amounts of notes and acceptances having months to run before maturity, and engaged to pay the amount of these securi- ties on demand. It mingled a process of credit with ajjrocess of cash, in a mode as absurd in theory as it w;is dangerous in practice. The men who had given their notes on time had provided for a regular progression of payments, accord- ing to the movements of business and tlie demands of con- sumption; but the Bank of England virtually abolished the contract of deferred payment between the parties, and became paymaster on demand of debts not due for months, to an immense amount." "The bank had no warrant, in principle or practice, for this hazardous engagement. Its only excuse was the same Avhich was given for the issue of bank notes payable on demand, Avithout the money, namely, that the bank would not be asked to p.ay for tlieni all at one time." "We regard tliis error of the Bank of England as the parent of the greater portion of the mischiefs and evils for which banks in more modern times are answerable. The banks from th.at day to this liave continued to issue notes payable on demand, and to grant credits so pay.able, in ex- 92 BAXKS OF THE OLD "WORLD. change for secm-ities payable in from 30 to 120 days. They do this,* relying wholly on the forbearance of the public, just as the Bank of England did at first. Sad experience has shown, that there are times when the public is not only not forbearing, but when men rush with frantic haste to demand of the bank ^Jayment of both notes and deposits. Nearly every bank ia existence, conducted on this plan, has, at some 23eriod of its history, felt the power and rashness of the public in seasons bf commercial panic. The banks lose their power and usefulness at the very moment when the public most needs their assistance. Friends in sunshine, they become enemies in the storm." The most notable event in the history of the Bank of England was the suspension of sjsecie payments in 1797. This was caused by the large advances made by the bank to the government, to aid in the prosecution of the wars with France. The specie in the bank ha,d been reduced to a little over £1,000,000, when the directors of the bank became alai-med and brought the matter to the attention of the Privy Council. The 'council on the 27th of February, 1797, determined " that it is indispensably necessary for the j)ublio service, that the Directors of the, Bank of England should forbear issuing any cash in payment, until the sense of Parliament can be taken on the subject." On the 3d of May following, the suspension was sanctioned for a limited time by an act of Parliament, and was subsequently continued by repeated acts of Parliament until 1820, when an act was j)assed j)roviding for the resumption of specie payments by degrees, beginning on the 1st of October, 1820, and reach- ing full payment on the 1st of May, 1823. The people of Oreat Britain were obliged, therefore, to carry on their affairs for a jjeriod of twenty-five years with an irredeemable bank pajper currency. During this period, notwithstanding BANKS OF THE OLD WORLD. 93 the vast expenditures of war and the great burdens of taxa- tion, Great Britain increased in wealth and prosperity more rapidly than at any other period in her history. The public revenues were increased from £23,126,000 in 1797 to -£72,210,000 in 1815, at the close of the war Avith France, and stood at £54,282,000 in 1820. The amount raised by Joan and 'taxation, dtu-ing the time referred to, Avas never Jess in any one year than £47,362,000; during nine years it was over £70,000,000 a year; and for the years 1813 and 1814 it Avas rcspectiA-ely £108,397,000 and £105,698,000. The loans negotiated by the bank for the gON-ernment during the suspension of specie payments amounted to £350,000,000. During this period the Bank of England was a tOAver of strength to the government. But Aviiat after all enabled Great Britain to surmount all difficulties and come off victo- rious in one of the greatest contests of modern times, was the Avonderful development of her producing forces, occa- sioned by the abundance of money put in circulation by the war, irredeemable though it AAas. During this time 3,000,000 of acres of unimproved land Avere brought under cultiA'ation, and the exportation of manufactured cotton goods increased in amount from £7,000,000 in 1801 to £27,000,000 in 1822. All classes of society participated in the general prosperity which prevailed, and during the entire period the nation never once suffered from a commercial crash or money panic. The guns of Waterloo, however, had hardly ceased to echo, until the money poAver became clamorous, just as it is in the United States noAV, for a return to specie payments. No one Avas so blind as not to be able to see that Great Britain was enabled, by her paper money alone, to carry on her Avars on the Continent, and that by it alone Avere the people enabled to make such remarkable progress in coin- 94 BANKS OF THE OLD WOELD. merce, agriculture and manufactures; but there were, never- theless, large numbers "H'ho were bitterly hostile to paper currency, and who seemed to imagine that they were being subjected, in some T^ay, to a great wrong. Landlords, for €xamj)le, in many instances, in ^contempt of the law which gave their tenants the right to jjay in bank notes, compelled them to pay their dues in gold. There were evidently fools and rascals in those days, as well as at the present time. The "political economists," backed by the "cannibals of change alley," were strong in Parliament, and the country gentlemen were led to belie\e that a return to specie was essential to their interests and safety. Specie payments were accordingly resumed in 1823, and the resumption was accompanied by the most disastrous commercial crash and money panic that ever visited any nation. The era of general prosperity departed to return no more. Real estate depreciated largely in value, and the real estate owners of the kingdom decreased in number from over 150,000 to less than 40,000; business men, merchants, manufacturers, etc., were ruined by. the thousand; wages were reduced, and laborers thrown out of employment by the tens of thousands; and the public revenue fell off to such an extent that j)ay- ments on the public debt ceased, and have never practicably been resumed.* The bank act of 1844, by which the issue department was separated from the general banking business of the institu- tion, remedied some of the defects of the system which the bank had founded, but suspensions of specie j)ajTnent are still of frequent occurrence. In 1837 another crash and money panic occurred in England, which also involved this country. Congress, in 1832, had raised the jDrice of gold, as compared with silver, to sixteen to one, and demon- '•See Chapter ou Specie Kesumptloii. BANKS OF Tllli; OLD WORLD. 95 etized silver by making it a legal tender only for small sums. Oold thus became the basis of the currency, and Avhen the Bank of England called it aAvay to su232>ly the wants of England, the banks of the United States were obliged to suspend. Business in the United States was brought to a complete stand, and for three years the American people wei-e left without any gold basis, and were consequently obliged to use shinplasters. In England the losses Avere so enormous and the distress so great, that Parliament at its next session reorganized the bank by separating tlie issue department from the general business department, as already mentioned . From September 7, 1844, when the bank was reorganized, to February 4, 1858, it altered its rate of intere'st lifty-six times, raising it, from time to time, from two to ten per cent, in an effort to retain its specie in its vaults; this, in the meantime, led to great financial embarrassment, and a panic was only aAcrtcd by the bank suspending specie pay- ments (October 23, 184Y) and affording relief by issuing irredeemable j^aper. In 1857, having ruined the merchants and business of England, it Avas again obliged to suspend. Eleven changes in the rate of interest Avero made betAveen April, 1857, and January, 1858. The bank again drew upon the United States for gold, causing the banks to sus- pend, involving thousands of fieople inrain and bankrujjtcy. In 1866 the Bank of England suffered another suspension in consequence of the Avar on the Continent of Europe; but this time the United States escaped. Greenbacks were the medium of exchange, and the nation Avas no longer at the mercy of foreign banks. Gold Avas shipi^ed abroad to the amount of $45,000,000, and sold as a commodity at a [high price for the use of the B ank of England, Avithout occasion- ing the slightest ripple in the business affairs of the country. 96 BANKS OF THE OLD 'WGELD. A distinguished statesman,* in commenting on these facts, says: " Thus, three times within less than twenty years in this generation, each time in violation of law and without right, has the bank of England sus23ended, and acknowledged her bankruptcy! what a 'marvel of financial strength and credit' she has been, to be sure! AVell may the bullionists sing paeans to this destructionist of all ^■al^lcs for their benefit. True, each time her failure was sanctioned by a healing act of Parliament, because her illegal suspensions were necessaiy to save the credit of the government itself and to prevent, the widesj)read destruction of all Aalues and the overthrow of commerce and manufactures which was then going on." "Xeithci' of these suspensions took jjlace until she had refused all discount to her customers, even on the best sixty day commercial bills secured by government securities. It will be thus seen that gold was not the regulator of the- currency of England, but the price piaid for money at her bank, and having provided herself with a currency based on gold, in oi-der to retain that basis whenever it is wanted for- foreign loans,' or because of a foreign war, she is obliged to increase the value of her xmit by changing the rate of dis- count, or the interest which her people were obliged to pay for their money." "This is a very important matter to be borne in mmd. Indeed it is the root of the whole matter, and in discussing- questions of finance has been too often overlooked, because it shows that after all, a currency based on gold must have its value determined by the rate of interest paid for it, and not by the stability in value of gold itself. Because of this, necessity of keeping gold in her vaults, the Bank of England could not maintain a steady and i^ermanent rate of interest •Aadvess of Hon. B. F. BuUer, at tlie requestor the Boai'd of Trafle of Ne-w York City, Oct. 14, 1875. BANKS OF THE OLD WOELD. 97 for money to which her business men could adjust their affairs. Hence come fluctuations of trade, financial depres- sion, ruin of commerce, the stoppage of manufacture. Who can carry on business requiring credit, successfully and without failure, when the rate of interest which he must pay for his accommodations and loans, alters day by day and quintuples in a month, and especially when these changes come from causes that he can neither foresee, guard against, hinder or alleviate?" "I challenge all the bullionists of the country to show any disasters and losses in trade and commerce, traceable to inconvertible paper, continental money and all, which shall be equal in effect, either as to sums, amounts, disasters or ruin to the business and people of a country, with these I have sketched coming from a currency called ' honest money,' based on gold in the vaults of a bank." The average bank note circulation of the Bank of England for the past twenty-eight years has been $100,000,000; its average of bullion, $80,000,000; its average rate of discount, 4 per cent.; its average deposits, $100,000,000; its average liabilities, $102,000,000; and its average reserve, $9,500,000. BANKS OF SCOTLAND. The first public bank in Scotland was established in 1695, under a charter from the Scottish Parliament before the union with England. Tlie Scotch banking system is similar to that of England, but is conducted very differently. With a population of a little over 3,000,000, Scotland has nearly 400 banks. From Colwell we learn that, "Whilst the Bank of England, from its first conception, was identified with the government, the Bank of Scotland, and those which suc- ceeded it, identified themselves with the Avhole body of the people, from the laborer who could save five pounds to the 98 BANKS OF THE OLD M'ORLI). richest merchants and manufacturers. Tliey became at once, and have conthiued to be, the savings banks of the poor but industrious classes. The banks paid one per cent, below the current rate of interest for these dej^osits, and returned them on demand, or according to stipulation.. These savings of the poor helpi largely to make up the vast sum of deposits which characterize the banks of Scotland. One result has been to give the benefits of these savings to the general customers of the banks, instead of their being invested in the public debt, or lent upon mortgage, as in England. No doubt this has contributed greatly to that progress in wealth and jiroductive industry which has so much distin- guished Scotland for more than a century. It had another good effect in begetting that care, caution and prudent management for which the banks of Scotland have so well founded a reputation." Another jDcculiar featm-e of the banking system of Scotland consists in the manner of giving cash credits. An applicant deposits aj)proved secu- rities with the bank and is allowed a standing credit on its books. He then draws checks for this amount and makes deposits in the ordinary way. An account is made up every six months, the rate of interest charged on loans being one per cent, more than that allowed on dej)osits. In comment- ing ujjon this feature of banking in Scotland, Colwcll says: "In England, the bank which deals in j)romissoiy notes and bills of exchange, is dealing in paj)er which rejjresents business transactions which are jsast; in Scotland, the bank ojiens credit for its customers, Avith refei-ence to business which is to come. In Scotland, the banks give their custo- mers a credit which helps their standing, and upon which they can draw for the j)urpose of payment, whenever there is need. The theoiy of the English banks is, that the currency must follow, and be controlled in quantity, by the BANKS OF THE OLD "WOELD. 99 business transaetioHS wliich go before. The theory of the Scotch banks is, that these business transactions being all managed by men of business, who decide according to the exigencies of industry and trade what ■will promote their private interest, and meet the wants of the jjeople, it must -prove an important aid to men thus engaged to supply them, in advance of the progress of tlieir business, with a credit upon which they can draw at pleasure. * * In England, they think this will lead to over-trading, by the stimulus it affords to so large a class of dealers: in Scotland, long experience has taught them that this English apprehension ds wholly groundless. Tliey know that the dealers who «njoy these ciish credits are so immediately brought under the supervision of the banks, and their own sureties, that they are, perhaps, the most prudent and safe men of business in the world. * * There is a prevalent idea among statesmen and writers upon money, that there should be a broad basis of money or gold coin, under and as a sujjport to the paper circulation ; * * that a paper currency, to be perfect, should fluctuate as a gold cuntncy would do, if it were the sole medium of ji^ivtncnt. Tfci l^ie mind of a Scotch banker, a greater absurdity could ,not he ^jresented in as many words. He Avould say: 'What! when a demand springs up for gold, in conseqjuebce hi some foreign Avar, must we so regulate the issues of our baiik?, a^i"to reduce the currency of notes in the same proportion that the currency of gold is carried off! Rather should we increase our issues, and supjaly tlie place of the currency that is €xported.' They know that bank notes can fully discharge the functions of money, for they see it every day; and not ■only so, but tliey are certain that almost no business of Scotland is carried on by means of a currency of gold. The Scottish people can never be made to comjDrehend why 100 BANKS OF THE OLD WOKri}. theii" bank notes, bank deposits, and cash credits, should fluctuate in amount as gold would fluctuate, if exclusively- employed. These forms of currency do not come of gold; they are not founded upon it, and they have nothing to do with it. In Scotland they understand, as well as they do in England, the use of gold as money; they know its value as a commodity, but being a costly commodity, they do not incline to employ it as a cm-rency, excej)t so far as their bank cun-ency fails of its object; nor do they wish to purchase or hold it as a commodity, except for such special purpose as may promise adequate advantage. Their system of banking enables them to dispense with it almost entirely. In this, they are far from thinking themselves behind their neigh- bors, in intelligence or financial skill." The banks of Scotland issue bank notes as low as £1, and the people of Scotland are always amply supplied with a medium of exchange. THE FRENCH SYSTEM OP FINANCE. France "enjoys a; financial system superior to that of any o|her natioi>. . The 'fiscal affairs of the government are •conducted by a central iidministration, or Ministry of Finance, and eighty-SLS IsrariicheS'toQated in different districts. All trarisaptibris ^between the government and the people are . carried, oav in, thfe foitais a,n4 methods of the treasury depait- ment, without the\hitej-Vention of banks. The government has no connefction with the Bank of France, but deals with it as it does with individuals, exce]pt that its notes are made a legal tender whenever the scarcity of specie renders such a stej) necessary. The treasmy department of France in many respects takes the place of banks. It is regarded as a duty by the French government to afford th& people all the facilities in the way of domestic exchange that banks could THE FEEHrCH SYSTEM OF FINANCE. 101 give, instead of allowing it to be furnished exclusively by the banks. In each district there is a receiver general, in whose office the revenues of the district are paid. When once paid in they are subject to the order of the central administration alone, and abundant precautions exist to insure strict accountability and integrity. The treasury is managed with special reference to the wants and requirements of the public. The manner in which its operations in this respect are conducted is thus set forth by Colwell: "Among its numerous officials, is one in direct relations with the chief minister of finance, who has special charge of the locality of all money in the treasury. He can neither receive nor pay money; but he can transfer the public money from one office of the treasury to another, and jjlace it wherever the exigencies of the government may require. It is in the office of this functionary that is established a direct and very important connection with the current business of the day. His duty requires of him a careful and timely study of the j)oints of public expenditure; he must know not only where the money will be wanted, but he must have it ready when required. To accomplish this important object, it becomes his duty to study the domestic trade of the country, that he may avail himself of the internal exchanges in the necessary distribution of money in tlie treasury. It is very rare, indeed, that the French treasury ever shifts the locality of gold or silver. It may require many circuitous transfers to move the excess of revenue, in some departments, to the points of expeniture, and to supply the deficiency in other departments. To make these transfers, the officer who has special chai-ge of that duty relies almost wholly on the ■domestic exchanges. He is well informed where funds are "wantfed for the purposes .of industry or ti-ade; he learns 102 THE FKENCH SYSTEM OF FINANCE. where and when those who reside in the vicinity of each office of the treasury desire to remit funds; and he learns whence and when they wish to draw them. His office becomes tlie dej)ository of this information, because he intervenes in this business of giving drafts upon the treasury, payable at other points, and giving money at his own office for money received at other offices. His intervention in the transmission of funds assists in balancing the internal exchanges of the countiy; for, of course, the office is only applied to when the business of individuals requires swch accommodation. But this business is not confined to receiv- ing money at an office of the treasury in one place, and paying the amount as may be required at another office, in a different place; that is, to a mere exchange of money between the treasury and individuals at different places; it goes much fm-ther. At times and places vs'here large transfers of fundsi become necessary, the proper officer of the treasury becomes the receiver of commercial or individual paper to a large amount." "The receivei-s-general of the eighty-six departments, and their subordinates, the receivers of the treasuries of the aiTondissments and communes, maintain recijirocal business relations by frequent exchanges of money, by drafts upon each other, and by bills upon Paris and other places. The chief officers of the treasuiy become, by the constant report of this business to them, intimately acquainted with the whole industrial and commercial movement of the popula- tion. They regard it as extremely important to these inter- ests, that the money which is necessarily withdrawn from private uses for public purposes, should be retained in the treasuiy as short a time as possible. Out of 300,000,000 or 400,000,000 of francs annually remitted from the countiy treasuries to Paris, not more than ten per cent., or 30,000,000 THE fre:ncii system of finance. 103 or 40,000,000 of francs, are ever at one time in the public treasuries.* This shows that disbursement follows so rajjidly upon receipt, that the money taken from the people for taxes does not remain, on the average, more than a month or two out of its j)roper channels, and that the government has carefully reduced the inconvenience and disadvantage of taxation to the lowest possible point. By this regular and constant communication with men of capital and business, by this constant association with them in the business of transfen-ing funds, the officers of the treasury are able at all times to command, in advance of the regular receipts, large sums of money, which are freely placed in the public treasury at low rates of interest. Money is, in fact, frequently pressed upon the various receivers by those who desire short but safe investments, and by those who would secure, in good season, the aid of the treasury in placing money at particular points. The treasurers of the departments do not lend money, though they receive it in the way of short loans; they transfer money for individuals, and they purchase bills of exchange upon such points as the exigencies of the public may require. Upon one side, then, there are open relations between the public treasuries and the movements of trade, industry and currency; that is, upon the side of the domestic exchanges of the country; the transactions of the treasury, in relation to the distribution of its funds, are blended with the movements of the internal exchanges as conducted by the indi\'iduals concerned in it. This constitutes a veiy broad field of contact between the business of the country, from which the money is withdrawn by taxation, and the public treasury. The public money being retained for the shortest possible time, is so managed, nevertheless, as to render an important service in aiding and regulating the internal exchanges." •Tbis wa'i prior to 1860. 104 THE FRENCH SYSTEM OF FINANCE. "Taxation having reached, in France, a point beyond which it cannot be increased without passing the ability of the people to pay, an alleviation of the burden, like that we have just mentioned, is of signal advantage. According to the former revenue system of France, the money remained for many months in the hands of the receivers, who merely made advances, on interest, to the government from time to time, and settled their accounts once a year. Now, all money is held to be in the treasury from the moment it is received into the office of any department; and it is sent into general circulation again with as little delay as posssible. The assistance thus afforded to the adjustment of the domestic exchanges greatly promotes punctuality in com- mercial and industrial payments and remittances, by dimin- ishing the expense and the disturbances occasioned by paying the balances of the internal trade. These features of the present financial system, by which it is so closely connected with the internal trade and exchanges, are regarded by an eminent French writer upon finance as rendering less necessary in France than in other countries, that development of credit in banking which is so prevalent and so dangerous elsewliere." Business in France, owing to the abundance of money always kept in circulation, is done mainly with cash, arid the credit system, \\hich has wrought so much evil in Great Britain and the United States, has ne\'er gained a foothold there. So groat is the prejudice of the French people against the system, doubtless because they are not blind to its workings in England, that they cannot be induced to even keep ordinary bank accounts and use checks, in the way of business. M. Pinard, Manager of the Comptoir d'Escompte, testified before the French commission of Inquiry of 1865-8, that great efforts had been made by that THE FEESrCH SYSTEM OF FINANCE. 105 institution to induce French merchants and shop-keepers to adoj)t English habits in this respect, but in vain; " it was no use reasoning with them," he said, "they would not do it, because they would not." Gold and silver are the legal tender money of France, but whenever occasion renders it necessary the notes of the Bank of France are declared a tender in payment of debts; and the channels of trade are thus always supijlied with a medium of exchange, to keep the producing forces of the nation at work. The wisdom of this policy has been signally illustrated twice within the past thirty years — in 1848 and in 1870. In 1848, after the revolution, the republic found itself without revenue and the people out of employment. Matters were in a precarious situation, and the Bank of France alone jsossessed any available money. Instead of looking after its own interests alone, it united ■v\-ith the government in a hearty effort to stimulate industry, by sujjplying the arteries of trade with a fresh supply of money. To accomplish this end, the government declared the notes of the bank a legal tender — an act which was everywhere denounced by the bullionists as suicidal. The marvelous results of this step are thus depicted by the London Times, of February 16, 1849, although less than a year before it had been loud in its denunciation of such a course: "As a mere commercial speculation, with the assets which the bank held in its hands, it might then have stopped pay- ment, and liquidated its affairs with every probability that a veiy few weeks would enable it to clear off 'all of its liabili- ties. But this idea was not for a moment entertained by M. D'Argout, and he resolved to make eveiy effort to keep alive what may be termed the circulation of th e life blood of the community. The task was overwhelming. Money was to be found to meet not only the demands of the bank 106 ' THE FEENCH SYSTEM OF FINANCE. but the necessities, both jjublic and private, of every rank in society. It was essential to enable the manufacturers to work, lest their workmen, driven to desperation, should fling themselves amongst the most violent enemies of public order. It was essential to provide nroney for the food of Paris, for the pay of the troops, and for the daily supj)ort of the ateliers nationaux. A failure on any one point would have led to a fresh convulsion. But the panic had been followed by so great a scarcity of the metallic currency, that a few days later, out of a payment of 26 millions fallen due, only 47,000 francs could be recovered in silver." "In this extremity, when the bank alone retained any available sums of money, the government came to the rescue, and, on the night of the 15th of March, the notes of the bank were by a decree made a legal tender, the issue of these notes being limited in all to 350 millions, but the amount of the lowest of them reduced for the public con- venience to 100 francs. One of the great difficulties men- tioned in the rejiort, was to print these 100 franc notes fast enough for the public consumption — in ten days the amount issued in this form had reached 80 millions. No sooner was the bank relieved from the necessity of paying away the remnant of its coin, than it made eveiy exertion to increase its metallic rest. About 40 millions of silver were purchased abroad at a high price. More than 100 millions were made over in dollars to the treasury and the executive departments in Pai-is. In all, taking into account the branch banks, 506 millions of five-franc pieces have been thrown by the bank into the country since March, and her currency was thus supplied to all the channels of the social system." "Besides the strictly monetary operations, the Bank of France found means to furnish a series of loans to the gov- ernment — 50 millions on exchequer bills on the 31st of THE FBEl^CH SYSTEK OF FINANCE. lOT March, 30 millions on the 5th of May, and on the 3d of June, 150 millions, to be paid np before the end of March, 1849; of this last sum only one-third has yet been required by the State. The bank also took a part in the renewed loan of 250 millions, and made vast advances to the City of Paris, to Marseilles, to the department of the Seine, and to the hospitals, amounting in all to 260 millions more. But even this was not all. To enable the manufacturing intei-ests to weather the storm, at a moment when all the sales were inteiTupted, a decree of the National Assembly had directed warehouses to be opened for the reception of all kinds of goods, and provided that the registered invoice of these goods, so deposited, should be made negotiable by endorse- ment. The Bank of France discounted these receii^ts. In Havre alone, 18 millions were thus advanced on Colonial produce, and, in Paris, 14 millions on merchandise — in all, 60 millions were thus made available for the purposes of trade. Thus, the great institution had jalaced itself, as it were, in direct contact with every interest of the community, from the Minister of tlie Treasury down to the trader in a distant outport. Like a huge hydraulic machine, it employed its colossal powei-s to pump a fresh stream into the exhausted- arteries of trade, to sustain credit, and to preserve the circu- lation from complete collapse." Again, in September, 1870, after France became involved in the war Avith Germany, the Bank of France suspended specie payments and issued legal tender notes to an immense amount, with like marvelous results. In June, 1870, the circulation of the bank was $275,000,000; in 1871, after the termination of hostilities, it amounted to (^420,000,000, and in Octobei-, 1873, to' $602,000,000. ^Yhen the first install- ment of the indemnity of 81,000,000,000 to Germany fell due, gold, for a short period, bore a premium of 2^ per cent. 108 THE FRENCH SYSTEM OP ^INAJSCM. but with this exception the notes of the bank circulated at par with coin, and continue to do so to this day. The amount of irredeemable bank notes in circulation in France at the present time is nearly $500,000,000. The only reason that can possibly be given why French irredeemable bank notes, to the amount of $500,000,000, circulate at par with coin, while United States Treasury notes, less than $400,000,000 in amount, are at a depreciation of over 12 ■per cent., is that the French notes are a full legal tender for all debts and dues, both f)ublic and j^rivate, while the United States Treasury notes are only a partial legal tender, not being receivable for duties on imports. By the free use of irredeemable paper money, the French people, like the people of the United States during the Rebellion, were enabled to i-ally to the support of their government. But there the parallel ends. After the German war had ended, the circulation of irredeemable bank notes, as we have seen, was mcreased nearly $200,000,000, and the producing forces of the French people were developed in every way possible, in order to repair the losses sustained during the war, and to enable the government to pay the indemnity to Germany. The wonderful success of this j)olicy is known to all the world. Tlie German indemnity of $1,000,000,000 was paid before it fell due, apparently without an effort, and gold has flowed iuto France until now the French people have, besides their legal tender bank notes, a specie circulation estimated at $1,200,000,000. It has been the lot of the French peojile to suffer, in common with other nations, many evils resulting from bad govern- ment, but they have great cause to feel j)rofoundly thankful that they have never, in the administi-ation of their finances been cursed with a Hugh MeCuUoch. CHAPTER V. PAPEE MONEY AND BANKS OF THE UNITED STATES. The trials and tiibulations to which the Americau people have been subjected from the earliest settlement of the country, on account of the want of a proper and well settled system of money, would form a sad but instructive chapter in American history. The limits of this volume, however, preclude more than a cursory view of the subject, but that will be sufficient to establish the fact that when paper money fails to perform the functions of money, it is because it is not based on sound principles, and also that bank notes, nominally redeemable in specie, constitute the worst form of paper money ever devised. For many generations after the first settlement of the colonies the work of production was slow and laborious, and the surplus products, at least such as could find their way to foreign markets, were hardly sufficient to procm-e in return the common necessaries of life. The small sums of money brought to the country by the settlers were soon exhausted — sent abroad for merchandise, and trade for the most part had to be carried on by the inconvenient method of barter. The Indians found along the shores of Long Island Sound were more advanced in civilization than those further north, and used a circulating medium of exchange consisting of beads of two kinds, one white, made out of the end of a periwinkle shell, and the other black, made out of the dark part of a clam shell. They were rubbed down and polished, and, when artistically arranged in stiings or belts, foi-med objects of real beauty.* These beads circulated ^Professor Sumner's History of American Currency. 110 EAELY COLONIAL CUBEENCT. among the Indians as money, one black bead being regarded as worth two Avhite ones, and were known as wampum or wampumpeag. The colonists came to use them, first in their trade with the Indians and then amongst themselves. In Massachusetts they became by custom the common currency of the colony, and were made a legal tender for 12 pence. Barter currency was established at an early day in the colonies, and products of all kinds were made a tender in jjayment of debts. "In Connecticut tliere were four prices: 'Pay,' 'pay as money,' 'money,' and 'trusting.' The mer- chant asked his customer how he would pay before fixing bis iDrice. 'Pay' was barter at the government rates. 'Money' was Spanish or New England coin, also wampum for change. 'Pay as money' Avas barter currrency at prices one-third less than the gavernment rates. 'Trusting' was an enhanced price according to time. A six-penny knife cost 12d. in pay, 8d. in pay as money, and 6d. in coin."* About the middle of the lYth century the' trade with the West Indies began to, bring in coin, and a mint was estab- lished in Boston, though an infraction of the prerogative of the crown. Laws forbidding the exportation of coin were passed, but it could not be kept in the country. The first issue of jDaper money made in the colonies was made by Mas- sachusetts in 1690, six years before the establishment of tlie Bank of England. An expedition had been sent out against Canada, and, returning without spoils and in a state of misery, the soldiers were clamorous for their pay. £7,000 were issued in notes from 5 shillings to £5. The form of these notes or bills was as follows: "This indented bill of ten shillings, due from the Massachusetts colony to the possessor, shall be in value equal to money, and shall be accordingly accejDted by the ti'easurer and receivers subor- •Professor Sumner's History of American Currency, EAKLY COLONIAL CUEEENCY. Ill dinate to him, in all i^ublic payments, and for any stock (cattle) at any time in the treasmy." Then followed the date and the signatnres of the committee aj^pointed to issue them. They were not a legal tender, but ^Nere receivable merely for taxes and property in the treasury. In 1692 it was ordered that these bills be received at 5 per cent, pre- mium over coin in the treasury, and the result was that they circulated at par with coin for twenty years, until redeemed, and barter currency ceased for a time, or at least became less common. In 1*703 another issue of bills in the same form, for i; 15,000, was authorized by act of Parliament, but they were not made a tender. A subsequent act passed in 1712, however, made them a tender for private debts. In 1716 another issue of bills to the amount of £150,000 was authorized by an act of Parliament; to be distributed among the different counties of the province; and to be put into the hands of five trustees in each county, to be apjjointed by the legislature, to be let out by the trustees on real estate security in the county, in certain specified sums, for the space of ten years, at five per cent, per annum. These bills were not made a tender. Another act for £50,000 in bills was passed in 1720, containing similar provisions. In 1773 Massachusetts was out of debt. In 1720 bills were issued by the colony of Rhode Island and were made a tender for all debts, except sjaecial ones; and similar bills were authorized at different times subse- quently, some a tender and others not. The colony of Connecticut issued similar bills at various times between 1709 and 1731. New York began to issue bills in 1709; Pennsylvania, in 1723; Maryland, in 1733; Delaware, in 1739; Virginia, in 1755; and South Carolina, in 1703. The first emission of bills by Virginia bore interest at 5 per cent., and, according to Jefferson, in a very 112 EAELY COLONIAL CURRENCY. short time not one of them was to be found in circulation. They were locked up in the chests of executors, guardians, widows, farmers, etc. "We then," says Jefferson, "issued bills bottomed on a redeeming tax, but bearing no interest. These were received, and never depreciated a farthing."* In 1764 Dr. Franklin bore testimony before the British Board of Trade, as we have already mentioned,! to the value and usefulness of the bills issued by Pennsylvania. Just after the Revolution North Carolina issued a large amount of paper money, which was made receivable in dues to her; it was also made a legal tender. Several hundred thousand dollars of this paper money remained in circulation more than twenty years, at par with gold and silver, with no other advantage than being received in the revenues of the State.J In 1751 Parliament passed an act forbidding the issue of any more paper money, save in the form of exchequer bills redeemable in a year, except in case of war, when they could be made redeemable in four years; and in 1763 all colonial acts for issuing paper money were declared by act of Parliament to be void. Dr. Franklin protested against the act, but without avail. The English had reached the conclusion that nothing was money but gold and silver, and^ animated by that peculiar spirit which has characterized their immediate descendants in this countiy, were determined that, right or wrong, everybody else should subscribe to the same opinion. In 1773, however. Parliament allowed any bills issued by the colonies to be a tender to their treasuiy, CONTINENTAL MONEY. Dming the Revolutionary war Congress issued nearly $3.60,000,000 in bills of credit. The first issue was in 1775, and the confederated colonies were pledged for its redemption. In form these bills were as follows: "This bill entitles the •See page 66. tSee page 43. tSee page 50. COSTTINENTAL MONEY. 113 bearei' to receive .... Spanish milled dollars, or the value thereof, in gold or silver, according to the resolutions of Congress." The last emission was in 1780 under the guar- antee of Congress, and was in the following form: "The possessor of this bill shall be paid .... Spanish milled dollars by the 31st of December, 1786, with interest, in like money, at the rate of 5 j)er cent. ])er annum, by the State of ... . according to an act of the legislature of the State of . . . ., the day of , 1780." The endorsement by Congress was: "The United States insure the payment of the within bill, and will draw bills of exchange, annually, if demanded, according to a resolution of Congress of the 1 8th of March, 1780." The bills were required by Congress to issue upon the responsibility of the several States, and the confederated colonies pledged their faith for their payment. They were not made a legal tender, doubtless because Congress did not possess the authority to make them such. They circu- lated at par with silver for over a year, but after that they began to depreciate rapidly in value, owing to the character of the bills and the excessive amount put in circulation. In March, 1778, they were depreciated to Si. 75 for $1, and before the end of the year to |4 for $1; March, 1779, $10 for $1; September, 1779, $18 for $1; March, 1780, $40 for $1. Congress then passed a resolution to fund the whole mass at that rate, but the depreciation continued until it reached $500 for $1, in 1781, and after that they ceased to circulate. In 1791 they were still pei-mitted to be funded at the rate of $100 for $1. Continental money, according to Jefferson, "expu-ed without a single groan. Kot a murmur was heard among the people. On the contrary universal congratula- tions took place on their seeing the gigantic mass, whose dissolution had threatened convulsions which should shake their infant confederacy to its center, quietly interred in its S 114 CONTINENTAL MONET. grave. Foi-eigners, indeed, who do not like the natives feel indulgence for its memory, as of a being which has vindi- cated their liberties and fallen in the moment of victory, have been loud, and still are loud in their complaints. A few of them have reason; but the most noisy are not the best of them. They are persons who have become bankrupt by unskillful attempts at commerce with America. That they may have some pretext to offer to their creditors, they have bought uj) great masses of this dead money of America, where it is to be had at five thousand for one, and they show the certificates of their paper possessions, as if they had died in their hands, and had been the cause of their banl;- ruptcy." As Continental money is the " ghost conjured up by all who wish to give the banks an exclusive monopoly of govern- ment credit,"* it may be well to i)ause a moment to consider its nature. The paper money issued by the several colonies prior to the Revolution had answered the purposes of money admirably, though not issued according to any well settled policy. Whenever it bad a fair trial, however, it never failed to succeed. But Continental money was issued under very different circumstances. The colonies had been brought together not out of choice but by necessity. Con- gress assumed the powers which it exercised through neces- sity, and its acts were acquiesced in by the people only out of a spirit of patriotism. ' Congress liad no power to lay and collect taxes, and the confederation was without revenue. Whatever was done, had to be done through the States. Even after the adojjtion of the Articles of Confederation, in 1781, Congress possessed only the semblance of authority. Judge Stoiy describes the situation at the time in the fol- lowing language: "In the fii'st place there was an utter 'Calhoun, see page 60. CONTINENTAL MONET. 115 want of all coercive authority to carry into effect its own constitutional measures. This of itself was sufficient to destroy its whole efficiency, as a superintending government, if that may be called a government which possesses no one solid attribute of power. * * In truth, Coilgress possessed only the power of recommendation. It dej)ended altogether upon the good will of the States whether a measure should be carried into effect or not. * * Even during the Revolution, while all hearts and hands were engaged in the common cause, many of the measures of Congress were defeated by the inactivity of the States; and in some inst'inccs the exercise of its powers was resisted. But after the peace of 1783 such opposition became common, and gradually extended its sphere of activity, until, in the expressive language already quoted, 'the confederation became a shadow without the substance.' * * But a^ still more striking defect was the total want of power to lay and levy taxes, or to raise revenue to defray the ordinary expenses of government. The whole power confided to Congress upon this head was the i:)Ower to ascertain the sums necessary to be raised for the service of the United States, and to apportion the quota or proportion on each State. But the power was expressly reserved to the States to lay and levy the taxes, and of course the time, as well as the mode of payment, was extremely uncertain. The evils resulting from this sovu'ce, even during the Revolutionary war were of incalculable extent; and but for the good fortune of Congress in obtaining foreign loans, it is far from being certain that they would not have been fatal. * * Requisitions were to be made upon thirteen independent States, and it depended upon the good will of the legislature of each State, whether it would comply at all; or if it did comply, at what time and in what manner. The very tardi- 116 CONTINENTAL MONEY. ness of such an operation, in the ordinaiy course of things, was sufficient to involve the government in perpetual embar- rassment, and to defeat many of its hest measures, even when tliere was the utmost good faith and promptitude on iho part of the States, in complying with the requisitions. But many reasons concurred to produce a total want of promptitude on the part of the States, and, in numerous instances, a total disregard of the requisitions. Indeed from the moment that the peace of 1783 secured the countiy from the disti'essing calamities of war, a general relaxation took place; and many of the States successively found apologies for their gross neglect in evils common to all, or complaints listened to by all. Many solemn and afEecting appeals were fi-oni time to time made by Congress to the States, but they were attended with no salutary efEect. Many measures were devised to obviate the difficulties, nay the dangers which threatened the Union; but they failed to produce any amendments in the confederation. An attempt was made by Congress, during the war,, to procure from the States an authority to levy an imjjost of five per cent, upon imported and prize goods, but the assent of all the States could not be procured."* The population of the thirteen colonies was estimated in 1775 at 2,448,000,1 and the entire property of the country at less tlian $600,000,000. That a jjaper currency, issued to an excessive amount, by thirteen sparsely settled colonies, in a state of rebellion, under a revolutionary government possessing only a shadow of authority, against the most powerful nation on the earth, should have circulated at all, is one of the most remarkable facts connected with the Revolution, and is to be accounted for only by the patriotism of those engaged in tliat memorable struggle. But, as we *Stoi'y on llie Constitution, Vol. 1. page 171. +J tifferson's Works. Vol. 9, page 272. CONTINENTAL MONEY. 117 have seen, it circulated for over a year at par with silvei', and in 1778, three years after the first emission, it depreciated only to $1.75 for $1. Congress resorted to -various measures to sustain the credit of Continental bills, hut, as ought to have been expected, without success. Money, as has been fully explained, derives it power to represent value from law, but there must be value in ijroperty or i)roducts, for which it can be exchanged, for it to represent, and the law must emanate from a responsible source — from a government possessing the right and power to command such property for its uses, otherwise it is only money in liamo. It is worthy of note, too, that Continental bills were not issued in the form of paper money, such as w:is first introduced by Massachusetts, and subsequently adopted by many of tlio other colonies, but in the form of promises to p;iy specie, at certain specified times, which, under tlie circumstances, was a manifest impossibility. The gradual depreciation of Con- tinental money, as it jjassed from Jiand, intlicled a loss upon each successive holder, which came to be reuarded in the nature of a tax or contribution towai-ds tlie cause of inde- pendence. The large sums lield by individuals after it ceased to circulate were taken at its greatest depreciation, and no great loss was sustained. When, after it had seen the liberties of the people vindicated, it sank, in the moment of victory, quietly into its grave, no commercial crash or money panic attended its fall. Its ghost has troubled no one since, except the advocates of the British system of bank currency, which, perhaps, is only in accordance -with the eternal fitness of things. BANKS OF THE UNITED STATES. We come now to a new era in the history of American currency. When the colonies entered the Federal Union, 118 BANKS OF THE UNITED STATES. under the Constitution framed in 1787, they surrendered all power or control over the question of money to the Federal Government. The object of this was to secui-e to the people a uniform and stable medium of exchange, and hence it was that a clause was inserted in the Constitutioji expressly prohibiting States from coining money, emitting bills of credit, etc.* But this wise provision of the Constitution was soon totally subverted by the money power, through the instrumentality of banks of issue, modeled on the British, system of bank currency; and practically the currency of the country has been subject to the control of that power ever since. About the close of the Revolution four banks of issue were established in the United States; one in each of the States of Pennsylvania, New York, Massachusetts and Maryland. At the time the Federal Constitution was framed, there was a large and formidable party, with aristocratic notions and tendencies, under the leadership of Alexainder Hamilton, a statesman of undoubted patriotism and great ability, which was strongly in favor of the formation of what was termed "a strong government." This policy grew out of a want of faith in the people, and the belief that they were incapable of self-government. In a speech on this subject, June 18, 1787, Mr. Hamilton said: "I believe the British government forms the best model the world ever produced, and such has been its progi'ess in the minds of many, that this truth gradually gains ground. This government has for its object public strength and individual security. It is said with us to be unattainable. If it was once formed it would maintain itself. All communities divide themselves into the few and the many. The first are the rich and well born, the other the mass of the jjeople. * * Can a democratic assemblyj •See page 54. BANKS OF THE UNITED STATES. 119 who annually revolve in the mass of the people, be supposed steadily to pursue the public good? Nothing but a perma- nent body can check the independence of democracy. Their turbulent and uncontroUing disposition requires checks. * * Let one body of the legislature be constituted during good behavior or life. Let one executive be appointed (for life) who dares execute his powers. * * All State laws to be absolutely void which contravene the general laws. An officer to be appointed in each State to liave a negative on all State laws. All the militia and the appointment of officers to be under the national government. * * The peojjle are gradually ripening in their opinions of govern- ment; they begin to tire of an excess of democracy."* This j)olicy of a strong government, based on an aristocracy of wealth, was rejected by the convention; but it has never been abandoned by the money power of the country. In 1863, in a speech, in the House of Representatives, in support of the National Bank Currency Bill, Hon. E. G. Spaulding, a banker of New York, boldly assorted that, "It is now most apparent that the policy advocated by Alexander Hamilton of a strong central government was the true policy;" and at the present time we liave the policy of a third term openly and fearlessly advocated by tlie money power and its tools. Hamilton, ^Yho Avas the first Secretary of the Treasury, urged the establishment of a National Bank modeled upon the British system, and upon his recommendation the first Bank of the United States, with a capital of $10,000,000, was chartered by Congress, February 25, 1791, for a period of twenty years. Jefferson, who was then Secretary of State, gave a wi-itteu opinion denying the power of Congress to incorpoi-ate a bank of issue, and Madison, who was in •Yates' Debates of the Constitutional Convention (17S7.) 120 BANKS OF THE UNITED STATES. Congress, opposed it, in a powerful speech, as a violation of the Constitution. In 1811 the bank applied to Congress for a renewal of its charter, but it was not gi-anted. Clay and other leading statesmen opposed its re-charter on the ground that it was " unconstitutional, anti-American, and strictly a British institution." In the meantime a mania to start banks had sprung up in New England, which subsequently extended to the Middle States, and finally all over the country. In 1815 Jefferson gave the following statement of the number of banks which had been established up to that time: " In 1781 we had 1 bank, capital, $1,000,000 " 1791 « 6 banks, " 13,500,000 " 1794 " 17 " " 18,642,000 " 1796 " 24 " " 20,472,000 " 1803 " 34 " " 29,112,000 " 1804 " 66 " amount of capital not known. And at this time (1815) we have probably one hundi'ed banks." Notwithstanding the constitutional prohibition against emitting bills of credit, charters, incorporating private insti- tutions, authorized to emit bills of credit (bank notes), were granted by the legislatures of the several States in large numbers, in utter disregard of the Constitution, as well as of the public good. In Pennsylvania, for example, twenty-five charters, incorporating specie basis banks of issue, were granted during the session of 1813, but were vetoed by the Governor. ,At the next session of the legislature, in 1814, a bill was passed over the veto of the Governor chartering forty-one banks, with a capital of $17,000,000. Thirty-seven of them Avent into operation at once, and six months after- wards suspended specie payment. The manner of obtaining a charter was very simple. A petition setting forth "the wants of the people " in the locality where the bank was to BAS-KS OF THE UNITED STATES. 121 be established was all that was required; political influence and intrigue accomplished the rest. Specie basis banks are always required by law to redeem their notes in specie, but as they are, also, always authorized to issue notes to three times the amount of their capital stock, their redemption in specie becomes an impossibility. This feature in banking, as has been explained,* was originally nothing more than a bold plan on the part of certain ingenious financiers and schemers to acquire favor with the public for the Bank of England and increase its business. As the system in time was found to have a tendency to concentrate wealth in the hands of the few, it commended itself to the aristocratic, or governing class, of that kingdom, and soon became an integral part of tho structure of British society. Transjjlanted to the free atmosphere of America the system was afforded an oppor- tunity to develop its latent e\ ils, greatly to tlie disad- vantage of American society. If banks were autliorized to issue only a dollar of paper for a dollar of specie lield for its redemption, there would be no advantage in issuing notes; they might as well lend the specie. Individuals obtain charters to carry on the business of banking on the theory that they have capital to employ in that business, but under the specie basis system they arc jiot required to use their capital at all. Bank notes are issued and exchanged for the notes of individuals. These bank notes are based on the credit of the institution which issues them, and represent nothing more; if redeemed, they are good; if not, they are as worthless as the note of an insolvent individual. A bank of issue in effect simply substitutes its notes, of various denominations and otherwise convenient for use in payments, for the notes of its customers. As a large portion of the *See page 89. 122 BANKS OF THE UNITED STATES. community tire constantly having payments to make in bank, the notes of tlie bank are as good to tlieni as money, and they thus come to perfomi not only the functions of the individual notes, for wtiich they were substituted, but also the functions of a circulating medium. Whilst in reality they are nothing more than promises to pay, representing credit, (evidences of the indebtedness of the bank,) they at the same time become substitutes for money. In this way a bank of issue enables its corporators and stockholders to force their credit, or evidences of indebtedness, upon the public, at a high rate of interest, and compel its use as a circulating medium, whether the public desires to use it or not. The mediuiii of exchange thus forced upon the public, encumbered with interest, becomes a tax uj)on the commu- nity at large, because its cost enters into tlie price of com- modities.* As bank notes rest entirely upon private credit,, they are subject to depreciation in value, which imposes an additional burden upon trade and production. It is, as we have seen,f a part of the specie basis system to treat dis- counted i^aper as deposits, and this furnishes the basis for additional loans of credit. By encouraging discounts and lending credit, through the instrumentality of bank notes, to be used as real capital, business becomes active, prices advance and speculation becomes rife. Inflation of bank credit and notes goes on and a huge structure of credit is erected upon an insignificant basis of specie, supposed to be resting in the vaults of the bank, which is toj)pled over by the first financial breeze that springs up, and the public is buried in its ruins. When the banks are called upon to redeem their promises to pay they are of course unable to do so, for the wit of man has not yet devised a way to redeem several jjaper dollars with one gold dollar. Like *See page 49. tSee page 91. BANKS OF THE UNITED STATES. 123 individuals, banks can be thrown into bankruptcy and com- pelled to go into liquidation, but such a step only aggravates the distress of the public, and is rarely adopted; and the banks are permitted to escape, only to repeat the operation as soon as confidence has been restored through the aid of the Sheriff.* The extent to which banks are enabled to lend their credit by means of the specie basis system of banking will appear from an examination of the following table, which is an abstract of the Commissioners' Report of tJie banks of Connecticut for a period of twelve years, from 1837 to 1847 inclusive and the year 1849. The banks of Connecticut, it should be mentioned, were conducted during this period with as much safety to the public as those of any other State in the Union: Year. Capital. Circulation. Total Liabilities. Specie. Loans and Discounts. 1837 $8,744,697 50 $3,998,325 3U $15,715,964 59 $415,386 10 $13,246,495 08 .1838 8,754,467 50 1,920,552 45 12,302,631 11 535,447 86 9,769,286 80 1839 8,832,223 00 3,987,815 46 14,942,779 31 502,180 15 12,286,946 97 18i0 8,878,245 00 2,.325,589 95 12,950,572 40 499,032 52 10,428,630 87 1841 8,873,927 bO 2,784,721 45 13,866,373 45 464,298 61 10,944,673 35 1842 8,876,317 57 2,555,638 33 13,465,052 32 471,238 08 10,683,413 37 1843 8,580,393 50 5,3(9,947 02 12,914,124 06 438,752 92 9,793,392 27 1844 8,292,238 00 3,490,963 06 14,472,681 32 455,430 30 10,842,955 35 184,') 8,359,748 00 4,102,444 OO 15,243,235 79 453,658 79 12,477,196 06 1846 8,475,630 00 3.565,947 06 15,892,685 25 481,367 09 13,032,600 78 1847 8,605,742 00 4,437,631 06 15,784,772 04 462,165 53 12,781,857 43 195,273,629 57 $38,549,575 13 $157,560,872 44 $5,168,957 95 $126,292,898 33 1849 8,985,917 on 4,511,571 00 575.676 00 13,740,691 00 104,259.546 57 $5,744,633 95 $140,033,489 33 Average Capital, _ „ $8,688,295 55 Average Liabilites, - 13,129,239 37 Average Specie, - 478,719 50 Avera ge Loans and Discounts, 11,669,457 44 Kellogg, who gives this table,f in commenting upon it, says: " By the foregoing table it will be seen that the average amount of the specie held by the banks in the State of Connecticut, for the twelve years, was $478,719, while the average amount of their loans to the public, during the same •See page 20. -tKellogg's Kew Monetary System, page 204. 124 BANKS OF THE UNITED STATES. period, was $11,669,457 — more than twenty-four and one- third times as much money as the banks had specie. The annual interest on $11,669,457 was $700,167. If they could have loaned only their specie, the interest would have amounted to but $28,723. The banks gained from the public annually $671,444 above the interest on their specie; and, in the twelve years, $8,057,328. They collected this interest in advance, and made their dividends half yearly to their stockholders; therefoi-e, it is proper to compound this interest half yearly, which would swell their gains to nearly $12,000,000, that is to say, '$1,000,000 interest annually. These were actual gains, as much realized by these banks as if they had produced and sold annually $700,167 worth of agricultural products." (The statements of the banks of any of the large cities, published from time to time in the newspajjers, will disclose a similar inflation of credit at the present time. The fact that the National Banks do not redeem their notes in specie makes no difference. They are banks of issue and belong to the specie basis system all the same.) The banks of the United States have been compelled to suspend specie payments at various times as follows, to wit: in 1809, 1814, 1819, 1825, 1834, 1837, 1839, 1841, 1857, 1861, and in 1873 currency payment. These suspensions have invariably occasioned great public distress, and in several instances have involved the entire country in bankruptcy and ruin, from which it took years to recover. In March, 1809, a legislative committee of the State of Rhode Island made an examination into the affairs of the Farmers' Exchange Bank of Gloucester, and it was found that the bank had $580,000 of its notes in circulation, and only $86.16 in its vaults for their redemption. Before the end of the year a general suspension of the banks of New England took place, and it was discovered that they were nearly all in the same condition — no specie and nothing to show but the worthless notes of sijeculators. BANKS OF THE UNITED STATES. 125 CRASH OP 1814. In 1814 all the banks outside of New England, including- the forty-one banks chartered by the Pennsylvania legislature in the early part of the year, were obliged to suspend specie payment, occasioning great distress. The people Avere help- less, and could do no better than to use their depreciated notes. This condition of affairs lasted for years. The following table shows the depreciation of the notes of the banks of the cities of Baltimore, New York and Philadelphia during the suspension : 1 814 — September . October. . . November . December . 1815 — January. . . February. . March April May June , July August . . . . September . October. . . November . December . 1816 — January. . . February. . March April May June July August. . . . September . October. . . November . December. 181V — January. . . February. . Baltimore. Per cent. Philadelphia. Per ccut. New York. Per cent. 20 , , 15 . « 10 . , 14 , . 20 15 6 2 5 5 10 6i 14 5 6 16 9 11 20 11 14 19 11 121 20 15 13 21i 15 16 15 16 12 18 14 121 15 14 12i 13 14 9 18 m m 23 ui 10^ 20 14 12i 20 16 12i 15 15 6 12 10 5 10 'i 3 8 H 2 9 1 If 9 7 H 2 4i 2i 'H 4 2i 126 BANKS OF THE UNITED STATES. On the first of January, 181'?, the second Bank of the United States began business, and on the 20th of February following specie payments were nominally resumed. The extent and character of the resumption that took place may be gathered from the following case cited by Sumner, in his History of American Currency: "In 1817 a case at Rich- mond, after specie payments were resumed, gave an insight into the state of things. A man having jjresented ten one hundred dollar notes for redemption was refused. He could not get a lawyer to take a case against the bank for a long time. Finally ha^•ing obtained judgment, the Sheriff was sent to collect. The president of the bank was taken before the court, but refused to pay. The bank was closed by the Sheriff, but soon after opened and went on." The specie basis system had now been in operation long enough to produce its legitimate fruits, and accordingly we. find that here and there the people were becoming alarmed at its encroachments upon their rights, as well as at the evils which it inflicted upon the public. The following is an extract from a i-eport of a legislative committee of the State of New York in 1818: "Of all aristocracies, none more completely enslave a people than that of money; and, in the opinion of your committee, no system was over better devised so perfectly to enslave a community as that of the present mode of con- ducting banking establishments. Like the siren of the fable, they entice to destroy. They hold the purse-strings of society, and, by monopolizing the whole of the circulating medium of the country, they form a precarious standard, by which all jDroperty in the country — ^homes, lands, debts and credits, personal and real estate of all descrijjtions — are valued, thus rendering the whole community dependent upon them; proscribing every man who dares to expose their BANKS OF THE UXITED STATES. 127 unlawful j)i-actices. If he happens to be out of their reach, so as to require no favors from them, his friends are made the victims; so no one dares complain. The committee, on taking a general view of our State, and comparing those parts where banks have been, for some time, established with those that have none, are astonished at the alarming disparity. They see, in the one case, the desolation they have made in societies that were before prosperous and liappy; the ruin they have brought on an immense number of the more wealthy farmers, and they and their families suddenly hurled from wealth and independence into the abyss of ruin and despair. If the facts stated in the foregoing be true, (and your committee have no doubt they are,) together with others equally rej)rehensible and to be dreaded, such as that their influence too frequently, nay, often already, begins to assume a species of dictation altogether alarming, and, unless some judicious remedy is provided by legislative wisdom, we shall soon witness attempts to control all selec- tions to offices in our counties — nay, the elections to the very legislature. Senators and members of assembly will be indebted to the banks for their scat in this capitol; and thus the wise end of our ei\il institutions will be prostrated in the dust of corporations of their own raising." THE CEASH OF 1819. In 1818 the bank of the United States had discounted to the amount of $43,000,000, and had $2,000,000 in specie. It had established eighteen branches, and its notes could not be signed fast enough for the public. To increase its reserve of specie it had bought $7,000,000 of bullion abroad, at a cost of $800,000 for expenses, but it was exported as fast as it was imported. The Bank of England, which had been in suspension since 1797, was preparing to resume specie 128 BAXIvS OF THE UNITED STATES. payments, and was drawing sjjecie from every som-ce that was available. In April, 1818, less than fifteen months after the Bank of the United States started, it was believed to be insolvent. A committee, appointed by Congress to inves- tigate its affairs, reported a resolution requiring the bank to show cause why its charter should not be forfeited, but the resolution was lost, forty members of Congress being stock- holders in the bank. The bank now resorted to vigorous measures to save itself from bankruptcy, and in a little over two months was once more solvent. It had, however, i-uined the counti'y. The amount of bank note circulation in 1813-14 was about $45,000,000; in 1817-18, $100,000,000; and in 1819 about $45,000,000. Contraction had done its work, and the ruin which it had accomijlished was deep and widespread. In August, 1819, 20,000 persons were seeking employment in Philadelphia, and a similar condition of affairs prevailed in New York, Baltimore and other cities. The distress was least severe in New England. In the Western States it was intense. In the South the banks still pretended to pay specie, but the following account of the manner in which they did business in some localities would hardly justify the pretension : One who presented a bill had to make oath in the bank that the bill was his own and that he was not an agent for any one. He was required to make this oath before the casliier and five directors, and had to pay $1.37^ expenses on each bill. Stagnation and distress lasted throughout the year 1820. "Wheat was 20 cents per bushel in Kentucky. At Pittsburgh flour "oas $1 per ban-el, boards, $2 j)er thousand, etc., etc., while imported goods remained at their old j)rices. One and a half bushels of wheat would buy a pound of coffee; a barj-el of flour would buy a pound of tea, and twelve and a half barrels of flour would buy a yard of broadcloth. But BANKS OF THE UNITED STATES. 129 a Ijettev idea of the condition of affairs may be formed, perhaps, from a report of a committee of the Senate of Pennsylvania, of which the distinguished Condy Raguet was chairman, made on the 20th of February, 1820. It is as follows: "In ascertaining the extent of the public distress, your committee has had no difficulties to encounter. Members of the legislature from various quarters of the State, have been consulted in relation to this subject, and their written testi- mony in answer to interrogatories submitted to them by the committee, has agreed, with scarcely a single exception, on all material points. With such respectable weight of evi- dence, added to that which has been derived from the prothonotai'ics, recorders and sheriffs of the different counties, from intercourse with numerous private citizens residing in different parts of the state, as well as from the various peti- tions presented to the legislature, your committee can safely assert that a distress unexampled in our country since the period of its independence, prevails throughout the common- wealth. This distress exhibits itself under the various forms of — " 1. Ruinous sacrifices of landed property at sheriff's sales, whereby, in many cases, lands and houses have been sold at less than a half, a third, or a fourth of their former value, thereby depriving of their homes, and of the fruits of labo- rious years, a vast number of our industrious farmers, some of whom have been driven to seek, in the uncultivated forests of the west, that shelter of which they have been deprived in their native State. " 2. Forced sales of merchandise, household goods, farming stock and utensils, at prices far below the cost of production, by which many families have been deprived of the common necessaries of life, and of the implements of their trade. 130 BANKS OF THK tJXITED STATES. " 3. Numerous bankruptcies and pecuniixrj' embarrassments of every description, as well among the agricultural and manufacturing as the mercantile classes. "4. A general scarcity of money throughout the country, which i-enders it almost imiDossible for the husbandman or other owners of real estate to boi-row at a usurious interest, and where landed security of the most indubitable character is offered as a j)ledge. A similar difficulty of jjrocuring on loan had existed in the metropolis previous to October last, but has since then been partially removed. "5. A general suspension of labor, the only legitimate source of wealth, in our cities and towns, by which thousands of our most useful citizens are rendered destitute of the means of sujjport, and are reduced to the extremity of povei-ty and despair. "6. An almost entire cessation of the usual circulation of commodities, and a consequent stagnation of business, which is limited to the mere purchase and sale of the necessaries of life, and of such articles of consumption as are absolutely required by the season. "7. A universal suspension of all manufacturing oj)era- tions, by which, in addition to l3ic dismissal of the numerous productive laborers heretofore engaged therein, who can find no other employment, the public loses the revenue of the capital invested in machinery and buildings. "8. Usurious extortions, whereby corporations instituted for banking, insurance and other jjurposes, in violation of law, possess themselves of the products of industry without granting an equivalent. " 9. The overflowing of our prisons with insolvent debtors, most of whom are confined for trifling suras, whereby the community loses a f)prtion of its effective laboi", and is com- BAXKS OF THE UKITED STATES. 131 pelled to support families by charity who have thus been deprived of their protectors. " 10. Numerous law-suits upon the dockets of our courts and of our justices of the peace, which lead to extravagant costs and loss of a great portion of valuable time. "11. Vexatious losses arising from the depreciation and fluctuation in the value of bank notes, llie imjDOsition of brokers and the frauds of counterfeiters. " 12. A general inability in a community to meet witli punctuality the payment of debts e\cu for family expenses, which is experienced as well by those who are wealthy in property as by those who have hitherto i-elied upon their current engagements. With such a mass of evils to pppress them, it cannot be wondered at that the people should be dispirited, and that they should look to their representatives for relief. Their patient endurance of suffering, whicli can only be imagined by those who have habitually intermingled with them at their homes and by their firesides, merits the commendation of the legislature and prefers a powerful claim to their interference." The jDeople of the United States had not been without warning as to the evils and dangers of the specie basis system, but they had sujjinely allowed the money power to gain control of the monetai'y affairs of the coim try, precisely as they are doing now. January 16, 1814, previous to the crisis of that year, Jefferson wrote as follows: "Everything predicted by the enemies of the banks in the beginning is now com- ing to pass. We are to be ruined by the deluge of bank paper, as we were formerly by the old Continental paper. It is cruel that such revolutions in j)rivate fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument 132 BANKS OF THE UNITED STATES. to burtlien all the interchanges of property Avith their swindling profits, profits which are the pi-ice of no useful industry of theirs. * * I am an enemy to all banks dis- counting bills or notes for anything but coin." And again, January 6, 1816 he wrote as follows: "The American mind is now in that state of fever which the world has so often seen in the histery of other nations. We are under the bank bubble, as England was under the South Sea bubble, France under the Mississifipi bubble, and as every nation is liable to be, under whatever bubble, design or delusion may puff up in moments when off guard. We are now taught to believe that legerdemain tricks upon paper can produce as solid wealth as hard labor in. the earth. It is vain for com- mon sense to urge that nothing can produce but nothing ; * * Not Quixot enough, however, to attempt to reason Bedlam to rights, my anxieties are tm-ned to the most practi- cable means of withdrawing us from the ruin into which we have run. Two hundred millions of pajoer in the hands of the jjeople, (and less cannot be from the employment of a banking capital known to exceed one hundred millions,) is a fearful tax to fall at hajj-hazard on their heads. * * And what have we purchased with this tax of two hundred millions, which we are to pay by wholesale, but usury, swindling and new forms of demoralization." As we have seen, the bubble burst, as predicted by Jefferson, in 1819. The stagnation and distress continued during 1821 and 1822. In 1823 there was a large creation of banks in IS'ew York, and the 'Bank of the United States began to expand. In 1824 all the banks began to expand. Pennsyl- vania rechartered the banks of 1814. In the spring of 1825 petitions were presented in New York for fifty-two charters for banks and insurance companies. "In Kentucky there was anarchy. Alabama and Tennessee notes were at a BANKS OF THE XTXITED STATES. 133 discount. Indiana, Illinois and Missouri were still suffering from the 'relief system (stay laws against the collection of debts, etc.) The 'New York and Boston banks were fighting the country issues. * * The bank of the United States increased its issues over $3,000,000."* CEASH OF 1825. In the latter part of 1824 and beginning of 1825 the Bank of England found it necessary to curtail its discounts, in order to check the outflow of bullion. This occasioned another terrible crisis in that country. Seventy banks failed and nearly two thirds of the merchants and manufacturers stopped payment, causing great distress among the \\orking classes. Gold began to flow from the United States, and the banks were obliged to suspend specie payments. Fifty failures occurred in New York before December, and banks went under all over the country. The crisis, however, was not felt so severely in the United States as it was in Eng- land, because the banks had not yet had suflicient time to inflate their credit and circulation to the greatest extent. Here and there throughout the country industrial activity was stimulated somewhat during the next few years by the high tariff of 1824 and 1828, and by the building of railroads, which began in 1830; but business generally continued to suffer from the rotten monetary system which had been fastened ujion the country, and distress was more or less common. THE WAK WITH THE UNITED STATES BANK. The fight between President Jackson and the United States Bank, which occupied the attention of the people for years, now began. The s^iecie basis system had been in operation for over a quarter of a century, and dming the whole time the coimtry had never once enjoyed the advan- ("Sumner's History of American Currency. 134 BANKS OF THE TJXITED STATES. tages of a sound cun-ency. Pecuiiiai'y distress, periodical returns of expansion and contraction, deranged currency, ruined exchanges, and jjanics and convulsions had cliarac- terized the entire period. The banks, although based on "hard money," and professing to i)ay coin, wci-e in a state of chronic suspension. The press of the country Avas com- pletely subsidized; Congress, as well as State legislatures, bowed in abject submission to the mandates of the money power; and even the Supreme Court of the United States did not escape its contaminating influence. The people were perfectly helpless, and the outlook of American free- dom and indejjendence was dark indeed. It is worthy of mention that Pitt, in 1791, when Hamilton brought forward his funding and banking scheme, said: "Let the Americans adojrt their funding system and go into their banldng institutions, and their boasted independence will be a mere phantom." But fortunately for the country the election of 1828 resulted in the choice of Andrew Jackson as President of the United States, and the peojjle found in him a leader, as fearless as ho was patriotic. In his first message to Congress, December 8, 1829, in language of extreme mod- eration, ho called public attention to the United States Bank, and expressed himself as unfavorable to its continued exist- ence. He said: " The charter of the Bank of the United States expires in 1836, and its stockholders Avill probably apply for a renewal of their privileges. In order to avoid the evils resulting from precipitancy in a measure involving such important principles, and such deep j)ecuniary interests, I feel that I cannot, in justice to the parties interested, too soon present it to the deliberate consideration of the legislature and the jjeoplc. Both the constitutionality and expediency of the law creating this bank ai'e well questionedi by a BAHTSS OP THE UNITED STATES. 135 large portion of cm- fellow citizens; and it must be admitted by all that it has failed in the great end of establishing a uniform and sound currency." The bank immediately began preparations for war. Through its branches and its control over State banks, its power extended into every part of the country. Millions of dollars (belonging, as it subsequently ajapeared, to depositors and stockholders) were squandered for the purpose of con-upting the people. Statesmen, Congressmen, brawling politicians, editors, all succumbed to its influence, very much in the same way as they are seen bowing to the power of the National Banks at tlie present day. After a careful survey of the field and a thorough canvass of Congress, it was determined by th6 bank that a renewal of its charter should be applied for during the session of Congress immediately preceding the next general election in 1832. The bill passed Congress by a majority of eight in the Senate and twenty- two in the House. jVs was expected, it was returned with the President's veto, on the 10th of July, 1832. The contest was then transferred to a wider field and carried on with excessive virulence. The money power everywhere went to work to defeat Jackson. In Philadelphia, for examjjie, "the bank would order the business men to hold public meetings in its behalf in order that it might ascertain who were its friends, and who were courageous enough to stand by the government in its efforts to redeem the people, and then, in turn, would apjDoint places for the assembling of the different trades, in order that the employers might see who of their workmen had opinions which they dared maintain."* The masses, however, rallied to the supjDort of the President, and the capacity of the Amei-ican people for self-government was triumphantly vindicated. President *From Speech of Hon. W. !>. Kelley, at ludianapoUs, Aug., 1875. 136 BANKS OF THE UNITED STATES. Jackson was re-elected, defeating Mr. Clay by a vote of 228 to 49 inthe electoral college. Upon examination it will be found that the principles involved in the contest between General Jackson and the United States Bank are precisely identical with those which underlie the impending contest between the people and the National Banks. The subject is, therefore, worthy of more than a passing notice. Benton, in his "Thirty Years in the United States Senate," in com- menting upon some errors of Mons. de Tocqueville "in relation to the Bank of the United States, the President and the people," gives a clear and comprehen sive analysis of the principles and purposes involved in the contest, from which we quote as follows: "This passage* was the grand feature of the message, rising above precedent and judicial decisions, going back to the Constitution and the foundation of jjarty on principle; and risking a contest at the commencement of his adminis- tration, which a mere politician would have put off to the last. The Supreme Court had decided in favor of the constitutionality of the institution; a democratic Congress, in chartering a second bank, had yielded the question, botli of constitutionality and expediency. Mr. Madison, in sign- ing the bank charter in 1816, yielded to the authorities without surrendering his convictions. But the eifect was the same in behalf of the institution, and against the Consti- tution, and against the integrity of party founded on princi- ple. It threw down the great landmark of party, and yielded a power of construction which nullified the limitations of the Constitution, and loft Congress at liberty to pass any law which it deemed necessart/ to carry into efTect any granted power. The whole argument for the bank turned upon the word 'necessary' at the end of the enumerated *See page 1.'>1. BANKS OF THE UNITKD STATES. 137 powers granted to Congress; and gave rise to the first division of parties in Washington's time — the federal party being for the construction vchich would authorize a national bank; the democratic party (republican, as then called,) being against it. " It was not merely the bank which the democracy opposed, but the latitudinarian construction which would authorize it, and which would enable Congress to substitute its own will in other cases for the words of the Constitution, and do what it pleased under the plea of 'necessary' — a plea under which they would be left as much to their own will as under the 'general welfare' clause. It was the turning point between a strong and splendid government on one side, doing what it j)leased, and a plain economical government on the other, limited by a written Constitution. The con- struction was the main point, because it made a gap in the Constitution through which Congress could pass any other measm-es which it deemed to be 'necessary;' still there were great objections to the bank itself. Experience had shown such an institution to be a political machine, adverse to free go-\-ernment, mingling in the elections and legislation of the country, corrupting the press, and exerting its influence in the only way known to the moneyed power — by corruj)tion. General Jackson's objections reached both heads of the case — the unconstitutionality of the bank and its inexpedi- ency. It was a return to- the JefEersonian and Hamiltonian times of the early administration of General Washington, and went to the Mords of the Constitution, and not to the interjiretations of the administrators for its meaning. "Such a message, from such a man — a man not apt to look back when he had set his face forward — electrified the democratic spirit of the country. The old democracy felt as if they were to see the Constitution restored before they 138 BANKS OF THE UNI'l'ED STATES.. died — the young, as if they were summoned to the recon- struction of the worlc of their fathers. It was e\ ident that a great contest was coming on, and the odds entirely against, the President. On the one side, the undivided phalanx of the federal party (for they had not then taken the name of whig); a large part of the democratic party, yielding to j)recedent and judicial decision; the bank itself,, with its colossal money power — its arms in e\ery State by means of branches — ^its power over the State banks — its ])ower over the business community — over public men who should become its debtors or retainers — its organization under a single head, issuing its orders in secret, to be obeyed in all jDlaces and by all subordinates at the same moment. Suck was the formidable array on one side: on the other side a- divided democratic party, disheartened by di\ision, with nothing to rely ujjon but the goodness of their cause, the^ prestige of .Jackson's name, and the presi-bagger ' came from? The younger men of our day think it A\'as invented to describe a man from the North who went South and got an ofiice. Oh, no; not at all. The older members of my audience will attest the truth of wliat I say when I state that the phrase ' carpet-bagger ' arose from the fact that nearly every si^ecie basis bank had its carpet-bagger — a fellow it sent with notes by the carpet-bag full into some distant State to get them into circulation there. If he could not buy cattle, corn, hogs or something else in which there might' be a profit, he was to enter into a treaty with the carpets baarsrer or other ofiicer of some bank out there for an exchange of notes. For instance: The Frogtown bank — for I am told there were banks located occasionally in ♦How this distress was relieved in reniisylvani:i, see page 44. 152 BANKS OF THE UWITED STATES. almost impenetrable swami:)s, and in tbose days, you must remember, there were no telegrajphs and but, few railroads — the follow from Frogtown would got way out into Skunk- town, another almost inaccessible place, and he would effect an exchange of ten, twenty, or thirty thousand dollars of Frogtown bank notes for a like amount of Skunktown bank notes, and the Skunktown bankers would put off the Frog- town notes on their customers, and the Frogtown bankers would put off the Skunktown bank notes on theirs, and thus they would go on with this legitimate business to their common advantage. I am giving you a historic fact when I tell you that I first became acquainted with that terra in designating those fellows who were traveling from one out- of-the-way place to another with a carpet-bag full of notes to exchange, so that the notes put in circulation in Skunktown couldn't find their way back to Frogtown, because the people in Skunktown didn't know where Frogtown was, and the people in Frogtown didn't know where Skunktown was — and if they did they couldn't get there; the people in one place couldn't get to the other to get the specie on which the notes were based. Then after the bank at Frogtown had paid out the Skunktown notes, the bank at Frogtown would refuse to receive the Skunktown notes, but it would send the holder, who was its debtor, around the corner to a broker, who would buy them at seven or nine per cent, discount, and then the broker and the bank would divide the proceeds of this gold basis transaction. That is a speci- men of what was going on all over the country." In referring to this period, in the same speech, Judge Kelley forcibly says: "It is usual to speak of the great crisis of 1837, but from 1832 to 1843 was one unbroken period of individual suffering, resulting from the alternating expansions and contractions of a banking system based on BANKS OF THE TJlSriTED STATES. 153 what it could not get, and could not have retained if it had got — gold coupled with permission to issue notes and lend money deposited for safe keeping." In 1840 the Independent Treasury act was passed, which took from the banks the custody of the funds of the govern- ment. This act excited great indignation amongst the banks and their tools, and the next year, a new administration coming into power, Harrison having been elected President, the first step taken by Congress was to repeal it. It was re-enacted, however, in 1846, and remained in force until 1861, when it was suspended to enable the Secretary of the Treasury to dej)osit the funds of the government with " specie paying banks." (The Secretary of the Treasury was about to negotiate a loan of $150,000,000 from the baliks of N'ew York, Boston and Philadelphia, and the Independent Treas- ury act was suspended at their instance, so as to enable them to retain their gold and pay the government in bank cur- rency; but the Secretary of the Treasury unexpectedly required the loan to be j)aid in specie, and, after that, there were no "specie paying banks" left in which to deposit government funds.) The stimulus of the tariff of 1842, a great demand for breadstuffs from abroad, the introduction of foreign capital, the discovery of gold in California, and other causes com- bined to Qai-ry the country through from 1841 to 1857 without a commercial crash or money panic. CEASII OF 1857. In 1857, however, the people of Great Britain were over- taken by another of their periodical crises, which, as usual, involved the banks of the United States. The Ohio Life and Trust Company failed August 24, 1857, with liabilities to the amount of $7,000,000. Sumner says, "at this period 154 BAXKS OF THE UNITED STATES. no rule seems to liave govei-iied issues save to keep one-third of the circulation in specie, and in some States even this dwindled down to one-tenth or one-twelfth. Such a rule, however, is entirely fallacious, as any other arbitrary rule of reserve must be, and it proved in the time of trial that there was no strength to endure any shock." The New York banks, as an example of the contraction which followed, cm-tailed their loans from 1116,000,000, August 29, 1857, to 194,500,000, November 28, 185Y. The banks of Philadel- phia, Washington, Baltimore, and interior towns, suspended in September, and those of New York, Boston and of the country generally, in October. Stocks fell 40 or 50 per cent., and 20,000 persons were thrown out of employment in New York City within a fortnight.* But it is unnecessary to go into details. It was the same old story over again. The people were accused of " extravagance," " over produc- tion," etc., and after "confidence" had been i-estored by the Sheriff, the banks started afresh. SUSPENSION" OF 1861. In the beginning of 1861, when the great Rebellion broke out, the number of banks in the United States was about 1,600, with a circulation of over $200,000,000. Of this circu- lation, about three-fourths belonged to the Northern States. The specie reserve of the banks of the Northern States, kept on hand for the purposes of redemption, amounted to proba- bly some $60,000,000. The necessities of the government becoming urgent, tii^o loan acts were passed by Congress, during the extra session of 1861, one approved July I'zth and the other August 6th. By the act of July 17th Congress authorized loans to the amount of two hundred and fifty millions of dollars, in bonds running twenty years, at not over 7 per cent, interest; in 7-30 notes i-unnning three years; •Suninei*, page 183. BANKS OF THE UXITEU STATES. 155 or fifty millions of the amount could, at the discretion of the Secretary, be issued in the form of Treasury notes,, payable on demand, without interest.* The act of Congress of August 5th authorized. the Secretary of the Treasury to issue 6 per cent, bonds, running twenty years, for the purjjose of funding the Treasury notes, etc., and also suspended the provision of the sub-Treasury act of 1846, "so far as to allow the Secretary of the Treasury to deposit any of the moneys obtained on any of tlie loans now authorized by law, to the credit of the United States, in such solvent specie paying banks as he may select." Then, to quote from Spaulding's Financial History of the War, " the banks in New York, Boston and Philadelj)hia most patriotically came forward and made arrangements in several negotiations with Secretary Chase to loan tlie government $150,000,000' under the provisions of the two loan acts passed at the extra session. Of this sum $105,000,000 was apportioned to the associated banks of Ifew York, payable in installments. The banks were in good condition, * * and the loan to the government was made with the exjjoetation that the money would be checked out under the direction of the Secretary, in pursuance of the sixth section (suspending the sub-Treasury act) above referred to. The Secretary of the Treasury refused to use the discretionary power conferred upon him by that section, and A\-ould not check on the banks for the expenses of the war, so that current bank notes could be paid or balances settled through the clearing house, but insisted that the banks should pay the money loaned into the sub-Treasury in gold or gold Treasury notes. * * The banks ha\ing been committed to making the loans, and having made partial advances on account of the same, were obliged to complete the loan, notwithstanding the Secretary •These notes (known afterwards as old demanrt notes) -were sulisennently made a full legal tender and circulated at par with gold. See Chapter VI. 156 BAXKS OF THE USITED STATES. of the Treasuiy deemed it iucompatible with his views of duty, and the traditions of the sub-Treasmy law to use such hanks as disbursing agents of the government, even under the extraordinary exigency under which the loans were made." From this it appears that when the banks " most patriotically came forward" to lend the government the sum of $150,- 000,000, they confidently expected that they would be per- mitted to exchange bank currency for the bonds of the government, and in effect to become factors between the government and the people, in exchanging the bonds of the government for the products of industry. Had this arrange- ment been carried out, it is not difficult, in the light of sixty ■years experience with the specie basis banking system, to conjecture what would have been the result. The banks would have taken the loans of the government as fast as they were offered, and inflated their circulation to a corres- ponding degree. Sooner or later the inflation would have ended in a commercial crash and money panic; the banks would have susj)ended specie payments as usual, and the people would have found themselves with some hundreds of millions of dollars of worthless or depreciated paper on their hands — in a state of bankrujjtcy. Secretary Chase undoubt- edly became entangled in the toils of the money power, but his action in this particular, in refusing to take anything but specie from the banks on account of their loan of |150,000,- 000, was a fortunate circumstancCj which led to important results. When urged to check upon the banks, instead of requiring them to pay specie, ho said, "however harmless or beneficial it might be, if confined to the New York banks, it would inevitably result in a general payment and receipt for public dues of bank notes, which in turn would lead to expansion, which in turn would terminate in susjjension and vast injuries to the sound banks."* "Letter of J . E. WlUlams to Hon. S. 1». Cliase. BANKS OF THE UNITED STATES. 157 The banks accused the Secretary of the Treasury of acting in bad faith with them, not only in the matter of requiring them to pay specie, but in continuing to issue Treasury notes (demand notes under the act of July 17, 1861) after he had given assurances to the contrary, and a general suspension of specie payments took place on the 28th of December, 1861. A prominent banker* in speaking of this period says: "Even with all these unfavorable circumstances surrounding them (the banks), it was an encouraging fact observed by those who were anxiously watching the practical operation of this great and novel experiment, that while the circula- ting notes in the country were restricted, the disbvirsements of the government for the war were so rapid, and the con- sequent intei'nal trade movement v.aa so intense, that the coin paid out upon each installment of the loan came back to the banks, through the community, in about one week. The natural effect of this general commercial activity upon the circulating medium being to quicken its flow. After taking the third amount of fifty millions by the associated banks, those in New York who had at that time paid in of their proportion over eighty millions in all found themselves in this position: Their aggregate coin, which on the iVth of August, before the first payment into the Treasury, was $49,733,990 Was on December 7th 42,318,610 A reduction of only $7,415,380 and the othei- two cities in like proportion." In the latter part of 1861 gold began to flow towards Europe. This, together with the issue of demand notes, caused the specie reserve of the banks to diminish rapidly. The drain upon the N6w York banks in December went on at the following rate: •Letter of Geo. S. Coe to E. G. Spaulding, Financial History of tlie War. 158 BANKS OF THE UNITED STATES. December 7, 1861, the bankfs had in specie $42,300,000 " 14, " " " 39,000,000 '' 21, " " " 36,800,000 •' 28, " " " 29,300,000 After a final conference with Secretary Chase, in which he refused to abandon the course he had thus far pursued, the banks decided that it was ex^jedient to susj)C'nd speeie payments, and accordingly, as already mentioned, a general susj)ension took place on December 28, 1861. From this time on the specie in the New York banks began to increase Jigain, and March 8, 1862, was $30,000,000. The State banks continued to circulate their notes until after the National Banks were put in operation, when they were driven out of circulation by taxation. The National Banking bill became a law on the 25th of February, 1863, and on the 3d of March following an act of Congress was passed imjjosing a tax of one per cent, each half year, on a graduated scale, of State bank circulation, according to the capital stock of each bank. This was done for the jjurpose of getting the State banks of issue out of the way of the National Banks, and proved successful. Thus, after an eventful career of ovei- half a century, during which they had inflicted incalculable inju'ry and suffering upon the American people, the sjjecie basis baulks of issue, organized imder State authority, passed away, not in a merited storm of public indignation, but quietly and stealthily at the com- mand of the money power, to enable it to erect in their •stead a more powerful and dangerous development of the .same system of banking. NATIOXAL BANKS. The National Banking system was planned sliortly after Secretary Chase entered upon the duties of his office, and was recommended by him in his first annual report to Con- BANKS OF THE TNITKD STATES. 159 gress, December 10, 1861. It wus found impossible to put tlie system, into operation soon enough to meet the necessities of the government, and it became necessary to issue Treas- ury notes (greenbacks.) There is abundant reason to liclieve that the instigators of the National Banking system "\\ ere in no particular huriy to have it put into operation. As the circulation of the National Banks was to be based on gov- ernment bonds, it became an object to these conspir.ators, chief among whom was the Hon. John Sherman, United States SenatcTr from Ohio, to so sliape legislation as to depreciate the j)aper of the government and enable them to secure the bonds necessary to establish the National Banking system at the lowest possible figure. The National Banking bill, therefore, was not pressed until 1860. It was then foisted upon the country at a time when National Banks could render no jjossible service to either government or people — in fact, were a disadvantage, for their circulation differs in no material resjiect from the circulation of sjiecie basis banks of issue, and is a breeder of inflation. The National Banking system was conceived in fraud, and its promoters, who found it to their advantage to first depreciate by legislation and then decry, as they are still doing, the jjaper of the government, Mere more dangerous, because more subtle enemies of the government, than .JcfEerson Davis and all his hosts. The last step in the scheme, p!:umed by Secretary Chase and cei-tain capitalists and politicians, is now in process of consummation. We refer to the retirement of the greenback and the i-esumption of specie payments, January 1, 1S79. "^^Hicn this is accomplished the National Banks will hold the pui'se strings of society, and, by monop- olizing the whole of the circulating mediuiu of the comitry, by which r.U property in t]ie countiy — homes, lands, debts and credits, personal and real estate of all descriptions — are 160 BANKS OP THE UNITED STATES. valued, will render the whole community dependent upon them. John Randolph predicted, and his prediction was venfied, that if a National Bank was established with a capital of $35,000,000, it would "overawe Congress and laugh at its laws." Now we have 2,000 National Banks with a capital of nearly $400,000,000. Benton characterized the unity of interest of the old State hanks of issue as "a consolidation of a kind which the genius of Patrick Heniy had not even conceived." The National Banking system con- stitutes "a consolidation" besides which the (Jne denounced by Benton is a mere pigmy. Hamilton when he sought to found a strong government, based on an aristocracy of wealth, and to that end urged the establishment of a United States Bank modeled on the British system, never dreamed of such a consolidated power as that now constituted by 2,000 National Banks, modeled on that (the British) system. But, apart from the dangerous power over the property and political affairs of the country, which such a system confers upon a comjjaratively small class of j)eople, why should all other classes be compelled to pay the banking class interest on $400,000,000, more or less, of paper money based on bonds of the government, for which the people are responsible, when they can have a better circulating medium, without interest, based on precisely the same security? The history of the National Banking system can be more clearly set forth in connection with the history of the legal tender acts, passed during the war, and with that will form the subject of the next chapter. The details of the system will be duly explained in a subsequent chapter (Chapter YII.) CHAPTER VI. HISTORY OF THE PAPER MOXEY ISSUED DURING THE EEBBLLIOX. Money, as lias been fully explained, is an important element in tlie production and distribution of wealth in all its forms. Without it production is slow and laborious, and the distribution of the products of industry difficult and expensive. Hence the necessity of an abundance of money based on sound principles — that is money that is free to obey the natural laws of trade, and not subject to the control of private corporations, as is the case with bank currency — to fill the channels of circulation. With a sound currency in circulation ,the production and accumulation of wealth would go on gradually and steadily, and commercial crashes and money panics would be unknown. Individuals would succeed or fail, as now, but it would be through natural causes. That a people can carry on commercial operations of great magnitude for centuries, by means of an enlightened system of money, without being visited once by such crises and convulsions as have marked the history of Great Britain and the United States, since the adoption of the specie basis (banks of issue) system of money, is fully demonstrated by the history of the Venetians,* and the experience of other European nations in more recent times. The weakness of the specie basis system has been most signally illustrated, however, in times of war, when great activity in both production and disti-ibution became absolutely imperative. In the war with France, from 1793 to 1815, Great Britain was obliged to abandon a medium of exchange based on •See Chapter IV. 162 HISTOEY OF THE PAPER JIOXEY specie altogether. By means of irredeemable jjaper money she was enabled to carry on successfully one of the most tremendous wars of modern times, and at its close the people of Great Britain were, individually and collectively, j)rosperous. Ignoring the teachings of experience she waded back through individual bankruptcy and ruin to the old system, and has had her"" commercial crashes and money jjanics since with the same regularity as before. If paper money is found to be so invaluable in the j)roduction and distribution of the products of industry, under the most disadvantagous circumstances, in time of war, what is to hinder it from being equally invaluable in time of peace, when no uncertainty in regard to its ability to represent value can attend its use? That the use of paper money during war is a matter of comj)ulsion, is the merest sophistry. During the Revolutionary war, when Continental money, which can hardly be said to have been based on anything, began to grow worthless. Congress declared that those who refused to take it should be regarded as public enemies. The public smiled, and barbers papered their shops with it.* Paper money, however, undoubtedly becomes an acknowl- edged necessity during war esf)ecially in countries whose medium of exchange belongs to the specie basis system. In Great Britain business affairs in times of peace have to be conducted almost entirely, as we have seen,f by means of devices of the credit system, on account of the limited amount of money in circulation, and Avhen an emergency arises, requiring great rapidity of production and distribu- tion, both government and people find themselves without any adequate means to accomplish the ends desired. Wben the Rebellion broke out in 1861, the people of the United States were in the enjoyment of unusual prosperity. 'Sumner's History of American Currency. tSeo i).ige 47. ISSUED DURING THE REBELLION. 163 Tie crops had been more than ordinarily good, and the coun- try generally was rapidly recovering from the crash of 185Y. The cotton croiJ of 1860 had reached the enormous amount of 5,387,052 bales (of 400 lbs. each.) The state of the banks and the currency from 1857 to 1863 was as follows: Oironlation, Deposits. Loans. Specie. 1857 — $214,700,000 $230,309,000 .§684,400,000 $58,300,000 1858— 155,200,000 1.85,900,000 583,100,000 74,400,000 1859— 193,300,000 259,500,000 657,100,000 104,500,000 1860— 207,100,000 253,800,000 691,900,000 83,500,000 1861— 202,000,000 257,200,000 696,700,000 87,600,000 1862— 183,700,000 296,300,000 046,300,000 102,100,000 186.3— 238,600,000 393,600,000 648,600,000 101,200,000 Preparations for war were begun by the Federal Govern- ment on a scale of great magnitude, ■with an empty Treasury. The real and personal property -of the country, according to the census rejDort of 1860, amounted to $16,159,616,068, or, leaving out the States in rebellion, to $10,957,450,961. The people of the States which sustained the Federal Govern- ment possessed ainple resources and were inspired by a sincere feeling of patriotism. The only question, therefore, was as to the means by which the resources of the people could be rendered available to the government. It could of course be done only through the instrumentality of a medium of exchange.* Taxation was impracticable at the outset, because the government did not possess the ma- chinery for laying and collecting taxes, and funds were required at once; and besides the amount of money in circulation wan insignificant as com23ared with the wants of the government. There was manifestly but one of two courses to pursue. Either to adopt the machinery of the banks and through them exchange the credit of the govern- ment for the products of industry, or deal directly with the *I5ea(l in this connection page 62, also pages 70, 71, 73 and 73. 164 HISTOEY OF THE PAPER MONET people by issuing legal tender Treasury notes, based on and representing the wealth of the country and redeemable in the revenues of the government. Neither course, however, was pursued, or rather the Secretary of the Treasury attempted to use both plans in part, and with the most wretched results. THE FIRST LOAN ACTS. <■ During the extra session of Congress in July and August, 1861, two important loan acts were passed, which are deserving of special notice, one approved July I'/th and the other August 5th. By the act of July lYth the Secretaiy of the Treasury was authorized to borrow $250,000,000, for which he was authorized to issue coupon bonds or registered bonds or Treasury notes in such proportions of each as he might deem advisable. The bonds were to bear interest not exceeding seven per cent, per annum, payable semi-annually, and to run for twenty years, when they would be redeemable at the pleasure of the United States; and the Treasury notes were to be issued in denominations of not less than $50, payable three years after date, with interest at 7 3-10 per cent., payable semi-annually, and exchangeable at any time for twenty years six per cent, bonds. Or, at his option, the Secretary of the Treasuiy might issue $50,000,000 of the above loan in Treasury notes, payable on demand, in denom- inations of not less than ten dollars each, without interest, and made payable for salaries and other dues from the United States Treasury (afterwards known as old demand notes); or he might issue Treasury notes, payable in one year from date, bearing interest at 3 65-100 per cent, per annum, exchangeable at any time in sums of $100, or upwards, for three year Ti-easury notes bearing T 3-10 interest. , By the act of August 5th, which was supplementary to the act of July I7th, the Secretary of the Treasury was authorized ISSUED DUEING THE EEBELLION. 165 to issue bonds bearing interest at six per cent. jDer annum, payable after twenty years from date, which, in denomina- tions not less than $500, might be exchanged for Treasury notes bearing 1 3-10 per cent, interest. The act of July 1*7 th, fixing the denomination of the Treasury notes without interest (demand notes) at not less than ten dollars was modified so as to fix the limit at not less than five dollars, and these notes (demand notes) were made receivable in payment of public dues. By the sixth section of this act the Sub-Treasury act of 1846 was "suspended so far as to allow the Secretaj-y of the Treasury to deposit any of the moneys obtained on any of the loans now authorized by law, to the credit of the Treasurer of tlio United States, in such solvent specie paying banks as he may select!' By an act of Congress aj^proved February 12, 1862, the Secretary of the Treasury was authorized to issue 810,000,000 of Treasury notes, payable on demand, not bearing interest, in addition to the $50,000,000 of like notes authorized by acts of July I7th and August 5th, 1861, which should be deemed part of the loan of $250,000,000 authorized by said acts. And by the act of March 17, 1862, it was enacted that these demand notes ($60,000,000 in all) shall, in addi- tion to beiny receivable in payment of duties on im- ports, be receivable, and shall be lawful money and a legal tender, in like manner and for the same purposes and to the same extent as the notes (greenbacks) authorized by the act approved February 25, 1862. These demand notes were the only notes issued during the war that were made a full legal tender, that is, receivable for all public dues (including duties on imports) and a tender for jjrivate debts. After they were made a full legal tender they circulated at par and went up with gold to a premium of $2.85, or in other words it cost $2.85 in greenbacks to buy a dollar in gold or demand notes. 166 HISTORY OF THE PAPEK MONEY From these acts of Congress it appears that Secretary- Chase was clothed with the most ample powers to borrow money. He immediately jDroceeded to New York and, on the 9th of August, 1861, held a consultation with a number of leading bankers and capitalists of the cities of New York, Boston and Philadelphia, whom he met there by appointment. It was suggested on the part of the banks, that the banks of the North should form an " organization that would combine them into an efficient and insejDarable body, for the purpose of advancing the capital of the country upon government bonds in large amounts, and through their clearing house facilities and other well known expedients, to distribute them in smaller sums among the people in a manner that would secure active co-operation among the members in this special work, while in all other respects each bank could jiursue its independent business. This suggestion," says Mr. Coe, from whom we quote,* "met the hearty approbation of the assembled company, and arrested the earnest attention of the Secretary. At his request it was presented to the consideration of the banks at a meeting called for that purjDose at the American Exchange Bank on the following day, and was so far entertained as to secure the appointment of a committee of ten bank officers, to give it form and coherence. The committee convened at the Bank of Commerce, whose officers zealously united in the effort, and a plan was reported unanimously. It may be found, with the names of the committee, in the Bankers' Magazine of September, 1861. This report was cordially accej)ted and adopted by the banks in New York, those in Boston and Philadelphia being represented at the meeting and as zealously and cordially united in the organization. It was greatly desired to include also the banks of the "West, •Letter of Geo. S. Coe, Esq. : Spauldlng's Financial History of the War. Apx. p. 90. ISSUED DURING THE ItEBELLIOJf. 167 but it was found impracticable to secure the co-operation of the State banks of Oliio niid Indiana, and the State banks of Missouri, the only other organization under a compacted system, were surrounded by combatants. It was at once unanimously agreed that the associated banks of the three cities would take iifty millions of 7 3-10 notes at par, with the privilege of an additional fifty millions in sixty days, and a further amount of fifty millions in sixty more, making $150,000,000 in all, and offer them to llie people of the country at the same pries, •without change." The amount of specie held by the banks of the tlu-ee cities at this time was as foUov.s : Banks of New York ^40, 7.33, 990 " Boston «,0()5,929 " Philadelphia. ity for the poor widow, the suffering soldier, the wounded martyr to his country's good, who must receive these notes without legal tender or noth- ing, and who must give half of it to the Sliylocks to get the necessaries of life. Sir, I wish Jio injury to any, nor with our bill could any happen; but if any must lose, let it not be the soldier, the mechanic, the laborer, and the fanner. "Let me restate the various projects. Ouis jjroposes United States notes, secured at tlie end oH twenty yeais to fee paid in coin, and the interest raised by taxation, semi- annually; such notes to be money, and of uniform value throughout the Union. 'No better investment, in niy judg- ment, can be had; no better currency can be invented. "The amendment of the gentleman frt>ni Ohio [ilr. Val- landigham] proposes the same issue of notes, but objects to a legal tender; but does not jjrovide for their redemption on ■demand in coin. He fears our notes would depreciate. Let him who is sharp enough to see it instruct me how notes that every man must take are worth less than the same notes that no man need take, and few- \^ould, being irredeemable on demand. But he doubts its constitutionality. He who admits our jiower to emit bills of credit, nowhere expressly authorized by the Constitution, is a sharp and unreasonable doubter when he denies the jjower to make them a legal lender. "The f)roi)Osition of the gentleman from New York [Mr. Eoscoe Conkling] authorizes the issuing of seven per cent, bonds, payable in thirty one years, to be sold ('5!250,000,000 186 THE I.EGAL TEXDEK ACTS. of it) or exchanged for the currency of the banks of Boston^, New York and Philadelphia. " Sir, this proposition seems to me to lack every clement of wise legislation. Make a loan j)ayable in irredeemable cun-ency, and pay that in its dejireeiated condition to our conti-actors, soldiers, and creditors generally! The banks, would issue unlimited amomits of what would become trash, and buy good hard money bonds of the nation. Was there' ever such a tempation to swindle? " He further proposes to issue $200,000,000 United States; notes, redeemable in coin in one year. Does not the gentle^ man know that such notes must be dishonored, and the plighted faith of the government broken? No one believes: that we could then pay tlicui, and it would run down at. once. If we are to use suspended notes to pay our expenses,,, why not use our own? Are they not as safe as bank notes? During the suspension the government would have the. benfit of the whole circulation, without interest, until they wei'e funded — that is, the interest of all we could keep out would accrue to the government. If the $150,000,000 were constantly afloat, it would be a loan to the government, without interest, to that amount, $9,000,000 a year. But if we used the suspended paper of the banks our bonds wouli bear interest from the instant we got their notes — a good thing for the suspended banks. Besides, government would' have the benefit of all the lost and destroyed notes — a., considerable item. "Last comes the substitute of the minority of the commit- tee. I look upon it as a curiosity. It proposes to issue United States notes, not a legal tender, bearing an interest of three and sixty-five hundredths per cent., and fundable- into seven and three-tenths per cent, bonds, but not payable? on demand, but at the pleasure of the United States. This. THE LEGAL TENDER ACTS. 187 gives one and three-tenths per cent, higher interest than our loan, and not being redeemable on demand, would fare the fate of all non-specie paying notes not a legal tender. But the ingenious minority have invented a kind of currency never before known — a circulation bearing interest. Bonds or notes intended for investments bear interest, but no one expects they will be used as currency; whether in the shape of bonds or notes they will be used only as invest- ments, or as pledges on which to procure loans. Suppose a tailor, shoemaker, or other mechanic or laborer, were to take one of these bills, and in a week he should wish to use it in market, or store, or elsewhere, he must sit down and calculate the interest on the days he has had it to find its value. This would be rather inconvenient in a frosty day. This currency would make it necessary for every man to carry an arithmetic or interest table Avith which to gauge the value of tlie circulating medium. Gentlemen must see how ridiculous, if not impracticable, this scheme is. "Here, then, in a few words lies your choice. Throw bonds at six or seven per cent, on the market between this and December, enough to raise at least $600,000,000 — about this sum is ali'eady appropriated, 1557,000,000 — or issue United States notes, not redeemable in coin, but fundable in specie paying bonds at twenty years; such notes either to be made a legal tender, or to takfe their chance of circulation by the voluntary act of the people. "I maintain that the highest sum you could sell yom- bonds at would be seventy-five per cent., payable in currency itself at a discount. That would produce a loss which no nation or individual doing a large business could stand a year. " I contend that I have shown that such issue, without being made money, must immediately depreciate, and would go on from bad to worse. I flatter myself that 1 have dem- 188 THE LEGAL TEXDER ACTS. onstrated, both from reason and undoubted authority, that such notes, made a legal tender and not issued in excess of the demand, will remain at par and pass in all transactions, great and umall, at the full value of their face; that we shall have one currency for all. sections of the country and for every class of people, the poor as well as the rich. "Some gentlemen are as mucli frightened as if this were an unwonted apparition, for the first time prowling foith to swallow the rich creditor and nurse the poor debtor. No nation, it is said, lias ever tried anything like it." * * "Mr. Chairman, let me say in conclusion that imless this bill is to pass with the legal tender clause in it, it is not desirable to its friends or to the administration that it should pass at all, and those wlio think as I do will have to vote against it if it shall be thus mutilated and emasculated. If it is to be defeated, I should be glad if we had the jjower which they have in the British Parliament — to resign our places on the Committee of Ways and Means and leave it to those who oppose this bill to mature some other measure. So far as I am concerned, I shall be modest enough not to attempt any other scheme. The Committee of Ways and Means have labored in tlie preparation of this measure anxiously and to the best of their poor abilities. We are not infallible. We do not come near it. I am but poorly qualified for anything of this kind. But wc have given it our most anxious consideration, and have consulted those whom we believed to be the best qualified to advise us. We have sought to harmonize conflicting views in the substitute which the majority of the committee have prepared, and we hope it will pass. We believe that the credit of the country will be sustained by it, that under it all classes will be paid in money which all classes can use, and that it will confer no advantage on the capitalist over the poor laboring man. THE LEGAL TEXDER ACTS. 189 If this bill shall pass, I shall hail it as the most auspicious measure of this Congress; if it should faU, the result will be more deplorable than any disaster which could befall us." Mr. Stevens' speech closed the debate, and the bill came up for final action in the House, February 6, 1862, and was adopted by a vote of 93 to 59. THE LEGAL TENDEE BILL IN THE SENATE. On the 10th day of February, 1882, Mr. Fessenden, Chair- man of the CommitJ;ee on Finance in the Senate, reported the House bill from the Finance Committee with amend- ments. The important amendments were as follows: 1. That the legal tender notes should be receivable for all claims and demands against the United States of every kind "whatever, '■'■ except for interest on bonds mid noten, ivhich shall be paid in coin." 2. That the Secretary might dispose of United States bonds "at the market value thereof ., for coin or Treas- ury notes." 3. A new section, No. 4, authorizing deposits in the Sub- Ti'easuries at five per cent., for not less than thirty days, to the amount of $25,000,000, for which certificates of deposit might be issued. 4. An additional section. No. 5, "that all duties on im- ported goods, and proceeds of the sale of public lands," etc., should be set apart to pay coin interest on the debt of the United States; and one per cent, for a sinking fund, etc. On the 12th day of Febi'uary, 1862, the debate in the Senate was opened by Mr. Fessenden in a lengthy speech. A motion was made by Mr. Collamer to strike out the legal tender clause, which was lost. On the 14th inst. the bill, as amended, passed the Senate by a vote of 30 to 7, and was returned to the House. 190 THE LEG.VL TENDER ACTS. THE BILL AGAIN JN THE HOUSE. On the IStli, Mr. Stevens reported the bill, as amended by the Senate, from the Committee of Ways and Means to the House, and said, " I have no j)urpose of considering the bill at this time. I desire that it shall be referred to the Committee of the Whole, and be made the sjsecial order for to-mon-ow at one o'clock. I hope gentlemen of the House will read the amendments. They are very important, and, in my judgment, very pernicious, but I hope the House will examine them." On Wednesday, the 19th, Mr. Spaulding opened the debate in opposition to some of the amendmets of the Senate. We quote as follows : "M]'. Chairman, I desire especially to oppose the amend- ments of the Senate which require the interest on bonds and notes to be paid in coin semi-annually, and which authorizes the Secretaiy of the Treasury to sell six per cent, bonds at the mai'ket price for coin to pay the interest. " The Ti'easury note bill, as reported first from the Com- mittee of Ways and Means as a necessary war measure, was simple and perspicuous in its terms, and easily understood. It was so plain that everybody could understand that it authorized the issue of $150,000,000 of legal tender demand notes, to circulate as a national currency among the people in all parts of the United States, and that they might, at any time, be funded in six per cent, twenty years' bonds. The passage of the measure in this house was hailed with satis- faction by the great mass of the people all over the country. It received the hearty endorsement of such bodies as the Chambers of Commerce of New York, Cincinnati, St. Louis, Chicago, Buffalo, Milwaukee, and other places. I have never known any measure receive a more hearty approval from the people. THE LISGAL TENDISB ACTS. 191 "Nearly every amendment to the bill since it was matured lias rendered it more complex and difficult of execution. I regret to say that, some of the amendments of the Senate render the bill incongruous, and tend to defeat its great object, namely — to prevent all forcing of the Government to sell its bonds in the market to the highest bidder for coin. It might be very pleasant for the holders of the seven and three-tenths Treasury notes and six per cent, bonds, to receive their interest in coin semi-annually, but very disastrous to the government to be compelled to sell its bonds, at ruinous rates of discount, every six months to pay them gold and silver, while it would pay only Treasury notes to the soldier, sailor, and all other creditors of the government: " I am opposed to all those amendments of the Senate which make unjust discriminations between the creditors of the government. A soldier or sailor who pei-forms service in the army or navy is a creditor of the government. Tlie man who sells food, clothing, and the material of "nar, for the use of the army and navy, is a creditor of the govern- ment. The capitalist who holds your seven and three-tenths Treasury notes, or your six per cent, coupon bonds, is a cred- itor of the government. All are creditors of the government on an equal footing, and all are equally entitled to their pay in gold and silver. "I am opposed to all those amendments of the Senate which discriminate in favor of the holders of bonds and notes by compelling the government to go into the streets every six months to sell bonds at the 'market price,' to purchase gold and silver in order to pay the interest 'in coin' to the capitalists who now hold United States stocks and Treasury notes heretofore issued, or that may hold bonds and notes hereafter to be issued; while all persons in the United States (including the army and navy and all who 192 THE LEGAL TENDEB ACTS. supply them with food and clothing) are compelled to receive legal tender Treasury notes in payment of demands due them from the government. "Why make this discrimination? Who asks to have one class of creditors placed on a better footing than another class? Do the people of New England, the Middle States, or the people of the West and Northwest, or anywhere else in the rural districts, ask to have any such discrimination made in their favor? Does the soldier, the farmer, the mechanic, or the merchant ask to have any such discrimina- tion made in his favor? No, sir; no such unjust preference is asked for by this class of men. They ask for the legal tender note bill pure and simple. They ask for a national currency which shall he of equal value in all parts of the country. They want a (-urrency that shall pass from hand to hand among all the people in every State, county, city, town and village in the United States. They want a cur- rency secured by adequate taxation upon the whole property of the country, which will pay the soldier, the farmer, the mechanic, a]id the banker alike for all debt due. They ask that the government shall stand upon its own responsibility, its own rights, and exert its vast powers, preserve its own credit, and cany us safely through this gigantic rebellion, in the shortest time, and with the least possible sacrifice. They intend to foot all the bills, and ultimately pay the whole amount, principal and interest, in gold and silver. "Who, then, are they that ask to have a preference given to them over other creditors of the government? Sir, it is a very respectable class of gentlemen, but a class of men who are vei-y sharp in all money transactions. They are not generally among the producing classes — not among those who, by their labor and skill, make the wealth of the country; but a class of men that have accumulated wealth, THE LEGAL TENDER ACTS. 193 men who are willing to lend money to the government if you will make the security beyond all question, give them a high rate of interest, and make it payable in coin. Yes, sir, the men who are asking these extravagant terms, who want to be preferred creditors, are perfectly willing to lend money to the government in her present embarrassments, if you will only make them perfectly secure, give them extra interest, and put your bonda on the market at the ' market price,' to purchase gold and silver to pay them interest every six months. Yes, sir, entirely willing to loan money on these terms! Safe, no hazard, secure, and the interest payable 'in coin!' Who would not be willing to loan money on such terms? Sir, the legal tender Treasury note bill was intended to avoid all such financiering and protect the government,, and people wlio pay the taxes, from all such hai-d bargains. It was intended as a shield in the hands of the patriotic people of the country against all forced salep of bonds, and all extravagant rates of interest. " The legal tender note bill is a great measure of equality. It proposes a currency for the f)eople which is based upon the great faith of the people and all their taxable property. All are obliged to receive and pass it as money, and all are obliged to submit to heavy taxation to provide for its ulti- mate i-edemption in gold and silver. Every attemjjt on the part of any class of citizens to create distinctions and secure a legal ijreference, naars the simplicity and success of the whole plan. Tlie very discrimination proj)osed carries on its face notice to everybody, that although the notes are declared to be ' lawful money and a legal tender in payment of debts,' yet that there is something of higher value, that must be sought after at a sacrifice to the government, to pay a pecu- liar class of creditors to wliom it owes money — a kind of absurdity and self-stultification which does not appear well 13 194 THE LEGAL TENDEK ACTS. on the face of the bill. It is an unjust discrimination which does not appear well now, and will not look well in history. You will, if the Senate's amendment is adopted, depreciate, by your own acts, your own bonds and notes, and effectually destroy the symmetry and harmonious workings of the whole plan." ^ (Mr. SiJaulding, in his Financial History of the War, calls attention to the fact that " at the time the above remarks were made by him the duties on imports were, as tlie bill then stood, payable in legal tender notes; but this was after- wards changed ■ in the committee of conference, making those duties payable in coin, so that the interest might be paid in coin, without being obliged to force the bonds on the market to obtain coin for that purpose.") During the discussion In the Committee of the Whole an amendment to the Senate amendntent requiring interest on bonds and notes to be paid in coin, was offered by Mr. Pen- dleton to the effect, " that the officers, soldiers, seamen and ' marines, engaged in the military service of the United States," should also be paid in coin, which was not agreed to. On the 20th the House resumed consideration of the Senate amendments. Mr. Stevens closed the debate. We quote from his sj)cech as follows: "Mr. Speaker, I have a very few words to say. I approach the subject with more depression of spirits than I ever before approached any question. No personal motive or feeling influences me. I hope not, at least. I have a mel- ancholy foreboding that vre are about to consummate a cunningly devised scheme, which will carry great injury and great loss to all classes of the people throughout this Union, except one. With my colleague, I believe that no act of legislation of this government was ever hailed with as much delight throughout the whole length and breadth THE USGAL TENDER ACTS. 195 of this Union, by every class of people, without any excep- tion, as the bill we passed and sent to the Senate. Congrat- ulations from all classes — merchants, traders, manufacturers, mechanics and laborers — ^poured in upon us from all quarters. The Board of Trade from Boston, New York, Philadelphia, Cincinnati, Louisville, St. Louis, Chicago and Milwaukee approved its provisions, and urged its passage as it was. "I have a dispatch from the Chamber of Conmierce of Cincinnati, sent to the Secretary of the Treasury, and by him to me, urging the speedy passage of the bill as it passed the House. It is true there was a doleful sound came up from the caverns of bullion brokers, and from the saloons of the associated banks. Their cashiers and agents were soon on the ground, and persuaded the Senate, with but little deliberation, to mangle and destroy what it had cost the House months to digest, consider, and pass. They fell upon the bill in hot haste, and so disfigured and deformed it, that its very father would not know it. Listead of being a beneficent and invigorating measure, it is now positively mischievous. It has all the bad qualities which its enemies ■charged on the original bill, and none of its benefits. It now creates money, and by its very terms declares it a depreciated currency. It makes two classes of money — one for the banks and brokers, and another for the people. It discj-imanates between the rights of different classes of ■creditors, allowing the rich capitalist to demand gold, and compelling the ordinary lender of money on individual security to receive notes which the government had pur- posely discredited. "Let us examine the principal amendments separately, and see their effect. The first important one (being the fifth) makes the notes issued under the law of July 17th a legal tender, ■equally with those authorized by this bill. 196 THE LEGAL TENDER ACTS. There can be but little 'wisdom in putting these two classes on an equality. The notes of July bear seven and three- tenths per cent, interest, and are payable in three years. This gives them a sufficient advantage over notes bearing no interest and jDayable virtually in twenty years, with six per cent, interest. Why give them this additional advan- tage? Simply because the $100,000,000 issued are all held by the associated banks, and this is their amended bill. They would displace 1100,000,000 of this money in the circulation, and render it impossible to use any considerable amount of these United States notes as a currency. These notes have served their purpose. Why allow them to block, up the market again.st further relief to the government? "The banks took $50,000,000 of six per cent, bonds, and shaved the government $5,500,000 on them, and now ask to shave the govei-nment fifteen or twenty per cent, half yearly, to pay themselves the interest on these very bonds. They paid for the $50,000,000 in demand notes, not specie, and now demand the specie for them. Yet gentlemen talk about our making other loans in these times. They are crazy or sleeping, one or the other, I do not know which." * * "The notes, by another amendment, are authorized to be invested in notes or bonds payable in two years, and bearing an interest of seven and three-tenths. One of the great objects was to induce capitalists to invest in six per cent, bonds or lose their interest, and thus to furnish a continually recurring currency by the sale of these six per cent, bonds. This provision would effectually prevent the funding a dollar in those bonds. They would all go in preference into seven and three-tenths borids, due in two years, when no one believes we can pay them. "But this is not the worst. The tenth amendment pro- vides that any holder of the United States legal tender notes. THE LEGAL TENDER ACTS. 197 if he have llOO and upwards, shall draw five or six per cent, interest on them until he choses to use them. The poor who have less than $100 shall draw no interest. It is plain that, by these two contrivances, not one dollar of these United States notes will ever be funded in six per cent, bonds. "But now comes the main clause. All classes of people shall take these notes at jaar for every article of trade or contract unless they have money enough to buy United States bonds, and then they shall be paid in gold. Who is that favored class? The banks and brokers, and nobody else. They have already $250,000,000 of State debt, and their commissioners would soon take all the rest that might be issued. " But how is this gold to be raised? The duties and public lands are to be paid for in United States notes, and they or bonds are to be put up at auction to get coin for these very brokers who would furnish the coin to pay themselves, by getting twenty per cent, discount on the notes thus bought. ' "Now, in less than a year, taking the pu.blic debt at what my colleague makes it — I make it more — $1,200,000,000, what will the interest be upon it at seven and tln-ee-tenths per cent., for it will all centi'i- in that rate of interest? It will be $87,000,000, and one-half of that amount, $43,500,000, must be raised every six months for the paying of this interest, and is to be raised in coin, which nobody holds but the large capitalists. Does anybody suppose that they are going to give that coin for such notes as we are now about to issue, at par? They will sell the gold for what their conscience will allow, and they will compel the government to give anything they choose, unless the government con- sents to become dishonored. The first purchase of gold by the government will fix the value of these notes which we 198 THE LEGAL TENDER ACTS. issue and declare to be a legal tender. That sale will fix their value at ten, fifteen, or twenty-five per cent, discount, and then every poor man, when he buys his beef, his pork, and his supplies, must submit to this fifteen or twenty-five per cent, discount, because you have said that that shall be the value of the very notes which you have made a legal tender to him, but not a legal tender to those who fix the value of these veiy notes. Does any one believe that any- body but bankers and brokers fixes the depreciation of cm-rency? So you will thus have fixed the market value of your notes at seventy-five or eighty per cent., and yet they are a legal tender to the poor of the country, while they are. no legal tender to those who hold the coin of the countiy. "By the original bill the Secretary of the Treasury was allowed to sell these bonds at their value for lawful money — 'that is, for these legal tender notes. But now, by the provisions of this bill, after the market value has been fixed and they are depreciated, the Secretary of the Treasury is authorized to go into the market and sell them for coin, not at par, but at the market value therefor. Was there ever , a more convenient contrivance got up, into which blind mice run, to catch them? Was ever before such a machine got up for swindling the government and m^aking the fortunes- of the gold bullionists in one single year? "But as if this accumulated folly were not quite enough,, another amendment provides that these notes, when pre- sented in sums not less than $100, may bo transferred ir.to seven and three-tenths notes payable in two years. Parties may buy these notes at a discount and put them into notes payable in bullion at two years, at seven and three-tenths interest, for that is a part of the whole system. "Now, sir, does any man here believe that, notwithstand- ing the victories we are gaining, the government will be THE LEGAL TENDER ACTS. 199 able to redeem these notes in two years? If not, they will be shoved upon the market and sold for coin at whatever discount may be demanded." Mr. Stevens also offered an amendment to pay the army and navy in specie, the name as the bondholders' interest in coin, which was voted down. The Senate amendments were concurred in only in part, which rendered tlie appoint- ment of a committee of conference necessary. The confer- ence committee appointed by the Senate consisted of Messrs. Fessenden, Sherman and Carlisle, and the conference com- mittee of the House of Messrs. Stevens, Ilorton and Sedg- wick. The conference committee were in session two or three days, and finally reported the bill with several altera- tions, the most important of which was that tlie duties on im23orts should be paid in coin.,''' so as to do away with the necessity of forcing the bonds on the market to procure coin to pay interest in coin on the bonded debt of the government. On the 24th of February, 1862, the action of the confer- ence committee was agreed to by tlie House by a vote of 97 to 22. On the 25th the Senate concuried in the action of the conference committee, and the same day the legal tendei- act was approved by the Pi-esident.f THE GREENBACK. Thus were the most sacred interests of the people, espe- cially of the producing classes — the farmer, the mechanic, the manufacturer and the laboring man, grossly and wickedly betrayed into the hands of the money power by the Senate of the United States. The Senate at that time was a small body, but twenty-four States being represented, mth but three or four members whose ability rose above mediocrity. *Soc speech of Hon. Thaddeus Stevens in tlie Appendix. tThe Legal Tender Act as iiually passed will be found in tlie Appendix. 200 THE LEGAL TEXDEK ACTS. The occupants of seats once filled by statesmen, whose ability and eloquence had made the Senate of the United States famous throughout the world, they became pufEed up with ideas of self-importance, which, with the venality of the Sher- mans of the body, rendered them easy prey for the sharks of Wall street. It will be observed that the points contended for, so strenuously and successfully, by the conference committee of the Senate, which represented the sentiment of the majority of that body, were, in substance and effect, the same as those contained in the plan of the bankers, offered at their meeting, which convened in Washington immediately after the introduction of the legal tender bill in the House.* That the Senate Was controlled, in its action in regard to the legal tender bill, by improper influences is not a matter of conjecture, but of history. In his speech at Philadelphia, January 15, 18V6, Judge Kelley says: "I remember the grand 'Old Commoner' (Thaddeus Stevens) with his hat in his hand and his cane under his arm, when he returned to the House after the final conference, and shedding bitter tears over the result. 'Yes,' said he, 'we have had to yield; the Senate was stubborn. We did not yield until we found that the country mu»t he lost or the batiJcs he [/ratified, and we have sought to save the country in spite of the cupidity of its wealthier citizens." Here begins one of the darkest chapters in American history. It will be found that every step taken by Congress from this on, in matters pertaining to the finances of the nation, has been dictated by the money power. Foreign capitalists, such as the Rothschilds, became deeply interested in the scheme of robbery inaugurated by the passage pf the first legal tender act, and through their agents, such as August Belmont, banker and whilom chairman of the Dem- *See page 177. THE LEGAL TENDER ACTS. 201 ocratic National Committee, have aided the money power here materially in controlling the policy of both of the great political parties. The amount stolen from the people during the war by the financial j)olicy then adopted, and which now encumbers the nation in the sliape of a bonded de.bt, payable principal and interest in gold, is estimated by such writers upon the subject of finance as J. S. Gibbons (contrib- utor to Johnson's Universal Cyclopoedia) at over one thou- sand millions of dollars,* to say nothing of the thousands of millions of which the people liave been robbed indirectly, by means of tlie pernicious monetary system then foisted upon the country. The first legal tender notes (greenbacks) issued under the act of Congress of February 25, 1862, Averc issued bearing date March 10, 1862, and on the back of them was printed these words: "This note is a legal tender for all debts, public and private, except duties on imports and interest on the public debt, and is exchangeable for United States six per cent, bonds, redeemable at the pleasure of the United States after five years." Notwithstanding the mutilated form in which the green- backs were sent out by the Treasury department, they per- formed a marvellous work. The producing forces of the nation were set at work, and there was no longer any difli- culty in rendering the resources of the people available to the government. In speaking of this period, Judge Kelley, in his Philadelphia speech of January last, thus graphically and eloquently pictures the wonderful change which followed the passage of this legal tender act. He says: "But the patriots, (Lincoln, Stevens, etc.,) to whom I have referred, had studied the Constitution of the United States. They •Letter of J. S. Gibbous : Spauldiug's Financial History qj tlie War. 202 THE LEGAL TENDER 'ACTS. knew that it imposed upon them the duty of saving the nation. They knew that money is the sinew of war, and that it must be had. They knew that the Constitution authorized the coining of the public credit into money. They 'smote the rock of public credit,' and power and pros- perity gushed forth. 'Smote the rock of public credit!' What does that mean ? Why, they called into existence 'the rag-baby !' They said to every man that would work — 'Here are wages for you; this rag-baby will pay you.' They said to ship-owners, 'unfurl your rotting sails and open yom" hatchways; we have brought you grain from the farm, carry it abroad to buy us clothing and aruis ; for our industries have been stricken, and we cannot provide clothing or arms for the army that is to sustain the Union.' The 'rag-baby'' showered greenbacks upon them, and the ships spread their sails, and carried rich cargoes to foreign lands, which were exchanged for clothing, arms and munitions of war. Indus- try was rife throughout the land. The farmers, who had been without an adequate or remunerative market for years, were getting good prices for their grain, were paying theii- debts to the local merchant, who in turn paid his to those of the great cities. A marvellous child was that ' rag-baby.' While not yet a month old, its name, ' greenback,' not yet familiar to the people, it lighted the fires in every forge and furnace of the country; it hired ships, and bought others; it blockaded the whole southern coast; it rallied an army of 75,000 men, and we soon after heard ringing through the streets the shout of well paid and well clad soldiers, 'we're coming. Father Abraham, three hundred thousand more ! The 'rag-baby' was welcomed by every commissary, quarter- master and paymaster. It furnished transportation; it met all demands, and the American people — at least those of the free States — with the great war on their hands, were prosper- THE LEGAL TENDBK ACTS. 203 ous as they, had never been before, thanks to the marvellous power of the 'rag-baby.' * * I name it not the ' rag-baby;' I take the derisive term from the door of the Presidential mansion. I cannot imply a want of respect for the constitu- tional legal tender money of the countiy, the Treasury note, which did all that I have attributed to the ' rag-baby.' " The premium on gold, which was 3 J per cent, when the legal tender act was passed, FeTiruary 25, 1862, immediately began to decline, and did not go up again until the latter pai-t of May. United States bonds immediately went up from 90 to 102. TEMPORARY DEPOSITS IX THE SUB-TREASUEY. By the fourth section of the legal tender act, tlie Secretaiy of the Treasury was authorized to receive deposits in the Snb-Trcasuiy to the amount of $25,000,000, in sums of not less than $100, at five per cent, interest, Avith the privilege of drawing it out again on ten days' hotice after thirty days. On the 17th day of March, 1862, the authoi'ity to receive these deposits was increased to $50,000,000. On the 11th of July, 1862, it was still further extended to $100,000,000; and by the act of January 30, 1864, to $150,000,000, and the Secretary was .authorized to p;iy as high as six per cent, interest. These deposits reached the sum of $120,176,196. CERTIFICATES OP INDEBTEDNESS. By the act of March 1, 1 862, the Secretary of the Treasuiy was authorized to issue to public creditors "who may be desirous to receive the same in satisfaction of audited and settled demands against the United States," certificates of indebtedness m sums not less than $1,000 each, payable in one year, Avith interest at six per cent. And by the act of M.arch 17, 1862, this j^ower was enlarged, so as to embrace chocks drawn in favor of creditors by disbui-sing officere 204 THE LEGAL TENDER ACTS. upon sums jjlaced to their credit on tlie books of the Treas- urer. These certificates were issued in the form of bank notes and circulated to a large extent as currency. The amount of certificates of indebtedness in circulation Novem- ber, 1864, was $238,593,000. THE SECOND LEGAL TENDER ACT. On the 7th day of Juno, 1862, Secretary Chase sent a communication to the Committee of Ways and Means of the House asking for authority to issue $150,000,000 more legal tender Treasury notes, and that $35,000,000 of this sum should be of a less denomination than five dollars. On the 11th of June a bill was reported to the House from the Committee of Ways and Means. The bill was made the special order for the I7th inst. On that day the debate was opened by Mr. Spaulding in a speech in favor of the bill. A vote was reached Juno 24th, when the bill passed, sub- stantially as recommended by the Secretary, by a vote of 76 to 47. On the 28th of June the Finance Committee of the Senate reported it to that body with amendments. On the 2d of July it passed the Senate, as amended, by a vote of 22 to 13. The House refused to agree to the amendments; the farce of a con- ference committee was again gone through with; the report of the conference committee was agreed to on the 8th of July, and on the 11th the bill was approved by the President. SECOND ANNUAL REPORT OP SECRETARY CHASE. Congress convened in regular session December 1, 1862. On the 4th Seeretaiy Chase submitted his second annual report. After an elaborate review of the revenues and expenditures of the government, he discussed the financial affairs of the nation at large. He reiterated his objections to the State banks and declared that, as between a currency THE LEGAI, TENDER ACTS. 205 furnished by numerous and unconnected banks in various States and a cui-rency furnished by the government, he iinhesitatingly gave his "jjreference for a circulation author- ized and issued by national authority." He took issue with those who entei-tained the opinion that the rise in the j)rice of gold was due to the redundancy of the currency, and supported his views with great force,* but it did not occur to him to suggest the true reason, viz: because coin was the only currency that was a full legal tender. He again took occasion to renew his recommenda- tion of the National Banking system. He said: "While the Secretary thus repeats the preference he has heretofore expressed for a United States note Circulation, even when issued directly by the government and dependent on the action of the government for regulation and final redemption, over the note circulation of the numerous and variously organized and variously responsible banks now existing in the country; and while he now sets forth, more fully than heretofoi-e, the grounds of that preference, he still adheres to the opinion expressed in his last report, that a circulation furnished by the (/overnment, hut issued by banking associations organized under a general act of Congress, is to be preferred to either." The amount to be provided for by Congress for the cm-rent year he estimated at about $300,000,000, and for the next fiscal year, (beginning July 1st,) $600,000,000, and recom- mended that the chief dependence ot the government to secure that amount be placed on the negotiation of bonds. Congress was then urged by the Secretary to repeal that portion of the act of Congress of February 25, 1862, which restricted the sale of bonds to their market price, and •See Kepovt of the Secretary of the Treasury: Appendix to the Congressional Globe, 1862-'ua. 206 THE LEGAL TENDER ACTS. also the clause providing for the convertibiliti/ of bonds and Treasury/ notes, {greenbacks.) In conclusion he said: "The general views of the Secretary may, therefore, be thus briefly summed : He recommends that whatever amount may be needed beyond the sums supplied by revenue and through other indicated modes, be obtained by loans, without increasing the issue of United States notes beyond the amount fixed by law, unless a clear public exigency shall demand it. He recommends, also, the organization of banking associations for the improvement of the public credit, and for the supply to the people of a safe and uniform currency. And he recommends no change in the law providing for the negotiation^of bonds except the necessa.ry increase of amount, and the repeal of the absohtte restriction to market value and of the clauses authorizinr/ convertibility at will.'''' THE THIED LEGAL TENDER ACT $900,000,000 LOAN ACT. Early in the session the Hon. Thaddeus Stevens intro- duced a bill " to provide means to defray the expenses of the government," which, in his own language, "produced a howl among the money changers as hideous as that sent up by their Jewish cousins when they were kicked out of the temple." This bill was in substance the same as the legal tender bill, as it originally passed the House and before it was mutilated by the Senate in the manner above explained. It was intended to bring the government back to the full legal tender money system, "the simplicity and harmony of which had been mangled and destroyed by the Senate." In a brief, but powerful speech, (December 23, 1862) Mr. Stevens pointed out the injustice and danger of the financial policy which was then being pursued, and closed with this prophetic warning: "But I ought perhaps to say, before I close, to my country banking friends that they need not be THE LEGAL TENDER ACTS. 207 alarmed. There is no great prospect that- we shall return to the system I have indicated, nor do much to protect the people from their own eager speculations. W7ien a few years hence, the people shall have been brought to general bankruptcy by their unregulated enteiijrise, T shall have the satisfaction to know that I attempted to prevent it." (Mr. Stevens' speech will be found in full in itlie Appendix.) On the 8th of January, 1863, the Committee of Ways and Means reported a bill entitled, "A bill to provide Ways and Means for the Support of the Government," afterwards known as the $900,000,00,0 loan act. The bill reported icontained no provision for the repeal of tho clause iii the act of February 25, 1862, restricting the Secretary of the Treas^ury in the sale of bonds to their " market value," or of the clause allowing the holders of legal tender notes to convert them at any time into 5-20 six per cent, bonds. On the 12th of January the bill was taken up in the House, and Mr. Spaulding opened the debate in a lengthy •speech in support of the bill, in which he discussed the i^ational Banking scheme, recommended by the Secretary, arguing in its favor. On the 17th of January, 1863, a joint resolution was passed "to provide for the immediate pay- ment of the army and navy of the United" States," authoriz- ing the Secretary of the Treasury to issue $100,000,000 legal itender Treasury notes, to be covered by the bill then pend- ing ($900,000,000 loan act.) On the 26th of January, 1863, the bill was passed — a substitute offered by Mr. Hooper, and one by Mi-. Stevens, having been first decided in the nega- tive — without a division. On the 13th of February, 1863, the bill, after being amended, passed the Senate by a vote of 32 to 4. The usual routine of a conference committee was ^one through with, with the usual result, and the bill was 208 THE LEGAL TENDER ACTS. finally agreed to as amended by the Senate, and approved' by the President March 3, 1863. The following is a synop- sis of the bill as given by Mi*. Spaulding:* "1. The first section authorizes a loan of $300,000,000 for the then current year, and $600,000,000 for the then next fiscal year, and to issue bonds therefor at not less than ten nor more than forty years, at not exceeding six per cent, interest, in coin, not exceeding in all $900,000,000. "2. By section second of the same act the Secretary, in lieu of an equal amount of said bonds, was authorized to issue $400,000,000 of Treasury notes, bearing interest not exceeding six per cent., payable in lawful money, which notes, payable at periods expressed on their face, might be made a legal tender at their face value. " 3. By the thii-d section $150,000,000 in amount of United States notes, made a legal tender, might be issued. The restriction in the sale of hondis to '■market value was re- pealed, 'And the holders of United States notes issuecT under former acts, sliall present the same for the pur- pose of exchanging them for bonds as therein provided, on or before the first of July, 1863, and thereafter the right to exchange the same shall cease and determine.^ "4. This section imposed a tax of one per cent, each half year, on a graduated scale, of State bank circulation,. according to the capital stock of each bank." Making the interest of the bonds payable in gold and declaring that the legal tender Treasury note (greenback) should not be i-eceivable for duties on imports, was a gross betrayal of the interests of the people by the Senate of the United States. But that body was capable of still greater perfidy. It will be observed by the synopsis of the $900,- 000,000 loan act, given above, that the convertibility of the 'JTiuiuiclal History of the Viar, pase 133. THE LEGAL TENDER ACTS. 209 greenback with United States six per cent, bonds, as provi- ded by the act of February 25, 1862, was repealed By the terms of the act of February 25, 1862, under which the greenback was issued, the right to exchange it for United States bonds was distinctly guaranteed, and was in the na- ture of a contract, made by the government w;th the holder, and to abrogate this right was an act of repudiation. The motive which inspired the act, was to still further depreciate the paper of the government. It is a fact worthy of note, that when Congress perpetrated this act of repudiation, "no doleful sound came up from the caverns of the bullion brokers or the saloons of the associated banks," nor was there any howl heard from the gentlemen of the press, who were so quick to detect repudiation in Mr. Stevens' bill . to restore the legal tender act to the condition in which it first passed the House.* NATIONAL BANK BILL. On the 2d of February, 1863, the National Bank bill, as prepared by Mr. Spaulding in December, 1861, was reported, with alterations and amendments, from the Finance Committee to the Senate by Mr. Sherman. The debate upon it began in the Senate on the 9th, and on the 12th (three days after) the bill passed by a vote of 23 to 21. It was taken up in the House on the 19th, and jsassed the next day by a vote of 78 to 64; and received the President's signature March 25, 1863. (See Chapter on National Banks.) The money power now had matters all its own way, and was in a situation to prey upon the government and people at its pleasure. Duties on imports were payable in gold; interest on the bonds of the United States were payable in gold; the exchangeability of the greenback with bonds had •See Speech of Hon. Tlinddeus Stevens In the Appendix. 14 210 THIS LEGAL TENDER ACTS. heen abrogated; the country was flooded with evidences of indebtedness of the government in all forms and shapes, 8uch as demand notes, Treasury notes bearing interest, mutilated legal tender notes, certificates of deposit, certifi- cates of indebtedness, etc.; and a banking bill, authorizing the issue of $300,000,000 in bank notes had been passed. The following statement of the public debt (January 2, 1863) will show exactly the amount and character of the indebtedness of the government at this time: Loan of 1842 $2,883,364 11 " 1847 9,415,250 00 " 1848 8,908,341 80 "' 1858 20,000,000 00 '" 1860 7,022,000 00 « 1861, act of February 8, 1860 18,415,000 00 " 1861, act of July 18, 1861 50,002,000 00 "' 1862, five-twenty six per cent 25,050,850 00 Texas indemnity 3,461,000 00 Oregon war debt 1,026,600 00 Texas debt 112,092 69 Old funded and unfunded debt 114,115 48 Treasury notes under acts prior to 1857 104,561 64 " " " subsequent 2,750,350 00 Treasury notes seven-thirty per cent, interest 139,998,000 00 Temporary deposits at four per cent 38,458,008 SO " " five per cent 41,777,628 16 United States notes, legal tender and receiv- able for customs 14,913,315 25 United States notes, legal tender 223,108,000 00 Postal cun-ency less than one dollar 6,844,936 00 Certificates of indebtedness, six per cent... 110,321,241 65 Requisitions on the Treasurer for soldiers' pay and other creditors, due but not paid 59,1 17,597 46 Total funded and unfunded debt to January 2, 1863, according to the books in the Treasury Department $783,804,252 64 The time had now arrived to put the $500,000,000 of THE I,EGAL TENDKK ACTS. 211 United States bonds authorized by tbe act of February 25, 18a2, on the market. Notwithstanding the urgent need of !the government dm-ing this time, Secretary Chase had held these bonds back for over a year on the pretence that the resti-iction to a sale at " market value " prevented him from negotiating their sale to any considerable amount. Mr. Gm-ley, of Ohio, effectually disposed of this plea in the course of his speech on the nine hundred million loan act He said: "He did not agree with the Secretaiy in several things contained in his report; the banking scheme, which the Secretary admits would not afford any immediate relief, should be rejected; we need a sensible, practicable plan that will furnish immediate means to pay the army and navy. He insisted that Congress, by the act of February 25, 1862, authorized the Secretary to sell $500,000,000 six per cent. 5-20 bonds at 'the market Value thereof,' which he had not done, as intended hy Congress, and the conse- quence was that the soldiers and sailors were not paid, as they ought to have been before this time. * * The words 'market value' do not mean par value, nor any specified time or sums. The market value was the price they would bring when offered in the market. There has been no business day or week since the law was passed, when any of the many agents of the Secretai-y in New York could not have placed one million, or several millions, in the market, and sold them somewhere near pai-, to raise money to pay the army and navy." In May, 1863, Jay Cooke, "an enterprising banker" of Philadelphia, was employed to dispose of the five-twenty bonds. The Secretary of the Ti-easury, up to this time, had put out only about $25,000,000, leaving $475,000,000 yet to "be sold. No effort was made by Mr. Cooke to negotiate these bonds with bankers or capitalists, but (to quote from 212 THE LEGAL TENDER ACTS. Sj)aulding), "the editors of newspapers and others were enlisted to bring the advantages of the loan before the people, in order to make it a great popular loan, to be taken by them in large and small sums in all the loyal States. Mr. Cooke succeeded admirably in this undertaking. The loan became very popular, and was taken extensively by farmers, mechanics and laboring people, in all the towns, villages and cities over the country. By the first of July, 1 863, the amount of $168,880,250 of these bonds were taken; and by the first of October following, |2'78,511,500 liad been taken up; and by the 21st of January following the whole sum of $500,000,000 had been taken at /jar, and the rush was so great near the closing out of tlio loan, that nearly $11,000,000 extra had been subscribed and paid for before notice could bQ given to sub-agents that the amount authorized by that act had been taken up. Congress, however, soon after authorized this extra sum to be issued." Hugh McCulloch also bears testimony as to what clas.s of people took the 5-20 bonds. In a letter to the New York Tribune, dutei at London in September last, he said: "I recollect the time when subscribers for United States bonds were regarded as patriots, and I happen to know to what class they belonged. With rare exception they were not capitalists. * * The purchasers of our bonds were the patriotic men of all parties, chiefly men of moderate means, who were resolved that the Union should be saved, no matter at what cost of money or blood." It may be interesting to state that Mr. McCulloch was not one of those who were resolved that the Union should be saved, no matter at what cost, etc. At the time he refers to, he was a country banker "of moderate means," somewhere in the State of Indiana, and was solicited, we believe^ by the Sub- THE LEGAL TENDER ACTS. 213 Treasurer of the United States, Mr. Cisco, to have his bank take and dispose of some of "our bonds." He treated the request "with contempt. This matter was so well known at the time of his appointment as Secretary of the Treasury, as to be talked of on the streets of Washington, and was hushed up by his friends only with great difficulty. The jjartial legal tender Treasury note (greenback), issued by the government, now constituted the medium of exchange of the nation. Its legal tender property guve it the power and functions of money, to measure and exchange values. The legal tender money of a country is the measure of all values and the basis of all money contracts among its people; conse- quently prices in the United States (tame to be i-cgulated by the greenback and not by gold. Any one can satisfy him- self on this point by comparing the market prices of any of , the leading products of the country for a given time with the fluctuations in the price, of gold. Secretary Chase _ referred to this fact in his necond annual report, in which he said: "That such is the case (no redundancy of the cur- rency) may be reasonably inferred from the fact that the prices of many of the most important articles of consumption have declined or not materially advanced during the year. Wheat, quoted at $1.38 to $1.-15 per bushel on the first of November, 1861, was quoted at $1.45 to §1.50 on the first of livTovember, 1862. Pi-ime mess pork on the first of Novem- bei-, 1861, was quoted at |15 to $15.50 per barrel, and on the first of November, 1862, at $12.50 to $13. Corn sold on the first of November, 1861, at 62 to 63 cents per bushel, and on the first of November, 1862, at 71 to 73 cents. A comparison between the prices of hay, beef, and some other staples of domestic produce, at the two dates, exhibits similar conditions of actual depression in price or moderate 214 THE LEGAL TENDER ACTS. rise." Products rise and fall in price according to the laws of supply and demand. F'oreign goods, however, th& duties on which have to be paid in gold, are subject to a different standard of payment, and are governed in price largely by the price of gold. The price of gold is regulated by the laws of supply and demand, supplemented by the arts and efforts of speculators and gold gamblers. As long as tb.e greenback was convertible at the will of the holder into a six per cent, gold interest bond, there was no danger of its becoming redundant, or in any way affecting the price of domestic products. But, as we have seen, this converti- bility was taken away, in the face of the plighted faith of the^ government, after July 1, 1863. On March 3, 1864, an act of Congress was passed giving: Secretary Chase still further discretionary power. It author- ized him to issue $200,000,00,0 of bonds, bearing date March' 1„ 1864, or any subsequent date, redeemable after five years and payable in forty years, in coin, bearing uiterest not exceeding six per cent., subsequently known as 10-40 bonds. Under authority of this act, Secretaiy Chase, immediately after the 6-20 bonds bearing six per cent, interest had been disj^osed of, put 10-40 bonds bearing only Jive per cent, interest on- the market. Very naturally the loan did not prove a suc- cess, and by the 1st of July, 1864, the sum realized fi-om 10-40 bonds amounted to only $73,337,750. In order tO' defray the expenses of the government, the Secretary con- tinued to issue evidences of indebtedness of the government in various forms calculated to circulate as a currency. By this time National Bank notes began to swell the volume of the currency. The following statement shows the amount and kinds of paper in circulation June 30, 1864: THK LEG AX TENDER ACTS. 215' U. S. notes, greenbacks $431,178,670 84 Postal, fractional currency 22,894,877 25 Interest bearing legal tender Treasury notes 168,571,450 00' Certificates of Indebtedness 160,720,000 00' National Bank notes 25,825,695 00' State Bank circulation about 135,000,000 00- Seven-thirty Treasury notes 109,356,150 OO' Temporary deposits for which certificates were issued 72,330,191 44 $1,125,877,034 53. From the above table it will be seen that the country was. flooded with paper securities of the government of every description, mostly bearing interest and issued in a form to- circulate us currency. Now take into consideration the' fact that over $700,000,000 of bonds bearing interest payable in gold had just been issued, and also that the military situation was very critical, and no one can fail to see into- what a wretched condition the finances of the country had been brought. The "bulls" and "bears" of Wall street fairly rioted in the speculation and gold gambling which ensued.. The premium on gold began to go up. On the 15th of January, 1864, it was 1.56; on the 15th of February, 1.59;. on the 15th of April, 1.78; on the 15th of June, 1.79; on the 30th of June, 2.50; and on the 11th of July, 2.85^. The- business affairs of the country were of course greatly deranged, and distrust became general. The credit of the^ government suffered enormously — worse than if it had sus- tained a dozen defeats in the field. But the game had been can-ied too far, and it was no longer possible to deceive the public, so something had to be done to allay public feeling and restore confidence. Secretary Chase was compelled to resign June 30, 1864. No change, however, was made in 216 THE LEGAL TENDEE ACTS. the policy of the Treasuiy Department, and matters went on from bad to worse. BOITDS, ETC., EXEMPTED FEOM: TAXATION. GEEESTBACKS LIMITED TO $400,000,000. By the act of June 30, 1864, the amount of greenbacks issued or to be issued, was limited to $400,000,000, and "such additional sum, not exceeding 150,000,000, as may be tem- porarily required for the redemption of temporary loans." The Secretary was authorized to issue $200,000,000 legal tender Treasury notes bearing interest, payable in three years. By the same act all bonds, coupons, national currency. United States notes. Treasury notes, fractional notes, certificates of indebtedness, certificates of deposit, etc., were declared to be exempt from ffacca^iow. by or under State or municipal authority. SENATOE FBSSENDEN APPOINTED SECEETAEY OF THE TEEASITEY. William P. Fessenden, United States Senator from Maine, was appointed to succeed Secretary Chase, and entered upon the duties of his office July 5, 1864. Secretary Fessenden laised the means to carry on the government to March 4, 1865, by issuing greenbacks, T-SO Treasury notes, interest bearing Treasury notes, certificates of indebtedness, 5-20 bonds, etc. Secretary Fessenden, while in the United States Senate, had played a conspicuous part in mutilating the greenback, and the following paragraph from \\s annual report, in December, 1864, in view of his course, cannot fail to strike the reader as a singular admission. He said: "The experience of the past few months cannot have failed to convince the most careless observer that, whatever may be the effect of a redundant circulation upon the price of coin, other causes have exercised a greater and more deleteriotie THE LEGAL TENDER ACTS. 217 anfluence. In the course of a few days the price of this .•article rose from. $1.50 to |2.85 in paper for $1.00 in specie, -and subsequently fell, in as short a period, to $1.87, and then again rose as rapidly to $2.50; and all without any assignable cause, traceable to an increase or decrease •in circulation of paper money, or an expansion or con- -traction of credit or other similar influence on the market, tending to occasion a fluctuation so violent. It is quite ^apparent that the solution of the problem may be found in the unpatriotic and criminal efforts of speculators, and probably of secret enemies, to raise the price of coin, regardless of the injury inflicted upon tlie country, — or -desiring to inflict it." No man living, except Jolui Sherman of Ohio, was better able to explain how and through whose ;instrumentality these rascally speculators were eiuiblcd to vprosecute their " unpatriotic and criminal efforts " than Mr. -Fessenden himself. Under the circumstances Mr. Fcssen- den did not find the position of Secretary of the Treasury ;a very comfortable one; and at the beginning of Mr. Lincoln's second term he surrendered it with feelings of rgreat relief. H'cULLOCH APPOIXTEU SECISETAIIY 0*' TUE TREASURY. Immediately after President Lincoln entered upon his second term of office Hugh McCulloch, a banker, of the State of Indiana, was appointed Secretaiy of the Treasury. Mr. McCulloch was unknown to the public, but it was hoped that, being a banker and of course familiar with the manner in which the government and people were being robbed by the money power, and not identified with the -corrupt political ring at Washington through which it •operated, ho would endeavor to restore the finances of the -country to a more healthy condition. Never were a people 218 THE lES-AilL TEITOER A'GTS. doomed to be more bitterly disappointed. McCullOcli only entered into the designs of the money power, becameits most subservient tool, and retired with the n tation of being the first Secretary of the Treasnry of United States who had ever prostituted his high office for purpose of enriching himself and his associates. Henrj Carey, who had a conversation with him' immediately a his accession to office, says that he exj^ressed! himself t as unfavorable to contraction, and quotes him as saying; i he "should gladly see it (gold) at 1.Y5," meaning that would not favor contraction for the purpose of reducing premium on gold. "Three months later," says Mr. Ca "lie was instructing his representatives abroad to j assurances that we should have resumed specie paymi before the T-no's became due. Two months yet later ci the destructive Fort Wayne decree (a letter from McCuU in which he expressed himself in favor of the policy of < traction), and from that hour did the Secretary j^ersisi the absurd and injurious jjolicy therein amiounced.'' Mr. McCulloeh, at tlie same time that he A\as gi\ instructions to his representatives abroad tha-t we she have resumed specie jsayments before the V-SO's became < was issuing 7-30 Treasury notes and compound inte bearing Treasury notes, made a tender at their face va to an enormous amount. The payment of the army, wl was mustered out of service during this period, al required an immense sum, which was obtained by seL 7-30 Treasury notes through the agency of Jay Cooke. ' amount of 7-30 Treasury notes outstanding October, li which were convertible in loss than three years into 5-20 per cent, bonds, was $830,000,000. The following is a statement of the debt and circula of the United States, as it stood October 31, 1865: THE LEGAL TENDER ACTS. 219 Bonds, 10-40's, five per cent., due in 1904 . . $172,770,100 00 Bonds, Pacific R. R., 6 per cent.,"due in 1895 1,258,000 00 Bonds, 5-20's, 6 per cent., due in 1882, '84, '85 659,259,600 00 Bonds, 6 per cent, due in 1881 265,347,400 00 Bonds, 5 per cent., due in 1880 18,415,000 00 Bonds, 5 per cent., due in 1874 20,000,000 00 Bonds, 5 per cent., due in 1871 7,022,000 00 Bonds, 6 per cent., due in 1868 8,908,341 80 Bonds, 6 per cent., due in 1867 9,415,250 00 Bonds, Texas indemnity, part due 760,000 GO Bonds, Treasury notes, etc., part due 613,920 09 Total Bonds $1,163,769,611 89 Comjjound interest notes, due in 1867-68 $173,012,141 00 7-30 Treasury notes, due in 1867 and 1868 830,000,000 00 Temporary loans, 10 days' notice 99,107,745 46 Certificates of indebted- ' ness, due in 1866 55,905,000 00 Treasury notes, 5 per cent., Dec. 1, 1865 32,536,901 00 United States notes 428,160,569 00 Fractional currency 26,057,469 20 — 1,644,779,825 66 Total debt October 31, 1865 $2, 808,549,437 55 National Bank notes issued $185,000,000 00 State Bank notes issued 65,000,000 00 Treasuiy notes, greenbacks, etc 1,644,779,825 66 Total circulation* $1,894,779,825 66 m'culloch's contraction policy. Secretary McCulloch, in his first annual report, December 4, 1865, argued that the legal tender acts were war measm-es and only temporary in character, and " ought not to remain in force a day longer than would be necessary to enable the people to prepare for a return to the gold standard; and that •See table of circulation, Sept. 1, 1S63, page 16. 220 THE LEGAL T:ENDEB ACTS. the work of retiring the notes which have been issued should be commenced without delay, and carefully and persistently continued until all are retired." On the 18th of December, 1865, Congress adopted a resolution " cordially concm-ring in the views of the Secretary of the Treasury, in relation to a contraction of the currency," by a vote of 144 to 6. This was followed by an act of Congress, approved Apiril 12, 1866, authorizing the Secretary to sell 6-20 bonds, and with the proceeds to retii-e six per cent, compound interest notes and legal tender notes (greenbacks), and other evidences of indebtedness of the government, but not to retire more than four millions of dollars of greenbacks a month, or forty-eight millions of dollars in a year, but without restriction as to the -amount of compound sixes and seven-thirties. This act gave Secretary McCuUoch imlimited control over the monetary affairs of the country. The banks and sharks of Wall street and their kind, at home and abroad, held hundreds of millions of securities of the government, which they had purchased at various prices ranging from thirty-five cents on the dollar upwards. During the war whilst these securities were being emitted, it was the policy of the money power to depreciate their value in every way possible, in order that they might be bought in at a sac- rifice. Hence it was that interest on the bonds and duties on imports were made payable in gold, and subsequently, that the convertibility of legal tender notes into bonds was abrogated. It was for the same reason, too, that Congress, instead of adopting a plain, simple system, easily understood by the public, such as the legal tender Treasuiy note sus- tained by an interest bearing bond, jjersisted in authorizing the Secretary of the Treasury to issue govei-nment securities, bearing interest, and mostly payable in three years, in aU sorts of forms and shapes. Government obligations were THE LEGAL TENDER ACTS. 221 issued during the war by the Treasury Department in fifteen different forms. It was of course impossible for the general public to keep the run of, much less to understand, all these various forms of indebtedness, nor was it designed that they should. It need scarcely be added, that issuing the securi- ties of the government in these peculiar forms furnished the banks an additional opportunity to prey upon the people. As soon as the last batch of 7-30 Treasury notes was disposed of by McCulIoch to raise means to pay off the army on the eve of its disbandment, the money power changed its policy. It was now to the advantage of the holders of government securities to do everything in their power to enhance their value. Accordingly from this time on the efforts of the money j^ower will be found turned in tliat direction. Secretary McCulloch, who had informed Mr. Carey that hp would like to see gold stay at $1.75, as we have seen, was soon brought to terms, and was now a zealous champion of contraction, for the purpose of bringing the country back to "honest money." The Treasury notes, purposely made payable in three years, and which wore convertible into 5-20 bonds, constituted the greater part of the public debt held at home. These notes were payable in lawful money (greenbacks), and it became an important object to have tiiem converted into long time bonds, so that the money power might have ample time to secure such legislation as would result in the principal as well as the interest being paid in gold. Mr. McCulloch entered into this method of liquidating the outstanding obligations of the government with great zeal. The following items taken from his report of December, 1866, exhibit the character and extent of the contraction which took place (by substi- tuting 5-20 bonds for Treasury notes, etc.,) from August 31,, 1865, to October 31, 1866: 222 THE LEGAL TENDER ACTS. Temporary loan, 4, 5 and 6 per cent., acts of February 25, 1862, and June 30, 1864. . . $62,146,714 27 Certificates of indebtedness, 6 per cent., acts of March 1, 1862, and March 3, 1863 84,911,000 00 Treasury notes, 5 pav cent., one and two years, act of March 3, 1863 31,000,000 00 Ti-easury notes, 7-30, act of July 17, 1861 . . 295,100 00 Compound interest notes, 6 per cent., act of July 30, 1864 68,512,020 00 Treasury notes, 7-30, acts of June 30, 1864, and March 3, 1865 105,985,700 00 United States notes, acts of July 17, 1861, and February 12, 1862 134,610 00 United States notes (greenbacks), acts of February 25, 1862, and March 3, 1863. . . 42, 830,174 00 Amount retired first year $395,815,318 27 This policy was jjersisted in until all evidences of indebt- edness of the government bearing currency interest, and having but a short time to run, "were converted into gold interest long bonds. The following synopsis of the public debt statement contained in Secretary McCulloch's annual report of December 1, 1868, will exhibit the progress made by him on the 1st day of July, 1868: DEBT BEARING COIN INTEREST. 5 per cent, bonds $221,588,400 00 6 i^er cent, bonds 1,848,415,241 80 Navy Pension fund 13,000,000 00 — $2,083,003,641 80 DEBT BEARING CURRENCY INTEREST. 6 per cent, bonds $29,089,000 00 3 year comp'nd int. notes 2 1,604,890 00 3 year 7-30 notes 25,534,900 00 3 per cent, certificates . . 50,000,000 00 — $126,228,790 00 MATURED DEBT NOT PRESENTED POR PAYMENT. Treasury notes, compomid int'st notes, etc. 20,527,302 64 DEBT BEARING NO INTEREST. U. S. notes (greenbacks) $356,141,723 00 Fractional currency 32,626,951 75 Gold certific's of de^wsit 17,678,740 00— $406,447,414 75 Total debt $2,636,207,149 19 "THE I.EGA.L TENDEE ACTS. 223 ^ -the meantime contraction had done its work. Business rmen began to suffer and the industries of the country to 'decline. " Hugh JlcCullo'eh had tapped a great artery and llet nearly all the blood flow from the body politic." Besides :the hundreds of millions of evidences of indebtedness of the .government, used as currency, taken from the channels of 'ti'ade, the greenback circulation was contracted from Augustj 1865, to July, 1868, $10,136,686.16. The public began to realize, though only partially, the cause of the great change tthat was going on in the business affairs of the country, and 'called a halt. Mr. J. A. Stevens, President of the Chamber 6i Commerce of New York City,- in a letter to the New York Tunes in 1873, thus refers to this period: "The ■country at large had felt the pressure of the screw, but had not been able to discover precisely from, what quarter the pinch came, the contraction being confined to those outside forms of Treasury obligations wliich, though not currency in the strict acceptation of the word, were still used as such in the larger transactions of trade and financial exchange. When, in a time of general pressm-e, the currency itself became the subject of the pruning knife, the country not ■only felt the knife, but saw how it was handled, and refused to submit to the ' heroic treatment.' " Congress was compelled, in January, 1868, by the force of public sentiment, to pass a law declaring " that from and after its passage, the authority of the Secretary of the Treasury to make any reduction of the currency by retii-ing or cancelling United States notes (greenbacks) shall be and is hereby suspended." But the mischief had already been done. The greenback, however, was saved to the people. In 1865 and 1866, after the termination of the war, indus- try, by reason of the abundance of money in circulation, was rife throughout the country,.and production went on as it 224 THE LEGAL TENDER ACTS. had never done before. During the years 1863, '64, '65 and 66 the failures throughout the country, as reported in Hunt's Magazine, averaged only 545 a year. In 1867 they run up to 2,386, and continued ahove that number until 1873, when they reached 5,181, with liabilities to the amount of $228,490,000. In 1865 general prosperity prevailed, and as McCulloch himself has since admitted, the people were individually out of debt. Business then was done for cash. But as money grew scarce business men were obliged, as in days before the- war, to resort to the bank? and borrow bank credit. Business was no longer done on cash principles. As like causes pro- duce like effects, so the use of bank credit, rendered necessary by the scarcity of money, brought the business affairs of the- nation back to the same condition in which they had been for sixty years prior to the war. A commercial crash was only a question of time, and accordingly it came in 1873. A.V ACT TO STUENGTIIEX THE PUBLIC CEEDIT OF THE UXITED STATES. Every act of Congress relating to the financial measures of the government during the war was passed with a view t» depreciating the public credit. So, now, after the war was over, and the money power had obtained possession of all the outstanding obligations of the government, every act that was passed was passed with a view to increasing their value. The 5-20 bonds of the government were payable in lawful money of the United States. It will be remembered that when the first legal tender act was passed, February 25, 1862, the chief bone of contention between the Senate and House was the payment of the interest on the bonds in gold. Legal tender notes were made a tender for "all claims and demands against the United States of every- THE LEGAL TENDER ACTS. 225 kind whatsoever, except for interest iipoii bonds and notes, which shall be paid in coin, and shall also be lawful money and a legal tender in payment of all debts, public and private, within the United States, except duties on imports and interest as aforesaid." This language is per- fectly plain and explicit and leaves no room for doubt. When the bill was pending in the Senate, Mr. Collamer, of Vermont, offered an amendment depriving the greenback of its legal tender quality so far as the public debt was concerned, and, at the same time, said that if the bill did not mean that bonds were payable in greenbacks, it meant nothing. His amendment was voted down. Senator Wilson, of Massachusetts, declared that greenbacks ought to be a legal tender for the payment of the public debt, and that if they were not he would vote against the bill. The Hon. Thaddeus Stevens subseqjiently declared, that " when the bill was on its final passage, the question was expressly asked of the chairman of the Committee on Ways and Means, and as expressly answered by him, that only the interest was pay- able in coin. If I knew," he added, "that any party in this comitry would go for paying in coin that which is payable in money, thus enhancing it one-half; if I knew there was such a platform, and such a determination on the part of any party, I would vote on the other side. I would vote for no such swindle upon the tax payers of this country; I would vote for no such speculation in favor of the large bondhold- ers — the millionaires who took advantage of our folly in granting them coin payment of interest." The first move made by the bullionists and bondholders was to educate public sentiment, through the press, in regard to the "sacredness of the public faith." The leading news- papers of the principal cities took up the song, and before a great while the gentlemen of tlie country press, who are 226 THE LEGAL TENDER ACTS. , quick to learn which way the wind blows, were lieard, together with the demagogues of both parties, joining in the chorus. In many of the Western States, whose people are not so completely enslaved by the money power as their brethren of the east, public opinion manifested a disposi- tion to demand that the five-twenty bonds should be paid agreeably to the terms of the acts providing for their issue — in greenbacks. This was not confined to any j)artioular party. Accordingly we find Senator Sherman, in a speech in the Senate, February 27, 1868, uttering the following sen- timents. He said: "I say that equity and justice are amply satisfied if we redeem these bonds at the end of five years in the same kind of money, of the same intrinsic value it Tjore at the time they were issued. Gentlemen may reason about the matter over and over again, and they cannot come to any other conclusion; at least, that has been my conclu- sion after the most careful deliberation. Senators are some- times in the habit, in order to defeat the argument of an antagonist, to say that this is i-epudiation. Why, sii-, every citizen of the United States has conformed his business to the legal tender clause. * * Every State in the Union, without exception, has made its contracts, since the legal t«nder clause, in currency and paid them in currency." And Senator Morton declared that, "we should do foul injustice to the government and the peojDle of the United States, after we have sold these bonds on an average for not more than sixty cents on the dollar, now to propose to make a new contract for the benefit of the bondholder." The Presidential campaign of 1868 was impending, and it became necessaiy for the money power to resort to extra- ordinary efforts to obtain the direction of political affairs. The Rothschilds were in possession of several hundred millions of 5-20 bonds, pui-cliased at about sixty cents on THE LEGAL TENDER ACTS. 227 the dollar or less, and "were particularly interested. Then- agent, August Belmont, who had secured the position of chairman of the Democratic National Committee, was instructed by Baron James Rothschild as early as March 13, 1868, that unless the Democratic party went in for paying the 5-20 bonds in gold, it must be defeated. The first step ■was to have the national convention held in New York City. It accordingly cjonvened there on the 4th of July, 1868. Belmont and his satellites were unable to control the con- vention, at least iu the matter of the platform. After a stormy session the platform was promulgated on- the 'Zth of .July, and contained the following plank: "Resolved, Third: Wlicn the obligations of the government do not expressly state upon their face, or the law under which they were issued does not jirovidt^ that they shall be paid in coin, they ought in right to be paid in the lawful money of the United States." This resolution doomed the party to defeat. At this time Mr. Belmont owned a large inteix'nt in the New York World, generally i-egarded as the leading Democratic newspaper in the country. About the first of October this inte]'est is believed to have been transferred to Manton Marble, editor and part proprietor of the paper. On the loth day of October, a few weeks before the general election, the World, to the conslernntion of the democracy through- out the country, came out in a leading editorial denouncing Horatio Seymour, the candidate of the party for the Presi- dency, as unfit and unavailable, and advising his withdrawal. This act of treachery has never been equ.aled in the annals of politics; and, strange to say, the World, under the same •corruj)t influence, c-ontinues to occupy the position of a leading Democratic newspaper. The money power was more successful with the leaders of the Republican party. Through its aid Grant was triumphantly elected. President 228 THE LEGAL TENDER ACTS. Grant was duly inaugurated on the 4th of March, 1859, and in pursuance of the programme marked out for him, thus alluded to '"the sacredness of the public faith" in his inaugural message. He said: "Let it he understood that no fepudiator of one farthing of our public debt will be trusted in public place, and it will go far toward strengthening a credit which ought to be the best in the world, and will ultimately enable us to replace the debt with bonds bearing less interest than we now pay." This was intended as a warning to all those who might desire to stand well with the administration. On the 12th of March a bill was introduced in the House H)y Mr. Schenck, of Ohio, entitled "An act to strengthen the public credit of the United States." In duo time it passed both branches of Congress, and was approved by the Presi- dent March 18, 1869. It was the first act of Congress that received his official sanction. This act provides as follows: "£e it enacted, etc.. That, in order to remove any doubt as to the purpose of thfe government to discharge all its obligations to the public creditors, and to settle conflicting questions and interj>retations of the law, by virtue of which such obligations have been contracted, it is hereby j)rovided and declared that the faith of the United States is solemnly pledged to the payment in coin, ov its equivalent, of all the obligations of the United States not bearing interest, known as United States notes, and of all the interest bearing obli- gations, except in cases where the law authorizing the issue of any such obligations has expressly provided that the same may be paid in lawful money, or in other cmTency than gold and silver; but none of the said interest bearing obligations, not already due, shall be redeemed or paid before maturity, unless at such times as United States notes shall be convertible into coin at the option of the holder, or unless at such time THE LEGAL TEXDEE ACTS. 229 Ijonds of the United States, bearing a lower rate of interest than the bonds to be redeemed, can be sold at par in coin. And th« United States. also solemnly pledges its faith to make provision at thei earliest practicable period for the redemption of the United States notes in coin." To show conclusively that the 5-20 six per cent, bonds of the United States were not regarded either at home or abroad as payable in coin, Mr. Lawrence, of Ohio, called attention to the fact that, " on the 30th day of November, 1867, (over two years after the war was ovci-) our five-twenty six per cent, bonds sold in London at VOj} cents, while Xcw Bi'unswick and Cape of Good Hope six per cents sold at 105; Russian five per cents at 8o and Brazilian five per cents at 75." Congress and the President had done everything in their power to make the 5-20's payable in gold, but the Roths- childs and the money power generally were ajiprehensive as to the future, inasmuch as the act of Congress of March 18, 1869, was in violation of the terms of the contract under which the bonds had been issued, and might be repealed. No time was lost, therefore, in inducing the Secretary of the Treasury to pay off these bonds in gold. By means best known to themselves, McCulIocli had been induced to redeem about $1^0,000,000 of these bonds, during his administration of the Treasury, and the process was continued under Bout- well and his successors, until the 5-20 bonds, issued under the original act of February 25, 1862, were all redeemed in gold or its equivalent.* This single act of robbery, for it is only one of the many acts of robbery which have been perpetrated by the money power during the past few years under the guise of law, will foot up about as follows: *See public debt statement, page -"1- 230 THE LEGAL TENDER ACTS. Amount of 5-20 six per cent, bonds $600,000,000 00 Interest in gold at six per cent., compounded semi-annually, for ten years 403,096,132 71 Total $903,096,132 71 Cost of $500,000,000 bonds at say sixty cents on the dollar 300,000,000 00 Net profit in ten years, iu gold $603,096,132 71 EEFUXDIXG THE PUBLIC DEBT. ' The next move of the money power was to have the public debt refunded, in order to place its payment in coin beyond all question. Accordingly an act entitled "An act to author- ize the refunding of the national debt," was passed and approved July 14, 1870. This act provided, "That the Sec- retary of the Treasury is hereby authorized to issue, in a sum or sums not exceeding in the aggregate $200,000,000, coupon or registered bonds of the United States, in such forms as he may prescribe, and of denominations of fifty dollars, or some multiple of that sum, redeemable in coin of the present standard value, at the jDleasure of the United States, after ten years from the date of their issue, and bearing interest, payable semi-annually in such coin, at the rate of five per cent, per annum." $300,000,000 of like bonds, bearing four and a half per cent, interest, redeemable after fifteen years, and also a sum of bonds bearing four jjer cent, interest, redeemable after thirty years — in all not to exceed $1,000,000,000, were also authorized. The Secretary of the Treasury was authorized to sell these bonds at par for coin, and with the proceeds to redeem any of the bonds of the United States outstanding, known as five-twenty bonds, "or he may exchange the same for such five-twenty bonds, par for par." By the act of January 20, 1871, the act last recited was THE XEGAL TENDER ACTS. 231 amended so as to increase the amount of five per cent, gold bonds authorized to be issued to $500,000,000, and to make the interest on the bonds jjayable, at the discretion of the Secretary, '■^quarter yearly.'''' Under these two acts gold bonds to the amount of S465,- 558,450 were issued up to November, 18'75; and a bill, of a like character, introduced by Sherman in the Senate, is now pending in Congress, to complete the job. When it shall have passed Congress, the entire public debt, contracted in lawful money at a time when it was greatly depreciated as compared with gold, will be transformed into a debt payable, principal and interest, in gold. The following table exhibits the amount and character of the public debt, bearing interest, on the 30th day of Novem- ber, 1875. It will be observed that the greater part of the debt of the United States, incurred during the war, is now represented by bonds issued since the war: Loan of 1858, act of June 14, 1858, 5 per cent. $260,000 Loan of February, 1861, (81's) act of Febru'y 8, 1861, 6 per cent 18,415,000 Oregon War Debt, act of March 2, '61, 6 per c. 945,000 Loan of July and August, 1861, (81's) act of July 17, and Aug. 5, 1861, 6 per cent 189,321,350 Loan of 1863, (81's), act of March 3, '63, 6 p. c. 75,000,000 Ten-forties of 1864, act of March 3, '64, 5 p. c. 194,566,300 Five-twenties of June, 1864, act of June 30, 1864, 6 per cent 46,891,100 Five-twenties of 1865, act pf March 3,'65, 6 p. c. 152,534,250 Consols of 1865, act of March 3, 1865, 6 p. c. 202,663,100 Consols of 1867, act of March 3, 1865, 6 p. c. 310,622,750 Consols of 1868, act of March 3, 1865, 6 p. c. 37,474,000 Funded Loan of 1881, acts of July 14, 1870, and January 20, 1871, 5 per cent 465,558,450 Total $1,694,261,300 232 THE LEGAL TEXDEK ACTS. SPECIE EESUMPTIOJT. It now only remains for the money power to bring about a resumption of sj)ecie payments and it will have accom- plished all its ends; and the American people will once ■again be comjDletely under its domination. From the day that the old State banks suspended specie payments until the present time, that object has never been lost sight of for a moment. No system of money has ever been devised that confers such absolute control over the currency, and through it over the jiroperty and business affairs of a nation, upon the money poAver, as banks of issue; and hence the adoption of the National Banking scheme. But the greenback interferes very materially with the workings of the system, and it is important that it should be got out of the way. There is also another great incentive to cause the money power to seek a return to specie payments. By a single stroke the bondhokling and creditor class will be enriched to the amount of hundreds of millions of dollars. In January, 1875, the bullionists found themselves strong enough in Congress to pass a law decreeing specie resump- tion, January 1, 1879. The composition of the House of Representatives, at this time, is worthy of note, and should open the eyes of the people to the necessity of sending a different class of men to represent them in that body. The Hon. Moses W. Field, of Michigan, in a recent speech gives a detailed statement of the professions and callings of the members of the 43rd House, of which he was a member, as follows: "Tlie forty-third Congress, to which I belonged, was composed of 379 members. In this number there were six lumbermen, thirteen manufacturers, seven doctors, four- teen merchants, thirteen farmers, three millers, one land surveyor, one priest, one professor of latin, one doctor of laws, one barber, one mechanic, ninety-nine lawyers, and one THE LEGAL TKN'DEIt ACTS. 233 hundred and eighty-nine bankers, which includes stockhold- ers in National Banks." Almost a clear majority of members were either bankers or interested in National Banks. The specie resumption act then passed rests like an incubus upon the industrial interests of the country. Everything, however, is working to the satisfaction of the bullionists and the bond- holders. As industry and production languish, property of all kinds dej)reciates in value, and when i-esumption takes place, the money power Avill be enabled to gather it in, to the amount of hundreds of millions more, on its own terms. It seems liard indeed that the farmer, the mechanic, the manu- facturer, and the producing classes generally, who bear almost the entire burdcMi of taxation, should tlius be oppressed by legislation, and millions of industrious j^coplc be deprived of the opportunity of even earning their bread, for no other purpose than to further enrich a single class, which contrib- utes not one iota to the general wealth of the country. But the masses, as long as they sink the duties and privileges of freemen in a blind partisanship, and permit themselves to be manipulated by demagogues through the instrumentality of party maohinei-y, can expect no better fate. The question of resumption is one of such vital importance that it is deserving of more than a passing notice. It will, therefore, receive more particular attention in a sejyarate chapter, {Chapter VIII.) A HKIEF KETBOSPECT. In 1861, when the Federal Government, unable to borrow money at home or abroad, was obliged to appeal to the masses, who were both able and willing to respond, the great question was as to how the resources of the people were to be rendered available to the government. Taxation was impracticable in the beginning, because the government did not possess the machinery for laying and collecting 234 " THE LEGAL TBKDEK ACTS. taxes, and, moreover, there was not a sufficient amount of money in circulation at that time to enable the people to meet the extraordinary deniaiids of the occasion. Products and labor the people possessed in abuiidauee, but they could be rendered available only through tlie instrumentality of a medium of exchange. Besides it was necessary to establish new forms of production, requiring capital to a large amount in the form of money. The first I'equisite, therefore, was manifestly a medium of exchange. This could be sujjplied only by the Federal Government; for all power over the currency of the nation is vested in the Federal Government by the Constitution. The Federal Government wanted guns, ships, food, cloth- ing, transportation, etc. The farmer could furnisli food; the manufacturer, giuis, wagons, etc.; and the ship builder, ships. Other classes did not possess such thuigs as the government required, )jut they did possess property of various kinds and labor, which were wanted by the ship builder, the guu-iuaker and the farmer. The people collec- tively desired the gun-maker, the ship buildei' and the farmer to furnish the Federal Government with such articles as it required and they were able to supply, and were willing in turn to supply the gun-maker, the ship builder and the farmer with such jaroperty or labor as they might desire, to whatever amount they might be entitled. But how could this interchange be effected? In no better way than by a medium of exchange representing the property of the nation. The people in their collective capacity, through the govern- ment, could issue public notes, representing the entire prop- erty of the nation, including gold, silver — everything in a word that could be reached by a tax warrant. The public note, of the value of say one dollar, if paid by the government to the gun-maker; would entitle him to receive one dollar's THE LEGAL TENDER ACTS. 235 worth of property, neither more nor less. But suppose that the people, after they had made this arrangement with the gun-maker, the farmer and tJie ship builder, in their collec- tive capacity, through the agency of the government, should refuse individually to receive this paper dollar, representing the property of the nation on which it is a lien, what then? This would clearly be acting in bad faith with the gun- maker, the farmer and the ship builder, and would be tanta- mount to the people repudiating individually what they had done collectively. Hence it is nothing more than a matter of equity and fair dealing that the public note should be made a legal tender; in fact in no other way could the farmer, the gun-maker and the ship builder be reimbursed from the property of the regt of the people for the guns, food, etc., furnished to the government. As is generally understood by lawyers, if not by political economists, the legal tender money of a countiy is the basis of all money contracts among its people and the measure of all values; and necessarily conforms to the unit of value fixed in the minds of the people by usage and education. By making the public note a legal tender, it is clothed with all the functions of money. It possesses value (the value of the property which it represents), and by virtue of its legal tender quality the power to measure and exchange value. A public note, based on sound principles, it will be observed, therefore, is capable of performing a two-fold service. In the first place it enables the government which issues it to draw upon the resources of the people in advance of taxation. The government pays it out for property or services, and receives it again for taxes. In the second place, whilst in circulation, it performs all the functions of money, and in the end furnishes the means for the tax payer to meet his obligations to the government. The amount of 236 THE LEGAL TENDER ACTS. greenbacks now in circulation is over $360,000,000. The annual revenues of the government amount to about $300,- 000,000. It is apj)arent, therefore, that the greenback circu- lation could all be redeemed in the revenues of the govern- ment in a little over a year. From this it is evident that the clamor of the buUionists for the redemption of greenbacks in gold, or the funding of them in bonds payable in gold, is only for the purpose of enabling them to swindle the gov- ernment and people to the extent of the premium which the government would be obliged to pay to obtain gold for that purpose. It is clear, then, that the first step for the government to take at the breaking out of the rebellion, to enable it to draw upon the resources of the people, was to issue a legal tender public, or Treasury note. But no more money can be used by a people than is required by the legitimate operations of trade. Professor Bonamy Price, whom we are glad to find right occasionally, illustrates the point in this way: "Garts and money are both tools — instruments of conveyance, endowed with the same nature and subject to the same general laws. The question for each is the same — how many are wanted for the work which they were invented to do. In the case of money, how much gold (or legal tender paper money) can a nation use? How much can it find employment for? The answer, as with carts, must be sought from the special work money has to perform — that is, from the amount of exchanging which calls for the agency of this tool, the quantity of property of which the ownership has to be transferred by this instrument. A cart transfers weight; money, ownership; and all the world knows that the cartage to be done determines the number of carts. In the same way, the ownership of propei-ty which requires to be trans- ferred by the actual employment of money itself, determines THE LEGAL. TKNUEB ACTS. 237 how much money there ought to be in a nation. No other answer is possible, unless it is denied that money is only a tool; if so, another explanation of the natm-e of money must be produced." For the government to issue legal tender notes in return for property to an indefinite amount after the channels of circulation had been supplied, would be contrary to all sound principles of finance, as well as political economy. The next step for the government to have pursued was to draw upon the resources of the jjeople by taxation. But as it was manifest at the time that the extraordinary expenses of the W£vr could not be wholly defrayed by taxation — in other words, that the government could not, under the circum- stances, act upon the principle — "pay as you go" — without causing oj)pression and interfering materially with the producing ability of the nation, the third and last step was to issue a bond bearing interest, in order that the govern- mernt might avail itself of the surjjlus capital of individuals. No more perfect system of money or finance than this has ever been devised. It is, moreover, simple and easily under- stood by the people. This system was embodied in the original legal tender act, as framed by the Hon. E. G. Spaul- ding, an able financier and statesman. It was ardently supported by the Hon. Thaddeus Stevens, who had thor- oughly acquainted himself with all the systems of money and finance of ancient and modern times, Avith all his powerful abUity. It met with the hearty endorsement of the Boards of Trade and Chambers of Commerce of all the principal cities of the North and West. Its adoption by the House of Representatives was hailed with marks of approbation and satisfaction by the intelligent classes everywhere through- out the country. That it would have worked admu-ably in practice is abundantly demonstrated by the perfoi-mances of the greenback in the most trying period of the nation's his- 238 THE LEGAL TENDER ACTS. tory, and by the manner in which the people took the loan of $500,000,000 of five-twenty bonds. But through the machinations of the money power, and the weakness and venality of the United States Senate, a full legal tender money system was rejected, and in its stead was adopted a policy, which would have bankrupted, in a short time, any nation not possessing the boundless resources of the United States. During the war every act and measure relating to finances was calculated to depreciate the public credit; but as soon as the war was over an entu'e change of policy ensued, cal- culated to render the burdens of the people doubly oppressive. That this may be seen at a glance, we give below a recapitu- lation of the leading incidents and measures which marked the two periods — during and after the war, as follows : FIRST PERIOD DURING THE WAR. 1. The banks of New York, Boston and Philadelphia pro- cured the suspension of the Sub-Treasury act, Aug. 5, 1861. 2. The banks of New York, Boston and Philadeliihia com- bined to prevent the passage of the legal tender act, and sent delegates to Washington City for that purpose, Jan- nary, 1862. 3. The representatives of the banks of New York, Boston and Philadelphia effected an arrangement with the Secre- tary of the Treasury and leading members of the Senate to oppose a full legal tender bill, and to urge the passage of a National Banking law. 4. The legal tender act passed in a mutilated form — ^interest on bonds and duties on imports made payable in gold, February 25, 1862. 5. Paper emissions authorized by Congress and issued by the Secretary of the Treasury, to an enormous amount, in fifteen different forms. THE LEGAL TEJTDER ACTS. 239 6. The $500,000,000 of 5-20 six per cent, bonds held by the Secretary of the Treasury for over a year, until the country "was flooded with iDajser emissions of all kinds, and then put out as a popular loan at par amongst the people, to be bought in by the buUionists at fifty cents or less on the dollar. 7. Legal tender Treasury notes (greenbacks) further mutila- ted (March 3, 1863) by repealing the clause in the original act which made them interchangeable Avith 5-20 bonds. 8. Immense sums of l^reasury notes, bearing interest, paya- ble in one, Uro and tliree years, issued, when it was well known that the Treasury Department was unable to make any provision for their payment at maturity. 9. A bill passed (Feb'ry 25*, 1863,) authorizing the establish- ment of National Banks, which could render no aid to the government, and whose currency tended to swell the volume of paper in circulation. 10. The $500,000,000 loan of six per cent, bonds no sooner taken than the Secretary attempted to put out a new loan bearing only five per cent, interest. 11. Tlie failui'e to float the five per cent, bonds made an excuse for emitting additional sums of Treasiuy notes, bearing interest, and other forms of paper suitable for a circulating medium. 12. The emission at the close of the war of immense sums of "7-30 Treasury notes, jjayable in three years, and con- vertible at the option of the holder into long bonds bear- ing gold interest. SECOND PEEIOD — ^AFTEK THE WAE. 1. "All bonds, Treasury notes and other obligations of the government shall be exempt fi-om taxation by or under State or municipal authority." (Act of June 30, 1864. 240 THE LEGAL TENDER ACTS. Although, passed before the termmation of the war, this act belongs to this jjeriod. Like the Ifational Banking law, it simply anticipated events.) 2. McCulloeh issued his Fort Wayne decree, announcing his determination to contract the currency. 3. McCulloeh submitted his annual rejjort, December, 1865, in which he i-ecommended contraction. 4. Congress passed a resolution, December 18, 1865, con- curring in the Aiews of the Secretary of the Treasury in relation to the necessity of contracting the currency. 6. Congress passed an act, April 12, 1866, authorizing a. contraction of the currency. 6. McCulloeh began to pay off the 5-20 bonds in gold or its equivalent. ' 7. McCulloeh substituted long bonds bearing gold interest for Treasury notes, etc., to the amount of about $1,200,000,000, which oj)erated as a contraction of the medium of exchange of the country to that amount, occasioning great financial derangement. Also retired over $70,000,000 of greenbacks between August, 1865, and July, 1868. 8. Congress, compelled by public sentiment, repealed (Jan- uary, 1868) so much of the act of April 12, 1866, as provided for the retirement of greenbacks, but took no note of the contraction in other forms of the currency. 9. The peoj)le of both political parties began to protest against the payment of tlie 5-20 bonds in gold, as a viola- tion of the spirit and letter of the act under which they were issued. 10. The money power selected a President of the United States (1868.) 11. The President of the United States, in his inaugural message, March 4, 1869, notified the public that he would regard all who did not favor the payment of 5-20 bonds THE LEGAL TENDER ACTS. 241 in gold as repudiators, Avlio need expect no favors from his :ii1iiii.nisti-ation. 12. Congress passed a credit strengthening act, March 18, 1869, the first act which received President Grant's official sanction. 13. The oiiginal loan of 5-20 bonds paid off in full in gold or its equivalent. 14. Congress p;!s;;cd a law, July 14, 1870, authorizing the Secretary of the Treasury to refund $500,000,000 of the public debt in bonds payable, principal and interest, in gold. 15. -'','icCulloch's contraction policy bore its legitimate fruits, and tlie coim'^i y w:is visited by an old fashioned commer- cial (Tdr-h and money panic, September, IS'ZS. 16. Tlic people (knninded relief, and Congress, at its next session, jjasscd a bill authorizing the i-eissue of the green- backs ivlii-h lial beoTi retired (44,000,000), and fixing the .".mount of the grconback circulation at $400,000,000. This bill w.'i? dcnou:iced by the money power as an "inflation " measure, and accordingly w.as vetoed by Pres- ident G?\".:it, A[)ril 22, 1874. IV. The pcojile rebuked tiie action of the President by electing, at llie next general election, in the fall of 1874, a Deuiocratic House of Representatives. 18. ^Vt its next session. Congress (the old Congress), under the pretense of affording i-elicf to the oppressed industries of the country, made National Banking free to bond- holders, by act of January 14, 1S75. 19. jVnd at the same time decreed specie resumption, to take place January 1, 1879. 20. An act to complete the refunding of the public debt in gold bonds is now pending before Congress. 21. Bonds of the United States, which during the war were bought and sold at as lojv as thirty-five cents on the dollar 242 THE LEGAL TEXDEE ACTS. in gold, now sell for over $1.18, or at a premium of over five per cent, in gold. In 1865, when the Rebellion terminated, the producing forces of the Northern and "Western States, the workingmen, the land, the machinery, the mines, the water power, etc., were developing wealth in every possible direction, and the people, individually free from debt, were in the enjoyment of unparalleled prosperity. The wealth of the nation, in spite of the ravages of war, had increased as it had never done before. The assessed valuation of the property of the nation in 1870, notwithstanding the ruined condition of the South, was over $30,000,000,000, as against $16,000,000,000 in 1860. Out of the abundance of their productions the people were enabled to meet all the demands of the govern- ment with ease. The Federal Government, indeed, began to pay oflE the public debt rapidly. But in carrying out the policy of the money power, it first paid ofiE, by substituting l)onds, all those forms of indebtedness of the government which served the purposes of money, thus depriving the producing forces of the nation of their most important tool. At this time the South, with all her magnificent resources, had been restored to the Union. Money was necessary to set the producing forces of that section at work. Instead of wisely taking this fact into consideration, and making some provision that would enable the people of that section to recover from the disasters of the war, and contribute their share towards bearing the burdens of government, an entirely opposite policy was pursued. The production of cotton, the chief staple of the South, in ISTO amounted to only 3,011,996 bales, or a little over 60 per cent, of the amount raised in 1860, Now the American people are poor and in debt. Nearly- all forms of productive industry are paralyzed, and the THE LEGAL TESDER ACTS. 243 channels of trade are stagnant or sluggish. Real estate is rapidly depreciating in value, which will inevitably result in a general foreclosure of mortgages and transfer of prop- erty from the debtor to the creditor class throughout the country. Instead of a million of non-producers carrying muskets, as was the case during the war, there are now several millions .of people, who would gladly work for a mei-e subsistence, in a state of enforced idleness, living on the bitter bread of public or private charity. In a country possessing boundless natural wealth, tramps and paupers have become common. The nation is scarcely producing more now than the necessities of life. And yet the people are told that the present condition of affairs is due to over production and like causes. The only over production ti'oubling the nation just now is an over production of fools and rascals — rascals who teach such nonsense, to divert the public mind from the true source of the trouble, and fools who believe it. Since the attempt to re-establish a false monetary system by means of contraction has worked such wide spread ruin, it would seem to be but the part of common wisdom, on the part of the people, to demand a different policy, if not from conviction, at least as an experi- ment. It certainly could not make matters worse. CHAPTEB. VIl. THE NATIONAL BANKING SYSTEM. Seceetaey Chase, soon aftei" he tntered upon the dis- charge of the duties of Seci-etaiy of the Treasury, became enlisted in a scheme to destroy the old State banks and erect in their stead a system of National Banks whose circulation would be uniform throughout the country. In his first rej)ort to Congress, in December, 1861, he recommended the jjas- sage of a law to accomplish this end. A bill was immedi- ately prepared by the Hon. E. G. Spaulding, chairman of the Sub-Committee of Ways and Means, but it became manifest that the machinery of such a system could not be put into operation in time to meet the demands upon the government, and Congress was obliged to pass a law author- izing the Secretary of the Treasury to issue Trensury notes (greenbacks.) The admirable manner in which the greenback per- formed the uses of a medium of exchange and its great popularity rendered it tolerably certain that the jjeople would never willingly abandon it to return to tlie use of State bank currency. The money power was quick to perceive this, and also that in no other way than through the inst)"umentality of such a sclieme as that proposed by Secretary Chase and • his advisers could it hope to again obtain its former control over the currency of the country. The National Banking scheme, therefore, which at first excited some ojiposition on the part of the old State banks, soon came to be regarded by the majority of them as of the THE N'ATIOXAL BAXKINtt SYSTEM. 245 highest importance. In December, 1862, Secretary Chase, in his second annaal report, again urged the passage of a National Banking law, for the purpose of establishing " one sound, uniform circulation of equal value throughout the country, upon the foundation of national credit, combined with private capital." There was no expectation or even pretense that the system could aid the government in any way in the war then pending. On the 2d of February, 1863, Senator Sherman reported a National Currency Bank bill from the Finance Committee to the Senate. It was taken up in the Senate on the 9th, and passed on the 12th by a vote of 22 to 21. On the 13th it was sent to the House, but was not referred to the Com- mittee on Ways and Means. On the 19th it was taken up for consideration in the House, and was passed on the 20th by a vote of t8 to 64. It was approved by the President and became a law February 25, 1863. The brief time given to the consideration of this important act, establishing a consolidation in the interest of the money power, compared with which the monster that Jackson slew- (the United States Bank) was a mere pigmy, cannot escape notice. The people were absorbed in the war, and the money power had full sway in Congress. The Hon. W. P. Noble, one of the few members who jjrotested against the passage of the act, alluded to this fact in the opening of his speech against the bill in these terms: "Mr. Speaker, it is not because I expect, by anything I can say, to change a single vote upon this bill, that I now claim the attention of the House. On the contrary I am satisfied, from the great and untiring efforts that are being made by the Secretary of the Treasury in its favor, that the passage of this bill is a foregone conclusion; not because it, or anything like it, is 246 THE NATIONAL BANKING SYSTEM. demanded by the people, but simply because it is a pet measui-e of the present head of that department." THE NATIONAL BANKING LAW. The National Banking law provides: First: That any number of persons not less than five may form an association for carrying on the business of banking. Second: That any such association shall have corporate power, to have succession for the period of twenty years, to make contracts, to sue and be sued, etc. Third: The capital of such associations shall be not less than $50,000 in places whose population does not exceed six thousand; not less than $100,000 in places whose popu- lation exceeds six thousand; and not less than $200,000 in places whose j)opulation exceeds fifty thousand. Fourth:* The aggregate amount of circulation is fixed at $354,000,000, to be apportioned as follows: $150,000,000 among the several States and territories according to repre- sentative population; $150,000,000 to be distributed by the Secretary of the Treasury according to his discretion; and the remaining $54,000,000f to such States and territories, having less than their share, as may make application prior to July 12, 1871. Fifth: No association is authorized to commence business until it shall have deposited United States bonds to the amount of $30,000 with the Treasurer of the United States. Sixth: Every such association is entitled to receive from the Comptroller of the Currency circulating notes to the amount of ninety per cent, of the capital stock, if it does not exceed $500,000; eighty per cent, if it exceeds $500,000, but does not fxceed $1,000,000; seventy-five per cent, if it exceeds $1,000,000, but does not exceed $3,000,000; and sixty per cent, if it exceeds $3,000,000. *Bv IhB act of January 14, 1875. ITiis section was repealed. t$M,000,000 additional bank notes were authorized by the act of July, 1870. THE NATIONAL BANKING STSTESI. 24T No National Banjc cun-euey was issued until about the beginning of 1864. It will be remembered that the $500,r 000,000 of 5-20 bonds were not sold until the latter part of 1863; consequently matters were not yet ripe for the bul- lionists and bankers. In 1864, however, their plans were sufficiently matured to enable them to I'un gold up to an enormous premium, in what Mr. Fessenden, who was then Secretary of the Treasury, considered a veiy "unpatriotic"' manner. For more than a year gold fluctuated between, about 1.50 and 2.50, according to the success which attended ' the efforts of the gold operators in controlling the market. Bonds of the government were bought during this period at as low a price as thirty-five cents on the dollar in gold.. This gave the bullionists and bankers an excellent opportu- nity to lay in, at low figures, all the bonds that were needed to establish National Banks. The amount of National Bank notes in circulation on January 1, 1864, was $280,000; on July 1, 1864, it was $31,234,420; and on July 1, 1865, it was $146,336,030. Shortly after this the whole amount authorized by law was taken, and National Bank stock began to command a premium. Thus was the National Banking system foisted upon the country at a time Avhen it was neither needed nor desired, solely for the purpose of enabling the money power to again usurp the right of supplying the nation with a. medium of exchange. It only remains now to retire the greenback and resume specie payments, and the money power of the United States will be clothed with a more absolute control oxev the monetary affairs of the country than it ever had before. OF THE ORGANIZATIOJN^ OF NATIONAL BANKS. National Banks are established on the theoiy of combining private capital with public credit. It will be foimd on 248 THE IS'A.TIOSrAL BAJTKING SYSTEM. examination, however, that this is purely a delusion. Private capital is not an essential element in the estr.ljlishment of a National Bank; private credit will do as well. This may be illustrated in various ways. Suppose A. owns Ji>100,000 in ■6 per cent. United States bonds. B., C.^D., E. and F., five persons, jointly borrow these bonds from A., agreeing to pay him the interest regularly as it matures, and return the same or like bonds at some specified time, say in five or ten years. B., C, D., E. and F. organize n Xational Bank, •dejjosit the bonds with the Treasurer of the United States, and obtain $90,000 of National Bank currency from the Comptroller. So far as the bank or its currency is con- ■cemed, there is no element of private capital involved in the matter. Its corporators or stockholders have not paid in a, dollar for the capital stock of the concern. A.'s bonds are not capital, because the people have already borrowed A.'s capital and are paying him six per cent, interest in gold for it. Upon what capital then is the bank established? Upon no other capital clearly than the public credit represented by the $90,000 of bank currency lent to B., C, D., E. and F., without interest, on the strength of what the government owes A. There are of course innumerable ways in which individu- als can utilize their capital or credit in the establishment of National Banks. The Hon. S. S. Marshall, of Illinois, in a speech on the floor of Congress, July 21, 1868, mentioned the following instance: "An association of gentlemen (in an Eastern State) raised $300,000 in currency. They went to the office of the Register of the Treasury and exchanged their cmrency for $300,000 in six per cent, gold bearing bonds. They then went to the office of the Comptroller of the Cun-ency, in the same building, organized a National THE -VATIO.NAI- HAXKING SYSTEM. 249 IBank, deposited their $300,000 in bonds and received for their bank $270,000 in national currency. They had let the government have $30,000 in currency more than they Teceived for banking purposes, and had on deposit $300,000, ■on which they receixc^d as interest from tlie government $18,00,0 a year in gold (and exempt from taxation.) This was pretty good financiering for these h^nkei-s to receive 418,000 a year in gold on the $30,000 in currency wliich they had thus loaned to the government. But this is not the whole story. They had their bank made a ])ublic depository. They soon discovei-ed that there was scaicely ever less than $1,000,000 of government money deposited within their vaults. They did not like to see this vast sum lie idle. They, thei-efore, took $1,000,000 of this govei-nment money and bought $1,000,000 of live-twenty bonds with it. In •other words they loaned $1,000,000 of the governmenl's own money to the government, and deposited tlie bonds received in the vaults of their bank, on which they received tVom the ;same government $60,000 a year in gold as interest. Thus for the $30,000 in currency, wliich they originally loaned the government, they received annually in all $78,000 in gold." But this was by no means the limit to the legalized robbery which these gentlemen were capable of jierpetnating under the National Banking law. Since they had no scruples about investing the government deposit of $1,000,000 in .5-20 bonds and appropriating the interest to their own use, it is not at all likely that they would stop there, when, by simply depos- iting the $1,000,000 in 5-20 bonds with the Comptroller of the Currency, instead of in their bank vaults, they could draw eighty per cent, more currency, or by starting two new banks of $500,000 each, they could draw ninety j)er c>^ cent, $25^ Oue dollar, lOOy'rs, at 7 jwrceut^ 9 8M ... lii s M S!,a» m '• UK 9 '■ 5,i« 3 - KK 10 ' B.a» 'la ■• 31if 12 '- »Ljsn 4 »« « 1,174,405 *ii '• si« in " U,r4i^T i <- tnx SJ •• 2,M1J99,404 6 '• sto 262 THK NATIOKAL BANKING SYSTEM. " There are probably few, however familiar with the sub- ject of the rapid increase of capital put out at interest, who would not be startled at the statement that the cost of the outfit of Cristopher Columbus in his first voyage of discov- ery, put at interest at six per cent., would by this time have amounted to more than the entire money value of this conti- nent, together with the accumulations from the industry of those who have lived on it. If any doubt this, let them reckon the amount, estimating the entire outfit to have cost only the small sum of five thousand dollars, and remembering that money doubles, at six per cent., in a little less than twelve years — or accurately in eleven years, ten months and twenty- one days. Allowing it to double every twelve years, this five thousand dollars at interest at six per cent-, since 1492, it will be found, will have amounted to $17,895,700,000,000; which, estimating the population of the entire continent of America (North and South) to be eighty-five millions, or seventeen million families (averaging five members each), would give niore than a million dollars as the possession of every one of these. The interest upon a million of dollars at six per cent, is sixty thousand dollars, which would now be the princely annual income of each of these seventeen million families from the accumulations up to this time upon so small a sum as that named for the outfit of the discoverer." But it must not be forgotten that banks of issue do not lend capital or money, but simply credit; and in this con- sists the great injustice of the system. A single class is clothed with authority to emit bills of credit, and compel all other classes to use them as a circulating medium and pay compound interest for their use. The fact that the government issues the National Bank notes to the banks dops not change their nature. It is simply equivalent to the government guaranteeing their payment. The notes them- THE STATIONAL BANKING SYSTEM. 263 selves represent the credit of the institutions which issue them. There is no sound reason why the government should confer this privilege upon the bondholder and the banker, and not upon the farmer, the merchant or the man- ufacturer. On the other hand it is in violation of the jDlainest principles of equity, as well as public policy, for the govern- ment to bestow such a privilege upon any class. How long it takes the money power, through the ma- chinery of banks of issue, to rob the peojjle of their annual increase of wealth (3^ per cent.) is not a matter of specula- tion. The experience of sixty years demonstrates that the system will bring about a commercial crash on an average every six years. A commercial crash is simply a general settlement and a re-distribution of property rendered neces- sary by the natural operations of the system — by the manner in which the people are obliged to conduct their affairs. The enormous cost of a medium of exchange, consisting of bank currency and bank credit, may be arrived at approx- imately in several ways. On the 1st of September, 1875, there were in operation 2,087 National Banks. The net earnings of the banks for the previous six months amounted to about $30,000,000, or $60,000,000 for the year. The officers of the banks, including presidents cashiers, tellers, bookkeepers, clerks, attorneys, notaries, etc., constitute an army of non- producers. Averaging the number at ten for each bank WQjild give 20,000 persons. The chief officers of a bank are usually large stockholders, and the subordinate positions are mostly filled by their relatives, and in no other business, perhaps, do salaries rate so high. Averaging the salaries at $2,000 jjer year each for 20,000 persons will give a total of $40,000,000, which, added to the net earnings, gives a grand total of $100,000,000 a year. Or, again, the aggregate loans and discounts of the National Banks on the first day of October, 1875, amounted to $980,222,951. At ten per cent, interest the amount paid for this sum would be over $98,000,000. To this add the interest paid by the people 264 THE NATIOKAI, BAXKING STSTBaL on the bonds deposited with the Treasurer of the United States — about $390,000,000 — at six per cent, in gold — about $27,000,000, and it will give a grand total of $127,000,000. From this it appears that the people are paying annually to the banks the enormous sum. of about $127,000,000, a sum greater than the interest on the public debt, for the use of some $350,000,000 of bank currency. This burden is entirely unnecessaiy. A medium of exchange could and ought to Ibe furnished by the government; or, in the language of Jefferson, "bank currency should be suppressed and tiae ■circulation restored to the nation to whom it belongs." "Kie people would then have a medium of exchange unencum- bered with interest, and, what is vastly more important, one that would occupy the channels of circulation, subjex!t only to the natural laws of trade, TUB PEOSTRATIOJf OF ISDUSTRY. The prostration of all forms of industi-y which followed the panic of 1873 still continues. Indeed, matters are grow- ing worse. The following table exhibits the number of failures, with the aggregate amount of liabilities, which have taken place since 1863: IK THE NOETHERX STATES. Number of Aggr e gate Tear. Failures. LlabillUs. 1863 495 $7,899,000 1864 520 8,579,000 1865 530 17,625,000 1866 632 47,333,000 1867 2,386 86,218,000 1868 2,197 57,275,000 1869 2,411 65,246,000 IJf THE WHOLE COUNTRY. 1870 3,551 88,242,000 1871 2,915 85,252,000 1872 4,069 121,056,000 1873 5,181 228,490,000 1874 5,695 151,689,000 1875 7,404 195,289,000 1876 (first quarter) 2,806 64,644,000 THK XATIONAL BASTCiyG SYSTEM. 265 The failares during 1875, it will be seen, numbered T,404. The failures for the first quarter of 1875 numbered 1,733; and for the first quarter of 1876, 2,806, or an increase of over 60 per cent, over the corresponding quarter of last year. At the same rate the failures this year will reach about 12,000. In times prior to the war, when bank currency was nom- inally redeemable in specie, the banks did not hesitate to expand their circulation as soon as a general settlement had been effected and " confidence had been restored " through the instrumentality of the Sheriff, which usually took about ©ne year. Busmess then began to improve, and the banks and the people together soon started on another era of inflation and speculation, only to wind uji in a few years in another crash. But now a different condition of affairs exists. Gold bears a premium over the lawful money of the country, because it is a full legal tender, whilst lawful money (green- backs) is only a partial tender. It is ti'ue in ante-war times bank currency was at a discount as compared with gold, but then it was issued at par and the loss fell upon the people. Now, however, specie payments have been decreed to take place Jauuaiy 1, 1879, and the banks do not intend to redeem their notes in specie until the. government has first furnished them wiith the specie. Consequently they are calling in their circulation. This, contributes largely to the general depression All transactions, since the passage of the law decreeing forced specie resumption, except of the most limited character, both in respect to time and amount, have naturally ceased. Money is appreciating in value by operation of law, and property of all kinds is depreciating in a corresponding ratio. No one, with forced specie resumption in view, will invest either in property or business. Money is borrowed only in cases of gre^ urgency, or for a short period 266 THE NATIONAL BANKING SYSTEIBT. for purposes of speculation. As production diminishes tlie people grow poorer and failures multiply. ThQ producing; forces of the nation are paralyzed for the want of a< healthy circulation of money, and general bankruptcy and! ruin are inevitable. As for the money power, it awaits the final' convulsion with serene composure. The fall in the price of all commodities renders living cheap to all who have aa income. As their investments are mostly exempt from, taxation, they are not concerned about the burdens of gov- ernment. The api^reciation in the value of jnoney and bonds, as compared with property of all kinds, which is- silently going on, is adding enormously to their wealth, and when the crisis arrives they will be enabled to reap where they have not sown and gather in a rich harvest. EXTRAVAGANCE. When the panic of 18V3 occurred the buUionists and the money power generally raised the old cry of extravagaoce and over production. The same cry has been used to acconmt for every crash that has occurred during the present century. The charge of exti'avagance scarcely requires refutation. The producing classes as a rule are anything but extravagant. The farmers, with the help of their wives, sons and daugh- ters, as is well known, are enabled only by hard labor and strict economy to come out ahead at the end of each year. The same is true of the mechanics, the trades people, the laborers, and the toiling masses generally. The only extrav- agance that has developed itself to any extent in the United States is among those who, by means of corrupt legislation and a false monetary system, are enabled to riot in wealth stolen from the people. OVER PRODUCTION. The cry of over production is equally groundless. Human ingenuity is being constantly taxed to increase and cheapen THE NATIONAL BANKING SYSTEM. 265' production, in order that the good things of life may be within the reach of all. The production of commoditiea is governed entirely by the laws of supply and demand. When it happens, as at the present time, that productive industry in many forms becomes paralyzed, on account of the want of a healthy circulation of money in the channels of trade, large classes are deprived of the means of supply- ing their wants, and the markets become suddenly gorged with certain commodities. For the sake of illustration we- give the following table exhibiting the comparative produc- tion of five staple articles in 1860 and 1870, five years after the termination of the war: 1S60. 1870. Decrease. Cotton, 2,200,000,000 lbs. 1,200,000,000 lbs. 49 per cent. Hemp, 149,000,000 " 2.5,000,000 " «;j Rice, 187,000,000 " 73,000,000 " 60 Silk, 12,000 '• 4,000 " 66 Tobacco, 434,000,000 " 262,000,000 " 40 Total, 2,970,012,000 1,560,004,000 .52 Duiing this period the manufacturing estiiblishiuents of the country increased in number from 140,433 to 252,148, and their. products from $1,885,861,676 to $4,232,325,442; and the population of the country increased from .31,443,321 to 38,558,371. That over production can produce a commercial crash is now acknowledged by all political economists, whose opin- ions are entitled to any weight, to be an exploded fallacy. John Stuart Mill, in his work on political economy, says: "A general over-supply or excess of all commodities above the demand, so far as demand consists in means of payment, is thus shown to be an impossibility. I have already described the state of the markets for commodities which accompanies what is termed a commercial crisis. At such 268 THE NAUONAX BA»KI»G. SYSTEM. times there is really an excess of all commodities above the money demand — in other words, there is an under-snpply of money. But it is a great erroi to suppose that a commercial crisis is the result of a general excess of jjrodaction." And E. Peshine Smith, a distinguished American political economist, disposes of the question as follows: "In treating of supply and demand, no reference has been made to the notion, by which some writers have been bewildered, of a general over production in commodities. The proposition that any good thing has ever been produced in excess of the Avants of humanity will not bear a moment's examination; nor ia there the slightest reason to apprehend that such an event is likely to occur. The truth of the matter may be quite as correctly rendered by the statement that the supply of other commodities is deficient, as ihat any particular one is redundant. Where has it been, in any community, suiRciently numerous to permit the application of the general considerations in which political economy deals, that any product of industry has been offered in such a quantity as to surpass what the comfort of all its members would require? The trouble is, that many of those who would gladly be consumers have not produced enough to enable them to be. The true remedy for what is called over production in any article is an increased production of other things." When Congress convened in December, 1873, there was a strong public sentiment in favor of increasing the amount of legal tender paper money. The people as a body have never failed, when an opportunity offered, to signify their preference for legal tender Treasury notes. This is undoubt- edly to be attributed to "the instinctive sagacity of the people," to use Benton's language, "which is an overmatch for book-learning; and which being the result of common THE KATIOSTAI, BANKING SYSTEM. 269 sense, is usually right; and being disinterested, is always honest" In obedience to this sentiment Congress passed a bill authorizing the Secretary of the Treasui-y to reissue $44,000,000 of legal tender Treasury notes which had been retired under the policy of contraction. This step would undoubtedly have afforded great relief to tlie oppressed industries of the country, but it would have been only tem- porary. In a short time the whole amount would have been absorbed by the banks. Individuals here and there would have been benefifj3d, but in the end the nation would have been as poorly off as ever. The money power, however, was unwilling to have its plans interfered with to even this extent; a howl was at once set up by their organs against inflation, and a large delegation of bankers, requiring a special train of cars, at once proceeded to Washington to induce the President to interpose his veto. They succeeded as usual, and on the 22d of April, 1874, the bill was returned to Congress with the President's veto. Five months prior to this President Grant, in his annual message, argued tiiat the panic was due to the great contraction of the cur- rency that had taken place, and referred to the greenback in the following eulogistic terms. He said: "The experi- ence of the present panic has proved that the currency of the country, based as it is upon the credit of tlie couiitry, is the best that has ever been devised. Usually in timea of such trials, currency has become worthless, or so much depreciated in value as to inflate the values of all the neces- saries of life as compared with the cm-rency. Every one holding it has been anxious to dispose of it on any terms. Mow we witness the reverse. Holders of currency hoard it as they did gold in fonner experiences of a like nature." Public indignation at this betrayal of the interests of the people by the President found vent at the polls at the next 270 THE NATIONAL BANKIN& SYSTEM, general election, and a Democratic House of Representatives was elected by an overwhelming majority. When Congress met in December, 1874, it was apparent that some measure, looking to the relief of the oppressed industries of the country, must be adopted. The result of the election also occasioned great consternation among the bullionists and bondholders. Their plans had not been fully carried out. Specie resumption had not yet been attained. They could manage Congress as it was then constituted, but their influence with a new Congress was not so well assured. An act to force specie resumption was at once prepared and entrusted to that subservient tool of the money power, Sena- tor Sherman. It was introduced in the Senate at an early period in the session, was passed by both houses and was signed by the President on the 14th of January, 1875. In order to deceive the public, banking was made free, a measure that had been contemplated from the beginning, and which, as has since been fully demonstrated, could con- tribute nothing to the relief of the public. The banks at the time had abundance of currency, and there were several millions of bank note circulation assigned to States having less than their quota, not yet taken, It is now possible for the bondholders to inflate the bank currency of the country to the full amount of the bonded indebtedness of the Federal Government, about $1,700,000,000. That advantage is not taken of this act to increase the bank note circulation is due entirely to the specie resumption act. Banks, on the con- trary, are withdrawing their circulation and going out of business. Two hundred National Banks have already with- drawn their circulation, as is disclosed by the records of the office of the Comptroller of the Currency, and four hundred more are engaged in doing the same. The amount of Ifational Bank note circulation withdrawn during the past THE NATIONAL BANTCIJTG SYSTEM. 271 year is $13,482,546, and the legal tender notes held on ■deposit for the redemption of National Bank notes in process of retirement amount to $27,098,429, making in all a con- traction of $40,580,975. During the same period the green- back circulation has been contracted $11,244,752, and the fractional currency $2,758,278. AN EXTKAOEDINAEY ACT. The specie resumption act, passed in January, 1875, pro- vided for the retirement of the fractional currency issued "by the government. Long before specie payments are resumed the nation will be dej^rived of a circulating medium of any kind. Under the specie basis system of banking, as it existed before the war, the people were frequently. driven, in times of great stringency, to use the notes of individuals, €rms and corporations, which circulated under the name of ehinplasters, and cities, towns and boroughs were obliged to issue promises to pay, which were commonly known as scrip. To prevent the people, in the approaching stringency, from availing themselves of even this method of relief and to give the National Banks absolute control over the circu- lating medium of the country, an act, approved February 8, 1875, was passed by Congress, which imposes a penalty of ten per cent, on any individual, firm, association, city, town or municipal corporation, except National Banks, that shall issue or use such notes. This bill was smuggled through Congress under the title of an act " To amend existing cus- toms and internal revenue laws and for other purposes," and reads as follows: "Section 19. That every person, firm, association other than National Bank associations, and ■every corporation. State bank, or State banking association, shall pay a tax of ten per -centum on the amount of their own notes used for circulation and paid out by them." "Section 20. That «veiy such ,persoii, firm, association. 272 THE NATIONAL BANKING SYSTEM. corporation, State bank, or State banking assoeiaticm, and also every National Banking association, shall pay a like tax of ten per centum, on the amount of notes of any person, firm, association other than a National Banking association, or of any corporation, State bank, or State banking associa- tion, or of any town, city, or municipal corporation, used for circulation and paid out by them." The National Banks evidently expect, in due time, to furnish the entire circulation of the nation, including fractional currency. When specie resumption takes place it will be found' that the greenbacks will all be in the possession of the banks. The reserve held by the National Banks, on the first day of October, 1815, amounted to $235,000,000. They have still over two years to gather in the greenbacks that are still out- standing. On the 1st of January, 1879, the government will be called upon to pay the sum of $300,000,000 in specie to redeem the greenbacks. The banks will then be in posses- sion of abundant specie, furnished at the expense of the people, to enable them to begin banking on a genuine specie basis, in the manner in which banking was conducted prior to the war. In the meantime the nation will be entirely stripped of a medium of exchange, involving an almost entire cessation of production, attended by general ruin and bank- ruptcy. The suffering, want and misery, which the people of the United States will be called upon to endure, during the next few years, on account of the machinations of the money power, wUl be terrible beyond that experienced by any nation in modem times, not even excepting the expe- rience of the people of Great Britain, under like circum- stances, in 1819-25. (See next chapter.) Beyond that it is idle to speculate, for then there will probably be no National! Banks, unless the liberties of the American people shall, in the meantime, have been entirely subverted. CHAPTER VIII. THB BESUMPTIOJf OF SPECIB PAYMBNT8. A PEEMiuM was placed on gold by the first legal tender act, passed Februaiy 25, 1862, which declared that interest on United States bonds and duties on imports should be paid in coin. This was jiot only unnecessary, but was in violation of the plainest principles of public policy. The people were obliged to respond to the requirements of the government, and a medium of exchange M-as absolutely necessary to enable them to render their resources available to the government. It was manifest that this medium of exchange had to be supplied by the government, and it could be done only by issuing jDublic notes, made a full legal tender. In no other way tlian by making the public note a full legal tender was it possible to j)lace the people all on the same platform with respect to the government and to each other, and compel each individual in the nation to bear his proportionate share of the public burden. These principles were fully embodied in the original legal tender act as it passed the House of Rei^resentatives, but the sharks of, Wall street and the money power generally perceived that if it became a law they would bo deprived of all power- toj^have either th,e goyernment or the people. The j^assage- of the bill, therefore, met with a desperate opposition in th& Senate. In the conference between the corainittees of the Senate and the House which followed, the Senate committee- was stubborn and the House committee was obliged to yield.. The Hon Thaddeus Stevens declared, whilst shedding bitter tears over the result, that tlie House committee did not yield IS "274 EESTJMPTION OF SPECIE PAYMEKTS. until it found that either the banks must be gratified or the country be lost.* The only plea or justification offered for making the interest on the bonds payable in gold was that it would induce capitalists to invest in them. Subsequent events have wholly disproved the necessity of any such step. As a matter of fact the war was carried on for over a year with partial legal tender paper money (greenbacks), and the 1500,000,000 of bonds authorized by Congress were in the end taken at par by the people (not capitalists or bankers) out of a spirit of patriotism. If further proof is required it is to bo found in the fact that the cun-ency bonds of the government to-day command a higher premium than the ^old bonds, simply because they have a longer time to run. Having made the interest on the bonds payable in gold, duties on imports were made payable in gold in order to obtain the gold to pay the interest on the bonds. Tliis was also entirely unnecessary. No bonds, as we have mentioned, were issued for over a year, and as the interest would not fall due until six months after they were issued, the government would then have had ample time to devise a way to obtain the jiecessary gold. The effect of making the interest on government bonds and duties on imports jjayable in gold was to impose a tax ■on all foreign commodities for the benefit of the bankers, bullionists and bondholders, and to greatly disarrange the monetary affairs of the country. A great many people are partially reconciled to the payment of this tax under the mistaken belief that it inures in some way to the advantage of the government. Such is not the fact. Commodities are purchased abroad with American products; and the price of American products abroad is regulated solely by the laws of *-Seej>age20l). RESUMPTION OP SPECIE PAYMENTS. 275 supply and demand. The total imports and exports of the United . States for the years 1813 and 1874 were as follows: Imports in 1873 1642,136,210 Exports " 575,227,017 Balance against United States . . $66,909,193 Exports in 1874 $633,339,368 Imports " 567,406,342 Balance in favor of United States $65,933,026 Balance against the United States in two years, $976,167 It appears, therefore, that the impoi'ts and exports of the United States during the two years (1873 and 1874) balanced each other to within less than one million of dollars. The exchange of commodities between different nations is effected principally by means of bills of exchange. The manner in which this is done is thus refen-ed to by Colwell: "If the United States and Great Britain have mutually exported to each other commodities to the value of $100,000,000, the amount is adjusted by the familiar process of bills of exchange. He who has exported commodities to the value •of $10,000 is paid when he sells a bill for the amount. The adjustment proceeds afterwards without any further trouble on his part. The bills are concentrated in a few hands in each country. If a house in London jjurchases in each week a million of dollars of American paper, and a house in New York with which it is in business relations purcliases a million of dollars each week in bills on London, it is easy to see that it "requires no money to pay to each other the two millions. As business is generally conducted, the bills are forwarded from this counti-y, and the respective claims are balanced and extinguished on the books of the London house." After an adjustment is thus effected the balance is 2V6 EKSUMrnox of spbcik payments. paid in bullion. As this process is going on constantly, bullion (gold and silver) will flow into the country when the exports exceed the impoits, and out of the coimtry when the imports exceed the exports. In order to cause gold to flow into and remain in the country, it is manifest, there- fore, that the thing to do is to develop the producing forces of the countiy to such an extent as will enable it to export more than it impoi-ts. This fact was fully recognized and endorsed by President Grant in his annual message in 1873. He said: "My own judgment is * " that a specie basis cannot be reached and maintained until our exports, exclu- sive of gold, pay for our imports, interest due abroad, and other specie obligations, or so nearly so as to leave an appreciable accumulation of the precious metals in the country from the products of our mines." When foreign commodities are received in the United States the merchant to whom they are consigned is obliged to pay the custom duties, established by law, in gold. Bankers and brokers deal in gold, and sell it at the highest price that they can get. During the war it will be rememr bered that the bullionists succeeded in running up the pre- mium on gold to as high as $1.85^ over the lawful money of the country, while the volume of the currency and the price of domestic products remained unchanged. This of course added greatly to the cost of all imported articles. The premium on gold, which was paid by the merchant in the first place and by the people in the end, was a clear profit to the bullionists. Until 1864 no gold was required by the government to pay interest on bonds, consequently the burden thus imposed on the people was entirely unnecessary, and inured to the advantage of no one except the dealers in gold. K the war had terminated in the early part of 1863, there would have been no necessity for issuing any gold EESUMPTION OF SPECIE PAYTrtENTS. St? interest bonds at all. The total funded and unfunded debt of the govei^iment then was only $783,804,252, consisting chiefly of legal tender notes, 7-30 Treasury notes and certifi- csates of indebtedness, all of which could have been called in, or provided for, by taxation in two years, if desired. But the bullionists had their plans well laid. The Treasury notes bearing interest were purposely made payable in one, two and three years, in order that, as soon as the gold interest bonds were issued, they could be advantageously converted into money and the proceeds invested in bonds. With the gold of the country and the bonds both in their possession, the business of selling gold was wonderfully simplified. The bankers and bullionists sold their gold to the merchant to pay the government, and the government immediately returned it in the shape of interest on bonds to the banker and bullionist. Under this arrangement it was not even necessary to transfer the gold from the vaults of the banks. The whole matter could be adjusted by means of gold certificates and checks. The amount of gold held by the National Banks, at any one time during the past ten years, would scarcely have sufficed to pay the duties on imports at New York City alone for two weeks. On the 1st of October, 1875, the gold held by the -National Banks of New York City was $4,955,624, of which sum $4,201,720 was in U. S. gold certificates and only $753,904 in coin. The amount received by the govera- ment for duties on impoi-ts during the past ten years has averaged $180,000,000 a year, or in all $1,800,000,000; the interest on the public debt for the same period has been about $100,000,000 a year, or in all $1,000,000,000. It is manifest, therefore, that if the payment of duties on imports and interest on bonds in gold was not a pure fiction, the government could have accximulated $800,000,000 of gold in the past ten years. 278 RESUiiPTlOlf OP SPECIE PAYMENTS. Since specie resumption became desirable to the bullionists and bankers, it is common to hear it asserted that the differ- ence between paper money and gold compels the people of the United States to ti-ade with the rest of the world at a disadvantage. This would imply that foreigners are enabled to reap some advantage on account of the premium on gold in the United States. A moment's consideration will satisfy any one that this is not true. . Foreign commodities, as we have seen, are purchased with American products. Tlie premium paid by Americans on gold and for bills of exchange is not an essential part of tlie transaction. The products of America are sold in foreign markets at the ruling price there, and w"ith the proceeds commodities are purchased in turn. To say tliat American products sell for any more or less in foreign markets because of the premiuni on gold in the United States is simply absurd. As has already been suggested, not even the interest on the bonds held abroad is paid in gold. It is paid in products, against which bills of exchange are drawn. When the exports of the United States fall short the balance is paid in bullion, the product of our mines; and this would be done just the same whether there were any bonds held abroad or hot. The same is true of the bonds held at home. Interest on them is paid in current money at gold rates. The conclusion, then, is unavoidable that the only persons who ai-e benefited by the premium on gold, established by the legal tender act, are the bullionists and bondholders of the United States. The bankers and bullionists having secured possession of the bonds, their convertibility with greenbacks was then taken away, and they were also exempted from taxation. The original loan of $500,000,000 of 5-20 bonds has been retired or converted into gold bonds. By the act of March 18, 1869, the Secretary of the Treasury is EESUMPTIOX OP SPECIE PAYMENTS. 279 forbidden to redeem any of the 5-20 bonds, payable ia lawful money, still outstanding (some several hundred mil- lions) until greenbacks are on a par with gold. The bonds- of the United States now command a high premium. The following is a list of the quotations of United States bond* on the 26th of April, 1876: U. S. 6 per cent, bonds of 1881 122 U. S. 5-20 bonds of 1865, Nov 118 U. S. 5-20 bonds of 1865, July 119 U. S. 5-20 bonds of 1867, July 121^ U. S. 5-20 bonds of 1868, July 122|- U. S. 5 per cent. 10-40 bonds 118f U. S. 5 per cent, funded loan bonds 117^ U. S. 6 per cent, currency bonds 126^ The money power having thus succeeded in robbing the people to the utmost extent in this direction, it is now pro- posed to continue the process by means of specie resumption^ The action of the buUionists and bankers, in this particular, was hastened, as we have seen, by the result of the elections- in 1874. SPECIE KESUMPTION. Soon after Congress convened in Decembei-, 1874, a specie- Tesumption act was hurried through that body and was. approved by the President, January 14, 1875. The act pro- vides as follows: The first section requires the Secretary of the Treasmy,. as rapidly as practicable, to cause to be coined, silver coins- of the denominations of ten, twenty-five and fifty ceints, of standard value, and to issue them in redemption of an equal number and amount of fractional currency, until the whole- amount of such fractional currency outstanding shall be redeemed. The second section repeals the authority to charge a. per centage for coining bullion. The third section repeals so much of the National Bank- 280 RESUMPTION OF SPECIE PAYMENTS. ing law as limits the aggregate circulation of the banks to $354,000,000, and makes banking free to bondholders. It also provides that "on and after the 1st day of January, 1879, the Secretary of the Treasury shall redeem in coin the United States legal tender notes then outstanding, on their, jjresentation for redemption in sums of not less than fifty dollars." The greenback, although issued in a mutilated form, (not payable for interest on bonds- and duties' on imports) was made a legal tender for private debts. It was not, therefore, simply an evidence of indebtedness of the government — a mere promise to pay money; it was something more than that. It became the measure of all values, the basis of all money contracts, and the standard of all payments among the people. For fourteen years it has constituted the lawful money of the country. All exchanges of jn-operty, during this period, have been made and all existing debts have been contracted on the basis of greenback money. If the standard of payment is changed, all existing indebt- edness will change with it. For example if A. owes B. $10,000 and he is comj)elled to pay the amount in gold, which rules at say $1.12, he is obliged to pay $11,200 instead of $10,000. When the entire indebtedness of the country, individual, corporate and municipal, is taken into consideration, it will be seen that the amcmnt thus added by changing the standard of payment is enormous. Estima- ting the aggregate indebtedness of the country, of individ- uals, towns, cities, townships, counties, states, railroads and other corporations, at $10,000,000,000, the amount would be increased $1,200,000,000. The alteration of the coinage of a nation is universally regai'ded as a matter of the greatest delicacy, only to be attempted when absolutely required by the highest consid- erations of public policy. When the legal tender act was BBSUMPTIOK OF SPECIE PAYME1«T8. 281 pending the only plausible argument ofEered by the money power against its passage, was that it would work injustice to the creditor class, by enabling debtors to pay their debts in a depreciated money. The specie resumption law, how- ever, compels the debtor class to pay one-eighth more than it contracted to pay, and the debtor class, owing to the workings of contraction and the National Banking systeim, now embraces all the industrial classes of the country. No alteration of the coinage was-ever attempted by any nation that would at all compare with this. (The bondholders have provided against any alteration of the coinage so far as tliey are concerned. The act of Con- gi-ess of July 14, 1870, for refunding the public debt pro^ vides that the bonds shall be redeemed "in coin of tlie present standard value") Th amount of gold in the ountry, in view of the resump- tion of specie payments, has become a matter of serious impoi-tance, because the circulation of the country, whether the gold is actually used as a medium of exchange, or made the basis of a bank note ciu-rency, as in times prior to the war will necessarily be limited by the amount of gold on hand. On the 27th of February, 1876, the Secretary of the Treasury, in response to a resolution passed by the House of Repi-esentatives calling for a statement of the gold coin in the possession of the government, submitted the following report: Coin coupons 81,547,402 06 Coin certificates 1,427,200 00 Sinking fund and interest 1,873,825 00 Bonds redeemed and interest 13,832,553 65 Interest due and unpaid 9,254,634 50 Outstanding bonds called for sinking fund . 2,548,000 00 Outstanding coin certificates ". 33,968,300 00 Silver coin and bullion 14,193,618 70 $78,645,533 91 Actual gold coin available 13,341,423 76 Total $91,986,957 67 282 EETISMPTION OF SPECIE PAYMENTS. By the terms of the specie resumption act the government will be required to redeem the legal tender notes outstanding on the first of January, 1879, ($300,000,000) in coin. This will take nearly $290,000,000 more coin than there is avail- able gold in the Treasury. Where and how is this immense amount of gold to be obtained? The estimated product of the mines of the United States for the past three years has been about !^50,000,VjOO a year. The annual interest on the public debt, one-half of which, it is estimated, is held abroad, is about $100,000,000. As long as the imijorts of the country exceed the exports, the difference will have to be made up in specie. The imports of the United States as a rule have exceeded the exports for many years past, and to such an extent, that notwithstanding the enormous yield of American mines, there is not at the present time $ 100,000,000 of specie in the country. And now that the productive ability of the nation has been greatly diminished, and is still diminishing under the operations of contraction and of the National Banking system, the excess of imports over exports must naturally increase, and thus augment the necessity for sending the product of American mines to-foreign countries. It is clear, therefore, that until the producing forces of the nation are sufficiently developed to enable it to export more than it imports, there can be no accumulation of gold obtained from the mines of the countiy. The amount required to resume specie payments then, if obtained at all, must come from other nations. The demand for gold at the present time abroad is unusually great on account of the demonetization of silver in Germany and other countries. The government of the United States has already had some experience in trying to obtain gold in Europe. When the gold bonds of the United States were put on the market in Europe, $21,000,000, resulting from their sale, accumulated EESUMPTION OF SPECIE PAYMENTS. 283 in the Bank of England. The Bank of England objected to the ti'ansfer of this sura to the United States, and the government was forced to turn round and invest it in other bonds, which had been purchased probably at less than 60 cents on the dollar. Senator Boutwell detailed the facts in this case, in a speech in the United States Senate, January 22, 1874, as follows: "When the negotiations were going on in London for the sale of the largest amount of United States bonds that have ever been sold there at one time, it was foreseen by the Bank of England that a quantity of coin would accumulate as the proceeds of these bonds to the credit of the government of the United States. As a matter of fact, there was an accumulation of about 821,000,- 000. The Bank of England, foreseeing that there would be an accumulation of coin to the credit of the United States which might be taken away bodily in specie, gave notice to the officers of the Treasury Department of the United States that the power of that institution would be arrayed against the whole proceeding unless we gave a pledge that the coin should not be removed, and that we would reinvest it in the bonds of the United States as they were offered in the markets of London. We were cpjnpelled to do it." Mr. Boutwell also mentioned aiiother case in point, which is equally significant, as follows: "There is another fact, known to all. We recovered at Geneva an award against Great Britain of ^15,500,000. When this claim was matu- ring, the banking and commercial classes of Great Britain induced the government to interpose, and by diplomatic arrangements through the State Department here, operating upon the Treasury Department, secured the transfer of secu- lities and thus avoided the transfer of coin. In the presence of these facts, is it to be assumed for a moment that we can go into the markets of the world and purchase coin with 284 BEStrMPTION OP SPECIE PAYMENTS. which we can redeem one, two, three or four hundred mil- lions of outstanding legal tender notes." If any further argument is required to show that it is not only utterly impossible for the government of the United States to obtain the requisite amount of gold to resume specie payment at a fixed time, but that it is also undesirable, even if it were possible, because it would disturb all the industrial and social relations of the world, it will be found in the following extract from an able speech delivered on the 26th of April, 1876, by Senator Jones in the Senate of the United States, in favor of placing silver on an equality with gold as a medium of exchange. He said: "The world's stock of coin is $5,700,000,000, of which nearly one-half is silver. Of this sum Europe, America, and the rest of the Occidental world employ about $3,600,000,000. Previous to the late demonetizations of silver in the Latin union, and in Germany and the United States, these $3,600,- 000,000 consisted of, let us say, $2,000,000,000 of gold and $1,600,000,000 of silver. They now consist of about $2,600,000,000 gold and $1,000,000,000 silver. By continu- ing to exclude silver from equal participation with gold in the currency of the United States and attempting to resume specie payments, we occasion a demand for say $350,000,000 of gold wherewith to pay off the greenbacks and furnish bank reserves, and $50,000,000 of silver in lieu of the frac- tional notes. If we could obtain these $400,000,000 of metal without di-awing it from other countries in Europe or America, they would add so much .to the stock of coin in the Occidental world, which would then be $2,950,000,000 of gold and $1,050,000,000 of silver. This is the answer to the question so far as the Occidental world is concerned The quantity of the precious metals needed for money and the basis of credit in the Occidental world — that is to say, KEStJStPTION^ OF SPECIK PAYMEMTS. 285 the quantity needed to maintain prices at their present level — ^is at least $4,000,000,000. Of this sum the United States, if it succeeds in resuming specie payments, ■will hold about §400,000,000, of which $350,000,000 must be in gold. Where is it to come from? "Anticipating the argument that no such sum is necessary to specie resumption, because prior to suspension in 1862 our entire stock of coin included not more than $225,000,000 of gold, he reminded the Senate that population since then had increased per 50 cent., and that in 1861 our wliole circu- lating medium consisted of $300,000,000 in coin and $200,- 000,000 in bank notes, which circulated within limited areas at nearly j)ar; whereas now it consists of not more than $100,000,000 of coin and some $850,000,000 of government and bank paper, the latter circulating (throughout nearly the whole country) at about 81^ cents on the dollar; say total circulation at par equal to $850,000,000. This is 70 per cent, more than the par circulation of 1861, an incontestible proof that the exchanges have increased in volume at least 70 per cent. It cannot bo doubted that the bulk of to-day's exchanges in this country is at least double that of a corres- ponding day in 1862. Put it at only 70 per cent, higher; then, in order to resume specie payments upon at least as .firm a footing as specie payments in 1861, we shall require at least 70 per cent, more specie than we employed in 1861. Add 70 per cent, to $300,000,000 and you have $510,000,000. Allow $100,000,0CO for specie already in the country, in the tanks, in private hands, and in the vaults of the Treasury, and you will need $410,000,000 in order to resume, say, for round figures, $400,000,000 of specie, of which, under the operation of the act of 1873, about $350,000,000 must be gold. "I warn gentlemen to beware of making a mistake in 286 BESUMPTION OP SPECIE PATMEIO^S. respect to this matter, for a mistake will set us back many years. Tlie British government tried to resume in 1817, after a suspension of 20 years, but it failed, and suspension was defen-ed until 1823. If we try to resume in 1879 with $100,000,000 and fail, we may be set back a quarter of a century. Moreover, if we fail, some clique of stock gam- blers will make 15 or 20 per cent, out of the operation. Knowing that 1100,000,000 was the limit of the government's ability to pay, they could easily make arrangements with the banks and depositories throughout the country to withdraw $100,000,000 of greenbacks on the eve of the day of resump- tion, and present them for payment at the Treasury After having drawn the last dollar of specie out of the latter, they could, by presenting an additional note, compel it to suspend again. Then gold would go up once more, perhaps to the full extent of the figure from which it would have fallen, and the clique could sell their specie in the market and realize their profit. We cannot resume with $100,000,000 nor with $200,000,000. We have had $200,000,000 in specie in the Treasury on several occasions during the past ten years. If it is pi'acticable to resume now with $100,000,000, why was it not practicable on those occasions with $200,- 000,000? It was certainly not for lack of desire on the part of the Secretary of the Treasury, but simply that both the Secretary and Congress saw that the thing could not be done. Where are the needed $350,000,000 in gold to come from? The annual gold product of the world is $97,000,000. More than half of this is needed in the arts. One and a half per cent, on $2,600,000,000, the present Occidental stock, is needed for the maintenance of money to replace abrasion and loss. This is $39,000,000. Deduct these sums and there remains a surplus of $10,000,000 a year, out of which our needed $350,000,000 must come, unless it comes out of the EESUMPTIOX OP SPECIE PAYMENTS. 287 existing stock in other-countries. It would take 35 years to accomplish the result upon the most favorable hypothesis. "But the increased population of the Occidental world ■will make increased demand for gold exchanges and for its use in arts equal to at least $6,000,000 annually, and the annual product of gold is diminishing instead of increasing. When these elements of the circulation are all moderately provided for, there will remain perhaps $500,000 per an- num of surplus, taking 700 years to get our $350,000,000. And even this cannot be done unless Austria, Italy and Russia shall leave us to monopolize all the gold we need before they reform their own debased currency. I tell you, gentlemen, the thing cannot be done. Redemption in gold is out of the question. It is not practical financially, metal- lurgically, internationally, or politically; in short, it is not practical at all. "The stock of coin which forms the substratum of the world's prices is the accumulation of 50 centuries, and bar- gains are being made every day which cover long periods of time. To disturb these prices and contracts by forcing the exchanges of the country to be measured by a sum of specie so vastly less than its usual measure, as $100,000,000, or even $200,000,000, would be tantamount to the violent •destruction of vast interests and a wrenching of all the relations of industrial and social life. "The Senator proceeded to argue that we cannot get the gold from Europe, with which to resume, because its whole supply is only $2,600,000,000, and on eveiy one of these dollars stands a vast and almost toppling superstructure of credit in every conceivable form. Try to buy one sixth or seventh of that amount, and the rate of interest would go up in Europe in order to check the outflow of gold; and so the price of gold would rise luitil^ia order to secure the 288 KESUMPTION OF SPECIE PATMESTTS. amount required, we would be obliged tx5 sell all our mova- bles at prices that would bankrupt every interest in the countiy. We might get $50,000,000 or $100,000,000 possi- bly, but it would be at the expense of a tremendous financial convulsion abroad, reacting with equally alarming disaster to om-selves. Recollect that the problem is that of taking $350,000,000 in gold out of a fully occupied and heavily overtopped basis of only $2,600,000,000 in the Occidental world. It is not the whole stock of metal, both in silver and gold, that we can now call upon. SUver has been demonetized in several countries in Europe, and h'ere we have so thoughtlessly worded our laws that, until we alteir them, we can only pay in gold." By the act of Apiril 12, 1873, the silver coins of the United States Avere declared to be a legal tender at their nominal value for any amount not exceeding five dollars in any one payment Silver as a commodity fluctuates in value agree- ably to the laws of supply and demand. The effect of the law above mentioned was to partially demonetize silver, and hence silver coins are now (May, 187.6) quoted at about 3 per cent, less than legal tender Treasury notes. There is no good end to be attained by specie resumption that could not be attained by simply making the greenback a full legal tender, as should have been done in the first instance. By making the greenback a full legal tender, the products of the country would be placed upon the same footing with foreign commodities, and that is all that is proposed to be accomplished by specie resumption. The public would then be relieved of the onerous tax imposed on gold to pay duties on imports, which redounds solely to the advantage of the bullionists and bondholders of the United States. If this method were adopted, no distm-bance of the industrial or social relations of the country could RESirMPTION OF SPECIE PAYMENTS. 289 poBsibly occur. Forced specie resumption can be accom- plished only through a complete revolution of all the busi- ness and social relations of the country. This will appear from a brief consideration of the steps that will necessarily precede resumption. The circulation of the country on the 1st of April, 1876, was as follows: Legal tender Treasury notes $370,755,248 Fractional currency 42,604,893 National Bank notes 330,378,904 Total ^743,739,045 The lawful money reserve of the National Banks on the 1st day of October, 1875, was as follows: Legal tender Treasui-y notes $76,366,921 United States certificates of deposit 48,810,000 Due from reserve agents 85,644,964 Redemption fund with Treasurer 16,233,193 $227,055,078 Specie 8,050,328 Total $235,105,406 It will be seen that the lawful money reserve of the , National Banks, exclusive of specie, now amounts to over two-thirds of the entire greenback circulation. The banks have still two years and a half to gather in the remainder of lie outstanding greenbacks — all that are not locked up in private hoards. To call in their own circulation is an easy matter. If the banks cease discounting paper for six months there will scarcely be a bank note left in cu-culation. That they will do so is not to be doubted. The notes of the bajiks are simply evidences of their own indebtedness, and it is not to be supposed that they will voluntarily add twelve per cent or more to their own indebtedness when they can easily avoid it. Long before the first day of January, 1879, the banks will have possession of the entire circulation of 19 290 EESUMPTIOX OF SPECIE PAYMENTS. the country, both greenbacks and bank notes, and the nation will be completely stripped of a medium of exchange. The public will be helpless. The people will not possess even the poor privilege of issuing and using shinplasters and scrip, because it will be impossible to raise money enough to pay the ten per cent, tax imposed upon all notes not issued by National Banks. Forced resumption, therefore, mean$ something more than adding 12 per cent, to the amount of every debt owed in the United States. Without a medium of exchange people will be unable to pay their debts at all; industry and trade will be completely paralyzed; and bank- ruptcy, distress, starvation and riot will ensue. SPECIE RESUMPTION IN ENGLAND. The experience of the people of Great Britain from 1819 to 1825, under similar circumstances, is full of instruction to the people of the United States. In 1797 the Bank of Eng- land was obliged to suspend specie payments.* Great Brit- ain at the time was engaged in war with France. In 1797 large sums of gold were required abroad, and the price of gold began to rise. In September, 1799, the standard price •of gold was £3, I7s., 6d. per ounce, and in June, 1800, it was £4, 5s. per ounce. The war with France ended in 1815. Dm-ing this period and for several years after the war the people of Great Britain were obliged to use an in-edeemable jsaper cuiTency for their medium of exchange. Prior to the suspension of specie payments the condition of affairs in Great Britain was gloomy indeed. Sir Archibald Alison, the historian, in speaking of the period immediately preced- ing suspension says: "Nor was the internal suffering of this ill-omened period inferior to its external disaster. Jt began with the severe commercial distress of 1793, unprecedented at that period in intensity and duration, and which was only 'Sec Bank of England, page 02. BESUMPTION OP SPECIE PAYMENTS. 291 relieved by an extensive loan to the trading classes by gov- ernment; and it terminated in the dreadful monetary crisis and run upon the bank and mutiny in the fleet, in the spring of 1797, which brought the nation to the brink of ruin, and forced upon the government the necessity of suspending cash payments." The British Government and peoijle had been vainly trying to carry on great operations with an inadequate medium of exchange. The suspension of the Bank of England led to the use of irredeemable paper money to an enormous amount, or, to use an expression now greatly lidiculed by the bullionists, "to an amount equal to the wants of trade." The result was magical. We will again quote from Sir Archibald Alison. lie says: "The next eighteen years of the war, from 1797 to 1815, were, as all the world knows, the most glorious, and, taken as a whole, the most prosperous, which Great Britain had ever known. Ushered in by a combination of circumstances the most calamitous, both with reference to external security and internal industry, it terminated in a blaze of glory and a flood of prosperity which have never, since the beginning of the world, descended ujjon any nation. Hardly had the run upon the bank shaken to its center the whole fabric of our commercial prosperity, and the mutinies of the Nore, Plymouth and off Cadiz paralyzed the arm of our naval •defenders, when the victories of St. Vincent and Camper- down again restored to us the dominion of the sea; and ere long the thunderbolts of the Nile and Trafalgar prostrated the naval strength of the enemy, and the victories of Wel- lington first arrested, and at length broke his military power. Prosperity, universal and unheard of, pervaded every department of the empire. Our colonial possessions encircled the earth — ^the whole West India Islands had fallen into our hands; an empire of sixty millions of men in 292 EBSUMPTION OF SPECIE PAYMENTS. Hindostan acknowledged our rule; Java was added to oar eastern possessions; and the flag of France had disappeared from every station beyond the sea. Agiiculture, commerce and manufactm'es at home had increased in an unparalleled ratio; the landed projjrictors were in affluence; wealth to an unheard of extent had been created among the farmers; the soil daily increasing in fertility and breadth of cultivated land, had become almost adequate to the maintenance of a rapidly increasing poj)ulation; our exports, imjwi'ts and tonnage had more than doubled since the war began; and though distress, especially duiing 1810 and 1811, had at times been severely experienced among the manufacturing operatives (occasioned by Bonaparte's decrees against Brit- ish goods), yet, upon the whole, and in average years, their condition was one of extraordinary prosperity. The revenue raised by taxation within the year had risen to £72,000,000 in 1815 from £21,000,000 in 1796; the total expenditure from taxes and loans had reached in 1814 and 1815, the CTiormous amount of £117,000,000 each year. In the years 1813 and 1814, being the twentieth and twenty-first of the war, Great Britain had above a million of men in arms in Europe and Asia, and remitted £11,000,000 yearly in subsi-, dies to the continental j>ower8. Yet was this prodigious and unheard of expenditiii-e so far from exhausting either the capital or resources of tlie country, that the loan in 1814 was obtained at the rate of £4, lis.. Id. per cent, being a lower rate than that paid at the commencement of the war; although tlio annual loan at its close was above £35,000,000, and the population of the empire at that period was only eighteen millions." All this was accomplished in Great Britain during the early part of the present centuiy by irredeemable paper money. The buUionists try to blunt the force of this argot- RESUMPTION OB- SPECIE PAYMENTS. 293 meat by attributing the prosperity of England during this period to the vast outlays of the government, but if this was the cause, why did it not produce the sarao eflEect dui-ing the period prior to the suspensioa, when the government was making similar outlays? The simple truth is that the people of Great Britain possessed patriotism and faith in the sta- bility of their government and institutions, and when fui- nished with industi-j's most essential tool, an abundant and «heap medium of exchange, they were enabled to develop the producing forces of the nation to their utmost extent, with the marvelous results above given. And the logic of the whole matter is, that if paper money will perform sucli marvels in time of war, danger and uncertainty, it can be made to perforin the same or greater marvels in time of peace, when no micertainty need attend its use. When the several acts of Parliament were passed contin- uing Pitts' "bank restriction'" (continuing the suspension of jspecie payments), one clause was always retained, and that was that the bank was " to resume cash payments " within a few months after peace should be established. Doubleday, in his Financial, Monetary and Statistical History of Eng- land, says that "it has been asserted that Pitt never meant this clause to be enforced, at least as far as regarded the fundholders (bondholders); and that he intimated as mucli in Pai-liament on one occasion." However, it was adhered to. The bullionists immediately began to clamor for a return to specie payments. The bank of England, which liad "bales of paper money" in circulation, was obliged to •ontract to an extent that would enable it to redeem the remainder in coin. This began to occasion distress amongst 'tlie merchants and manufacturera. In speaking of' this period Doubleday says: "During former revulsions, such as lEhat of 1810, caused by the decrees of Bonaparte against 294 BESTJMPTIOX OF SPECIE PAYMEiSTS. the admission of British goods, the bank had come promptly forward with loans and discounts to relieve the pressure. Now, however, the directors scarcely dared to move an inch. They knew that the political economists were strong in the House, and that they were bent upon cash payments at all risks. They knew that the Jews of Change Alley would secretly abet the same doctrine. Against a combination of usurers and' th'eorists, one set all selfishness, the other all crotchets, there was no defense to be made. The country gentlemen, who were the dupes of the economists, were led to believe that cash payments were necessary for both the interest and security of themselves. Those who had the power were resolved, and nothing was left to the bank but to narrow its issues, and look about for gold and silver wherewith to meet the storm. This was altogether a diffi- cult business. In tte year 1816 alone thirty-seven country banks had become bankrupt. The commercial world required additional propping. But the government (the bank) was in the same dilemma; and to it the merchants were sacrificed. Between February and April, 1816, the directors .lessened their discounts from £23,000,000 to £11,000,000; and before February, 1817, to £8,000,000; and before August of the same year to £7,000,000; whilst wp to nearly the same period they held of Exchequer bills, etc., £25,000,000. * * This reduction of the bank issues, and destruction and crippling of the country banks, had another and still more important effect, inasmuch as by causing the price of gold to fall to nearly the mint price, it encouraged the political economists to press forward, and at last, in 1819, to pass an act, the most important in its consequences, and extraordinary in its circumstances, that ever was decided upon by any legislature, in any age or country. * * The Currency bill of (May) 1819 was passed at the instance of RESUMPTIOX OF SPECIE PAYMENTS. 295 a committee, amongst the members of whom were included all the parliamentary dabblers in political economy of any name or talent, and of whom Peel was chairman. Horner, the chairman of the bullion committee of 1810, was deadj but in his stead, they had Ricardo, a rich Jew stock-jobber, who having made an immense fortune by this worst species of gambling, had also contrived to obtain a reputation by the publication of some books on political economy. * * Backed by the authority of this rich and arrogant man, the economists obtained on this occasion an almost entire com- mand of the House of Commons. * * The House made the plunge with one accord. There was hardly the sem- blance of an opposition. Ricardo had the enormous folly to tell the House that the bill was ' not worthy of half an hour of even their consideration;' and assurecl them that the whole question was one of 'three jjer cent;' this being the extent of the fall of j)rices, which this man calculated would take place, after all the one and two pound notes in the kingdom were burned, and the remainder, of five pound notes and upwards, made 'payable on demand in gold sover- eigns worth £3, I7s., lO^d. the ounce.' In short there was only one man in the Commons who really understood and opposed the measure, and this man was Mr. Matthias Att- wood, * * and Mr. Attwood was prevailed upon to quit the House -that the vote might be unanimous. In the House of Lords, Lord Grey alone ventured to dissent from the measure; * * The Houses, however, for once 'were all in one accord.' * * As a bit of legislation, this ever-memo- rable act is remarkably brief and to the point; consisting only of thirteen not very long nor wordy clauses. It repeals, in the first place, all the acts for restraining the bank from paying its creditors, which had been passed from 1797 up to that time, the repeal going into effect 'from and after the 296 EESUMPTION OP SPECIE PAYMENTS. first day of May, 1823.' This was a repeal of all bank notes on demand for sums less than five pounds. It then provides for a gradual return, in the meantime, by the bank to cash payments; beginning with an issue of gold at four pounds one shilling the ounce, in 1820, and ending with the stand- ard mint price of £3, 17s., lO^d." The premium on gold during this period fluctuated as follows: 1814 30^ per cent. 1817 2^ per cent. 1815 18| " 1818 5 « 1826 2i " 1819 .6i « 1816, Oct. to Dec. 1 " 1820 par. Although the Currency biU passed Parliament unani- mously, it did not fail to excite great alarm and oppositioB among the industrial and business classes of the kingdcan. The Directors of the Bank of England protested against ite passage, declaring that " tlioy could not venture to advise an unrelenting continuance of jjecuniary pressure upon tiie commercial world, the consequences of which it was impos- sible for thorn to foresee or estimate," or countenance a measure in which "the whole community- was so deejay involved, and which would possiblj'' compromise the univw- Bal interests of the empire in all the relations of agriculture, manufactures, commerce and revenue." The bankers and merchants of London joined in a petition against it, in which they predicted the most disastrous results. The contraction of the currency, which was augmented by the passage of the bill, soon produced the most alarming results. We again quote from Alison's History of Europe. He says: "The effects of this extraordinary piece of legisla- tion were soon apparent. The indusby of the nation was speedily congealed, as a flowing stream is by the severity of an Arctic wintei". The alarm became as universal and wide- R-ESUMPTIOJr OF SPECIE PAYMENTS. 297 spread as conlidence and activity had recently been. The country bankers, who had advanced largely on the stocks of goods imported, refused to continue their support to their •customers, and they were forced to bring their stocks into the market. Prices in consequence fell rapidly; that of cotton, ill particular, sank in three months to half its foi-mer level. The country bankers' association was contracted by no less than five millions sterling ($24,000,000); and tlie entire circulation of England fell from $235,545,000* in 1818 to $174,385,000 in 1820, and in the succeeding year it sank as low as $142,757,000. * * The effects of this sudden and prodigious contraction of the currency wore soon appa- rent, and they rendered the next three years a period of ceaseless distress and suffering in the British Islands. The •accommodation gi-anted by bankci's diminished so much in consequence of the obligation laid u|X)n them to pay in specie, which was not to be got, that the paper under dis- count at the Bank of England, which in 1810 had been $115,000,000, and in 1815 not less than $103,000,000, sank . in 1820 to $23,360,000, and in 1821 to 813,610,000. The <'ffoet upon prices was not less immediate or appalling. They declined in general, within six months, to half their former amount, and remained at that low level for the next three years. Distress was universal in the latter months of 1819, and that distrust and discouragement were felt in all branches of industry which are at once the forerunner and cause of disaster." From Mr. Doubleday's history we also quote as follows: "We have already seen the fall in prices produced by the immense nan-owing of the paper circulation. The distress, ruin and bankruptcy which now took place were universal, affecting the great interests both of land and trade; but especially among land owners, whose estates were burthened by mortgages, settlements, legacies, etc., *J^ mounts are given In doUar3 Instead of pounds. 298 KESCMPTIOX OF RPECTE PAYMENTS. the effects were most marked and out of the ordinarycoursei. In hundreds of cases, from the tremendous reduction which now took place, the estates barely sold for as much as would pay off the mortgages; and hence the owners were stripped of all and made beggars." Before the close of the year 1819 the distress became insufferable. Great meetings were- held throughout England and Scotland during the summer- In August 60,000 people, men, women and children, assem- bled neai' Manchester. A collision occurred between the' people and the troops, in which a number were killed and many wounded. This creat-ed intense excitement, and the- meetings of the people held in Liverpool, York, Leeds, and various other cities, were attended by vast multitudes of Buffering people, demanding vengeance.- Serious riots occurred, which were only quelled by military force. In 1820 a conspiracy was discovered, which had for its object the murder of all the King's Ministers, and which was only frustrated through the cowardice of one of the conspirators,, who betrayed his associates. Military training went on amongst the people, and the government was obliged to provide a large military force to prevent an outbreak. "On Sunday morning, the 2d of April," says Alison, "a treason- able proclamation was found placai'ded all over the streets of Glasgow, Paisley, Stirling, and the neighboring towns and villages, tV» the li'ame o/' a 'provisional^government, calling on the people to desist from labor; on all manufac- turers to close their workshops; and on all the friends of their country to come forward and effect a revolution by force, with a view to the establishment of an entire equality of civil rights. Strange to say, this proclamation, unsigned and proceeding from an unknown authority, was widely obeyed. Work immediately ceased; the manufactories were closed, from the desertion of workmen; the streets were filled. RESUMPTION OF SPECIE PAYMENTS. 299 with anxious crowds eagerly exijecting news from the south; the sounds of industry were no longer heard, and two hun- dred thousand persons in the busiest districts of the country were thrown into a state of compulsory idleness by the mandates of an unseen and unknown power." Five thou- sand troops were immediately assembled at Glasgow, and the insurgents were overawed. Before the end of the year the government had increased its volunteer force to 35,000 men. "Without doubt," says Alison, "this powerful volunteer force, organized especially in the manufacturing districts at this period, and the decisive demonstration it afforded of moral and physical strength on the part of the govern- ment, was the chief cause through which Great Britain escaped an alarming convulsion." Thus were the masses of Great Britam, |-vyho8e valor and labor had carried the nation to thp acme of glory and pros- perity, ruthlessly and wantonly sacrificed on the altar of so called "honest money," only tg farther enrich the, moneyed class of the kingdom. But after ali ifoaH^edi specie i resump- tion proved a failure. ParGament Mas oblige^ to retrace its steps. In 1822 an act was pi^ssed authorising the issue of one and two pound notes for, a period pf ten years longer, and the one pound notes icerei/nade ^a legul tender every- where' except at the bank of England. ''This act," says Alison, " coupled with the grant of £4,000,000 Exchequer bills, which the government was authorized to issue in aid of the agricultural interest, had a surprising effect in restor- ing confidence and raising prices; and by doing so, it repealed, so long as it continued, the most injurious parts of the act of 1819." But the ruin, suffering and misery which had attended the attempt to force specie payments could not be undone, nor could the broken fortunes be yestored. By a return to specie payments finally, the specie basis banking 300 KESUMPnON OP SPECIE PAYMENTS. and credit system, the whole tendency of which is to con- centrate wealth in the hands of the few, was re-established; and the industrial classes, especially the agricultural class, have never since been able to recover from the blow then received. "Princes and lords may flourish, or may fade, — A breath can make them, as a breath has made: But a bold peasantry, their country's pride. When once destroyed, can never be supplied." In 1822 the land owners of England numbered 165,000. According to the census of 1861 the number was about 30,000, and one-half of the whole kingdom is now owned by not more than twelve persons. From this mere outline of the disastrous events which attended specie resumption in Great Britain, revolutioniang the whole sti^ueturp of British society, and shaking to the center the foundations of the government itself, some idea may be formed' Of. what th&.A'W.erican people will be obliged to suffer during the" next "Sei*' years. Great Britain theni possessdd riahy dcfvkntei^KS ^hfch are not possessed by the United Stateii Ia#th6 i5rcsenttii;t>e. Her industries were ia full ojyeration; "^thi^ balaiVce^oF trade was largely in her favor; tihe had a larg^i pupply of spoieic to begin with; the premium on gold was only about five'' ^er cent.; and, as the countaT- was limited in extent and densely populated, money circula- ted with great rapidity. On the other hand, tho industries of the United States are already prostrate; the balance of trade is against tho countiy; the specie in the country is inconsiderable in amount; the premium on gold is over twice as high as ii was in England; and the immense extent of the country precludes any possibility of money circulating with rapidity. In addition to this, British thought and habit had betjn educated under the specie basis and credit EBUSMPTION OP SPECIE PAYMEJJTS. 301 Bystem of money; whilst, in the' United States, experience has fully demonstrated that the system is inconsistent with , the genius of American institutions and repugnant to Amer- iean habits and ideas. There is every reason, therefore, to believe that the disas- ter and distress •which will attend an attempt to force specie payments in the United States will exceed in intensity that which marked the experience of Great Britain an hmidred fold. The contraction which took place just after the war was carried on wholly by the government. The evil conse- quences of tliis contraction were partially aveited by the emission of over $350,000,000 of bank culTCncy. But now a different kind of contraction is going on. The National Banking system has already enabled the banks to acquire possession of over two-thirds of the greenback circulation, and it is a question of but a short time until tliey will hold almost the entire amount. Their own notes are encumbered with interest, and are not subject to the natural laws of trade, but to the will of the banks. It will take but a short time, therefore, to call them all in. The organs of the banks are constantly repeating the statement that there is plenty of money in the banks, and that any one can get it who has anytliing to get it with, and the statement is echoed and re-echoed by all the demagogues and weak minded tools of the money power in the country. Properly considered, we sabmit that this fact alone confjinns all the objections which we have urged against tlie system of banks of issue. Why is money plenty in the banks, and why is it not occupying the channels of trade and honestly performing the functions for which money is designed? For the simple reason that a medium of exchange consisting, even in part, of bank cuiTency will not obey the natural laws of trade, because it is burdened with interest which robs the industry of the 302 EESUMPTION OF SPECIE PAYMENTS. nation of more than its average profit. In ordinary times, after industiy had been driven to the wall and a commercial xsrash had brought about an adjustment, the banks began to expand their circulation, and the banks and the people would enter upon another era of inflation, only to end in the same manner. But now the specie resumption act not only pre- vents any such expansion, but compels both the banks and the people to contract in every way possible to prepare for the impending crash. True enough, money is plenty in the banks, and it will grow plentier there before the nation is a year older. In fact the contraction of the banks has scarcely more than begun. But as failures multiply, as they are now doing with startling rapidity, loans and discounts will grow less common, until finally the counti-y is entirely deprived of a circulating medium. This can end only in the complete , destruction of all values. It will be as difiicult to pay a small debt as a large one, for money will be everything and property nothing. Taxes cannot be paid, for there will be no money to pay them with. Not only will individual bankniptcy be general, but the decline in the public reve- nues, which must follow, will i-ender it impossible for the Federal or State Governments to meet their obligations. This is the only kind of repudiation that need ever be feared in America. The people are being rapidly deprived by the policy of the money power, not only of the ability to sustain the government, but of the ability to provide for themselves and families. That a nation possessing the wonderful advantages and the skill and energy possessed by the Amer- ican people should be brought to even its present distressed condition in the pursuit of a phantom, is simply monstrous. And when the crisis is reached, what will have been attained ? "Honest money?" No. Nothing but a circulating medium consisting of bank currency, only nominally redeemable in ■RESUMPTION OP SPECIE PAYMENTS. 303 ■coin. Assuming that the government will be able to redeem the greenback circulation and that the amount is paid to the banks, it is not difficult to foretell the result. The banks will issue bank currency, redeemable in coin. Whenever a ■demand for sj^ecie arises abroad, American securities will "be thrown upon the market, and the gold in the country will disappear in a day. The banks will be obliged to suspend fspecie payments, precisely as the old State banks of issue were obliged to do, time and again, under similar circum- ^stances. Under the old State banking system the people were compelled to use bank currency . even when they knew it was a fraud and a lie, because they had nothing else to aise. But under the National' Banking arrangement the notes , of the banks will be taken without hesitation, not because they are convertible into coin, but because they are guaranteed by the Federal Government — based upon the faith and wealth of the nation. In the end, therefore, so far as specie circulation is concerned it will prove, as in the days before the war, a fraud and a delusion. The National Banks, however, will have accomplished their end. They will have obtained absolute control over the monetary and political affairs of the nation. The whole affair is in fact but a grand scheme to accomplish that purpose, and it is marvelous that intelligent people can be decieved in believ- ing otherwise. In 1791, when Hamilton sought to establish his funding and banking scheme, the great Pitt said: "Let the Americans adopt their funding system and go into their .banking institutions, and their independence will be a mere jihantom." What Hamilton, with all his genius and great ability and influence was unable to accomplish in the infancy of the republic, a pack of venal demagogues have well nigh accomplished nearly a century later. People are fwont to say, and apparently seem to think that it is an KESUMPnON OF SPECIE PAYMENTS. evidence of their good sense, " that they don't know nor care- anything about this financial question." It is high time that everybody should seek to understand this question, because until the National Banks are destroyed and a system of money is founded upon sound principles, there can be no enduring prosperity in the country, and the "independence- of the people will bo a mere phantom." The demoralization which is now going on throughout the country in conse- ,quence of the enforced idleness and j'overty of millions of people, is a matter of serious import, and one which should awaken to a sense of duty and action every christian man. and woman in the land, and especially ministers of the- Gospel, who profess to follow Him whose tenderest care was- ever manifested for the weak, the lowly and the oppressed- There is 'another fact which may convey a warning to- those who are lending themselves to tlie ignoble cause of enriching the money power at the exjiense of ruin, j^overty- and distress to the masses. When the American people are- driven to the extremity that the English and Scotch people- were, by an attempt to foi-ce resumption, and gather in vast multitudes, as the English did at Poterloo and the Scotch at Glasgow, to demand redress, matters will assume a very different shape in the United States from what they did in. Great Britain. It is trae that an organ of a notorious Wall street operator, the New York Tribune, has intimated that any such demonstrations would promptly be met with "shot and slaughter;" but in the United States that is more easily- said than done. The day has not yet arrived when Ameri- cans can be intimidated by such threats. As yet they "their duties know, but know their eights, and knowing dare maintain them." While the American people undoubtedly possess too much ^patriotism and intelligence to jeopardize the stability of their institutions, they nevertheless may possibly forget, in the hour of their distress, that the Lord hath said, "vengeance is mine." In that day the Shermans and McCullochs had better never have been bom. CHAPTER IX. A MONETAEY SYSTEM POUNDED ,UPOjr SOUND PKINCIPLES. It is a common error, inculcated by tlie bullionists, to suppose that m^etallic coins alone are money, and that money is the same thing in all parts of the world. Nothing could be further from the truth. Poiiulation, commerce and trade have long since outgrown the world's supply of the precious metals. Every nation builds up a monetaiy system of its own, and no two systems are or can be alike. The monetary system of a nation is au outgrowth of its civilization, pre- cisely as are its manners, its customs, its language and its government. For example, Great Britain and France both use metallic coins and paper money, and yet the monetary systems of the two nations differ in almost every particular. Several centuries ago the increase in population, trade and manufactures and the liuiited supply of gold and siher ren- dered it impossible for the people of Great Britain to secure a sufficient amount of coin to form an adequate medium of exchange. The true nature and functions of money were but imperfectly understood, and no effort was made, on the part of the government of that kingdom, to remedy the diffi- culty under which the people labored in effecting their exchanges. The people were obliged to do the best they could. Exchanges of property and commodities thus came to be effected to a great extent by means of promissory notes, book accounts, and other devices of the credit system. In the course of time the Bank of England was established. Soon after it Avas established its managers conceived the so 306 A MONETARY SYSTEM EOUXDED idea of issuing bank notes, to be exchanged for the notes of individuals. Merchants and otliei-s gladly availed them- selves of an opportunity to substitute the notes of a respon- sible and widely known institution for the notes of individ- uals, which could only circulate in a limited sjjhere. Bank notes were found to be capable of greatly facilitating the operations of trade, and became the chief medium of exchange of the nation. Bank notes, it will be perceived, are purely an ofEshoot or development of the credit system, invented to remedy the want of an adequate medium of exchange. In this manner a monetary system of a peculiar character has been developed in Great Britain, which has exercised a powerful influence upon the destinies of the people of tliat kingdom and also upon the rest of the world. The monetary system thus developed in Great Britain, although based on specie, is made up almost wholly of credit. The statement of Sir John Lubbock, given on page 48, shows that of £19,000,000, paid into his bank in a few days, only one-half of one per cent, consisted of coin. Every dollar in coin in Great Britain thus becomes the basis of an immense superstructure of credit. Gold coins are the legal tender money of the country, silver being a tender only for small sums. As the exchanges of the country are carried on with a medium of exchange only a small per- centage of which is coin, whenever a stringency occurs, or a want of confidence prevails, which inevitably happens as soon as the credit of the nation becomes fully inflated, evei-ybody seeks to obtain possession of this small per- centage of the circulating medium, which alone is a tender in payment of debts. Coin consequently rises in value and is no longer a proper measure of other values. In this ]'es23ect at least its functions as money are totally j)erverted. Money thus instituted is given a tremendous power over UPON SOUND PKINCIPLES. 307 p'opeity and labor, and the whole tendency of tlie system is to make the rich richer and the poor poorer. The system, however, is in accord with the views held by the aristocratic or govei-iiing class of Great Britain, and finds its champions in a school of political economists, who profess to believe, and strive to inculcate, tlie doctrine that it is natural and proper tliat poverty and want and disease and misery should be next door neighbors of wealth and unbounded pi-osperity. It is due chiefly to this system of money that such great extremes of wealth and poverty are to be found in Great Britain. France, like Great Britain, uses both coin and paper monej, but money in France is instituted upon entirely different principles. The policy of the French Government is to render money abundant and cheap, in order that the exchanges of the nation may be effected with the least cost possible, and that the productive ability of the people may be develojjed to the utmost extent. The men who moulded the French system were wise enough to know tliat labor is the true source of wealth, and that the surest way to render the government powerful was to enable the masses to become prosperous. This was not accomplished without a great struggle. Col well, in his work on The "Ways and Means of Payment, says: "The system of public finance in France, once so cumbrous and awkward, so expensive and otherwise disadvantageous to the nation, has, during the past half century,* under the able direction of Count MoUien, the Marquis D'Audriffet and other eminent men, undergone such radical changes as have completely modified both its principles and its mode of operation. These reforms were resisted, in every stage and with every weapon, by the parties (the money power) interested in maintaining old •Tills was written pvior to 1861). 308 A MOXETAKY SYSTEM FOUNDED abuses. The jjersevering effo;-ts of honest and lutelligeat men for thirty or forty years overcame all opposition, and France now enjoj'S a financial system, in not a few respects, superior to any other nation." The people of France have the cash system and j)ay as they go. The circulation of the country consists of about $1,200,000,000 in specie and about $500,000,000 of irredeemable legal tender paper money, issued by the Bank of France. The London Standard of April 14, 18T6, in commenting on the remarkable condition of the French finances, says: "The Bank of France at the present time occupies in the financial world a position more remarkable than has ever been held by such an establishment. Its notes enjoy a forced currency and are a legal tender in all business trans- actions, yet those notes suffer no depreciation. They pass from hand to hand for precisely the same value as gold. A sufficient explanation of this fact may, perhaps, be found by some persons in the circmnstance that the bank has accumu- lated in its coffers at this moment the greatest quantity of the precious metals that has ever yet been possessed by a single establishment. That, however, does not really account for the undiminished credit of the bank. For even in the agony of the last war, when the veteran armies of the empire were prisoners in Germany, when Paris was closely invested, and one-third of the departments were occupied by the invader, the bank's notes were at no greater discount than two or three per cent., and almost immediately rose to par. It is, then, the admirable management of the bank, not the satisfactory nature of its reserve, which gives to it the confi- dence it commands. It adds to the peculiarity of the posi- tion that, altliough the bank possesses a stock of gold and silver out of all proportion greater than is held by any other bank in the world, it does not propose immediately to UPON SOUND PRINCIPLES. 309 resume specie payments. And what is more remarkable still, nobody demands that it shall do so." A further examination of the monetary systems of other nations would disclose similar peculiarities and differences; in some gold is the only tender, in others silver, and in others gold, silver and paper. In Austria, for example, silver pieces of the denomination of one and one and a half florins are a legal tender to any amount. Gold is also coined into pieces of the denomination of four and eight florins (about $2 and $4), but as gold is not a tender, it is regarded as merchandise and fluctuates in value like other merchandise. The Austrian system is modeled after the British system, silver forming the basis instead of gold, and it has proved there as elsewhere a perpetual source of disaster. From these facts it is manifest that a people should be far more concerned about the manner in which their mone- tary system is instituted than about the material of which their money is made. The chief function of money is to exchange property and commodities, and it should be insti- tuted in such a manner as to enable this to be done econom- ically and equitably, so that all classes may be duly rewarded in the distribution of the products of labor, according to their deserts. People strive to accumulate wealth, and wealth, in its ordinary signification, consists of property and money. As money, by virtue of its legal properties, is an equivalent for all kinds of property, its possession is eagerly sought, and hence it seems that people are seeking solely for money, which is not the fact. Money is simply the means to attain the end, which is dominion over pi'ojjerty. Real value belongs only to property or products, and money is the legal medium by which it is represented, measured and exchanged, 310 A llOXETAKY SYSTEM FOUJSTDED and Iience money, properly considered, is simply a tool of exchange. As has ali'eady been explained, the population, commerce and trade of the world has long since outgrown the supply of the precious metals available for the purposes of a medi- um of exchange. Other forms of money are in use in all civilized nations. The larger operations of trade, both for- eign and domestic, are carried on almost wholly by means of paper devices or substitutes for money, which represent and are based on the value of the commodities exchanged. Bills of exchange constitute the real " money of the world." The trade between different sections of the countiy, like the foreign trade, is carried on almost entirely by means of bills of exchange, checks, drafts, etc., and no one will say that it is not more economically and safely done than if it was carried on by means of gold and silver. The volume and amount of the bills of exchange, etc., used are limited only by the exchanges to be made. If any one were to suggest that bills of exchange, drafts, etc., whether foreign or domestic, should be limited in volume and amount by law, he would probably be denounced as a fool, and yet it is just as absurd and far more unjust to limit the volume and amount of the legal tender money to an amount manifestly inadequate to effect the exchanges of the nation. Money, by reason of its legal properties, under any cir- cumstances, has sufficient power ovev property to enable it to perform all the essential functions of money, namely, to exchange and accumulate value; but to limit it in amount, as by selecting a rare and expensive material like gold, or by arbitrarily declaring by law, as in the case of legal tender Treasuiy notes, that it shall not exceed a ceitain sum, without regard to jjopulation, extent of country, or exchanges to be effected, is to invest money with an extraordinaiy UPOX SOUXD PRINCIPLES. 311 power over property, labor and trade, as unsound in princi- ple as it has proved ruinoiis in practice. THE REAL ISSUE. The issue j^resented to the American people, then, in the present crisis, is not between specie and paper money, but between two systems of money, both involving tlie use of paper currency. No more important question could possibly arise, for upon its proper solution depends not only the present prosperity of the nation, but the welfare of the peo- ple for generations to come. "Monetary laws," says Kel- logg, "are the most important that are enacted, for by these laws money is made the tender for debts and the medium of exchange for products. All individuals are compelled to found their contracts for the necessaries of life upon the standard fixed by law. However good the intention of the parties, their contracts will partake of the evil of the mone- tary laws upon which they are founded, and every law that goes to support the fulfillment of the contracts will partake of the same evil. * * The laws make money the founda- tion for all business contracts. The value of this foundation is unjust and continually varying, so that parties in fulfilling their contracts are compelled to give either more or less than a just equivalent for their purchases. The results of all contracts are as varying and unjust as their foundation. The continual fluctuations in the value of money makes a sort of gambling system of all trade." The distinguishing features of the two systems of money, The Specie Basis or Bank Currency System and The Legal Tender Paper Money System, which are now presented to the American people for their adoption or rejection, have been duly explained in the foregoing pages. It only remains now to bring them together, in order that the 312 A MONETABY SYSTEM FOUNDED advantages and disadvantages of each may be fully dis- cerned. THE SPECIE BASIS OK BANK C0BEENCY SYSTEM. The specie basis or bank currency system originated with the Bank of England;* it was introduced into the United States about the time of the Revolution, and has exercised a powerful influence upon the business and social relations of the j>eople of the United States since that time. The fact that banks of issue have existed in the United States for over three-quarters of a century has led many to suppose that issuing and lending bank notes constitute the chief business of banks. Issuing or lending bank notes, on the contrary, is a mere incident of the business of banking'. The great function of banking is the adjustment of pay- ments, growing out of the exchange of property and com- modities, by means of devices of the credit system, such as bills of exchange, etc. Banking, as we have explained,! is an agency of trade, second in importance only to money itself. For many purposes of trade the means of payment afforded by banks are pi-eferable to the use of cash, as where they obviate the necessity of transferring or retransferring money between individuals, localities and nations having mutual dealings. The great' error of the specie basis and bank currency system of banking consists in this, that the banks, not satisfied with furnishing the means of payment best adapted for carrying on the larger operations of trade, seek to compel the public to use the same means of jjayment (devices of the credit system) in all the operations of trade, although for many purposes cash is preferable to credit. No dividing line can be established between the use of cash and credit, and it is manifestly but the part of wisdom to have money so instituted that commerce and trade can avail •See page 89. tSee page 76. ' UPON SOUND PEINCIPLES. 313 tliemselves of either cash or credit in such proportions as may be most advantageous. If the circulation consists of bank currency this cannot be done, because bank currency is credit and not cash. "The banks of the United States," says Colwell, one of the most conscientious as well as pro- found writers upon the subject of money, "are, properly speaking, dealers in credit. So far as their capital is 2>aid up in gold or silver, it is reserved as a security for their circulation. It is a rare thing that a bank lends gold or silver. Their business consists mainly in purchasing com- mercial paper — that is, the evidences of debt taken by men of business in the ordinary course of their affairs; in paying for that paper with bank notes, or with credits granted upon their books; in receiving upon deposit their own notes and claims or transfers upon other banks; in allowing a constant transfer of deposits, in the way of payment, among their customers and those with whom they deal. The banks, then, are not lenders of money, though compelled to pay their obligations in money. Tliey are founded on the idea tliat an association of men, with a paid up capital, and a corporate existence, is entitled to a higher credit than indi- viduals, and that the latter might find it gi-eatly for their advantage to avail themselves in their business transactions of this superior credit." It is undoubtedly highly advanta- geous to individuals to be enabled to avail themselves of this supei'ior credit in many of the operations of trade, but it is equally important that they should be enabled also to avail themselves of the use of cash in other operations. Under the bank currency system cash does not circulate in the channels of trade, but bank notes, and these are contin- ually being returned to the banks in payment of debts. The following extracts from The Ways and Means of Payment, to which we are already so much indebted, will 314 A MONETARY SYSTEM FOUNDED convey a clearer idea of the leading principles, -which underiie the specie basis system, than we could otherwise hope to give. It should be' renienibered that Mr. Colwell's. work was written prior to 1860: "We have seen," says Col well, "that the credit system rests upon the fact, that the business of purchasing and selling commodities is separated from the business of pay- ments; and upon the further fact, that the commodities which men sell are made to pay for those they purchase. So fai- as credits and payments are concerned it is the main obj(jct of every man to apply his credits to pay his debts; to employ what is due to him by others in discharging that which he owes to others. The main agency in this is the banks. It is well known that all the large transactions of business are made upon the credit of the parties concerned in them; that the great stapiles of the country, as well as foreign goods in large quantities, are bought and sold upon individual credit. The market value Involved in every transaction is expi'essed in money of account, and appears on the face of the bills of exchange and promissory notes which the purchaser gives, and the seller takes, as evidence of the debt incurred and credit given in each case. These evidences of debt and credit, which represent, in various shapes, the market value of the commodities, foreign and and domestic, as they move in the channels of trade are the very articles in which it is the object and proper business of the banks to deal. The parties to these evidences of debt, or this commercial paper, having delivered and received the commodities upon which the credits and indebtedness are alike founded, have the remaining duty of payment to fulfill." * * " Men extensively engaged in commercial and industrial pm'suits are, by the very nature of their business, both buyers UPON SOUND PEINCIPLES. 316 and sellers — ^both debtors and creditors. It is important to pay their debts, and realize their credits, with the least trouble, expense and waste of time possible. When any two of tliem have mutual accounts against each other on theii books, they compare and balance them; of course debts so paid, and credits so realized, are as satisfactorily paid and realized as if gold had passed on eacli transaction. So each man of business indebted upon promissory notes and bills of exchange, and holding such paper of others for debts due to him, is only desirous of applying his credits to his debts. He never thinks of looking for goUl or siher to effect a discharge of his debts, and as little dof s lie think of exacting such payment from those who are indebted to him." * * "The banks of the United States are tlie chief agencies in this mode of. payment. They offer the means and facili- ties of payment which the parties to this business paper require. They receive this paper, ha\ing some months to run to maturity, and deducting interest for tlie time, give the parties bank notes, or a credit on their books for the proceeds. This is not turning individual notes into money, it is simply turning them into promissory notes of the bank, or deposits; these being of higher credit, and fitted, from the manner in which they are issued, to be used as a cur- rency or a medium of papnent. The real basis of the individual notes discounted by the bank is the commodities which the person giving the notes received. These persons contracted debts to the several amounts qf their notes, and against these debts they hold the purchased commodities. They offer the goods thus purchased to the public, and expect, from their sale, to realize the means of paying the debts. The discounted paper, therefore, exhibits on its face the true market value of the commodities j)urchased by it; 316 A MOXETAKY SYSTEM tOUXDED and the bank notes, or bank credits, given for this individual paper Lave the same basis, with the added guarantee of the bank. All bank notes and bank credits issued npon real business paj)er are virtually issued for commodities .actually moving in the regular channels of trade. The purchasers of these commodities expect to realize enough, by their sale, not only to jiay for them, but a profit beside. "It is this process iohich is continually absorbing bank notes a^id returning them to the banks. The scllei-s of goods receive the paper of the purchasers, and dispose of it to the bank, taking therefor bank notes and bank credits, the latter of which they employ in jjaying their debts, and the former pass into circulation in tlie retail business, and in this way soon reach the hands of the debtors of the banks, to whom they are always as A'aluable as the equivalent, or same nominal amount of gold or silver, and even more desirable, because they pay debts to the . bank equally well, and with less trouble, expense and haz- ard." * * "If the banks in any comraimity have discounted notes to the amount of a million, averaging sixty days to maturity, granting credits therefor to the amount of $990,000, they will promptly give up any or all the notes going to make up the million, for a return of their credits to the amount. The banks give nothing for the notes discounted but credits on their books: what they gave for the notes they- are willing to receive in kind for them. The profits of the bank, being the interest, for which they issued no credits, must of course be paid -when the notes are retired. The main business of the banks consists, then, in purchasing commercial securities and evidences of debt, j)aying for them with their own notes and bank credits, and deducting the interest for their profit. In doing this, they not only UPON SOUXD PHIS-CIPLES. 317 famish a medium of payment in which these commercial securities can be discharged, biit a currency which may be employed in the interval, before it is applied to the extinction of these debts. What cliiefly makes this currency available and effective is, that there is an active and urgent demand for it, to the whole amount due to the bai\ks; that is, for more than all the banks have issued. This demand is active, urgent, daily, unremitting: the notes in bank are maturing daily, and the demand, therefore, ne\er flags; every day has its payments, which are to be effected with money, or the issues of the banks. The latter, in any com- munity where there are banks of circulation, being the chief medium of payment, is the medium most in demand. "We have shown that, in all cases where tlie notes dis- counted by the banks were given by the makers of them for commodities of daily use and consumption, these commodi- ties are immediately offered to the public for bank notes, or checks on bank deposits, as the proper fund with which to pay the discounted notes. The commodities, by their sale, give origin to promissory notes; the promissory notes give rise to the bank notes and credits; these become, in their turn, a medium with which to jjurchase the commodities; and the bank notes and bank credits coming thus, by circulation, into the hands of the debtors to the banks, are returned to the banks in payment of the discounted notes." * * " In cases where banks discount paper not given for prop- erty transferred at the time, it is, or should be, on well grounded confidence that the maker of the jjaper has the power or means of redeeming from the liands of the public an equal amount of the issues of the bank. The banks being large holders of individual paper, either discoimted or deposited with them for collection, they are of course constantly looked to for the means of payment; and a credit 318 A MONETARY SYSTEM FOUNDED on the books of a- bank, granted by the bank, or derived from another quarter, being all that is required, it is earnestly sought for that pui-pose. Where there arc many banks, and large transactions in business and upon credit, the movement of these payments in banks, and the consequent movement of bauk'credits or deposits, become far too comijlicated to be followed up by any process of analysis. One great fea- ture, however, must ever be prominent, and that the most efiEective of all in sustaining the present banking system; that is, that every debtor of a bank is an active agent in purchasing and returning to the bank its notes and credits; that the issues of the banks, whether notes or credits on their books, are more available, convenient and economical for these debtors, than the legal currency of coins. They are more abundant, more easily obtained, and equally effective. It is this which gives to bank notes and bank credits their efficiency and rapidity of movement. The amount of the circulation of the New York banks averaged over $8,000,000 in 1857, and the deposits averaged over •$87,000,000. These constitute the medium in which the payments of the City of New York are chiefly made. "With these, there is a daily payment to be made of from $30,000,- 000 to $50,000,000, anc\ they are quite capable of making that amount of payments each day, for both notes and dej)osits may be j)aid many times during the day. It is very safe to assume that over $30,000,000 of city bank notes and deposits are paid each business day in New York. There is a demand, then, upon these notes and deposits in every week, for payments, to the amount of $200,000,000, and in every month for $800,000,000. This demand daily, weekly, monthly, constantly pressing upon a fund of bank notes and deposits, which may at no time exceed $100,000,000, is certainly active and pressing enough to keep ujj the value UPOK SOUND PEIXCIPLES. 319 of a fund so much used, aud so indispensable to tlie men who have $200,000,000 to yay eveiy week. "That these suras are far within the actual daily payments of New York is apparent from the operations of the Clearing- house. The amount cleared daily, in 1857, was over $20-, 000,000, and these clearings are but the balances on the transactions between the banks. A vast sum of payments is made every day in the business of such a city as New York, which is in no way embraced in the transactions of the Clearing-house. If we assume that the whole of the payments effected yearly through the agency of banks in the United States, is only ten times greater than the amount paid yearly in New York, we shall have an aggregate 400 times greater than the amount of the precious metals in the country; 500 times the amount of the bank note circulation of the United States; 400 times the amount of bank deposits; and 30 times the annual value of the whole productive industry of the country." * * "In the great movements of industry and trade, goods and services pay for goods and services; the promissory notes, bank notes, bank credits, or other currency'-, which intervene, are devices of adjustment, and not the very pay- ment ultimately aimed at. Men give what they have to spare, to obtain what they desire. If they do not, in the first instance, sell for money, and with that purchase what they want, they take a security or evidence of debt; they make their purchases upon their individual credit, and give evidences of debt. The debt and credit extinguish each other in the banks, and the parties have, in substance, e.xchanged goods; all the rest is merely keeping and bal- ancing accounts between them. These securities are issued, in this country, to an amount not less than $1,000,000,000 every three months, in which period this amount continually 320 A MONETAEY SYSTEM FOUNDED runs off and is renewed, making $4,000,000,000 in the year. Of this 11,000,000,000 of securities, the banks become the owners and collectors; and for half this amount they are under a constant engagement to jjay money on demand. To meet this engagement, the banks hold $60,000,000 against $500,000,000, or twelve per cent, of the amount. Of course, absolute convertibility of all this fund of securi- ties into specie, on demand, is an impossibility. If all the gold and silver in the country, estimated at $250,000,000,, were in the banks, it would be an impossibility. It must, therefore, continue to be impossible; and hence arises one of the gravest difficulties connected with banks of circula- tion. " If bank notes, like checks upon banks, were confined in their use and circulation to those at whose sjjecial instance they are issued, and whose debts are to be adjusted by them, there would be less occasion for any public interven- tion or concern. For the public have little interest, whether men thus mutually indebted discharged their debts by bal- ancing accounts, by bank notes, or by checks on banks. But the experience of a century and a half has shown that, where bank notes are offered as a currency, they are freely received, and soon become the chief medium of exchange. It is almost invariably true that, wherever bank notes are offered as a currency, with even the slightest pretensions to regularity and securit}^, they are accepted, and pass rapidly into general circulation. This facility of converting bank jjaper into a currency is a strong temptation to resort to it,, and accounts in part for the multiplication of banks of circulation in this country and elsewhere; but it has given rise, also, to that ceaseless jealousy with which this system of banking has been watched. There is, jperhaps, more ground for this jealousy than many friends of the system UPON SOUND PEINCIPLES. 321 have been willing to acknowledge. If the circulation of bank notes had been confined to the payment of the debts in which they originate, no more mischief could ensue than now arises from the employraient of cliecks upon banks, which the parties using them are interested to keep within legitimate and safe bomids. But as bank notes, wherever offered, secure a Avide circulation, it is not enough to say, let peoiDlo take them at their risk, as they take them at their discretion." * * "We have said, and the figui-os we have adduced show, that convertibility of the notes and deposits of our banks is im230ssible, even when the banks are in the bt-st condition. And that this must continue to be the case, constituted as the banks of the United States are, is as certain. The main feature of the business of these banks is tlie discount of notes maturing at a future time: wo have previously assumed that the average time to run, of the paper thus discounted, is ninety days, or one-fourtli of a year. They issue to the jjarties at wliose instance these discomits are made, their notes payable on demand, or give them credit on their books for the proceeds, payable in like manner on demand. The deposits of tlie banks are made up, almost altogether, from the notes thus issued, and the credits thus granted. The circulation and deposits of 1850 amounted to 5^445,000,000, for which the banks, by tliis mode of doing business, became liable on demand; that is, they received fi'om their custo- mers claims on the public matui-ing in three months, and they become liable to pay a certain amount on demand; in tlie year 1856, for instance, in every tliree months, $445,000-, 000, and in 1857, in every like period, *500,000,000. The paj)er discounted by the banks not being payable on deniand would only be paid, and could only be demanded as it naatured from day to day; wliether tlie sums thus paid into 322 A MONETARY STSTElt POUNDED the banks were eight or ten millions daily, it was all the banks could exact, and if the notes had not been discounted, the amount required to pay them would have been the same. But the banks became liable to the payment of from $445,- 000,000 to $500,000,000 in any one day in 1856 and 1857 — a j)osition, stripped of the mists and prejudice which con- stantly surround it, which should be called, as it really is, stupendously absm-d; and, in times of commercial revulsion, not less dangerous than absurd." * * "Banks of circulation, however, here and elsewhere, are and continue to be placed under stringent legal obligations to pay their liabilities in coins. If any law could compel them to do this, and still leave them power sufficient to carry on the business of banking with the same advantage to their customers and the public as at present, the currency they would furnish would indeed be the best attainable for circulation. For a paper currency of sufficient amount, absolutely and at all times convertible, would combine almost eveiy conceivable advantage. The obstacle is, that such a convertibility is impossible; no legislation can accom- plish it; the omnipotence of the British Parliament could not achieve it. Even the unusual provision in the constitu- tion of the State of New York, which denies the power to the Legislature of legalizing a suspension of specie payments, availed not in 1857, during the fearful panic of the hundred days. This precaution about the notes did not extend to the deposits. The banks suspended upon their deposits, which were ten times the amount of their notes. They have since I'esumed, and have now $31,000,000 of specie to $90,000,000 of notes and deposits. With this enoi-mous and unusual accumulation of gold, payment on demand rests only on the forbearance of the people. The depositors could bring the banks to a state of suspension in two hours. UPON SOUND rEINCIPLES. 323 Upon this state of facts, the common phrase that our bank circulation is based on gold and silver is absolutely untrue. If our paper currency had no other basis than this very uncertain, insecure, and ultimately impossible convertibility, it could not be upheld for a week, nor even a day. The real basis of our paper currency, that vfhich does sustain it through extraordinary emergencies, is the individual prom- issory notes, and other evidences of debt, in exchange for which it is issued. These must all be paid, or the debtors must fail or suspend. The business men of the United States owed the banks, in 1856, the sum of 1684,000,000; and tlie banks were indebted, for their circulation and deposits, $445,000,000. If we suppose tliat these debtors to tlie banks were 100,000 in number, owing an average of $6,840 each, all this mass of business men would bo active agents in redeeming the issues of the banks, of which the average burden of each would be $4,450. The products of tlie industry of a country being sold, individual paper being given therefor, and the issues of the bank being given for that individual paper, it is evident not only that the issues are based upon tliat paper, but it is equally evident that the commodities for which the individuals issued their paper have come into their hands, that they liave these commodi- ties to offer to the public for the notes in circulation, and for cJiecks on the banks, with which to pay their debts. The real strength of the banks is in this, that their business is founded on the trade and industry of the country; and all the business men, with the commodities of daily consump- tion in their hands, are under the strongest inducements to offer these commodities for the notes and deposits of the bank. "It must not, then, we repeat, be supposed that the basis of our paper currency is specie; the fact is, and must be, 324 A MONETAEY SYSTEJI FOUNDED Otherwise; that is no foundation to be relied upon, which! must go with the first flood. No superstructure like our banking system should be reared upon a quicksand. We do not urge this as an argument against convertibility on demand, in the asjaect of a check upon the banks. It may be necessary or expedient, but cannot be so on the ground of its being the basis, or adequate security, of bank issues We should not make the concession even by implication, that $50,000,000 or $60,000,000 of gold and silver can be any proper basis for issues or liabilities of the banks to th« amountof $445,000,000 to $500,000,000: it is a mere delu- sion, to regard the former amounts as sufficient to sustain at demand for the latter." * * "We object, then, to a phrase so likely to mislead, as that of calling gold or silver the basis of paper cuirency, under tlie present constitution of our banks. The obligation to jjay on demand can be nothing more than a check on the abuse of banking, or a security to the public, and as such, only should it be regarded and discussed. If it be indis- isensable, it is upon the ground that no other adequate secm-ity is attainable. We do not believe this, and regard this attempt to place the credit system on the back of our coinage system, as partaking of that caution and wisdoni which would place a locomotive, for its best service, upon ai one-horse cart." THE COST OF THE SPECIE BASIS SYSTEM. Under the specie basis system the money of the countiy is locked up in bank vaults as the basis of bank currency^ and the business of the country is necessarily carried on withi credit and currency. The amount of credit and currency- is limited, not by the amount of specie held by the banksj, but by the amount of propeity and commodities moving UPOX SOUND PKINCIPLES. 325 iaithe channels of trade. Tlie cost of such a medium of exchange is enormous. The amount of the loans and dis- counts of the banks during the year 1875 amounted, on an average, to nearly |>1,000,000,000, the interest on -wliicli at 10 ijer cent, is $100,000,000.* The" loans and discounts made outside of the banks doubtless exceed tlie loans and discounts of the banks, but assuming that they are the same (^1,000,000,000), and that the rate of interest averages 15 per e«nt. for the year, it would amount to $150,000,000, or in all $250,000,000 i:)aid yearly in the way of interest. But there is another method of arriving at an approximate cost of the system, which makes the amount much lai'ger. The clearings of the banks of New York city average about $20,000,000 daily. Estimating the j)aynieuts of the city of New York at $-10,000,000 daily, and the payments of the whole country at five times that amount, or $200,000,- 000 daily, will gi\'e $60,000,000,000 for the year. If this vast sum of payments costs the pajcrs on an average 60 days' interest, or say one per cent, on the wliole amount, it will make the sum paid yearly under the credit system ^600,000,000. This vast sum is paid by the industries of the country. With a medium of exchange occupying the channels of trade, unencumbered by interest, such as specie or lljgal tender Treasury notes, the greater portion of this enormous sum would be saved to the jjroducing classes of the nation. The interest paid for a medimni of exchange furnished by the banks and for the use of credit rendered necessary by the bank currency system, is a burden U23on production and trade, that can only be removed by the extinction of banks of issue and the substitution of legal tender Treasury notes for bank currency. •See Page 203. 326 A MONETAKY SYSTEM POUNDED COMMEECIAL CRASHES AND MONEY PANICS. When the business affairs of the country are in active operation, the whole amount of credit and cun-ency available for the f)urposes of trade is in constant demand. As trade increases the demand" for credit and cun-ency increases, until it becomes inflated to a dangerous extent, or a demand for specie may arise abroad. In either e-\ent the banks are obliged to provide for their own safety, and the withdrawal from business men of the required amount of currency and credit produces a stringency, which inevitably leads to disas- ter. The manner in which this happens is thus explained by Colwell: " It is not difiicult to see what abundant food for jjanic there is m such a condition of things. Persons in the United States have claims to the amount of $400,000,000 on the banks, payable on demand; these claimants know that the banks . cannot jjay in sjaecie the fifth part of them, and often not the tenth part. And although the specie is not what they need, or would ever have asked, yet they know tliat tlie banks may stop payment in an hour; that they will then be branded as bankrupt; and that they may thereupon be sub- jected to injurious and damaging legal proceedings: panic becomes, therefore, inevitable. Men in such circumstances feel themselves to be involved in a widespread, complicated calamity. They fear the result, not only for the amount of their present deposits, and the bank notes they hold, but they tremble for other debts due to them, and are in equal dread about what they owe. They know that if this machinery of the credit system is stopped, or seriously disturbed, debts cannot be paid. The banks, under the influence of a panic, knowing that they can neither trust one another, nor the unreasoning public, for an liour, adopt what seems to them the only safe course; they receive in payment UPON SOUND PRINCIPLES. 327 all their issues as fast as current payments return them, without, however, as usual, keejjing up the currency by fresh discounts. If the payments at the banks amount in the United States, for each day, to $300,000,000, the with- drawal of the usual facilities at the banks by contraction, to the extent of even one-half, would rapidly absorb the stock of bank notes and deposits applicable to current payments, and of course make these pgiyments daily more difficult, and finally, to a large extent, impossible. High interest, such as eighteen, twenty-four or thirty-six per cent, per annum, supervenes in this hour of trial to check still further the circulation of that portion of the bank notes and deposits not absorbed by the banks." * * "The contraction in New York, in the panic of 1857, is a specimen of what the banks are constrained to do, to save themselves. They can only protect their cofEers by refusing to issue the usual supply of currency. The diminution of loans and deposits in the banks of New York stood thus ia August and October, 1857: Lo.ins. DcLJOSits. 15th of August. $121,241,472 $92,356,328 19th of September 108,777,421 75,772,774 17th of October 97,245,826 52,894,623 "This exhibits a reduction of discounts, in one month, of $13,000,000, and the succeeding month of $11,000,000; that is, $24,000,000 in sixty days: in one month deposits ran down, under this operation, $17,000,000; in the succeeding- month, $23,000,000; making, in the two months, a reduction in the chief medium of payment of $40,000,000. The deposits were thus reduced nearly one-half. It cannot be surprising that, under such a process of contraction, interest went up to between fifteen and thirty-six per cent., and exchange down to nine or ten jjer cent, below par. What the banks did in New York was done, in a greater or less 328 A MOXETAEY SYSTEM FOUNDED degree, in other cities; bankrujitcy, ruin and destruction followed. It is estimated that from five to six thousand failures occurred, involving an indebtedness of from $280,- 000,000 to $300,000,000, with a loss to creditors of more than $150,000,000. But this loss bears no comparison with that arising from the depreciation of securities, and from the fall in price of real and personal property, which, judg- ing from the results of estimates carefully made, cannot be less than $500,000,000, and may not improbably be twice that sum. The loss sustained by the men who labor for their living is even more severe in its consequences, if not equal in pecuniary aniount. A million of men idle for .six montlis involves a loss to tlie country of $150,000,000, besides tlie loss upon the machinery, shoj)s, tools and facto- ries, which stand idle when the workmen are unemployed. " The late panic has inflicted, in all its bearings and rami- fications, a loss ujjon the country which may be variously I estimated from $500,000,000 to $1,000,000,000. No doubt the ill effects of the panic were much enhanced by the pre- vious abuse of credit, and that a considerable portion of this devastation should be set down to that account. With every allowance in that respect, we shall have a vast sum of loss to cliarge to the panic; and whether this sum be $400,- 000,000, or $800,000,000, matters not to our view. The loss was, to great extent, unnecessary, cruel, terrible — a loss which has carried privation, distress and ruin to a niilliou of homes. For a time, at least, not yet fiassed, it reduced hundreds of thousands of the best people to a state of entire dependence, if not beggary. "What was the occasion of these dire calamities? The banks of the United States had a reserve of specie for sev- eral years previous to 1857, and during the first half of that year, anaounting to somewhat over $50,000,000; and of this, UPON^ SOUND PBINCIPLES. ' 329 the banks in the city of New York held a little more than one-fifth. To save this amount of specie, the banks con- tracted the currency one-half, denied the usual facilities upoji theii' books, put up the rate of interest from twelve to thirty-six per cent., jjut down exchange upon England to nine or ten per cent, below par, reduced the revenue from customs to less than half tlie usual amount, drew a surplus of $20,000,000 of gold out of the public treasury, and drove the government to an issue of paper promises to jjay its 'Current expenses, dejDrived hundreds of thousands, perhaps inillioDs, of their customary employment, caused some five or six thousand failures among man of business, ajid finally inflicted a loss on tlie country, in tlie depreciation of securi- ties, in the reduction of prices and by insolvency, of several hundred millions. — Not to save this sum .of fifty millions froni being lost, sunk in the ocean, or thrown away, were all these evils encountered, but merely to prevent it from pass- ing into circulation among the people, or at the worst, to prevent it from being exported in payment of debts due in foreign countries. Nine-tenths of the debts of the country are paid, as we have seen, by the, agency of discounts and deposits, with some aid from the circulation of the banks; but the banks have been placed under such heavy penalties to pay all their liabilities in specie on demand, that when they ai'e threatened with a panic, a commei-cial revulsion, or a heavy expoi-t of specie to foreign counti'ies, they are com- pelled, like Sampson in the temple of the Philistines, to j)ull down the whole fabric of ci-edit, public and private, about the ears of the people, to disturb and check the progress of industry in all its .departments, to make bankrupts of their customers, and to sow pauperism broadcast in the field of labor. ■"This compelled policy of the banks, under the stiingency 330 A MOSETAKY SYSTEM FOUNDED of the laws which govern them, has been called paying' specie. But with how little propriety. Instead of paying their liabilities with commercial jjromptness and the faith- fulness of those who are discharging a legal and moral obligation, they resist it with all the power and weapons they can command. In the struggles incident to this resist- ance, they strike down friends as well as enemies, and deprive the public of an amount of currency necessary to business, ten times greater than the specie they are unwilling^ to pay out. And this is the convertibility so long aimed at, and to secure which so much legislation and so much thought has been expended! This is the triumph of banks- which pass through a season of panic and revulsion without suspending! — a triumph like the victory which leaves 100,00(> dead bodies on the field of battle, which makes 10,000 widows, 50,000 orphans, and 200,000 paujiers." THE LEGAL TENDER PAPER MONEY SYSTEM. With the clear and comprehensive analysis of the jjrinci- ples of the bank currency system, contained in the foregoing extracts from The Ways and Means of Payment, before us, it is not difficult to understand how public notes issued bj^ the government can perform the functions of a medium of exchange. The great object of trade is the exchange of commodities; and services, and it is immaterial to the parties interested, whether this exchange is effected by means of a medium possessing intrinsic value, or representative value, as long; as it is done with equal safety, convenience and cost. Public notes, like bank notes, are virtually based on com- modities moving in the channels of trade. There is a con- stant interchange of commodities and services on a vast scale going on between individuals, growing out of thes UPON SOUND PKIUCIPLES. 331 necessities of goveniment, Federal, State and local. To effect this exchange a medium is required. On the one .side are the people, who are obliged to contribute out of their substance in proportion to their means towards the expenses of government. On the other, there is a vast multitude of people to whom ihe government, Federal, State and local, is indebted for commodities and services. Tlie j^eople possess abundant property and pi'oducts desired by the creditors of the government, and the only problem to be solved is as to the manner in which the exchange can be equitably, speedily and economically accomplished. This can be done, and as it is a matter in which the entire nation is dh-ectly interested, it is eminently proper that it fsliould be done, through the instrumentalitj' of public notes issued by the government. Individuals engaged in trade employ the superior credit of banks to enable them to exchange commodities and services; and this superior credit of the banks, for reasons which have been fully explained, serves the pm'poses of money, in the interval between the time it is issued, in the form of bank notes, to creditors of the banks, until it is returned by the debtors of the banks. In the same manner the Superior credit of the government, issued in the form of public notes to the creditors of the government, performs the functions of money, until it is returned to the Federal Treasury by the debtors (tax payers) of the government. The bank notes rest upon the credit of the institutions which issue them, and are a lien ujDon the assets of the banks, which consist of the property of the banks and of their debtors. The public notes rest upon the credit of the government, and are a lien upon the whole property of the nation. Thus far the analogy between pub- lic notes and bank notes is complete, with the ad\'antage largely in favor of public notes, for two reasons: in the first 332 A MONETARY SYSTEM FOUNDEE place, public notes constitute a more economical medium of exchange, because they do not bear interest, and in the second place their security is more ample. There is not an objection to the use of public notes, as a medium of exchange, that does not apply with ten fold more force to the use of bank currency; •while there are a great many objections to the use of bank currency, which cannot be urged against the use of public notes. It is said by the buUionists and bankers that the "security, though ample, is too general and intangible for the purpose ; and that the 'whole property' can only be reached and applied through the slow process of taxation." This is begging the question. The process of taxation is going on constantly, and in point of fact the "whole property" of the people can be reached by a tax warrant much more speedily and certainly 'than the property of the banks and their debtors can be reached by process of law. Again it is contended by the buUionists and bankers that a paper currency, in order to perform the functions of money, should be convertible into gold on demand. It has already been sufficiently explained that this is impossible Tinder the bank currency system, unless the amount of notes issued does not exceed the amount of gold held for their redemption; and in that event there is no need to issue any notes, for the public might as well use the gold. Nothing ■can be clearer than that paper currency is used chiefly for the purpose of supplying the deficiency of money occasioned by the scarcity of the precious metals; and to issue paper notes to the amount of three, five or ten times the amount of gold held for their redemption, and say that they are con- vei'tible into gold on demand, is nothing more nor less than a fraud and a delusion, which inevitably leads to disaster. Tbei'e is but one way to make paper money equal to UPON SOUND PKINCIPLEg. 333 specie, and that is to clothe it with the ability to perform the same functions that specie will perform. That this can be done is fully demonstrated by the instances referred to by Jefferson* and Calhoun,f and by the experience of the French people at the pi-esent time. The partial legal tender paper money of the United States now in use fails to circu- late at a par with gold, because it is not clothed with the same powers as gold. That Treasury notes of the govern- ment, when made a full legal tender, will circulate at -pav with specie was clearly established by the "old demand notes" issued in 186], which, after they were made a full legal tender, went up with gold to $2.85, as compared with greenbacks; and at the present time we find the currency bonds of the United States government quoted at a premium of three or four per cent, over gold bonds. WHAT IS A DOLLAR? Much confusion arises in regard to the nature and func- tions of money, from the fact that people have been led to believe that gold, in some way or other, has been made a standard of value. Such is not the fact, either theoretically or practically, as will be fully shown. The idea of value is something that exists in the minds of the people independent of coins. The unit of value, which is established by custom and education, whatever may have been its origin, is used abstractly. When once a unit of value becomes fixed in the minds of the people, or in other words has passed into the " money of account," it measures all values and is capable of measuring the value of gold and silver, the same as any other commodities. "The value of the unit, or beginning point, being once firmly fixed iit men's minds by constant use," says Cohvell, "remains there wholly independent of subsequent changes of price which •See page 56. tSee page 59. 234 A MOIfETABV SYSTEM FOUNDED may affect the specific avtiele from which it took its rise. Tlius if it sprung from a coin, or a certain quantity of gold or silver, it becomes aftei'waids so independent of these as to be quite capable of expressing the changing i^rices of that or any other coirf. It is, then, a matter of fact that all coni- mei-cial people keep their accounts, compute money, and express prices by the use of a money of account. The naming a price with them is not naming a coin, or any specific quantity of gold or silver; but it is the employment of the denominations of the money of account, which all understand to express a price. There is scarcely any mental operation more generally and constantly in exercise than that which is used to express prices." It was thus that the people of Great Britain came to keep their accounts in pounds, shillings and j^ence. The unit of value with them liad its origin in comparing values with the value of a pound of silver, which was divided into twenty parts denominated shillings. This unit of value was changed by successive changes in the silver coinage, until about a century ago, since which time the unit of value in England has remained unchanged. From about 1660 until 1816, the pound sterling had no corresponding isiece of coin. The English guinea had been intended to represent a pound, but it had not been properly adjusted, and, owing also to the fluctuations in the price of gold, it varied in value until 1717, when its value Avas fixed at twenty-one shillings. In 1816, after much delib- eration, it was decided to fix the weight of the sovereign at 5 pennyweights, 3 grains and 171-623 thousandths of a grain. It is manifest that the whole difficulty was in establishing a coin whose value should correspond to the unit of value of the money of account, carried in the minds of the j)eople. The English sovereign has since been changed several times. The people of the United States have undergone a similar UPOSr SOUiTD PKINCIPI^ES. 335 •experience. Prior to tlie Revolution tlie money of account ■of the colonies was expressed in pounds, shilliugs and pence. The unit of value, the pound, not only differed from the English pound sterling, but was different in different colo- nies. The pound in the following named colonies varied from tlie present money of account in the United States as follows: .£1 — 'New England and Virginia, $3.33 or 6s. to the dollar. " New York and North Carolina, 2.50 or 8s. " " Pennsyl'nia and Middle States, 2.66 or Vs., 6d. " " South Carolina, 4.28 or 4s., 8d. " Tliere were no coins in existence coiTCsponding to these amounts. These different units of ^alue had their origin in various causes, which we will not stop to discuss; but when industry and trade had become sufficiently advanced they became fi.xed. The trade of the colonies with the West In- dies liad introduced into the country a considerable amount lof Spanish coins. The names and values of these coins did not correspond to the money of account of tlie people, and .their value was estimated in the money of account of the several colonies precisely as that of wheat, or any other •commodity, was estimated. In 1792 an act was passed by Congress with a view to establishing a uniform money of account throughout the country. People reckoned in pounds, ishillings and pence, and jDaid in Spanish dollars. It will be a-emembered that continental money was payable in " Span- ish milled dollars, or the value thereof in gold or silver." The Act of Congress of April, 1792, declared— " Tliat the money of account of tlie United States shall be expressed in dollars or units, dimes or tenths, cents or liundretlis, and mills or thousandths; a dime being the tenth jjart of a dollar, Si cent the hundreth j)art of a dollar, etc.; and that all ac- counts in ±he public offices, and all proceedings in the courts 3a6 A MONETARY SYSTEM FOUNDED of the United States, shall he kept and had in conformity to> this regulation." This is believed to be the first time that a money of account was ever established by law — moneys of account having in all nations grown ujJ in the minds of the people. The word dollar, however, expressed a value which was fully understood by the people, without any reference to a fixed amount of gold or silver. The great difficulty consisted in fixing the amount of gold and silver that would be equal to a dollar. By the same act a coinage of gold and silver was provided for; "Dollars, or units, each to be of the value of a Spanish milled dollar, as the same is now current, and to> contain 371 4-16 grains of pure, or 416 grains of standard silver. * * Eagles, each to be of the value of ten dol- lars, and to contain 247^ grains of jiure or 270 grains of standard gold." Other coins were to be in the same propor- tion. It was then declared and established, that 371 4-16 grains of pure and 416 grains of stand.ard silver, shall be current as money at the jjrice of one dollar, the value of tho unit of the money of account; and gold eagles and half eagles were made current in like manner. The act further jjrovides, "that the proportional value of gold to silver, in all coins which shall be current as money within the United States, shall be as fifteen to one, according to quantity in weight, of i)ure gold or pure silver." This attempt to fix the price of gold and silver by law proved a failure. The pi-ice of gold as compared with silver was fixed lower, as it proved, than the market price, and the result was that gold ceased to circulate as money to any extent until 1834, wlien the amount of pure gold in the eagle was changed from 247|^ grains to 232. After the disco\'ery of gold in, California and Australia, gold depreciated in value, and silver, becoming the more valuable metal of the two, according to the standard established by Congress, deserted UPON SOUND PRINCIPLES. 337 the channels of trade. This was remedied, in a measure, br the act of 1853, which changed tlie coinage of silver about seven per cent. The weight of silver half dollars was fixed at 192 grains, and the smaller coins in the same proportion. The simple fact is, that gold and silver fluctuate in value like other merchandise, being governed entirely by the uncontrollable law of supply and demand, and it is about as absurd to attempt to fix, by law, an unchangeable price on gold or silver as uj^on a bushel of wheat or a day's labor. Sir James Stewart, in his work on political economy, says: "Money which I call money of account, is no more than a scale of equal parts, invented for measuring the respective value of things vendible. * * Money of account per- forms the same oifice, with regard to tlie value of things, that degrees, minutes, seconds, etc, do with regard to ajiglus, 01- as scales do to geographical maps, or to plans of any kind. In all these inventions there is some denominative taken for the unit. In angles, it is the degree; in geography, it is the mile; in plans, it is the foot or yard; in money, it is the 230und, li\re, florin, eti'. The degree has no determinate length, so neither has that part of the scale upon plans or maps which marks the unit; the usefulness of all these being solely confined to the marking of proportions. Just so, the unit in money can have no invariable determinate proportion to any part of value; that is to say, it cannot be fixed in perpetuity to any particular quantity of gold or silver, or any other commodity. The value of commodities depends upon circumstances — their value ought to be considered as chang- ing with respect to one another only; consequently anything which troubles or perplexes the ascertaining these changes of proportion by the means of a general determinate and invariable scale, must be hurtful to trade; and this is the infallible consequence of every vice in the policy of money 33 338 A MOSETAEY SYSTEM FOUXDED ■or coin. * * It does not follow, from this adjusting of the metals to the scale of value, that they themselves should, therefore, become the scale." It is of course denied by the buUionists that any such cur- rency can be established, as will naturally conform, to the money of account; but upon what other hypothesis can the success of the greenback, as a currency, be accounted for? Duiing and since the rebellion the greenback has performed all the functions of money. Gold in the meantime has ranged from par to $2.85. If gold was the standard of value the price of all commodities would fluctuate with gold; but com- modities rise and fall in price, as measured by the greenback, without reference to the price of gold (except articles on which duties are paid in gold.) It is said, however, that now that matters have become settled the price of gold shows the de- preciation of the greenback; and only recently a distinguished ex-United States Senator,* in a letter to the Hon. S. S. Cox, proposed to change the unit of value (the dollar) from lOQ cents to say 85, or the supposed present value of the green- back as compared with gold. If gold coins and greenbacks "were on the same footing, such reasoning m.ight carry some ■weight, for there would be reason to believe that the money of account of the country had undergone a change; but until greenbacks are made a full legal tender, it is entitled to no consideration whatever. If gold was only a partial legal tender and greenbacks were a full legal tender, greenbacks would probably bear a premium over gold, just as currency bonds bear a higher premium than gold bonds, because they possess a slight advantage over gold bonds in point of time. The inconvertible inscriptions of credit of the Biink of Venice were at a premium of 20 per cent, over gold for centuries, simjily because they were endowed with superior •Hon. Edgar Cowan, of Pennsylvania. UPON SOUND PRINCIPLES. 339 powers to coin; and for centuries these inscriptions of credit, conforming as they did by law to the money of account of the people, constituted an unvarying standard of value, by "which all commodities, including gold, were m.easured. The standard of value of the Venetians thus instituted changed only with the money of account of the country. Gold, if not made a legal tender in payment of debts, performs the fuiictions of a medium of exchange simply as an equivalent; but when made a tender it is invested with additional powers. If the amount of gold put in a dollar is less in value than the money of account, injustice is done to the creditor; if more, injustice is done to the debtor; and when too much gold is put in a coin, it will cease, if there is any other tender, to circulate as money at all. The fact is tliat the precious metals, considered in their true light, have simply come to j)erform, in the commercial world, the functions of an universal equivalent, and pass lay weiglit, except when made a tender in the shape of coins-; and are subject, in regard to price, to the same laws which govern other commodities. At the present time silver is some two or three per cent, below j^ar, while gold is about twelve per cent, above, as measured by the greenback. This is due almost entirely to the character of the legislation which regulates the circulation of gold, silvei- and paper. Gold, then, performs the functions of a medium of exchange by reason of its intrinsic value; and public notes and bank notes perform the same offices by reason of their possessing representative value, not of gold, but of property and commodities, including gold. (It will be observed that in using the words "public notes," Treasury notes are referred to, not as a legal tender, but as a device of the credit system, the same as bank notes.) The bank note virtually represents the commodities moving in the channels '340 A JIONETAKY SYSTEM FOUNDED of trade, which brought it into circulation, and rests upon the credit of the institution which issued it; iu like manner the public note virtually represents the profierty or commod- ities levied by the government to defray its expenses and discharge its obligations, and is backed by the credit of the government and the entire property of the nation. It was in this sense that Calhoun asked, "Wliy not use its own credit (the credit of the government) to the amount of its own transactions? "Why should it not be safe in its own hands, while it shall be considered safe in the hands of eight hundred private institutions, scattei'ed all over the country, and which have no other object but their own private profit; to increase which they extend their business to the most dangerous extremes? And why should the community be compelled to give six per cent, discount for the government credit, blended with that of the banks, when the superior credit of the government could be furnislied separate, without discount, to the mutual advantage of the government and tlie community?" Public notes issued by the government for the purpose of effecting the exchange of property and products constantly taking place between the people on the one side and the ci-editors of the government on the other, should naturally conform to the money of account in which they are stated, and would undoubtedly do so if founded upon sound jninci- ples. The nation possesses abundant property and products of almost every description, subject to the demands of the government; and the goveniment unquestionably jjossesses the ability to command every doUai-'s worth of property and products belonging to the nation. Tlie credit of the gov- ernment, therefore, should be beyond question, and its paper should represent and command property and jn'oducts to the exact amount stated on its face. A note of tlie government UPON SOUND PKIXCIPLES. 341 IS virtuany an order given by the jjeople collectively upon themselves, payable in property and products. To make this oi-der payable in precious metals, when the people have no precious metals, oi- only a very limited amount, is to render it impossible for the people to comply with the order, and compel them to dishonor the public credit. A law making public notes payable in diamonds of a certain degree of ijiirity and weight would be considered voiy oppressive, as well as .absurd, and yet it is upon precisely the same principle tliat the jjublic note is made redeemable in gold. The 2>ublie note will command jDroperty and products, if properly instituted, to the precise amount inscribed on its face, and gold coins can do no more. The creditor of the goveniment wants property and products, and the tax payer must have money (public notes) to jjay his taxes. It is this -that, in the first instance, gives circulation to public notes. The tax payers constitute a vast army of agents engaged in selling commodities for public notes, with which to dis- charge their oblig.itions to the State, just as the debtors of the banks form a Large body of agents engaged in collecting bank notes to pay their debts in b.ank. LEGAL TENDER. People cannot be compelled to part with tlieir property for money, but public policy requires that some equivalent of property should be established as a tender in payment of debts, and this equivalent is styled money. To the creditor it should be immiiterial whether this equivalent possessed intrinsic or i-epresentative value, provided it commanded property to the amount attached to it by law. A dollar's worth of gold, when coined and declared the only tender, is endowed with great advantages over all other kinds of property, as well as over the public note which represents proi^erty. Creditors can refuse to take property or public 342 A MOJfETABY SYSTEM FOUNDED notes, at no matter what valuation, but gold coins they are obliged to take at the price fixed hj law. Hence it is that a public note, which represents property to the amount in- scribed on its face, and should command projaerty of any kind, including gold, will not command gold. Tlie gold has been transformed into money by being made a legal tender. Gold being clothed with special powers over prop- erty, as well as over the public note, conies to be in great demand, and, as it is limited in amount, is absorbed by capital, to be used as an instrument to control jDroperty and public notes; its functions as a medium of exchange are thus capable of being perverted, and the object of the legal tender law is consequently also perverted, greatly to the injury of society and of the public credit. The public note is intended to perform the functions of a medium of exchange for the exchange of all kinds of prop- , erty, including gold, and should, therefore, be made a legal tender. If any commodity is to be made a tender, it should be such a commodity as the people possess or can readily acquire at its market value. The great object of trade is the exchange of property, not property for money or money for property; and money which is designed to effect this ex- change should be instituted in such a manner as to form an unvarying representative and measure of value, conform- ing to the money of account of the nation. But if money is made of a commodity, it will rise or fall in value according to circumstances, and will render trade uncertain, or, as Kellogg aptly expressed it, will make a gambling system of a,ll trade. The responsibility of furnishing a medium of exchange, or declaring what shall be a tender, rests with the Federal Government. It is a matter of vital importance to the nation, individually and collectively, to have money so insti- UPOX SOUND PRIXCIPLES. 343 tated as to clog the productiou and exchanges of the nation as little as possible. In this advanced age credit is evei-y- where used in trade, when credit can he used to exchange products more advantageously than a medium of exchange possessing intrinsic value. It is not only eminently proper^ but it is a matter of public advantage, therefore, for the government to use its own credit, at least to the extent of its own operations. To do this its notes should be made a full legal tender, otherwise the jseople can repudiate individually what they have done collectively, which inevit- ably works injustice to the creditor of the government, and impairs the credit of the nation. The bullionists assert that a paper money, not redeemable in gold, issued by the government, can possess no valuej and that it virtually consists of bits of paper with figures and words printed on them; and political economists are found so shallow, or worse, as to adopt this theory. If this, is true, then are all the paper devices of civilization, by means of which property is held or exchanged, a fraud and a dejusion. But public notes are -not simply bits of paper, to be issued to an unlimited extent. Every dollar emitted by the Fedei'al Government in payment for property, ser- vices, or in discharge of its obligations, costs the people precisely one dollar in property or products, to redeem it and return it to the public Treasury. When public notes, representing commodities moving in the channels of trade, are issued by the government to the extent of its own trans- actions and are made a legal tender, they conform to the money of account of the nation, and become the measure of all values, the standard of all payments and the basis of all money contracts; they, therefore, perform all the offices of money, and pass into general circulation. They are paid out by the government for property or services at their face 344 A MONETARY SYSTEM POUNDEB value; being a tender they pay debts at their face value; and in the end are returned to the Federal Treasuiy in the shajDe of taxes, in lieu of jjroperty, to the amount inscribed on their face. No evidence of debt or device of the credit system ever devised possessed greater elements of strength and security than the public note of a rich and powerful nation, made a legal tender and issued to the extent of its own transactions. The notes of the Bank of France, as we have seen, although not redeemable in specie, circulate at par to the amount of hundreds of millions of dollars, when made a legal tender and backed by the credit of the people. Who will say that the revenues of the United States are not as certain as tliose of France, or that the ability of the American people to jjroduce wealth does not equal that of the French people, or that tlie Federal Government is not as stable as the French Government? The French people are uncertain as to whether they will be living under a monarchical or a republican foi-m of government in ten years from to-day, and yet we see, at the present time, $500,000,000 of inconvertible notes of the Bank of France, made a legal tender, circulating at par, on the credit of the government; while in the United States the notes of the government, not exceeding 1400,000,000 in amount, circulate at a depreciation, as compared with gold, of over twelve per cent. Thi« is clearly the fault of legislation — making the jiotes of the government only a partial tender, when in order to conform to the money of accomit of the nation, they ought to be made a full tender. THE QUANTITY OP MONEY REQUIKED BY A NATION. The question as to how much money a nation needs has led to a great deal of mystification. A nation evidently needs a sufficient amount of money to enable it to effect its exchanges in the most economical manner possible. As has UPON SOUXft PRINCIPLES. 34.5 been exjolaincd, many of tlic <)perations of trade, especially of a large character, can be conducted most speedily, •economically and safely by means of the devices of the credit system, sucli as bills of exchange, notes, checks, etc.; while, on tlie otlier hand, in other operations cash is an almost indispensable agency. By cash is meant money, such as gold or silver coins, or public notes, made a legal tender in payment of debts. There should, therefore, be a sufficient amount of money in circulation to enable those engaged in exchanging property or services to avail them- selves of either cash or ci'edit, or both, in such projjortions as may be most advantageous. Under the bank currency system, money, us we have seen, scarcely circulates at all. The medium of exchange consists of bank currency, which is used as a substitute for cash. Bank currency bears interest, and it, therefore, constitutes a very expensive medium — far more expensive than gold or silver, or legal tender imblic notes, which bear interest only when used as capital in individual transactions. Tlie volume of bank currency is regulated, not by the wants of ti'ade or the exchanges to be effected, but by artificial cir- cumstances; and it frequently haj)pens that bank currency, as at the present time, will desert the channels of circulation almost entirely, because industry cannot afford to pay the tax which it entails upon the community. The precious metals can be obtained only by digging them out of the ground in localities where they exist, or by ■exchanging products for them at their market value; and when obtained can be retained in the country only by importing commodities to a less amount than are exported. Legal tender public notes, like bank notes, can be issued to an unlimited amount; and the only question to be con- sidered is as to the amount which the government ought to 346 A MONETAKY SYSTEM FOtTSDED" issue. It is perfectly clear that the government ought to issue, at least, an amount sufficient to conduct its own. ti'ansactions with the people. This amount is based oa commodities moving in the channels of trade (between the tax payers and the creditors of the government), as certainly" and as securely as any commercial paper or bank currency" was ever based on commodities, to which they owed their origin. The i-eveimes of the government, for example, amount to about $300,000,000 a year. This requires an exchange of property or products to that amount. How m^uch money will it take to efEect this exchange? Who can tell? The public note, when issued by the government to effect this exchange, passes into circulation and performs the offices of a medium of exchange, not only for the purposes of the government, but for the trade of the nation. Its offices are limited, therefore, not by the immediate transac- tions of the government, but by the exchanges or trade of the entire nation. It follows, then, that the amount of pub- lic notes put in circulation by the government should be limited only by the exchanges of the nation. This theoi-y, as to the amount of money required by a nation, is fully recognized and endorsed by political economists, who stand high with the bullionists. Professor Bonamy Price, in the quotation given on page 236, says: "A cart transfers weight; money, ownershiij; and all the world knows that the cartage to be done determines the number of carts," etc.; and again, in speaking of the amount of bank notes that will circulate, he says: "The answer is the same as that which has already been given to the parallel question respecting coin. So many bank notes as the jjublic has a distinct want for will circulate, and no more. It is the universal law of all com.- modities in use, the law of demand and supjjly " Money should be instituted in such a manner that the UPON SOUND PKINCIPLES. 347 amount in circulation will conform to the wants of trade, otherwise it will not prove an unvarying standard of meas- ui'B and payment. If money is scarce and intere.st is high, all exchanges become difficult and expensive; property and j)roducts depreciate in value; wages fall and production is diminished. On the other hand, if money is redundant, it will depreciate in value, and property, products and wages M'ill appreciate in value in a corresponding ratio. In either event, money fails to conform to the money of account of the nation, greatly to the derangement of all values, and especially of exchanges of property founded on contract. It is far better, however, for a nation that money should bo too plenty than too scarce, for when money is scarce pro- duction languishes, wages are low, and idleness prevails; but when it is too plenty capital alone suffers; and it is better for the interests of the nation and of society that capital should be idle than labor.' In the one instance (if capital is idle), people are deluded with the idea that they are much better off than they really are, because property rules at high figures; and in the other (if labor is idle), the masseii are much worse off than they ought to be, because property and labor are at a great discount; individuals are brought to want; the jiublic revenues are cut down; the expenses of government become oppressive; and demoralization is rife. It is said, however, that, in any event, the amount of public notes issued by the government should not exceed the annual revenues of the government; otherwise they will become redundant. Why limit the amount by the revenues of a year, instead of a shorter or longer period? This is illusory. The public note performs the offices of a medium for the entire trade of the nation, and to limit its issue to an amount corresponding to the exact amount of the immediate transactions of the government would be 848 A MONETARY SYSTEM FOUNDEIJ similar to limiting tlio amount of bills of exchange used in trade to the exact amount of jDroperty to be exchanged. It is possible that a less amount of ijublic notes would suffice to effect the exchanges of the nation; it is probable that a larger quantity would be required. Whether the public notes issued can be redeemed in the revenues of tlie govern- ment in one, two or three years, is a matter that will not effect their value in the slightest degree, as long as their security is undoubted and their use is required in the chan- nels of trade. This has been abundantly deraonsti'ated by the greenback, both during and since the war. It is idle, therefore, for people to speculate as to how much money should be issued by the government with a view to fixing the amount by law. As already suggested, innumerable cojitingencies are constantly arising which will cause the amount required to vary. How much is needed can never be known until money is properly instituted, and then peoijle will not care to know. Some idea may be formed of the vast character of the exchanges constantly taking place in the nation, when we reflect that the annual -product of industry, agi-icultural and manufacturing, in the United States exceeds $6,000,000,000 a yea:-, and that this mighty mass of products is exchanged many times and in, many forms. All that can be safely said is that money, the principal tool by means of which these exchanges are effected, should be commensurate in amount with the work to be performed. When money becomes too jjlenty, or, as it is termed, redundant, prices go up, pro23erty enhances in value, and wages become high. This is detrimental to trade, works injustice to creditors, and impairs the jjublic credit, if public notes constitute the money of the nation. It is, therefore, a jnattcr of almost as mucli importance to the public that UPON SOUND PRINCIPLES. 349 money should not be redundant as that it shoukl not he too scarce. How is this to be remedied? Public notes are issued by the government for property or services, and are returned to the Treasiuy in the shape of taxes. An increase in the rate of taxation would soon relieve the nation of any redundancy in the currency, just as bank currency is re- turned to the banks under similar circumstances. But in this connection another question arises, which has an im- portant bearing upon the subject, and that is the question of interest. INTEREST. The price paid for tlie use of money or its substitutes is termed interest. When money possesses intrinsic value, as in the case of gold coins, the value of the metal of which the coin is made is one thing, while the rate of interest which the coin will bear is quite another. The fluctuation in the price of the precious metals bears no relation to the fluctuation in the rates of interest of money. The price of gold depends upon the laws of demand and supply, which govern the commerce of the world; but the rate of interest of money, as money is now instituted, is regulated by causes of a local character. Gold may not vary a fraction in the markets of the world, and yet money and its substitutes may, at the same time, be in such demand for the purposes of trade as to command exorbitant rates of interest. It then fails to constitute an unvai-ying measure of value or standard of payment. A dollar that will command 12 per cent, inter- est is a very different thing from one that will only com- mand 6 per cent. To make money an unvaiying measm-e of value and standard of payment, it is necessaiy that it should bear a uniform rate of interest. That money should bear interest is not only legitunate, but essential to the performance of its functions as a medium 350 A MONETARY SYSTEM POUNDED of exchange. Money represents A^alue and should be able to accumulate value; otherwise it would not be accejfted in exchange for property. But, as has been suggested, its power in this respect should be uniform, in order that it may prove an unvarying measure of value and standard of payment. It has long since been discovered that usury laws are in- vain, because they are not based upon sound principles. But monej'' can, and ought to be so instituted as to com- mand only a uniform rate of interest, proportionate to the profits of labor. Money, by reason of its legal tender property, naturally possesses a command over propertj' and labor, and if it is instituted, as at present, so that it can be made to command any rate of interest that can be extorted by capital, its functions are not only perverted, but it is enabled to rob labor of its entire profits. On the other hand, if legal tender public notes are issued by the government in excess of the wants of trade, they will lose the power of money to accumulate value, and then- functions as money will be totally j)erverted, greatly to the disadvantage of the nation and to the injury of the public credit. It is, therefore, as necessary to provide against a reduiidancy, which will lead to such results, as it is to issue public notes to supply the want of a medium of exchange. Inflation, in the sense in which the word is now used, is undoubtedly an evil, second perhaps only to contraction. The application of the term, however, is limited by the buUionists to an over issue of public notes, which loads to en-or and confusion. Public notes, if properly instituted, do not depreciate in valuo when over issued, because the people do not possess suificient property to redeem them, but because the excess is not required for the purjDOses of trade, and they, therefore, fail to accumulate value. It is not on account of the weakness of the credit of the people TIPON SOUND PRINCIPLES. 351 that public notes under such civcumstances fail to circulate -on a par with the money of account, uut because of their redunJaney. This is evident from the fact that bonds bearing interest, which rest upon the same foundation (the jDublic credit) can be issued to a much greater amount than public notes. An excess of public notes is not, therefore, strictly speaking, an inflation of public credit, but simply a superfluous amount of money, an evil which can easily be roemedied. But it is otherwise with bank currency. Then it is not money that becomes inflated, but it is credit, in all its forms, that becomes expanded. This is real inflation, and is far more dangerous to the interests of society than a redundancy of money, because it inevitably leads to com- mercial crashes and money panics. The advocates of the specie basis or bank cun'ency system are, therefore, the real inflationists of the nation. It is possible, as the law now stands, to issue bank currency to the full amount of the bonded indebtedness of the country, about $1,700,000,000, and all that is wanting to call that amount of bank currency into circulation is an opportunity. The loans and discounts of the banks in 1875 amounted to about $1,000,000,000, which indicated the amount of credit'used for the purposes of ti'ade at that time. Bonds of the goxerument bearing interest can be issued to a larger amount than public notes, because the ability of tlie public note to accumulate value is limited to its use as a medium of exchange, Avhile the amount of bonds which can be issued depends upon entirely different considerations. Public notes will not seek investment in a bond as long as they are needed in the channels of trade. During the war $500,000,000 of 5-20 bonds, with which greenbacks were convertible, were in the market for over a year, and the iSecretan- of the Treasury was unable to dispose of more than 352 A JSrONETARY STSTEM FOUNDED $25,000,000. The reason is obvious. The greenbacks were needed for the purposes of trade, and could accumulate value more rapidly in the production! aad distribution of wealth than a six per cent, gold interest bonid-, and it was Jiot until the channels of circulation were amply sui^plied with a medium of exchange that the 5-20 bonds could be sold. We have already suggested that a redundancy of money (legal tender public notes) could be remedied by increased taxation; but it may happen, as was the case during the war, that taxation cannot be resorted to, to the extent of the wants of the government, or the necessities of the occasion, with- out producing distress and defeating the ends of the gov- ernment. It then becomes necessary to employ the credit of the government iii another form — in the shape' of an interest bearing bond. This bond or evidence of indebted- ness represents projierty or products, payable i i the form of money in the, future; while the public note represents j)rop- erty in the process of exchange between the tax payer and the creditor of the government, and is virtually payable in the present. When money (legal tender public notes) becomes red^un^ dant, it is manifest that there are more notes in circulation! than there is property or products moving in the channels of trade to be exchanged through their instrumentality, and consequently more than the exchanges growing out of the transactions of the government will justify. Taxation must be increased to increase the transactions between tax payer and creditor; or, if that is inexpedient or unnecessary, the' form in which the government credit is issued must b& changed, that is, the public note, mot bearing interest, issued. in excess of the wants of trade, must be convei-ted into a bond bearing interest; or in other words, as the government note is no longer payable in the present^ it must be made UPOSr SOUND PKINCIPLES. 353 payable in the future, and justice requires that it should bear interest (accumulate value), just as the public note, when not redundant, was capable of accumulating value, and this, as is obvious, can only be done in the form of a bond. A bond, inter-convertible with the public note of the gov- ernment, is capable of performing a two- fold service; it will prevent a redundancy of public notes, and it will regulate the rate of interest which money will command. Wlien public notes become redundant and arc unable to accumulate value, the excess would naturally seek investment in an interest bearing bond ; and when money (public notes) is^ able to accumulate value more rapidly in production and trade, and interest rises, tlie interest bearing bonds of the government would ai^ain be converted into money, and thus the equilibrium would be restored. Money thus instituted could not do otherwise than con- form, in value, to tho money of account of the nation, and, in amount, to tlie wants of trade. It would tlien ahv.ays circulate on a par with money of account — a dollar note would mean a dollar, neitlier more nor less, and would always command a dollar's wortli of property'; interest would not vary a fraction for any length of time; and money would prove, what it is designed to be, an umarying standard of measure and payment. Under such a system of money the exchanges of the nation could be effected economically and e(iuitably, and capital and labor would each secure a due share of the products of industiy; and commercial crashes and money panics could not possibly occur. The amount of interest which an inter-convertible bond should bear is a matter of detail which can be settled fully only by experien<>c. Interest on money, as has been sug- gested, should be in proportion to the profits of industry, 33 354 A JIONETAKY SYSTEM FOUNDED Otherwise capital will be enabled to reap more than its due «hare of the profits of labor. The average rate of increase of wealth in the nation is estimated at about 3^ per cent. "Capital is entitled to a proportionate share' of this increase, and hence the rate of interest of money should not exceed greatly, if at all, the average increase of wealth. For the sake of convenience in computing interest it is suggested that a bond bearmg interest at the rate of one per cent, a day on $100, or 3.65 per cent, i^er annum, should be issued. This, as well as other details, can only be settled by expe- rience. The important jjoint is the institution of a monetary system based on sound princijjles, and its details can be safely left to the government, if its affairs are placed in the hands of capable and trustworthy men, in sympathy with the wants and interests of the nation. It is urged by many who are favorable to the use of the public credit, in the shape of public notes, that a bond is not an essential j)art of the legal tender paper money system; that it would be absorbed by capital, and in the end would constitute a burden upon the nation. This is borrowing ti'ouble. The public notes of the government would not be funded in an interest bearing bond as long as they could accumulate more value in production and trade; and, when funded, they would return to the channels of trade as soon as their services were required. The inter-convertible bond plan is greatly derided by the bullionists and their tools, who do not fail to misrepresent the principles upon which it is based in every way possible. The public note is treated by them as simply a promise to pay money, and upon this hypothesis it is not difficult to prove that it is a very worthless piece of paper. The public note, as has been sufficiently explained, is a representative, not of money but of property, and as the great object of ' UPOS SOUND PRINCIPLES. 355 trade is to exchange property and not .money, it is far more important that the public note should represent property than money (gold coins). The amount of property in the country is estimated at $40,000,000,000; the amount of gold at 1100,000,000. It is to exchange this $40,000,000,000 of l^roperty that money is required and not the $100,000,000; and to base the public credit on $100,000,000 of gold, when it should be based on $40,000,000,000 of propeity, is in utter violation of the plainest principles of the credit system, to which all paper devices for the exchange of property, whether public or private, belong. Again it is asserted that the inter-convertible note and bond is simply paying one paper debt with another. If the public note was simply a promise to pay money this would be true, but the public note, properly understood, is not a promise to pay money, but is a representative of property to the amount inscribed on its face, which the government is entitled to demand and receive forthwith from the people, a,nd in this sense was described by Calhoun as a "promise to receive," and not a " promise to jjay."* HOW THE PUBLIC NOTE IS TO BE PUT INTO CIKCULATION. How the paper money of the government is to be put into circulation is a matter worthy of consideration, espe- cially as friends of the system, with the best intentions in the world, have frequently allowed themselves to be led into error by failing to carry the pruiciples of the system to their logical results. As the public note represents property and products which the government is entitled to demand and receive forthmth, in the way of taxation, to the amount inscribed on its face, and is virtually based on such prop- erty or products in the process of transfer from the tax payer to the creditor, just as other devices of the credit system "See page 60. ''56 A JIOXETABY SYSTE.M FOUNDED are based on commodities moving in the channels of trade, it is clear that it (the public note) should only be issued by the government for property or services. If the govern- ment should issue public notes without reference to the ability of the nation to respond in property and products in the way of taxation, as for example, to pay oil the public debt in paper money, when a corresponding amount of property and jn-oducts could not be transferred at the same time to the creditors of the government, would, as is manifest, be a gros? infraction of the principles upon which the legal tender paper money system is founded. The creditors of the gov- ernment are paid in property or products, and the public note must not only represent such jjroperty, but must be able to command it, which can be done only to the extent to which the people are able to respond in the way of taxa- tion. Hence it is idle to talk about liquidating the jjublie debt with paper money, or any other kind of money, any more rapidly than the people are enabled to produce wealth (property and products), which can be applied to that pur- pose. It has already been explained that the amount of money which the government can issue is limited, not by the amount of the transactions of the government for any speci- fied time, but by the transactions of the entire nation, which are constantly varying in amount. But when the channels^ of circulation are supplied with a medium of exchange no more public notes can be used; it is essential, therefore, tliat their emission by the government should go hand ini hand with taxation. THE NATIONAL DEBT. Debt, whether individual or national, is inconsistent witli true independence, and the payment of the national debt at UPON SOUND PEIN^CIPLES. 357 the earliest clay practicable should never be lost sight of for a moment. If the bonds of the United States are payable in lawful money, it is then possible to redeem them in property or products, in which they should be redeemable, as rapidly as tlie nation can pi-oduco a surplus of products, but if made payable in gold, which does not circulate in the channels of trade, their redemiJtion is rendered well nigh impossible. If forced resumption takes place the public debt of the United States may be regarded as permanent, and its increase inevitable. The experience of England in this respect is worthy of note. At the close of the Napoleonic wars in 1815 the producing forces of England wore in full exercise, and the revenues of the government were enormous. England immediately began to reduce her public debt; but the money power interfered and resumption was decreed; and the liquidation of the public debt ceased. "When the Rebellion ended in the United States production ran on, owing to the abundance of money in circulation, to a mar- velous extent, and the Federal Government was enabled to reduce the jHiblic debt sonic $500,000,000. But the jDolicy of contraction soon curtailed jiroduction, the revenues of the government began to decline, and the payment of the public debt practically ceased. It remains now to return to specie payments to render it permanent, and to accomplish this end the money power is exerting its best efforts. It is to the advantage of the money jjower to havfe nations in- volved in debt, as well as to have money scarce; in this way goverinnents and nations are rendered subservient to capital. No event in modern times has spread sucli alarm among the money kings of the world as the adoption of legal tender paper money by the people of the United States. 358 A MOXETABY SYSTEM POUNDED None know better than the money kings that if the system is adopted in its entirety, it will ultimately release the masses from the bondage in which they have been held for ages by capital, and hence the bitter opposition with which the sys- tem meets. For several hundred years past commerce and trade have been engaged in a constant struggle to cheapen money, the tool of exchange ; but it was not until ,the United States made the public note a legal tender that any progress was made, except in the use of substitutes for money, which were controlled entirely by bankers and money lenders. When the American government began to issue legal tender paper money, the money kings of the world perceived the necessity of taking measures to reverse the tendency of affairs, and they organized not only to destroy legal tender paper nioney, but also to demonetize silver, in order that they might be able to maintain their rule. That an organized conspiracy exists to demonetize silver for the purpose of increasing the power of money, is evident from what has occcmTcd in Europe and in America within the past few years. Silver has been demonetized in England, Germany and Holland, and firactically in France and in the United States. No country in the world produces so much gold and silver as the United States, and yet the people of the United States are unable to retain it in the country. The same condition of affairs prevailed prior to the war, when we had the specie basis system of money, so that the inability of the people to retain gold and silver cannot be charged to the use of public notes. The simple fact is that gold and silver cannot be retained in the country until the j)roduoing forces of the nation are sufficiently developed to enable the nation to export more than it imports; and in the second place gold and silver and UPON SOUND PRINCIPLES. 359" paper money will not all occupy the cliannols of cii-culation, at the same time, unless they are all clothed with equal powers as money. If specie circulation is desired, therefore, it can only be- attained by making gold, silver and the public note equal legal tenders; then, as soon as the nation is able to retain the precious metals, they will occupy the channels of trade- as a matter of course. The bullionists and bankers them- selves are comi^elled to acknowledge that forced resumption will not give specie circulation, but they say it will fix prices- at a gold standard. This, as has been fully shown, is not only a delusion but a barefaced fraud. The notes of banks- of issue, which the public will be obliged to use, cannot be maintained on a par with coin, if redeemable only in coin, unless the banks can retain the coin to redeem them, and to say that the banks can retain specie in the country, when the nation cannot retain it, is absurd, as well as contrary to- experience. The only way in which the people can hope to reduce and eventually liquidate the public debt, is by the adoption of a system of money, such as has been described, which will give industry free development, and enable the nation not only to largely increase its production of wealth, but to render it available when produced. CONCLUSION. Those who desire to fully imderstand the money question can only hope to do so by always keeping in view the fact that the great object of commerce and trade is the exchange of property and products, and that money is designed to be simply a tool to accomplish that end. Money is nothing; more than "one of man's own inventions, a contrivance which he has himself devised for rendering an indispensable 360 CONCLUSION. service to the practical life of every civilized people."* Its institution is a governmental duty, and as political sover- eignty in the United States, theoretically at least, resides in the people, it is incumbent ujson them to take hold of this question and compel their servants to dispose of it in such a manner as will best subserve the interests, not of a single class, but of the entire nation. Thus far almost the entire course of Federal legislation has been controlled and directed by the few, in utter disregard of the rights of the many and of the honor of the government, and especially was this the case during the late Rebellion. Eulogies, it is true, are frequently heard from servile or subsidized sources of the j)atriotism of capital during that trying period. They a,re utterly false. "Not a patriotic act can be found in its history. It neither volunteered its services nor submitted to a draft. Its supiDort of the government was purchased at the highest price ever paid by a bleeding people. It was in truth a traitor to the existence of the Union — a baser traitor than he who fought to destroy it upon the field of battle. It hid itself fi-om danger, and sold its assistance only for enormous pay, while the rebel soldier ofEercd his life on the field of battle for nothing, excej)t his devotion to an errone- ous j)rinciple. While the soldiers of the North, too, were freely going to the front by the million, the capitalists, who now trample upon them and their children, were allured from their safe retreats in the midst of their hoarded treas- ures only by vast golden bribes. Neither in law or in equity, neither in the sight of human courts or courts divine, have they any claim upon the forbearance or gratitude of the American people." And then, not content with the vast gains wrung from the people in the hour of their extremity, they perfected a plan, to quote again from the •Currency and Banking, by Bonamy Price. CONCLUSION. 361 Bame eloquent champion of the peojsle's canse,* "to hold the bonds of the government as a foundation for banking. The wealthy classes were unwilling that the government should deal directly with the people and furnish them with a cheap and safe currency. They insisted upon standing between the government and people. They insisted upon becoming the ' middle men ' in the matter of furnishing a circulating medium; and the profits that have accrued to them as sucli 'middle men' and have been paid by the tax payers, ai'fi withrtut a parallel in the history of any other financial sys- tem upon the face of the globe. * * A government policy which thus taxes its people in order to fulfill a plaui •duty to them, can only be properly characterized as legal- ized robbery." Since the war every energy has been directed by the inoncy power towards the destruction of the greenback and a return to the sjjecie l);isis system of money. The machinery of the govej'nment is in its hands, and it is now iiiming to control the two great political organizations of the country, in order that it may consummate its jjurposes. Tlie issue has been forced upon the nation by the buUionists, the bondholders and the money lenders, whose tools are to be found in every party convention and caucus held in the country. The crisis has arrived, and the masses must arise in their majesty and assert their rights, or liberty in America ■will be a mere phantom. It is not from kings or emperors that the American people need fear tHe loss of libeiiy, but from a moneyed aristocracy, whose hand now rests heavily ■upon the nation. The question is one of paramount impor- tance, involving as it does not only the present welfare of the people, but the ^\"ell being of the nation for many gener- ations to come. It is a question, too, in which the down- ^noii. D- W. VorlieeK. 362 CONCLUSION. trodden masses of other nations have a deep interest, for, if the money power is able to accomplish its designs in free, republican America, where else can the people hope to escape its bondage? The contest will undoubtedly be bitter, surpassing in that respect the memorable contest between the money power and the people under the lead of General Jackson in 1832, but "the flower safety is only plucked from the nettle dan- ger." The political organizations of the country are no longer faithful exponents of the popular will, nor can they be until the money changers are driven from their temples. The people must regain control of their party machinery, or be led like sheep to the slaughter. But it is to be hoped, in the language of Jackson's farewell address touching the same subject, "that, while the people remain * * uncorrupted and incorruptible, and jealous of their rights, the government is safe, and the cause of freedom will con- tinue to triumph over all its enemies." -i-FFE^DIX. THE 3.65 IJfTEE-COJfTERTIBLE BOND SYSTEM. Below we give an able article from the pen of Horace Greeley, on the subject of the inter-convertible bond, which appeared in the New York Tribune of Xoveraber 9, 1871. It will be observed that Mr. Greeley suggested that the bonds should bear a moderate gold interest. This is unnecessary, and would be taken advantage of by tlie gold gamblers. The currency bonds of the United States Government to-day bear a large premium over the gold bonds, simply because they possess a slight advantage in point of the time they have to run. It may be, however, that, if the public note was properly instituted (made a full legal tender and sustained by a bond), it would practically make no difference whether the bonds of the government were payable both principal and interest in gold or legal tender notes. This view is held by many eminent persons. The Hon. Francis "\V. Hughes, of Pennsylvania, a distinguished leader in the democratic party, as well as one of the most profound lawyers in the country, in a speech at Scranton, Pa., in October, 187.5, in discussing this point, said : " What better system could be devised and what better guarantee could be afforded, that our paper legal tenders Avill always remain equal to par with gold, than that whenever there shall bo an excess of currency it can and will go into government bonds pat/able in erfect independence therefrom." The following is Mr. Greeley's editorial: HOW TO REDUCE THE INTEREST OF THE NATIONAL DEBT. "Mr. Boutwell's plan of funding the national debt has had a jjretty fair trial. True, the times have been adverse, but we have generally found them, so when we needed to borrow money. The sum and substance of the Secretary's success is the funding of $200,000,000 at 5 per cent, on the payment of the bonus of 1^ per cent, to the syndicate of foreign bankers who have agreed to take the loan. We would not disparage this achievement, for we regard it as decidedly better than nothing. Add to the interest ($3,000,000) $1,000,000 more for the aggregate cost of printing the new bonds, advertising. APPENDIX. 365 explaining and commending the loan, and the entire cost of funding the $200,000,000 at 5 per cent, for ten years is 1)4,000,000. It seems to me that this does not justify a hope that our $1,500,000,000 of instantly or presently redeemable sixes can be promptly funded even at 5 per cent. Having given to the Secretary's efforts a hearty sup]X)rt throughout, we urge that a radically different plan may next have a fair trial. Before we send another bond abroad to be hawked from banking house to banking house throughout Europe, we ask the government to try — just earnestly to try — to fund the bulK of our debt at home. We could not liave sold our bonds during the dark hours of our civil war to Europe at any price, no matter how ruinous, if we had not first shown our faith in tliem by taking hundreds of millions of them ourselves. So now, having seen liow reluctantly they take our reissues at 5 jjer cent., witli a dis- count, let us show theni that we stand ready to take a larger amount at a lower rate of interest at jiar. Here is the gist of our proposition. Let Congress make our greenbacks fundable, at the pleas- ure of the holder, in bonds of $100, $1,000 and $10,000, drawing interest at the rate of one cent per day on each $100 (or 3.65 per annum), and exchaneable in greenbacks at the pleasure of the holder. Now authorize the Ti-easury to purchase and ex'tinguish our outstanding bonds so fast as it is supplied with the means of so doing by receipts of cus- toms or otherwise, and to issue new greenbacks whenever larger amounts shall be required, every one being fundable in sums of $100, 1,000 or $10,000, as aforesaid, at the pleas- ure of the holder, in bonds drawing an annual interest of 3.65 in coin per annum, and these bonds e.vchangeable into greenbacks whenever a holder shall desire it. The benefits of tliis system would be these: 1, Our greenbacks, which are now virtual lalsehoods, would be trutlis. The government would pay them on demand in bonds as aforesaid, which is in substantial ac- cordance with the plan on which the greenbacks were first authorized. 2. Every person having greenbacks for which he had no present need would j)resent them at some Sub-Treasuiy and exchange them at par for these bonds. Suppose he had $10,000 which he expected to use a month hence, he can make them earn liim $30 meantime, without incurring the 366 APPENDIX. smallest danger of loss by bank failures or otherwise, and with a positive certainty that the money would be ready for him whenever he chose to take it. 3. A merchant leaves New York with a million of dollars which he proposes to invest in wheat at the West or in cot- ton at the South. He calls at our Sub-Treasury, exchanges his greenbacks for these bonds, and takes or sends these to Chicago, Saint Paul, New Orleans, or Galveston, to be exchanged for use when needed. After looking about for a month, he buys half the produce he originally intended, converts lialf his bonds into greenbacks, receives $50 per day or $1,500 in all, as interest, and makes his payments. After traveling and looking for another month, he invests the remainder of his capital, receives $3,000 as interest thereon for the two months he has lield the last half million of bonds, and lays his course homeward. His bonds may have lain nearly all the time he owned them in the vaults of some bank; but they were earning money, not for that bank but for him. 4. Our greenbacks, no longer false, but convertible at pleasure into bonds bearing a moderate gold interest, and exchangeable as aforesaid, could not fail to appreciate stead- ily until they nearly reached the level of gold. Indeed, they would, unless issued too profusely, bo j-eally better than gold. Drawing a higher rate of interest than British con- suls, and convertible at pleasure, as these are not, they would in time obtain currency even in the Old World. 5. The trouble so inveterately borrowed by thousands with respect to over-issues, redundant currency, etc., would (or at least should) be hereby dispelled. If there were at any time an excess of currency, it would tend to precipitate itself into the bonds aforesaid. If there should ever be a scarcity of currency, bonds would be exchanged at the Treasury for greenbacks till the want was fully supplied. Black Fridays and the locking up of greenbacks would soon be numbered witli lost arts and hobgoblin terrors. 6. Though the demand for these bonds might for months be moderate, their convenience and manifest utility would soon diffuse their popularity and stimulate an ever widening demand for them. They would be a favorite investment with guardians and trustees who would expect to be required to pay over the funds held by them at an early day, whether fixed or uncertain. They would say, though I might invest APPEITDIX. 367 or deposit these funds where they would eoramand a higher interest, I choose to place them where I know they will be safe and at hand when called for. 7. Ultimately, we believe they would become so popular that hundreds of millions of them would be absorbed at or veiy near the par of specie, and that with the proceeds an 'equal amount of our outstanding sixes might be redeemed and cancelled, without advertising for loans or paying bankers to shin for us thioughout Europe. The interest thus saved to our country would be an important item. Such are the rude outlines of a plan which we did not ■originate, but which we heartily endorse. Why not give it a trial? We should dearly like to inform Europe that, since she seems not to want any more of our bonds at 5 per cent., we have concluded to take the balance ourselves at 3f ." THE LEGAL TENDER BILL AS IT PASSED THE HOUSE OF EEPRESENTATIVES. The following is a copy of the principal sections of the first legal tender bill as it passed the House of Representa- tives, February 6, 1862: "An Act to authorize the issue of United States notes, and for the redemption or funding thereof and for funding the floating debt of the United States. Sectiox 1. £e it enacted by the Senate and House of JRepresentatives of the United States, in Congress As- sembled: That to meet the necessities of the Treasury of the United States, and to provide a currency receivable for the public dues, the Secretary of tlie Treasury is hereby authorized to issue, on the credit of the United States, $150-, 000,000 of United States notes, not bearing interest, payable to bearer at the Treasury of the United States, at Washing- ton or New York, and of sueli denominations as he may deem expedient, not less than five dollars each. Provided, however, that $50,000,000 of said notes shall be in lieu of the demand Treasury notes authorized to be issued by the Act of July 17, 1861; which said demand notes shall be taken up as rapidly as practicable, and the notes herein pro- vided for substituted for them: And provided, further, 368 APPENDIX. that the amount of the two kinds of notes together, shall, at no time, exceed the sum of $150,000,000. And such notes, herein authorized, shall be receivable in payment of all taxes, duties, imports, excise, debts and demands of every kind due to the United States, and for all salaries, debts and demands owing by the United States to individuals, corpo- rations and associations within the United States, and shall also be lawful money and a legal tender, in payment of all debts, public and private, within the United States. And any holders of said United States notes, depositing any sum not less than $50, or some multiple of $50, with the Treas- urer of the United States, or either of the Assistant Treas- urers, shall receive in exchange therefor duplicate certificates of deposit, one of which may be transmitted to the Secretary of the Treasury, who shall thereupon issue to the holder an equal amount of bonds of the United States, coupon or registered, as may by said holder be desired, bearing interest' at the rate of six per centum per annum, payable semi-annu- ally, at the Treasury or Sub-Treasury of the United States, and redeemable at the pleasure of the United States, after twenty years from the date thereof. Provided, that the Secretary of the Treasmy shall, upon presentation of siiid certificates of deposit, issue to the holder thereof, at his option, and instead of the bonds already described, an equal amount of bonds of the United States, coupon or registered, as may by said holder be desired, bearing interest at the rate of seven per cent, per annum, payable semi-annually, and redeemable at the pleasure of the United States, after five years from the date thereof. And such United States notes- shall be received the same as coin, at their par value, in payments for any loans that may be hereafter sold or nego- tiated by the Secretaiy of the Treasury, and may be reissued from time to time, as the exigencies of the public interests shall require. There shall be printed on the hack of tlie United States notes, which may be issued under the provi- sions of this act, the following words: 'The witliin is a legal tender in payment of all debts, public and private, and is exchangeable for bonds of the United States, bearing six per centum interest at twenty years, or in seven per cent, bonds at five years.' § 2. And be it further enacted, That to enable the Secretary of the Treasury to fund the Treasury notes and floating debt of the United States, he is hereby authorized APPENDIX. 369 to issue, on tlie credit of the United States, coupon bonds, or registered bonds, to an amount not exceeding $500,000,- 000, and redeemable at the pleasure of the government, after twenty years from date, and bearing interest at the rate of six per centum per annum, payable semi-annually; and the bonds herein authorized shall be of such denominations, not less than fifty dollars, as may be detei-mined upon by the Secretary of the Treasury; and the Secretary of the Treasury may dispose of such bonds at any time for lawful money of tlie United States, or for any of the Treasury notes that have been, or may hereafter be, issued under any former act of Congress, or for United States notes that may be issued under the provisions of this act; and all stocks, bonds, and other securities of the United States, held by individuals, corjDorations, or associations, within the United States, shall be exempt from taxation by any State or county. § 3. And be it further enacted: That the United States notes and the coupon or registered bonds, authorized by this act, shall be in sucli forms as the Secretary of the Treasmy may direct, and shall bear the written or engraved sicuatures of the Treasurer of the United States, and the Registry of the Treasury, and also as evidence of lawful issue, the imprint of a copy of the seal of the Treasury Department, wliich imprint shall be made under the direction of the Secretary, after the said notes or bonds shall be received from the engravers, and before tlicy are issued; or the said notes and bonds shall be signed by the Treasurer of the United States, or for the Treasurer by such persons as may be especially appointed by the Secretary of the Ti-easury for that puipose, and shall be countersigned by the Register of the Treasuiy, or for the Register by such persons as tlie Secretary of the Treasury may especially appoint for that purpose; and all the provisions of the act entitled 'An act to authorize the issue of Treasury notes,' approved the 23d day of December, 1857, so far as they can be applied to this act, and not inconsistent therewith, are liei-eby revived and re-enacted; and the sum of $300,000 is hereby appropriated, out of any money in the Treasury not otherwise appropriated, to enable the Secretary of the Treasury to carry this act into effect." Two penal sections (§ 4 and § 5) were adopted as part of this bill, to guard against counterfeiting, but it is not impor- tant to insert them here, as they do not affect the principles of the bill. S4 370 APPENDIX. THE LEGAL TENDER ACT AS IT EINALLT PASSED BOTH HOUSES AND BECAME A LAW. "An Act to authorize the issue of United States notes,. and [for the redemption or funding thereof, and for funding the floating debt of the United States. Be it enacted by the Senate and House of Represen- tatives of the United States, in Congress assembled : That the Secretary of the Treasury is hereby authorized to issue on the credit of the Uuited States one hundred and iifty millions of dollars of United States notes, not bearing interest, payable to bearer, at the Treasury of the United States, and of such denominations as he may deem expe- dient, not k'ss than five dollars each. Provided, however, that fifty millions of said notes shall be in lieu of the demand Treasury notes authorized to be issued by the act of July 17th, 1861, which said demand notes shall be taken up as rapidly as practicable, and the notes herein provided for substituted for them; and Frovided further. That the amount of the two kinds of notes together shall at no time exceed the sum of one hun- dred and fifty millions of dollars; and such notes herein authorized shall be receivable in payment of all taxes, inter- nal duties, excises, debts and demands of every kind due to the United States, except duties on imports, and of all claims and demands against the United States of every kind whatsoever, except for interest upon bonds and notes, which shall be paid in coin; and shall also be lawful money and a legal tender in jiayment of all debts, public and private, within the United States, except duties on imports and interest as aforesaid; and any holder of said United States notes depositing any sum not less than fifty dollars, or some multiple of fifty dollars, with the Treasurer of the United States, or either of the Assistant Treasurei's, shall receive in exchange therefor duplicate certificates of deposit, one of which may be transmitted to the Secretary of the Treasury, who shall thereupon issue to the holder an equal amount of the bonds of the United States, coupon or registered, as may by said holder be desired, bearing interest at the rate of six per centum per annum, payable semi-annually, and redeema- ble at the pleasure of the United States after five years, and payable twenty years from the date thereof; and such United States notes shall be received the same as coin, at their par APPENDIX. 371 Taliie, in payment for any loans that may be hereafter sold or negotiated by the Secretary of the Treasury, and may be reissued from time to time as the exigencies of the public interests shall require. § 2. And be it further enacted, That to enable the Secretary of the Treasury to fund the Treasury notes and floating debt of the United States, he is hereby authorized to issue on the credit of the United States coupon bonds or registered bonds, to an amount not exceeding five liundred million dollars, and redeemable at the pleasure of the United States after five years, and payable twenty years from date, and bearing interest at the rate of six per centum per annum, payable semi-annually; and the bonds herein authorized shall be of such denomination, not less than fifty dollars, as may be determined upon by the Secretary of the Treasury; and the Secretary of the Treasury may ditipose of such bonds at any time at the market value thereof, for lawful money, the ■coin of the United States, or for any of the Treasury notes that have been, or may hereafter be, issued under any former act of Congress, or for the United States notes that may be issued under the provisions of this act; and all stocks, bonds, and other securities of the United States held by individuals, •corporations or associations within the United States, shall be exempt from taxation by or under State authority. § 3. And be it further enacted, That tlie United States notes and the coupon or registered bonds authorized by tliis act shall be in such form as the Secretary of the Treasury may direct, and shall bear the written or engraved signatures of the Treasurer of the United States and the Register of the Treasury, and also, as evidence of lawful issue, the im- print of a copy of the seal of the Treasury Department, which imprint shall be made under the direction of the Secretary, after the said notes or bonds shall be received from the engravers, and before they are issued; or the said notes and bonds shall be signed by the Treasurer of the United States, or for the Treasurer, by such persons as may be specially appointed by the Secretary of the Treasury for that purpose, and shall be countersigned by the Register of the Treasury, or for the Register, by such persons as the Secretary of the Ti-easury may appoint for that purpose; and all the provi- sions of the act entitled 'An act to authorize the issue of Treasury notes, approved the twenty-third day of December, ■eighteen hundred and fifty-seven, so far as they can be applied 372 APPENDIX. to this act, ftiifl not inconsistent therewith, are hereby- revived and re-enacted; and the sum of three hundred thou- sand dollars is hereby appropriated, out of any money in the Treasuiy not otherwise appropriated, to enable the Sec- retary of the Treasury to carry this act into effect. § 4. And be it further enacted, That the Secretary of the Treasury may receive from any person or persons, or any corporation, United States notes on deposit for not less than thirty days, in sums of not less than one hundred dollars, with any of the assistant treasurers or designated deposito- ries of the United States authorized by the Secl-etary of the Treasury to receive them, who shall issue therefor certificates of deposit, in such foi'm as the Secretary of the Treasury shall prescribe, and said certificates of deposit shall bear interest at the rate of five per centum per annum; and any amount of United States notes so deposited may be with- drawn from de^josit at any time after ten days' notice on the return of said certificates; Provided, that the interest on all such deposits shall cease and determine at the pleasure of the Secretary of the Treasury; and Provided further, that the aggregate of such deposits shall at no time exceed the amount of twenty-five million dollars. §S. And be it further enacted, Thatall duties on imported goods which shall be paid in coin, or in notes jjayable on demand, heretofore authorized, to be received and by law receivable in payment of public dues, and the coin so paid shall be set apart as a special fund, and applied as follows: First — To the payment in coin of the interest on the bonds and notes of the United States. Second — To the purchase or payment of one per centum of the entire debt of the United States, to be made within each fiscal year after the first day of July, 1862; which is to be set apart as a sinking fund; and the interest of which shall in like manner be applied to the purchase or payment of tlie public debt, as the Secretary of the Treasury shall from time to time direct. Third^The residue thereof to be paid into the Treasury of the United States." The jDcnal sections (§ 6 and § 1), in relation to counter- feiting, etc., of no importance here, are omitted. SPEECH OF HON. THADDEUS STEVENS IN THE HOUSE OF KEPBESENTATIYES, DECEMBER 19, 1862. When Congress convened in December, 1862, the Hon. rhaddeus Stevens, Chairman of the Committee of Ways and Means, offered a bill similar to the original legal tender bill, which passed the House of Representatives, February 6, 1862. This bill was intended to remedy the evils which had re- sulted from the partial legal tender act, but the money power raised a great hue and cry, and Mr. Stevens, finding tliat it Avas impossible to carry the measure, was forced to abandon it. His remarks upon the occasion were as fol- lows: Mr. Stevens. I ask the gentleman from Maryland, (Mr. Crisfield,) who is entitled to the floor, to permit me to make a statement in reference to the national finances. Mr. Ceisfield. I yield to the gentleman for that purpose. ' Mr. Stevens. The bill which I introduced some days since, to provide means to defray the expenses of the govern- ment, produced a howl among tlie money-changers as hide- ous as that sent forth by their Jewish cousins when they were kicked out of til e temple. It produced, what seemed to me, an unaccountable excitement in financial circles. This was caused, I suppose, by wrong information as to its origin, and a misunderstanding as to its object. This was partly the fault of letter writers, and partly the fault of stock-job- bing money editoi's. I perceive the money article of the Philadelphia Press, of Monday of this week, represents the bill as reported by the Committee of Ways and Means, not- withstanding the papers of last week stated its true origin. I suppose these money-article editors are some dishonest brokers who make gain by their misrepresentations. The bill, as all knew who wished to know, was introduced by me on my individual responsibility, on the call of the Stetes, with the sole object, as I then stated, of referring it to the Committee of Ways and Means. Neither the Secretary of the Treasury nor the Committee of Ways and Means had 374 APPENDIX. ever been consulted with regard to it; nor, although referred! to them on motion of the mover, has it ever been considered by the committee. So much for the origin of the bilL Its contents and objects seem to be equally misunderstood or misrepresented. It is known to this House that I do not approve of tlie l^reseut financial system of the government. When this Congress assembled a year ago, all the banks of the Union, as well as the government, had susijended specie paj'ments. The last $50,000,000 of loan, which had been taken by the- banks at a discount of $5,500,000, payable in coin, was no- longer paid in anything but the currency of suspended banks. The immense expenses of the government, (from $2,000,000' to $3,000,000 daily,) were to be provided for. It was impos- sible to negotiate loans, except at a ruinous discount. The Committee of Ways and Means were expected to provide the means, without any suggestions from any quarter to aid them. After careful deliberation, the committee, or rather as it turned out, the one-half of them, determined to inaugu- rate a system of national currency consisting of legal tender notes, receivable in all transactions between individuals, and between individuals and the government, and convertible into bonds of the United States, bearing six per cent, inter- est, payable semi-annually in lawful money, and redeemable in twenty years in gold or silver coin. The issue of $150,- 000,000 of such notes was authorized, and of $500,000,000 of twenty years bonds. The ,8ystem was simple in its machineiy, and easily un- derstood. It formed a uniform currency, sustained by the- faith of the government, and furnishing but one currency for all classes of people. It was believed that as the legal tender notes accumulated in the hands of bankers and capi- talists they would invest them in six per cent, bonds, so as to realize a profit from their capital. The instinct of ava- rice and gain would never allow them to remain long idle. This conversion and reconversion would have absorbed the $500,000,000 within the fiscal year, and supplied all the wants of government. So long as the legal tender notes remained unconverted the government would have had the. benefit of the circulation without interest. This was the plan of the committee. The currency has proved the most acceptable ever offered to the people. This was the condi- APPENDIX. 375 tion of the bills as presented originally, and as they passed the House. But the simplicity and harmony of this system were doomed to be mangled and destroyed as it passed through the Senate. They began by making two kinds of currency for the same community — a fatal mistake wherever it occurs. They provided that bonds issued as above stated should re- ceive the interest in gold, while the interest of all other bonds should be payable in legal tender notes, tlius produc- ing at the outset a depreciation of the United States notes, and creating a demand for gold to be taken ad\ antage of semi-annually by bullion mongers. Without sucli provision there would have been no demand for a single dollar of gold to be used in this country. If merchants wished to import goods beyond our exports, and that required gold, I should feel but little sympathy for them, whatever jjromium they were obliged to j)ay. Being unable to defeat this pro- vision, I procured to be inserted a provision making the du- ties on imports payable in gold. This was to enable the government to meet the payment of interest in coin. That had one good and one bad effect. It increased our tariff some thirty per cent., but it compelled our merchants to go among the Shylocks to purchase coin to pay their duties. These combined provisions form a mine of wealth for brokers and bankers. The duties and interest will require $60,000,000 of gold annually, and soon double that amount. Now, our banks and brokers have scarcely that amount on hand. They may put the price as high as they please, it must be paid. Suppose the banks in our three great com- mercial cities to have just that amount. If half-yearly they sell the half of it to the government and merchants at thirty per cent., using the other half to the end of the year and then selling it, they would clear by this single operation thirty per cent, on their capital, and have all the profits of loans, on deposits, . and currency circulation besides. The gold would return to their vaults, possibly, by the payment of interest on the veiy bonds they held themselves, and so to be ready for the same operation at the next semi-annual payment, doubling their capital in three years. If a finan- cial system which produces such results be wise, then I am laboring under a great mistake. The next error was to change the twenty-year bonds into bonds redeemable at the option of the government in five 376 APPENDIX. years, and payable in twenty years. Wo all know these long loans sell much higher than short ones. But the most un- salable kind of bond is that payable in a short time if the obligor choose, or at any intermediate time up to a distant day at his option. Every man wishes to know when his in- vestment will fall due, so as to know how to arrange for busi- ness for re-investment. The very uncertainty of the day of payment is a great fault; hence our bonds sell some five per cent, lower than an absolute twenty-year loan would; yet no one believes that we shall be able to redeem them short of that time. The only justification for this change would be the expectation of being able to pay in five years. He must be a very hopeful man who can indulge that idea. Another change, which seems to me equally injudicious, was the allowing the holders of legal tender notes to deposit them with the government agent at interest not exceeding five per cent., and payable on call after ten days. This ef- fectually destrojjed the hope of any very speedy conversion of them into bonds. A holder of them would much prefer lending them on short call at a smaller interest, and wait for emergencies to speculate, than to fund them in government stock. The consequence is, that while $80,000,000 have been deposited on short loan, only about $20,000,000 have been invested in bonds. One singular feature of this pro- vision is, that when $50,000,000 or more of these notes are thus borrowed by government, the Secretary of the Treasury shall keep on hand $50,000,000 of legal tender notes to meet the call, ejther by not issuing the amount authorized, or holding others. It is, in effect, the same as if the govern- ment agreed to take a loan of $50,000,000 at four per cent, and keep it in their vaults without use until the lender called for it; in other words, paying four per cent, interest for the privilege of holding unused a special deposit. How these short loans and the pressing demands for other claims are to be paid, at least after all the greenbacks are once issued, I do not well see. Had they twenty years to run, I should feel easy. These are the objections which I have to the present system. I will now briefly state the provisions of the bill which I introduced. It was intended, tg„restore the law just to the condition in which it left the House of Representatives, and nothing more. The first section provides that the Secretary of the Treas- APPENDIX. 377 lary shall pay off and cancel all the live-twenty bonds and all others -whose interest is payable in gold, and to exchange new bonds for them on such terms as shall be agreed on, or pay them in legal tenders. Certain money editors have professed to see in this a vio- lation of public faith, which promised the payment in gold. JNothing is more false. It proposed to lift these bonds, by negotiating with the holders,'at such rates as could be agreed >on. If the holder declined to sell, he would be entitled to receive his intei-est in gold, according to the original con- tract.. I suppose no man could be found in this House base ■enough to propose repudiation. None but a very stupid man (could so misread the bill. True, it proposed to issue no more bonds of that kind, and repealed the law authorizing it. And yet it has been tliought of sufficient importance gravely to inti'oduce the resolution here declaring in advance that we intended to make no change in the law. What business has anybody to inquire whether in our future issue of bonds we intend to pay the interest in coin or legal tender? It is enough for them to know that in contracts already executed the government will keep its faith. It further proposed to pay off the legal tender interest- bearing deposits, and to repeal the law authorizing such loan. It has turned out just as the committee predicted, that such demand loan has prevented the conversion to any considerable amount. While $80,000,000 of legal tender are deposited on call, but about $20,000,000 have been invested in bonds. It is obvious that at that rate the sale of bonds will aid but little in carrying on the war. It proposes to repeal the law requiring the payment of ■ duties in coin, as well as the interest on future issues of bonds, except one-fifth of the amount of duties. This is retained so as to furnish the government with coin to defray the foreign diplomatic and consular expenses, and the charges of our courts in foreign ports, and the costs of des- titute seamen. Thus the whole currency needed in this country would be legal tender United States notes. The bullion mongers would lose; the merchants and government would gain. Having restored the law to its original shape, it proposes to raise money to pay the pressing debts due to depositors and gold-bearing bonds, the pay due soldiers, and other expenses, by issuing legal tender notes, not exceeding 378 APPENDIX. 1200,000,000 beyond those already authorized, and to issue #1,000,000,000 of bonds, bearing six per cent, interest, pay- able semi-annually in lawful money, and redeemable in twenty years in coin. With $500,000,000 of legal tender notes in circulation, they would accumulate so fast with capitalists and banks that the holders would be glad to turn them to protit by purchasing the loans; and I doubt not before the year would expire the whole $1,000,000,000 of bonds would be called for at par. In my opinion, witli the present law this amount can never be sold except at ruinous discount. I believe that this disposes of the provisions of this bill, which were intended to restoi-e the committee's project, and which was sanctioned by a large majority of the House. The balance of the bill refers to State banks, and imposes a ta.x of fifty per cent, on all their circulation beyond one- half of their capital. This tax is obviously intended for prohibition, and not for revenue. I incline to think it should have taxed all above three-fourths, instead of one-half of the capital. The (jbjeet of this provision was two-fold: first,, to give a wider circulation to United States notes, and thus, induce their conversion; secondly, to prevent the undue- inflation of the currency. I suppose that such a law would drive at least $100,000,000 of bank notes out of circulation, leaving about the same amount afloat. These, together with the: United States notes, would give a circulation of $600,000,000. I believe the business of this country requires that amount. Before the rebellion the paper issues were over $200,000,000, and tlie coin was at least $300,000,000. . I suppose what may properly be called the present circulation amounts to more than that sum. The checks which pass as currency in our large cities are as much a paper circulation as bank notes. They amount to some $200,000,000, 1 imagine, and almost entirely sujjersede bank notes in New York and Boston. When it was said that the currency necessary to- do the business of Great Britain was near two billion dol- lars, the bank note circulation was less than four hundred millions. The rest was supplied by bills of exchange. But in times of suspension of specie payments, banks will expand to an unlimited amount uidess restrained by some national law. I can account for the present high price of everything in no other way than by such expansion or the expectation of it. I fear the true amount of present circula- APPENDIX. 379 tion is not ascertained. Take, as an example, a very sound, well-managed bank in my own district; it has a capital of $320,000; it holds about $150,000 of United States six and seven-thii-ty per cent, bonds; it has on short loan $250,000 legal tender; it has $80,000 in coin; and its circulation is $800,000. In an adjoining district a bank with $400,000 capital has more than its whole capital invested in United States loans, and has a circulation of $1,000,000. Such issues must inflate the currency. The people will run mad with speculation, and in a few years a general crash will follow. My proposition would not reduce bank profits below a fair gain. While susjjension continues they might hold, as they now have, their whole capital in government stocks, bearing at least six per cent, per annum. They could have the profits of a circulation equal to three-fourth of their cap- ital, and bank on whatever deposits they have. This would give them at least ten per cent, interest to pay their expenses and dividends to stockholders. This is enough But I ought perhaps to say, before I close, to my country banking friends that they need not be alarmed. There is no great prospect that we shall return to the system I have indicated, nor do much to protect the people from their own eager speculations. When, a few years hence, the people shall have been brought to general bankruptcy by their unregulated enterprise, I shall have the satisfaction to know that I attempted to prevent it. Mr. Stevens' views in regard to the defects of the partial legal tender system have been fully confirmed by fourteen years' experience, and his predictions have been verified in a remarkable manner. Notwithstanding the defects of the system, however, and in spite of hostile legislation and the existence of the National Banks, it has proved immensely superior to the specie basis or bank currency system, which cursed the country for over half a century prior to the Rebellion, and which the bullionists and bankers are now seeking to re-establish. The people h.avc been brought to the verge of bankruptcy by the machinations of the money power, and the interests of the nation demand that a full 380 APPENDIX. legal tender money system be now given a fair trial. This end can only be accomplished at the polls. The bullionists and bankers, and their tools, are ali-eady in the field, manip- ulating party conventions and caucuses all over the country, to carry out their designs. The masses must organize against them, throw party prejudice aside, and vote for no man for any official i^osition, from the lowest to the highest, who is not known to be honestly in sympathy with tlie peo- ple's cause, and in favor of full legal tender money. APPENDIX. 381 Monthly Kange of the Gold Premium for Fourteen Tears. The following table shows the lowest and highest prices of gold at New York, for each month in the last fourteen years. The left-hand column of each year shows the lowest price, and the right-hand column the highest.* B B p g 2.: : : : VHS o-: c I— ^Kibscococococococococo it.Moe^oc^4»|M'^H -i 0^ it+j aH""*^" (»|wrf:.iM^m-iOj|oiocj^cc)oi-t.}Mrfi-|MtJ',.-iaf-ij^tw 0»— 'I— 'I— 'K-*!— 'I— 't— 'I— ' OOOi— '"bOi— 'I— 'I— 'I— 'OOOO H-i— 1|— 11— 'H- th— 'h-i— 'OOOO '-'•— 'bototccwcotocccoooo (,^1-1 >(»H QcH oc'-'a*" ■fci-' *.|o; oc|M.fcHt>S"' ccjCoeeHcitwacHooiso cc|wJt|MgHmiq-^ooia' boOf-'oaososoooocooocn oe|aih»--ifapccH*'Hool=o'H-'«P"'W-'*^'-'q=fr-'''*H H-'l-'OOOO'-'l-"-"-''-''-' OOCOCDCDCDO^^i— ''"''"'O 00 *From tlie Tribune Almanac for 1S76, §•5- StCtO"-*!— 'OOOOOOm COCOOHbO'-'tOOOOOP — >f^CO^ 00|M (g^-'-W-MHta^ tOJi.OOOCDCnOOCnCDI-'bOO ^.„ WOOOiOCnfyiOi h-^CDCDOi'-'fcOCDOOOsO-^i— ' .. osfcOOiooooTcooooaciOs rf!^ocDcntooTi-»o*a:ci— o ^? ^4^>;k.^^COCOtC4^ht^COCC OGOCOmCOOiMCnOl-'OSrf^ W-aOi-'CDC5Orf».b0C0Mb0 ai\~ia-^ ao|-(^iX(:;toctW cdM .blU .^fU Cc{-J IXJ-.I u|ta t^i -'(ryeqc»^>Wa3e<-Jo:fen'H"' o-aocnOcni-«oO'-'*-bo 382 APPENDIX. FRENCH ASSIGNATS. Fkench Assignats and Continental money are ghosts w}uch have been conjured up to frighten the public by the bullionists and bankers, who wish to monopolize the right to furnish the circulating medium of the nation. The subject of Continental money was fully disposed of in the chajiter on Banks of the United States;* and a word of explanation in regard to French Assignats seems to be necessary. Thiers, in his life of the celebrated John Law, tells what Assignats were as follows : " Assignat was a name given to a peculiar species of paper money, issued during the first French revolution. * * The first issue of assignats was made on the security of the forfeited [confiscated Ecclesiastical] property; and was adopted as a preferable alternative to throwing the forfeited lands on the market; which, * * so large an amount of property would glut. The holder of the assignats might use them as money or claim the land which they repre- sented. " The French revolutionary government wished to pay the debt of the monarchy and the expense of a universal war with the national property [confiscated church property], this property not being disposable, on account of the quantity and want of confidence, it antici25ated the sale, and repre- sented tlie results by papers called assignats. * * But as the success of the revolution began to be distrusted, and doubts arose as to the maintenance of the national sale, they declined, and, as tliey declined, the government, to supply the deficiency, in value, was obliged to double the issue, and the repletion contributed, with distrust, to depre- ciate them." Upon the overthrow of the revolutionary government and the formation of a responsible government, under Napoleon, the church property was restored to its lawful owners, and the assignats became worthless. To compare the legal tender money of the United States to assignats, is simply an insult to the intelligence of the American people. *Se€ page 112. APPENDIX. 383 EXTRACTS FROM KELLOGG. " The most fundamental and important truths in relation to the nature of money, have always been so covered up by the technicalities of law as completely to deceive the people respecting its true character, although they have always known and felt that there was something wrong in its power. Writers upon political economy, as well as the public in general, have taken it for granted that the laws of nations were right in founding the value of money in the innate value of the gold and silver metals out of which it was ■coined: hence the conclusions at which they must all arrive' are just as false as the premises upon which they start. And political economists may continue to wiite and the public may continue to argue upon these premises for centuries to come, and be just as far from the b-uth as when money was instituted upon this basis. Notwithstanding this mystifica- tion about money, its true character and power are very simple, and need only to be clearly and fairly stated to meet the approval of the common mind; and then the public must know that the present centralizing power of money is as gross an imposition upon the common sent-e of man, as it is upon the common rights of labor and property. For if the material of neither gold, silver nor paper money can in itself be used as food, clothing or shelter, then certainly the scarcitj' or abundance of money, or the scarcity or abundance of the materials of money, ought never in the least to inter- fere with a general and full supply of all the necessaries of life. For these necessaries of life are evidently the product ■of labor, and not the product of money. Yet the present .power of money is such that the people are compelled first to work for money, and then to depend upon the power of money to supply the necessaries of life. Thus the power of money is first, and the i:)0wer of labor is second. The money commands the labor instead of labor commanding the money. This is exactly reversing the true order of things, for it is making a dead centralizing power to rule and tyrannize over the living, productive power, whereas the productive ought always to command the unproductive power. If any writers upon political economy, or any finan- ciers, have discovered the true nature, power and use of money, they have not made such discovery manifest to the Tinderstanding of the public. For the laws of nations, as well as the newspapers and other publications of the day, 384 APPENDIX. are still carrying f oi'«'ard and enforcing the idea that money- is a productive, living jjower. Yet the power of money is^ entirely a dead ijower, and totally unproductive, notwithv standing its legal, accumulative jjowers." "The avarice that pen'^ades the civilized world has been ingrafted upon society by the too great power of money. In most countries it has made production by labor degrading to the child whose necessity compels him to perform it. The skill to gain by lending money, and by taking advan- tage of others in bargaining, has been, and is taken as evi- dence of superior talent, until, by example and precept,, avarice has been instilled into the minds of childern. It has grown with their growth and strengthened with their strength until it has cori'upted the very foundations of society. The per centage incomes on bank, railroad, StatCj. and other stocks, and the rates at ^^•hich money can be bor- rowed and lent, are the great leading topics of a business community. The topics are not. How shall we contri\'e t» jjroduce by our labor tlie greatest supply of all the necessa;- ]-ies of life for the general good? but, on the contrary. How shall we contrive to get the largest possible per centage- income with the least possible production on our part? TJiis state of society is directly at vai'iance with such a one as a just monetary system would naturally induce. It is as much opposed to the natural ]-ights of society as falsehood is tO' truth; and no continuance of competitic)n in production or distribution, under the jjresent monetary laws, will be any- more likely to remedy the evils of this debasing system, than conijjetition in falsehood would be likely to j)roduce and sustain truth. We must begin improvement by doing- away the gi-eat gain by unrighteous per centage interest on money; and then the wealth will naturally be widely dis- tributed among those who do the most for the good of man, instead of being gathered in by a few, who thus become the great oppressors of the human family."