,1* im^xsAm^^ t^' tt3 W^' Cornell University Library HG 593.H64 Absolute money:a new systf.™ °J "f ''?,I''' 3 1924 013 814 375 :3 So € ^^ y s a EOPHKMs m Gomwiji Mi) Mss&Sfi^ Ei. to (he Editor of The' Cyrano 'rtibune : CHMAats; Doc. U.—TBS TBiBrHE hss rerernHlmei ;«sl[eil. a question fojrtUB "IndopettaBnta^'.W auBwer, oLdQung^ that they (xnild not sssvrer it, and, a&tll the], cooldj that theiie,»W!M no bop^tor the^ (beorleB. ' Since th^ question was flrat asked there ham sppeaiad ^ Bdme hali-do^e^ colurans of unsuccessful attempts to. answer it. If '^you will now give me tJ^^ or foux' iQchen of scaee I will ipewer it, not heeiusel cainfpl or believe in the^e Cheariee, ba^ simpl^ toilet it out \ of the way. ' . ■^ . '., The question leL •■'» gold redemption U openl) abaudonel, even m ^theory, so th»t the broberawill hot give gold for greenbacks, how ore we to pnrohasa goods from ^teied coautnes ?" Precjsei; ai| vt uurchase ^^ .now, by sailing , om; Iflheat, cueeSe, coitei, els!., and ' letting them pity fot the gbods wo varchan ' o f»r lis they Will pigQ and paying'tbe balaucetin gold and sllTer. }Itit hoK Uire we to git tli^ gb:d if the .'■ brokers " rafuse to gire Sit in exchange for ,greenbacki; ? B}' offidng them som» {U:.n;el6eif we 'h^ve anything else, but if we h»TS; notiuiug that they will g re goid for We can dig It out bf the g^onn^s we are doing all the timsL It 1ft shopld bappen^hat \re had nt> wiie%t> cloth, 6t sugat to giVe the miQere to indus^ ithem to '^oig the Qfold ox to giye the brokers which would tem^t them to paiK with- ii, then we would have to mcnag^ Mnae iMyto make our exports ha ance our imports, [Bow?l That would make us rich as X understand by keeping the " balance of tr de^' in o il favor 1 [Uiwe elport mai« properly than we import wo impoveiish ourselves,— rEc.] Xi; would certainly make us nch to ked)^ allonx '^guid and silYt.r^ at home, [and do without t^ coffee, BolcsB, drug's, ^e-stutte, et<-.';]— thet is, if it ii iTUe that C' 1 is wraltii locordiag to the theory 6t' some of the uoIbI Beiges. [It is certiunly wealth as a purchasin g ^eut according to aH exceut foo's. — Ed.J '' Of course, any and every kind of currency, In order to keep afloat, must be exoaangeable with goltl and every other kind of property. [I^ot exohan^e.cb!e at par unless i!ed?emaule 1^ the maker, — Ed.] It isi Mathematical axiom, that if two quanlitlaB are eq^al to ft third quantity, they are equal to e«:a otfa^, and it Is logical y, Jf ^t mathematically, true tha^ if two thln^ have i^oWb-r to purchase a third thi^g in ^ free m^J^tr'^^7^^^ ^^ exoh.jn;eable with .each otiher. As long Bs gieen«i'ks will purchase wheat , [but they 4out at pari, and wheat will pwchase gold, green- ba( JsB will purchase gold, [The sophism here is la aseamlng that gre tnbacks have par-purchasing power, when they tasve'ouly 86 ] er rent of it, $nd next weel may not b^ve..60 per cent, — Es,] What gives green- t^lis value is that people are willing to give'servlcea for them. (No; the value is measured by wh^tt* pec cent of gold the brokers will give for thB!D,''.-B!o.] The man who gives wheat for greenback does as Much to llve'tfian vilue as the taan who gives gold. [But if a bushel of wheat is worth a dollar In j;ola, ha will pnly give va-rt nf a bushel lor a greenbaoB-doUar. —&0i% Wheat does not Indioite the fluctiiatlotis so ■accurately as gotd^ but It does its miit^ towi rds giving them value. Wiien. peoplaceas'e to give service tot greenbarks from whatoi^r cause, thi y wiU lose theii pow^ to purchase everything else as well' ■* gold, [They give 86 per cent as mnch serviCBS now as for igald.— Ed.] They prsbablf ^ould never have had any tower to pay debts if.pwiile had not taken them, as Ciule, willingly, [The )(»w njpae gives Siem pdiW^-r to pay debts.— £».] The fact thtt the Ii6gal-Ten2e» law Bad been aoiu'«»d in without .resistance by the mass-of the peoplS wa»'prob»blT :wbat cansed the courts to deidde in its tvratHf). \ Onief-Ju^tite OaiSK acknowledged that as » very Im- portiint fact. Slthoagh he was for upsetting the hiw. That Tbb TBlSttSE should hold that it is. necessary to boy gold of the brokers wit/i anmpaekt In oi4eT ta piuchasefor^gn'^ods, or that anything can be don* lo the greenbacks which would make Itlmpbaslble, or , Bv n ihconventent, to make such porctaasss, fs'sui" £bri^n ' to me. '. [Tao ImevKS should not be held teii 'iSonsiale for"yoar Ignonin te.-'ED.J f>i ..iSiight at 'W^Usaythat,,ifliiUorer8 should stoi> giVlag.servtre*. < for greenbacks, the sapply of gold would b* Sut olf, • 'Iait0oe i'- [So ">& would stop if lbs biokeis ref used i'toSveanypildain gold for tlkem,-Bn.l It isUk* ; the Cinclacati'i.aper which wanted more greenback! 'laaued to " suit the Wants of trade," and when It wai Meed that any bank could inorease 'its circulation by •deuoBil&? boiids for security, replied that they ■♦'hadn'tmoney enough to buy the boniie with." ,T Mi"" _, ^^ Amkbi op, It is obviins that " Arosrigo " boks tb« wS«l# 'qaeBtida- Hb simply assuaies that the {armerri will exobaige their whoat, ootton,, oheeBB^, etc, irt par lu gold (or Kreenbaoks, after the theory^ of redeajpyos in gold eh^il hav'e baeq «t>»ii- dooed, 0* course they will do no auolt tUimf. Tbpydonotlike to' do this tiow. They ^ly give Beven-eigftths Of,a dollar's \*Oith of nbeat, 09rn, cattle, ootton, etc.. for a gi-eenbaolt dollar, because a greenback dollar is only wortlj Beveo* eighths of a gold dollar. If a greenbacjt dollat weie only worth one-eighth of a gold dollar, it would tnly bay one-e'gbth ai maoa wheat; cpm, or cottjn. K the daolaratiqp bb ^ads that greenbacks fchall never be redefemed iu gold, not only will the DroUers refuse to «>at thopi at any once after present debts ate paid, bat they ^ill not bo receivetfby the faritters or any othel cldBB of people in exchange for any valuable oommoditT. If "Ameiigo" means that We HhaB teWpse into mere barter, and send forty boshel* of wheat or beventy-flve.buBhelB of corn over to Fraucewhene^ei a farmer's wife wants a silk dress, tnen he abandons ail theory of mon«y and retuma to the barbarian's barter sys- tem. But he would find that this would not work, fjr the loieign counci^es from wbi«b' we buy most— Cuba, Chma, Braalil, Japan, France— do not buy io equal proportion from nB,-^«ome of them scarcely a tenta as much.' What we buy from ihem in excess of whit we send them in products must be paid for in gold and not greeuhaoks or any other irreaeemabia currency. When the b'^kfis cease to give gold for greeTibatks. as they will when greenbacks are declared to be absolutely irredeemable In gold, then where are our MBrchaflt's to get th» gold with nhioh to buy if ihey bava taken green* baoKS for their old stock? "Amerigo" ba« failed to answer the question as muc^j as an^ M the other " greenbaokei s " who, have tried their bauds at it. He may just as well climb down at once as later. A OJrrenoy that is notredeem"ed by the issuer 'must fall into a disoouht' when those who hive it want to convert it mwigold for any i pm'pose. It can n^yei ce worth more than the j gold apeculators wUl give, the merchante and; touriBts for it, and that pnee will b» forever fliiptuatipg np and down. There iis 1>ut/ ovf rebedy for this injucioua and diflgraoeful state of things, viz.: the Gov^rojoBBt mubt rejteemi» notes in conBtilutional mOBSy, and if it cannot, then let it fund and retire them. Missing Page MOBTBAGE DEBTS^AUD CHEAP MOHET. The Oiuoinnati Bn^irer publishes a state- ment furnished it from Springfield, Illinois, in -which it is stated that the farms and oity property in Kansas, Nebraska, Iowa, Minne- sota, Wisconsin, ■ Missouri and St. Louis, Il- linois and Chicago, are mortgaged to the amount of $200,000,000, and cries out ve- hemently against the tightening grasp of the I money-lender upon the farms of the country. , In the list, nUnois, including Chicago, is put down at $116,000,000. Without stopping to inquire as to the accuracy of ttie figures, we propose to examine the magnitude of this mortgage business. The argiiment is, of course, that these States will be ruined if they are .compelled to pay these debts in currency worth more than 50 cents on the ■dollar. In Illinois, in 1874, there were in fcultiva- tion over 27,000,000 acres of land. In 1875 they probably amounted to 30,000,000 acres of improved land. Deducting from the sum of mortgages $65,000,000 for Chicago and pther city property, the smu claimed to be due on the lands of this State is $50,000,- 000. The value of these improved lands, in cash, exceeds $30 per acre. We therefore have a mortgage of $50,000,000 upon pro- dnctiye property, worth in cash $900,000,000. The grip of the money-lender is therefore not so serious as to be alarming ! Without touching the land under cultivation or in any way improved, we have in Illinois, in 187i, 9,000,000 of acres of other land unimproved, worth ■ at a , low 8vera,ge $10 an acre, and of itself even at a forced salle all-sufficient to pay the entire land mortgages, with all the State and municipal debts in ^- dition. The iniquitous and grasping money- lender can hardly be said to have the State of Illinois within his grasp ! The ability of the people to pay this debt is further shown by their possession of live stock to the value of $185,000,000, so that it would only take one horse, one mule, one ox, one sheep, and one hog out of every four in the State, to pay off every dollar of debt due on the farms of minois. One-fourth of the annual in- crease of the live stock of the State would discharge all the mortgages on lands in this State even if the currency should go to par. The State of Illinois has 102 counties'. The Seventeenth Congressional District is com- posed of only four counties, and one of them a small county. These counties had, in 1874, over 885,000 acres in wheat, over 352,000 in com, over 82,000 acres in oats, 97,000 acres in grass, 31,000 acres in other field products, 151,000 acres in inclosed pasture, 26,000 acres in orchard, and 496,000 acres inwood; and the value of the product of this one district, including the live stock, was, in one year, equal to the whole sum of the mortgages on lands in the State of Blinois. The same table in ^!&~EHquirer puts the mortgages on faml lands ill Minnesota at $5,000,000. The relative magnitude of this debt is illustrated by the estimate that the State of Minnesota will, in 1875, have a sur- plus crop to sell worth in Minnesota $50,- 000,000. The State that can in a siagle year produce, after supplying the home consump- tion, a surplus worth $50,000,000 can hardly be said to have fallen into the grasp of the money-lender. The people of Minnesota, like the people of Illinois, Wisconsin, Iowa, Nebraska, Indiana, and Michigan, are pro- ducers:' They have a surplus which they have, to sell annually for cash, and it is important to them that the money they receive for their hundreds of millions of annuial productions wiU retain its value from day to day. The . people of Minnesota who , sell their surplus crops in October and November, 1875, are in- terested in ha-ving the money they receive re- tain at least the value it may have wheS paid to them. They do not want that money to decline 10 or 20 per cent while it is in iieir hands. They do not want their fifty millions of dollars to shrink to ioibj or thirty millions when they use it to make their annual pur- chases. The surplus productions of the North-, western States in 1875 — ^the 'surplus which these States have to sell — will aggregate sev- eral hundreds of millions of dollars, — exceed- ing, perhaps^ in amount the whole issue of greenback^' These Stites are producers and not speculators. They have actual property to sell. They sell this property for cash, and with this cash purchase those things which they need but do not produce. It is impor- tant to them whether the money they receive for their property is worth 85 cents on the dollar or 90 cents. Assuming that they will receive four hundred millions of dollars for their surplus products, the money they re- ceive now worth 85 genljp 'will be equal to the -5 ; ' 6,a h purchase of $340.000. 000 gold value of other h ^B ^iBJiMUd H JLiU J V II I II II ■pv ■vinoBsjpf njeq^jo^ paw bmoi niflpiivi 'qsBO tt ^ aoa ssfVHDFna ox-saNvi vM.oi-aaiNv iw ■SO^ ssfVHDFna ox-saNvi vM.oi-aaiNv i iiqO JO Itn™ ' ~ ITT 'wavj ggAOHJBH aooo /iday -QjoB jed jg* 'oSvemn lo n^nos eemii g'g •poonej j V-HlVS HOia 'm&. '^'janOQ nuecraf 'irmoin -jv '•yfi 'saiavs "a t ■ono'eis^oopd isoejaiwd eqi no AoqiJOBqnB eq^ saexppv uvinoi^ivd jo^ 'pojeqmao •jnoiBv "aMHTlQ ■» '0510 *S4n90 OT ^o B.IVJ pvojjfai pn« *ii}nTioo aq) n] 9994 eq9 semnov} (oonoQ '3IJ«4l nvBJoptf jo qanqns inji^nveq .sqf ni 'n^asouvd &SI19 no v\o\ pnv sdsnoq eojo joj 9oaem j ■WOO iHO aagWYHf> tt 'ow oa op-Bavs ho Jl > uiooa 'jB-giiflSii EH 'NMOfla YST -esopd Pi" BQug} emvi 9V 9%o\ oooqom 'ob|v ')s^4«tii-iit igjsaoJd %wi -dwqo *90j}ai&oqB^9dojj *4odapTtiarj 3iooiq on'o tptBd inon qinom « 9$ poi niiap git : sspra i|Jir j %t j 101 injciinvaa v Ana niM oots-a'iTa BOil ■gxvxssr 7vaH MYguagHi "^"""'^ *3tooig J9dveH R V^"^ 1 btoop^T *^0IW -aOOOW "O 'M VS •» 'itjp oqi ]o BjJid li« m Ajo j ■joaj ssamsna qwy aoHaqisaa-a^vs aoiil ™_^. 'sis^noBipBjv pnflo-jijlSaaaiooJ^qiTj^jgpii The original of tiiis 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/cu31924013814375 ABSOLUTE MONEY: A NEW SYSTEM OF NATIONAL FINANCE, UNDER A CO-OPERATIVE GOVERNMENT. BY BRITTON AfniLL, AUTHOR OF ■■ LIBERTY AND LAW.' ST. LOUIS: SOULE, THOMAS & WENTWORTH. 187s. H^^^ 9 3 hi Cf- Entered according to Act of Congress, in the year one thousand eight hundred and seventy- flve, by SOULE, THOMAS & WENTWORTH, In the Office of the Librarian of Congress, at Washington. ;^ -s^/^v ^ ^ Powell & Maynard, Printers, St. Louis. PREFACE. About two years ago I published a work, Liberty and Law under Federative Government^ now out of print, in which I purposed to point out such defects in our federal and state governments', in their representation and legislation, as had made themselves espec-ially prominent during the history of our existence as a nation. One of these defects, and probably the one that touches men most closely, I conceived to be the lack of a true and scientific money system ; and consequently I proposed to substitute for our irrational medley of bond money, legal tender money, national bank money, and gold and silver money — an absolute National Money, irredeemable in metallic coins or interest-bearing bonds, but convertible into all the commodities of the nation, by making it the exclusive legal tender money of this country. The whole plan of my work compelled me to treat this subject in a very condensed form ; too condensed, perhaps, for general compre- hension. This and the fact, that the appearance of my book was closely followed by the great financial crisis whicji I had foreshadowed in it, and the causes of which I had explained, brought me many verbal and written requests to elaborate that money scheme more at length, and remove the various objections that had been raised against it. The result is the present work, which will be, I trust, explicit enough to make any mistake regarding its scope and purpose impossible. But as this age is not one for voluminous books, and as especially in works of finance, it is necessary to cultivate the utmost possible condensation, in order to secure even a limited number of readers, I have left out everything that did not strictly pertain to the main point in issue, or illustrate the various phases of my system. On, the other hand, I have endeavored to represent the chief features of that system from * A second Edition will be published in October, 1875. IV PREFACE. every standpoint, historical and critical, that seemed to me calculated to throw additional light upon it. If I have beea at aU successful in this, may I not hope that my work will receive the careful attention of our prominent financiers, and of the members in Congress to whom the establishment of a national money system has been entrusted by the constitu- tion ? Nearly one hundred years have now elapsed since the people of these United States were joined together into one grand nation by the bond of the Union. Various attempts have been made since by unscrupulous demagogues to loosen that bond, and we all remember how very near the last attempt came of being successful. Even apart from its financial merits, therefore, it seems to me that my money system ought to recommend itself to the people of the United States as the strongest safeguard against any renewed attempt' to dissolve the Union. With a large national debt, such as we have now, the danger of disunion increases constantly; since the parties in favor of dismembering the Union can urge the powerful plea, that they would thus escape the payment of their share of the national debt and the oppressive taxation entailed by its interest account. But a conversion of that debt into a national circulating medium would make a separation of the Union next to impossible.' Producing a just co-operative financial system, every citizen/ would be interested in upholding the national unity and integrity, since their breaking up would plunge every one into poverty and bankruptcy. Many years ago one of the foremost of German patriots and philosophers John G. Fichte — the first of his age who foresaw and foretold the unification of the German states under the leadership of Prussia — urged the adoption of a money system similar to that proposed by me, mainly upon this ground, that it would cement a united German Empire closer together than any other measure could effect; and the renowned Minister of Prussia, to whom he dedicated his work. Von Struensee, far from dismissing the scheme contemptuously, as the impracticable dream of an idealist, gave it his careful consideration, and expressed to its PREFACE. V author his high appreciation of the work. The proposition, indeed, is very simple : A nation requires a national money. It must be a separate sovereign financial body just as well as it is a separate sovereign political body amongst the nations of the earth. It cannot afford to be dependent upon foreign countries for its money medium of interchange ; nor can it afford to be dependent upon the money monopolists amongst its own citizens. Omnipotent in executing its own laws, in •calling forth armies, in building fleets and providing in infinite ways for the . public welfare ; ought a government to be impotent in that one matter of creating an absolute money, "without which it can execute none of those prerogatives. This, however, is only a collateral plea in favor of my iiioney system, which must stand or fall by its claim ; that it is the only rational scheme of finance for a co-operative government, such as ours professes to be. This claim I have ■endeavored to substantiate to the best of my ability, firstly, negatively, by showing that all other systems of money — whether of gold and silver coins, or paper money issued on a so-called specie basis, or on collateral interest-bearing bonds, •or on real estate mortgages — are inadequate, productive of financial disasters and oppressive upon the people ; and .secondly, affirmatively, by showing that my system of Abso- lute Money is adequate for all possible contingencies, subject to no fluctuations, and the cheapest, while at the same time the safest of all money issues. This work is, therefore, divided into two parts: the first, ■mainly historical and critical ; the second, mainly affirmative and explanatory of the new scheme. Having shown how ^old and silver money proved inadequate to conduct the business of the world at an early stage of man's commercial history, I have proceeded to trace the various ways in which money of account was enlisted in behalf of commerce and industry, through the medium of credits, bills of exchange, .settlements at the fairs, bank issues and government bonds, until it culminated in our own country in the issue of a legal tender currency during the late war. Whilst fully recog- nizing all the benefits that have arisen from these various VI PREFACE. phases of money of account, it has been my chief aim tO' point out their respective defects and inadequacies ; and, I think, I have fully and fairly demonstrated, that in all cases, where the establishment of such money has been followed by final depreciation and bankruptcy, the result has been due ta the circumstance that the money purported to be redeemable in another kind of money, namely, gold and silver coins, in face of the fact that such money of account was issued simply because there was not gold and silver enough in the world to- meet the demand for money, and that hence such redeema- bility in coin was an impossibility. In fact, the only reason why paper money has hitherto failed to realize the object of its issue, has been, that it has always been only money of a secondary nature; gold and silver remaining the primary- money. This necessarily led to a competition between specie and paper money, and necessarily left . the victory to the former, which was always the only legal tender recognized by law until the issue of the legal tender notes in 1862, by the United States. Hence my system of Absolute National Money provides, that after its adoption gold and silver shall no longer be a legal tender, and, that the money to be issued by the federal government alone, shall be clothed with that sovereign prerogative. Under its operation there will consequently be only one kind of money in general circulation, and a conflict between it and metal coins will be impossible. Nor will there be any other kind of bank currency which could inter- fere with its systematic operation. The whole National Bank system will be abolished; the notes of those banks will be withdrawn from circulation and substituted by the Absolute National Money, which will be issued in place of the bonds held by those banks. This does not involve any interference with those banks as banks of deposit and discount. It simply deprives them of the powers they previously exercised as Banks of Issue ; and this, I take it, will be of equal advantage to both parties, the goverrment and the National Banks. The government will save a heavy payment of interest, the banks will be freed from keeping a PREFACE. Vll reserve furtd of legal tenders, from irksome rules and regula- tions, froth the federal tax on their circulation and deposits, and from the danger of being called upon in the future to redeem their notes in legal tenders or specie. But it does not follow, that because my system of money abolishes coin as legal tender, gold and silver will become unpurchaseable. The United States absolute money will have the power to buy gold and silver as well as any other com- modities, and I have no doubt, that in the course of time, it will be able to purchase these metals — which, as Benjamin Franklin justly remarks, " are intrinsically not worth as much even as iron or lead " — at far lower prices than they command now, when their value has been artificially increased by their use as sovereign money. Any bank that desires to buy gold- either for hoarding purposes or for foreign exchange, and any individual who likes the glitter of gold, or needs gold, will always be able to purchase it ; but I believe the number of buyers will be exceedingly small. It is much more likely that the people will hasten to exchange their coins for govern- ment bank-notes ; since the government will, of course, have to make such exchange for all coins that bear its stamp. The mints, it is true, would be stopped, and no further issue of American coins would be made ; but those coins that are' still in circulation, will have to be redeemed by the new government money. I am well aware that my plan of an exclusively Legal Tender national money will meet much opposition. It is sur- prising, laughable, but none the less true, that although the business of this country has been carried on, ever since our existence as a nation, chiefly by paper money, to redeem which in gold and silver, has always been, and must always be, an absolute impossibility, the majority of the people, neverthe- less, imagine that trade is really carried on by means of specie. It is quite safe to say, that not one thousand in a million of dollars of our business transactions has ever been paid in gold and silver, even when gold and silver money was the only legal tender; and yet the people firmly believed that we had a specie basis, and a large number of our financiers clamor VMl PREFACE. now for a return to a specie basis, and have even succeeded in persuading Congress to fix the year 1 879 for the repeal of the Legal Tender Act, and the restoration of gold and silver as the only money re- Scheme — It Bears no Interest — Being the Exclusive Legal Tender of the Country, it does away with a two or threefold kind of Money — Criticism of the Interconvertible 3.65 Bond and Legal Tender Scheme- — Its Absurdity, Expensiveness and Frauds. Pages 50-53. Chap. III. Relation of Absolute Money to Coin — Gold and Silver- must fall in Price when no longer Legal Tender — No need of Redemp- TABLE OF CONTENTS. XVII tion of Absolute Money in Coins, it being convertible in all the Com- modities, Products, Metals and Revenues of the Nation — John C. Cal- houn — Thomas Jefferson — M. E.Davis — R. H. Patterson — Practical Benefits of having a National Legal Tender Irredeemable in Specie, Illustrated — Disastrous Results of Pretending to have a Specie Basis — It leads to Panics, and by Contraction of Bank Circulation and De- posits, Aggregates their Disastrous Effects —Panics not Caused by " Overissues " or " Overtrade." Pages 54-62. Chap. IV. John Law's Paper Money Scheme— Law's History — His Financial Project Rejected by the English Parliament — Its Defects — His Career in France — State of French Finances under the Regent — Law,s Scheme Favorably Received — His Establishment of a Bank — It is Converted into a Government Bank — The Bank Organizes the Mississippi Scheme — Its Charter — The Bank Assumes Control of all the Foreign Commerce and Internal Revenues of France — Fabulous Rise of the Shares of the Bank — Consequent Withdrawal of Gold from the Bank — Alarm Created thereby — The Regent's Foolish Measure to Arrest that Withdrawal — The Alarip Increases — The Bank Collapses — Criticism of the Scheme. Pages 62-69. Chap. V. A Specie Basis Necessarily a Falsehood, a Delusion and AN Absurdity — Proved by Law's Scheme, by the French Assignats, the Bank of England Notes, the American Continental Money, Etc. — No Bank can Pay its Obligations in Specie — R. H. Patterson — Charles Sears — Stephen Col well. Pages 70-74. Chap, VI. The True Basis of Absolute Money — Its Character as the only Medium for the interchange of the Commodities of a Nation, and as the only Legal Tender — Benjamin Franklin — Its Convertibility into all the Products of the Nation, including Gold and Silver — It is the only Medium of Interchange Adequate for our Growing Business — It is also Based on the Public Debt of the United States — It affords More ' Security than any Other Kind of Money — Hon. Geo. Opdyke — Ex. Chancellor O. S. Halsted — Mr. R. H. Patterson's Objections to such a National Money System, Criticised and Answered. Pages 74-88. Chap. VII. Relation of Absolute Money to Foreign Exchanges — Foreign Exchange not Regulated by Exportation of Coin but by Ex- portation of all kinds of Products — The Price of Gold does not Regulate XVIU TABLE OF CONTENTS. the Price of Exchanges — Our Absolute Money would soon be as Cur- rent in Europe as our Bonds are now — An International Clearing House. Pages 88-90. Chap. VIII. Absolute Money Would Cause Neither Inflation NOR AN Increase of Prices — R. H. Patterson — Replacing our Bonds it, would not Change the Quantity, but only the Quality of our Currency — Present Scarcity of Money — Its Causes — The only Remedy an In- crease of Currency-Hon. D. W. Vobrhees-Prices are but Little Affected by the Amount of Money in Circulation-Money a Lever- An Instrument of Commerce and Trade — Illustrations — Senator Morton — Montes- quieu — Tables of Prices for the 13th to the 1 8th Century — Prices Dur- ing the Late Civil War, and Before and Since — Thomas Tooke on Prices — Colwell — Nevertheless a Sufficiency of Circulation is Neces- sary to Prevent Stagnation in Enterprise and Panics — Patterson — How a Small Circulation Enables Speculators to Lock up Money and Cre- ate Panics. Pages 91-103. Chap. IX. How to Substitute Absolute Money for our bonds — Redemption of the Bonds held by the National Banks — Held by Pri- vate Owners in this Country — Held by Foreign Owners — ^We can Buy Foreign Exchange With an Absolute Money, and also Create it by Exporting our Products. Pages 103-106. Chap. X. Relation of the Absolute Money to the National and other Banks— Advantages of the National Banks Under the Present -System-Far Greater Advantages forthem Under the New System of an Absolute National Money — No Danger from Fear of Redemption — Perfect Freedom of Action — Larger Profits — Profits of the Scotch and English Banks — The Repeal of the National Bank System a Curtail- ment of the Centralization of Financial Power in Congress — The Ab- solute National Money Scheme Invests Congress with no New Power, But restricts its Present Unlimited Power — The adoption of a new Fi- nancial Code — The Blessings that Would Follow its Adoption — Con- cluding Remarks, pages 106-113. Appendix TO Part II, The Scottish Banking System. Pages 114-1 17. I'JLE/T iFIK.ST. METALLIC MONEY AND MONEY OF ACCOUNT. ABSOLUTE MONEY. METALLIC MONEY AND MONEY OF ACCOUNT. CHAPTER I. NATURE OF METALLIC MONEY AND MONEY OF ACCOUNT. In the most ancient times gold, silver and precious stones were used as a medium of interchange to facilitate barter ; partly on account of the smallness of their bulk, and partly on account of their rarity and consequent intrinsic value. To make their use for this purpose practicable, it was, of course, necessary to weigh them. If we assume that one horse was considered to be about an equiva- lent exchange for one pound of gold, and that two oxen were in like manner held to be an equivalent for one horse, and that a certain quantity of wool, or grain, or land was an equivalent for two oxen, then the gold-price of all these articles of trade was at once established ; but for each minor quantity of wool, or grain, or land, the pound of gold had to be subdivided. This subdivision very naturally led to the melting and moulding of gold and silver into regularly shaped pieces of uniform weight, and in course of time to the stamping of them by the government of each separate nation, as an indisputable guarantee of the correctness of the amount of gold or silver declared by law to be contained in each piece ; the earliest written mention of which we have in Genesis xxiv., 22. In Exodus xxx. we have further mention of such governmental coin (the Hebrew shekel), as an interchange for actual commodities ; that is, for the animals and spices, that were I 2 ABSOLUTE MONEY. to be offered as a sacrifice to the Lord, and as a yearly tax levied by the priests on the children of Israel. A half shekel was annually demanded of every one " from twenty years old and above," as "an offering to the Lord," and "for the atonement of their souls.'.' Strange to say, although the atonement of the souls required only a half shekel, ordinary commodities, more immedi- ately necessary to physical life, demanded much higher prices. "A little while and man took the greatest stride of all in the march of civilization. "Rt gave credit" (Lawson's History of Banking, page 2.) In other words, man, finding metallic, or, as it is called, " real " money, a very cumbersome means for the interchange of com- modities, created an "ideal" money, a money of account, by means of which to conduct his most important commercial trans- actions. Who first invented this means of commercial inter- communication no one knows. His name is as unknown to us as the name of the still greater genius, who invented the alphabet, the medium of interchange of thoughts by written language. For he made possible the universal inter-communication between all parts of the world and all succeeding ages on all subjects ; while the inventor of money of account could utilize the alphabet only for commercial inter-communication. It is pretty certain, that the Jews, the Phoenicians, the trading towns of Greece, Carthage and Rome made use of money of account, in a sort of way, and that the Jews, after their dispersion, and after the downfall of Rome, at an early day introduced the system of drawing Bills of Exchange ; but historically, the first systematized issue of money of account must date back to the establishment of the Bank of Venice, which was organized in the twelfth century, when the state of public affairs in Europe, so rudely shaken by the invasion of the Huns and Goths in the fifth century, and kept in a condition of constant turmoil and political convulsion for hundreds of years, was gradually being restored to comparative quiet. As it is altogether immaterial for the purposes of this work, how money of account first gained historical recognition, we may as well take the Bank of Venice as the real originator of such money, first, however, establishing the distinction between its credits and the metallic money, previously in exclusive use. The metallic money was an actual valuable substance, whether of gold, silver or copper, passing from hand to hand. When coined, METALLIC MONEY. 3 it had its several names, of units and subdivisions, each of which names represented a certain quantity of gold, silver, or copper; the government imprint guaranteeing the "purity and weight of each new piece. Money of account was invented to do away with this cumbersome transfer of the actual coin from hand to hand, by making transfers in writing. Its effectiveness can be readily understood from the following illustration : A merchant B. in New York has sent ;gi,ooo worth of wheat to merchant C. in London; and hence has $i,ooo credit on C.'s books. He might order C. to send him ^i,ooo in coin ; but he does not; for there enters into his office merchant D. of New York, who owes merchant E. of London |^i,ooo, or more. Now merchant D. says to merchant B. : "You have a credit of ;gi,ooo in London. I have a debit there of ;gi,ooo. To cancel my debit, by sending over the actual coin in a ship, will cost me, say, ten per cent. I will pay you eight per cent., if you will transfer your credit to me, since that will serve all my purposes. " B. of course, makes the transfer; and E. goes to C. in London to collect his money. Now, if this written transfer is worth more to the transferee than the coin itself — as it would be in the supposed inter-communi- cation between London and New York merchants — then the written transfer commands a premium; as London Exchange generally does. This is the reason why the written transfers on the books of the Bank of Venice often commanded from five to twenty per cent, premium over coin. But if such a sign of transfer, or draft, was not equal to the same amount of coin, represented by it ; that is, if a person should demand the delivery of the actual coin required by the draft and not be able to obtain it, then the draft or token of transfer would naturally shrink in value and be quoted at a discount. This relation between metallic money and money of account produced, therefore, a constant fluctuation of both kinds of money, to the great injury of traders. Before entering more minutely into the causes of these fluctua- tions and prescribing the only mode to get rid of them, I shall endeavor to fix the distinction between the two kinds of money more impressively upon the mind of my readers, by quoting a few standard authorities. Sir James Stewart, in his "Political Economy," says: "Money, 4 ABSOLUTE MONEY. which I call of account, is no more than a scale of equal parts, invented for measuring the respective value of things vendible. It is, therefore, quite a different thing from money coin, and might exist although there was no such thing in the world as any substance, which could become an adequate and proportional equivalent for every commodity. It performs the same office, with regard to the value of things, that degrees, minutes, seconds, etc., do with regard to angles, or as scales do to geographical maps, or to plans of any kind. * *- * * Money, it has been said, is an ideal scale of equal parts. If it be demanded, what ought to be the standard value of one part, I answer by putting another question. What is the standard length of a degree, a minute, or a second ? None ; and there is no necessity of any other than what, by convention, mankind think fit to give." Sir James Stewart's Political Economy, page 3, chap, i, vol. i. Fourth edition, pages 225-6. I shall show further on, however, that Sir James Stewart's definition of money of account as a mere measure is not quite correct, and does not at all apply to the National Legal Tender money, which is the basis of the money system proposed by me, for the co-operative government of the United States of America, Montesquieu asserts the practice of making use of money of account at his time, even among some of the tribes of negroes on the coast of Africa. "We are informed," he says, "that the blacks on the coast of Africa have a sign purely ideal for fixing the value of their commodities. When they wish to make an exchange of them they say : ' Such an article is worth three macutes ; such another is worth five macutes; and such another ten macutes; and yet a macute can neither be seen nor felt. It is entirely an abstract term and not applicable to any material object ; for they do not exchange their merchandize for three, five or ten macutes, but for some article worth — or rather estimated, or held to be worth — the same number of macutes." Marquis Gamier, the author of the famous " History of Money, from the Highest ^Antiquity to the Reign of Charlemagne," ex- plains the distinction between metallic money and money of account, as follows : " We distinguish, therefore, between two kinds of moneys real money, or coins, and money of account, which is the expression of values, or the specification of prices. The valuation of mer- chandize, made by the seller, or the offer made by the purchaser ; METALLIC MONEY. 5 the accounts ; the promises to pay ; the stipulations of hiring ; the quotations of stocks, and the rents of farms ; all, that in every transaction precedes the act of payment, must be carried on by means of account. Real money intervenes only, for actual pay- ments. * * * * Real money consists of coins of metal, of which the form, material, impress and appearance may be readily changed, without occasioning the slightest derangement in the daily dealings of society, or in agreements and contracts already made. * * * * While every alteration in money of account has been regarded as a public calamity and a source of public and private disorders, and has always awakened among a people general discontent, changes in the impression or the forms or denomina- tions of coins is a common event, inflicting no injury upon any interest, and offending against no established habits of the people." Histoire de la Monnaie par Marquis Gamier. Tome I. , pp. f2-y6. Mr. Stephen Colwell, probably the best American writer on finan- cial subjects, and author of "The Ways and Means of Payment" — whose conclusions, however, which always lead him to consider a specie basis indispensable for banking and for currency, are rather at variance with the facts he cites and with his own premises, all of which tend to establish the uselessness and absurdity of a specie basis — speaks thus of the difference between "real" and "ideal" money : "We have seen that the money of account occupies the whole ground of the expression of prices ; the whole ground of books of account, so far as prices, amounts, or sums of debt or credit are stated in them; the whole ground of the statement of sums or amounts in bonds, notes, or bills of exchange, checks and other securities ; the whole ground of financial estimates, statements and computations; in fine, all that relates to money, where actual equivalents are not employed, belongs to the domain of money of account. The formation of a money of account, which invariably occurs among all trading people above the condition of savages, takes away at once from gold and silver, whether coined or weighed, all application or use as a measure of price or medium of comparison. Among savages, the precious metals are no doubt directly compared with the articles for which they are bartered ; with them it is liter- ally so much of one thing for so much of another. It is not so in civilized life, where commodities are very seldom sold with any thought of payment being exacted in gold or silver. The money of account not oiily serves to this extent the use of coins or bullion, ABSOLUTE MONEY, but it saves even an actual reference to them. It is, therefore, an immense economy in trade. It narrows the use of the precious metals perhaps more than any other agency. ' ' CHAPTER II, THE BANK OF VENICE. Tlie way in which this money of account was first systematically established is very graphically described by Mr. Colwell, in the same excellent work, from which I have quoted. It originated, strange to say, in necessity, and was made current by compulsion, like the demand and legal tender notes of the United States, Lombardy, in the twelfth century, was a sort of province of the German Empire, or, as it was commonly called, the " Holy Roinan Empire." though it was neither holy, Roman, nor an empire in point of fact. It had been thus tributary to Germany since the days of Charlemagne, in 774. Iij the course of time Lombardy absorbed nearly the whole commerce of the civilized world, and Venice and Genoa grew up to be the chief maritime cities of Europe. Milan and other places likewise bfecame centres of com- merce, and all of these large cities, feeling themselves secure in their power and wealth, adopted a republican form of government, and in course of time began to renounce their allegiance to the German Empire. This caused the long struggle between the Ger- man (Hohenstauffen) Emperors and the so-called " free cities " of Lombardy, which lasted for full a century, and extended, in another form, even to a much later date. It is generally known in history as the war between the Guelfs and the Ghibillines ; and in its recent form as the conflict between the German Empire and the Church of Rome. Now, in 1 1 71 the Republic of Venice was engaged in one of these periodical contests with the Emperor of Germany, Frederic I, otherwise known as Frederic JBarbarossa, and at the same time it had to equip a fleet against the Emperor of Greece. Rich as the republic was, it now stood sorely in need of money. After much deliberation in the Council of Ten, as to the best way of raising the necessary funds, it was determined to levy a forced loan upon its THE BANK OF VENICE. 7 most opulent citizens. The money thus collected was used to stock a bank, called the Bank of Venice, each contributor becoming a shareholder and entitled to a four per cent, annual dividend on his loan to the State. These forced loans were entered in a.book; and as, in course of time, some contributors found themselves pressed for money, they proposed to transfer to their creditors their credits on the books of the bank in lieu of money payment. In this way such transfers gradually became recognized as a very convenient Way of settling accounts; and this facility of transfer, coupled with the security, guaranteed by the power and wealth of the Republic, led to a very rapid ciculation of the loan. Gradually all the chief mer- chants and capitalists of Venice desired to have a share of it. The subsequent operations of the Banco del Giro of Venic'e, as a means of interchange, are thus described by Mr. Colwell, p. 295 : "If there were a thousand accounts opened in the bank by the chief men of trade in Venice, they would be all paying as well as receiving; and the sums to be paid would be mainly to each other. There would, therefore, be a vast sum in the aggregate, payable yearly by persons in Venice to persons in Venice. If the whole number of such persons be taken by conjecture, as above, at a thousand, then nearly the whole sum owing by them would be receivable by all of them. It would, to a large extent, be a mutual debt among the thousand : each one haying to pay to others not far from the same amount he receives. If the whole sura to be paid and received annually was a hundred and twenty millions, the monthly payment would be ten millions, and the daily over three hundred thousand. The amount of bank funds, which would be sufficient to meet such a daily, monthly, or yearly aggregate, experi- ence and time alone could teach. It would depend on the rapidity of the movement, or the regularity with which the paper matured; on the degree of confidence subsisting among the parties, which would lead them to favor each other by short loans, etc. The whole fund of the bank would thus move in a circle among its cus- tomers, each one receiving and paying yearly according to the extent of his business." It was this moving of money in a circle which caused the Bank of Venice to be known as the Banco del Giro — a term which would be far more applicable, however, to such a banking system of the United States, as I have proposed in this book. There was, however, another element of dissatisfaction with metallic money, or coin, which must be mentioned in this con- 8 ABSOLUTE MONEY. nection, and which contributed greatly to the popularity, not only of the Bank of Venice, but of all the other banks, that subsequently arose and followed in its footsteps, though more or less enlarging its original functions. This element of dissatisfaction was, that the difficulties encountered in the use of coins had become too great and manifold for endurance. Robbery, shipwrecks and piracy threatened the possessor of coin in every way. Besides, there was the secret and nefarious practice of abstracting from the value of the coins by plugging, gutting and sweating ; not to mention the art of counterfeiting, which had an easy time of it with metallic coins. But, worse than all, there was inexorable time — subject to no arrest, indictment or punishment — which deteriorated those coins within a few years from ten to twenty per cent by their mere use as a cir- culating medium, and thus destroyed their legal tender quality.* Paper transfers were attended by no such risks. If in the shape of checks or bills of exchange, they could easily be concealed so as to escape the eye of the most practiced thief, and if they were pay- able to the order of the holder, they could not be stolen and trans- ferred without his indorsement. Time could not touch them and deprive them of their original value; for if worn out they could be replaced, and if burnt or sunk in the seas, they could be re-issued. Nor was it an easy matter to clip paper money profitably; and as for counterfeiting, it is a well known fact that a well-engraved bank note is far more safe against it than the purest gold or silver coins. The best coin counterfeits ever made in this country were of the old Mexican dollars, which were of unusual silver purity. This is the reason why, in China, the use of coins — except when weighed by government officials — is altogether prohibited, and that the use of paper money has been substituted in lieu of it. In short, the very ground why gold and silver are commonly esteemed superior money — namely, that they are supposed to be of great intrinsic value — is one of- the reasons which makes them useless for the purposes of circulating money. It is that intrinsic value which spoils their usefulness by inviting theft — counterfeiting, clipping, plugging, gutting and sweating. Besides, what does it matter, after all, when I exchange my property for that of B., by means of a certain medium, of what substance that medium is composed? It has effected its object, the exchange, and nothing further is necessary. * The mere wear of circulating coins is about three per cent, every year ; a fact which deserves the careful attention of gold money worshippers. BILLS OF EXCHANGE. 9 Nor should it be forgotten that the Bank of Venice transfers, very soon after their first issue, were made by law a sort of legal tender — the most important characteristic of our American national cur- rency — ^and the immediate effect was to make the golden ducat fall twenty per cent, below the par value of the paper transfer of the Banco del Giro of Venice. I quote from Mr. Darus' Hist, de Venice, Vol. Ill, p. 73: ' " By degrees the government introduced the usage of making certain payments by drawing upon the bank in place of making them in specie. It commenced by receiving those drafts into the public treasury without hesitation, and when this usage became established, a law was passed that bills of exchange might be paid jn money of the bank, whether foreign or domestic, when drawn for more than three hundred ducats. These drafts could not be refused, unless stipulation had been made to the contrary.' ' CHAPTER III. BILLS OF EXCHANGE. In this way guaranteed paper money came to rule the world; though as yet its rule was in its infancy. But soon after the establishment of the Bank of Venice, the Bank of Genoa — a century later — improved upon the Venetian system of transfers on the books of the bank by the issue of real bank bills, or rather drafts, or Bills of Exchange, negotiable, to be sure, only by endorsement, and issued only in such sums as were required ; but still the forerunners of that vast system of paper money, which is now in use. No sooner had the Bank of Genoa set the example of issuing such transferable bills of credit, than it extended over all Europe ; the Jews, who appear to have been the originators of this mode of money-transfer, doing their full share to perfect it, and reaping their full share of profit. The Bank of Barcelona, one of the most enterprising and flourishing commercial cities of Europe, was started in 1401, and also issued Bills of Exchange. In England, Bills of Exchange were introduced by the Jews, to whom William the Conqueror first extended, in 1066, the right of domicile on English soil, which country they now may be said to 10 ABSOLUTE MONEY. rule financially, through the Rothschilds, and politically, through Disraeli. At first, however, they had a very hard time of it. "Aliens in blood and religion, they were contemned, hated, feared, and despised." After the atrocious massacre of the Jews, at York in the early part of the reign of Richard I. (1189), they were all banished from Great Britain ; and though invited to return by King John (1199), were again expelled by Edward the First (12 1 4), whose cruelties in persecuting them are unparalleled in history. Nor did they return to England again till long after the Reformation. Italians, well versed in the procedure of the Banks of Venice and Genoa, took the place of the Jews, and although still more usurious in their charges, met little or no molestation ; a certain proof, that the Jews were punished mainly from religious prejudices. As those Italian bankers were mostly Lombards, the street on which they settled, was and is called to this day Lombard Street. It is to these Lombard bankers also, that we owe the term Bank — from Banco, the table, on which they displayed their ^treasures, (see Exodus xxx), — and Bankrupt — from Banco rotto, a broken table, which signified the insolvency of the dealer at the table in question. The Lombards were, again, in their turn, supplanted by the Goldsmiths of London, who issued what were called "Goldsmiths' Notes, ' ' on valuables deposited with them, which notes became, in course of time, a general medium of money interchange. The first real Bank, however, established in England, was organized by William of Orange, who founded the Exchequer, which is still in existence. CHAPTER IV. THE FAIRS OF EUROPE. Thus the business of Europe, which was just then, 1688-1720, assuming gigantic proportions in comparison with that of former days, was carried on almost exclusively by the agency of money of account. The large Fairs, which were at that time held all over Europe, contributed still further to swell the amount of this "ideal" money. By far the greater part of European THE FAIRS OF EUROPE. II commerce was transacted at those Fairs> which, as it will appear, were actual prototypes of the International Clearing House, which I have proposed in my work on " Liberty and Law," p. 174, and the conception of which seems to have been considered Utopian by so many of my critics. There is nothing new under the sun, as Solomon wisely said, and I am quite willing to concede, that my scheme of such an International Clearing House is not a new idea. But I should like^ to insist, that it has already in former times proved itself practicable; pre-eminently at the Fair of Lyons, in France, of Leipsig, in Germany, and of Kiachta, in Mongolia. These Fairs were concourses of merchants, manufacturers, artisans, workmen and strangers from all parts of the civilized world to buy and sell goods, provisions, manufactures, works and merchandize, and to adjust their respective accounts with each other, or settle their Bills of Exchange, which generally were made payable at a certain Fair. It is not necessary, nor within the scope of this work, to enter into a discussion of the details of the settlements at those Fairs. The general mode of making them was as follows : If A. owed B. one thousand dollars and B. owed C. fifteen hundred dollars, then B. asked A. to assume one thousand dollars of his debt to C, to which C. agreeing, only five hundred dollars remained to be paid in money. Or let us suppose, that D. owed a certain sum to E., and the latter a like sum to F., and that F. again owed the same sum to G., and G. owed the same sum to H. All of these persons, D., E., F., G. and H., meeting at the Fair, it was agreed between them, that their respective debts and credits should be acquitted by a payment from D. to H. direct; which agreement was called a virement de partie, and which was substantially of the same nature as a transfer of account in the Bank of Venice, or a Bill of Exchange of the subsequent banks. Few persons have any conception of the extent to which those Fairs expanded the credit system of Europe ; nor is it generally ' known to what extent they still prevail. Every year five hun>ired Fairs are still held in France. The chief part of "the commerce between Russia and China is still carried on at the Fair of Kiachta, in Mongolia. The transactions at the Fair of Nijui Novgorod, in Russia, also the mart of a great trade, are estimated to reach the amount of ;gioo,ooo,ooo during its six weeks' duration. An 12 ABSOLUTE MONEY, eminent English writer describes the modus operandi of settling accounts at those Fairs, alluding especially to the Fairs at Lyons, which were in their day the largest, not only in France but in all Europe, as follows: "The sixth day, all the merchants residing upon the place appear in a certain room, near the Bourse, with their book or bilans (balances), containing their debts and credits of both open debts and bills of exchange ; and these address themselves to one another and to whom they are indebted, intimating unto them their readi- ness to transfer parcels, or, as they term it, virer partie, to give for debtor one (or more) who doth owe and stand indebted to them in the like sum or parcel, the which being accepted by the creditors, the sum is respectively registered or noted in the Mian (balance book) aforesaid ; and after that time thq balance is understood to be transferred, and remaineth entirely upon the risque, peril and fortune of the party that did accept the same. And in this man- ner here, I have observed, that a million of crowns hath in a morn- ing been paid and satisfied, without the disbursement of a denier in money. * * * This, in brief, is the remarkable custom of Lyons in matters of exchanges, upon every payment." {Payment signifies the time set apart for this regulation and cancelling or settlement of balances.) — Map of Commerce, by Lewis Roberts, edition, of 1700, chap. 303; see also Parfait Negotiant, par J. Savary, 1777; Tome, I. chap. 30, p. 257. Who does not recognize in this description the same mode of transacting business, which is current in our banks and clearing houses, and still more resembles the modus operandi of Wall street in New York, Lombard street in London, and the Bourse in Paris? CHAPTER V. GOVERNMENT ISSUES AND BONDS. By the steady development and expansion of " money of ac- count," the so-called "real" money — ^gold, silver, copper and precious stones — was rapidly losing all of its original significance. Private bankers, public banks, merchants and governments all combined to effect the overthrow of metallic money's absolute rule. GOVERNMENT ISSUES AND BONDS. 1 3 This expansion was, in course of time, still further promoted when governments began to substitute the issue of bonds for the mere transfer of credits on books, which the Bank of Venice had initiated. Thus the Free City of Florence, in the year 1341, when the government needed some $300,000 to defray the expenses of a war, and found itself unable to discharge the debt at once, formed the sum into an aggregate joint stock, divided into transferable shares, bearing interest at five per cent, per annum. As a matter of course those shares soon became articles of commerce, and rose or fell in price according to the state of public credit. Other States gradually followed the example of Florence, which was, indeed, especillay calculated to win the favor of governments. For, while private individuals may experience a natural hesitancy to contract funded debts, since they feel a strong interest in leaving an unen- cumbered estate to their descendants, governments are restrained by no such feeling. With them it is always, " so that we get along well; after us the deluge." Hence no government will be likely to shrink from contracting a debt, when money is necessary, simply from a consideration of the tax such a debt will entail upon posterity. The main and the only question will be : " Can we raise the loam?" And the inevitable answer will be : " Yes, if you pay interest enough. ' ' Thus it happens, that governments pay at times such enormous discounts as to make the interest on their bonds realize from twenty-five to fifty per cent., as witness the sale of United States Five-Twenties during the war between the States, at the Royal Exchange in London, in July and August, 1864. France, under Louis XIV., at the close of the seventeenth cen- tury, also followed the example of Florence and "funded" the debts incurred by that conceited monarch in his long and expen- sive wars. Sober England next also took up with it, but during the first years of its practice treated the loan merely as an antici- pation ; parliamentary provision being invariably made for its liquidation by means of various annuties and special taxes. It was not until the reign of George I. that the principal itself of the loan was transferred to posterity for payment, provision then being made only for the payment of the interest. This was done so as not to irritate the public mind by increasing the taxes to such an extent as would have been necessary for the iiximediate discharge of the principal j and I may add here, not inopportunely, that the same device still serves its purpose at the present day. Every city, county and state in this country, that finds itself pressed for money. 14 ABSOLUTE MONEY. instead of laying a direct tax for the amount needed, issues bonds, and provides by taxation only for the payment of the interest. This interest tax is seemingly so insigniiicant, that the public mind does not get irritated, and hence does not protest against incurring a debt, which otherwise it would in many instances, certainly never sanction. And yet this insignificant tax for the annual interest is so large, that in about ten years it makes the full amount of the whole principal of the debt originally contracted. It may be interesting, in this connection, to look over a few tables, which illustrate the facility and recklessness with which governments contract these enormous burdens to be borne by the people, called Public Debts : The national debt of England (loan from bankers) was in 1689 ^ 664,263 William of Orange increased it-. 20,851,479 ^£21,515,742 But paid off. 5,121,040 Leaving to Queen Anne's administration _;^i6,394,702 Who contracted further debts of. 35,750,661 Leaving British debt in 1713, at the Peace of Utrecht ;£52, 145,363 Then George I. came in, and with him the system, of funding the public debt. Under this system, in 1 748, at the peace of Aix- La-Chapelle, the debt had already risen to ^£79, 293, 713.; and at the close of the Seven Years' War, which brought no advantage to England, in 1763, had nearly doubled, being then _£i38,865,43o. The American war increased it still further, so that at the peace of Versailles, in 1783, it had again nearly doubled, reaching the enormous figure of. _;£249, 85 1,628 During the next ten years it was reduced 5*732,993 Leaving it at the commencement of the French Re- volutionary War ,£244, 1 18,635 Nine years later it was more than double that amount, being then, in 1802, _;£5 20, 207,101. Ihe wars against Napoleon, which also did England no good, left the national debt in 18 14, at the Emper- or's first expulsion _;^742, 1 15,067. His second^ expulsion required another loan of forty-five million pounds, and increased the national debt to that extent. It is about the same amount now, that is, GOVERNMENT ISSUES AND BONDS. 1 5 ^780,000,000. The interesting question here is, whether the people of England would have voted these loans, through Parlia- ment, if the additional debt, incurred from time to time, had been levied upon them directly, and if they had not been de- luded by the supposition that posterity would have to pay the •debt, and that they would only have to pay the annual insig- nificant interest on it? As Great Britain reaped no real im- mediate benefit from those wars, and was not compelled to under- take them in self-defense, I am inclined to believe, that the people would have voted down each loan almost unanimously, if they had been told in dry figures that their taxes, which in 1 793 amounted to only ;£'i 7, 1 70,400, would within twenty-two years, in 1815, at the close of the wars against France, amount to four times that amount, i. e., ^^70, 403, 448 a year. We have another illustration, however, closer at hand, in the financial experience of the City of INew York. In 1830 the public debt of that city amounted to about ^^900, 000 ; at which figure it stood, with small fluctuations, until 1836, when it was increased to $1,282,103.58. Seeing how easy it was to increase its public debt, the city in the next year nearly doubled it, and in the following year again, and then again, so that in 1839 it had already reached the respectable amount bf J 7, 126, 790. This was ■still further increased to $13,316,292.86 in 1842; at which figure the debt remained stationary for full ten years. During the decjide 1852-1862, it was swelled to $21,695,506 88. Then came six years of still greater extravagance, increasing the ■debt by fourteen millions to $35,983,647, in 1868. One year more and it was $47,691,840. Another year and twenty-five millions more had been borrowed, making the debt $73,373,552, in 1870. Since then it has risen in the same enormous proportion. In 1871 it was ------$ 88,369,386 In 1872 it was - 95.582,153 In 1873 it '^^s .-.--- 106,363,471 In 1874 it was ...... 114,979,970 Thus, in nine years — from 1865 to 1874 — the public debt of the city of New York has increased from thirty-five millions to one hundred and fourteen millions dollars. Of course, the rate of tax- ation has increased correspondingly, to- wit: From $2.51 in 1830 to $4.33 in 1840; from ^4.33 in 1840 to $6.27 in 1850; from $6.27 in 1850 to $11.99 i^ i860; from ^11.99 in i860 to $25.11 in 1870; from $25.11 in 1870 to i6 ABSOLUTE MOKEY. ;g32.3i in 1874, on each inhabitant of New York, man, woman, and child. The amount of debt to each inhabitant, which in 1830. was only $3.82, has now reached the enormous amount of JI114.98, To exhibit the way in which money values have in this manner been added to the representative wealth of the world, let us con- sider the following table of the comparative debts in pounds sterling; of twenty-six governments in 1862 and 1872: 1862. 1872. Increase. Argentine Republic £ 3,000,000 £ 17,500,000 £ 14,500,000' Austria 250,000,000 300,000,000 50,000,000 Belgium 26,200,000 30,000,000 3,800,000 Bolivia 2,000,000 2,000,000 Brazil 5,000,000 60,000,000 55,000,000- Chili 2,800,000 7,500,000 4,700,000- Costa Rica . . . . ^ . . 3,400,000 3,400,000' Danubian Principalities . . ... . 5,000,000 5,000,000 Denmark 11,000,000 12,800,000 1,800,000- Egypt 3,300,000 45,000,000 41,700,000. France 396,000,000 970,000.000 574,000,000 Germany 60,000,000 120,000,000 60,000,000 Guatemala 300,000 600,000 300,000 .Honduras ... . 5,000,000 5,000,000 Italy 100,000,000 275,000,000 175,000,000- Japan 1,000,000 1,000,000- Mexico 20,000,000 60,000,000 40,000,000 Paraguay 3,000,000 3,000,000 Peru 5,500,000 37,000,000 31,500,000 Portugal 33,000.000 65,000,000 32,000,000 Russia 230,000,000 350,000 000 120,000,000 Spain 150,000,000 306,000,000 156,000,000 Sweden 3,000,000 6,000,000 3,000,000 Turkey : , , - 23,000,000 130,000,000 107,000,000. United States 75,000,000 470,000,000 395,000,000 Uruguay 4,oco,ooo 6,000,000 2.000,000 Venezuela 5,000,000 8,000,000 3,000,000 Total ;^i,493, 1009,000 ;^3,37S,8oo,ooo ;fi,882,70o,ooO' Avery noticeable fact in this list is, that the younger states of the world have so quickly perceived the advantages of this system of creating money credits, and* followed so successfully in the tracks of their elders of European descent. The Argentine Republic in- creases her money credits in ten years from ^15, 000,000 to 187,000,- 000, Bolivia from a mere nominal amount to ^10,000.000, Brazil from ;^2S, 000,000 to ;g3oo,ooo,ooo, and Egypt from ^16,500,000 to> J225, 000,000. All in all, it appears from the above table that, within ten years, twenty-six governments of the world have increased the amount of money bonds circulating, to the extent of ;^9, 413, 000,000; Eng- land meanwhile remaining stationary in her issue, and Holland alohe reducing her debt or outstanding funds some g 35, 000, 000. I may add, that since 1872, another ^3, 000,000,000 has beeni GOVERNMENT ISSUES AND BONDS. 1 7 added to the world's bond money. The public debt of the whole so-called civilized world, is at present about 4,200,000,000 pounds sterling, or twenty thousand million dollars.* All of these bonds are "payable in gold." On this enormous debt the annual interest is about one thousand million dollars; Holland paying about 2^ per cent., the lowest, and Mexico 18 per cent., the highest, rate of interest. These one thousand million dollars of annual interest have to be raised by taxation for no other purpose than to perpetuate a fraud ; and appalling as these sums are, they represent merely the debts of the national governments, and da not include the municipal debts of the various countries or the State or municipal debts of our own country. It will be noticed that I speak of these bonds as both in the nature of debts and in the nature of money.f They constitute debts because they promise to perform something at a future time and levy an annual tax upon the people — called interest — in order to become acceptable as the representatives of money. They are * Of these and other public debts of the civilized Christian world, about ;^238,- 586,476, are at present in a state of bankruptcy, of which ;£'i6o,7S9,67o are owing by Spain, and ^5,143,750 by Greece ; the balance being divided among some twenty American States, as follows : Costa Rica £ 2,363.802 Ecuador 1,824,000 Honduras , 4,972,000 Liberia 100,000 Mexico 16,375,750 Paraguay 2,903,706 Nicaragua , 27,000 San Domingo 714,300 Venezuela 6,616,810 Alabama . . . .• 3,750,000 Arkansas • . . . *i90.ooo Florida 950,000 Georgia 4,750,000 Louisiana ■ 4,725,000 Minnesota 460,000 North Carolina 6, 100,000 South Carolina 4,425,000 Mississippi 1,600, ooo< Virginia 5,250,000 ■)■ " Nothing is, therefore, more true than the seeming financial paradox that ioss, contracting of debts increases the circulating exchange-wealth of the world ; and this. paradox must necessarily remain true until all nations of the world have swept away their debts by substituting paper money in their place, and issuing enough of it for the requirements of their states. The paradox will then cease to be one by being shaped into its rational formula, that the issue of the necessary amount of money needed by a state is not in the nature of a debt, but the prerogative inherent in the sovereignty of the state, to issue the representation of the entire wealth of the state in a circulating medium." " Liberty and Law," p. 151. 2 3 8 ABSOLUTE MONEY. -money because in the daily transactions of trade and commerce they serve all the purposes of coin money and money of account. .A merchant, in St. Louis can settle his debit in any part of this country, or in Europe, quite as eifectually by the transmission of bonds as by the transmission of gold and silver, or of a banker's ^Bill of Exchange. Hence these national debts are both blessings and burdens; blessings in that they increase the amount of circulating money, burdens in that they bear interest and hence impose increased taxation.* This has been experienced in our own country, but still more emphatically illustrated recently in Europe. When at the close of the Franco-German war France was ■compelled to pay five milliards indemnity to Germany, it was generally expected that France would be prostrated industrially, •commercially and financially, for years to come, by the addition of such an enormous amount to her public debt, and that Germany * " While in so far the issue of these bonds has been a blessing to the people by- furnishing them the needed means of exchange of values, in another way it has been a curse, and as curses all grow with age, so the weight of this curse is to be felt only in the future in all its crushing power. This curse is the interest attached to the bonds, the inevitable coupon, for which the state that issues the bond gets nothing, and which, with its accumulating force of compound interest, must necessarily ruin every state ultimately, or force it into bankruptcy. ' ' This curse is the result of cowardice ; the state being afraid to assume the same power which some few banking-houses, not within one million times so wealthy as the state , were superstitiously supposed to possess, of converting their issues of paper into money, which is the real philosopher's stone. Like all other superstitions this one will have to be swept away, so as to relieve labor of the burdens these money- monopolies impose upon it. " The absurd fact is, that a sovereign state, finding say one hundred millions more of dollars necessary for its circulation, did not dare to meet the exigency by simply making the amount of money needed, but in a roundabout sort of way issued some paper money, called bonds, and going to capitalists, say one or two large bankers, like the Rothschilds, or Jay Cooke & Co., begged them to be pleased to recognize this paper money as good current money ; which these bankers agreed to do upon payment of a large immediate discount and a continuous future semi-annuity, called interest, which is the tribute paid' these money-kings. " The state having agreed to the terms of this contract, the capitalists put the profits Into their pockets, and told the people of the state that those paper-moneys or bonds -were good current money, and thus, having made manifest their supreme power over their own sovereign state, looked around for some other power to subdue in the same manner, by compelling it to pay interest tribute. " It is apparent that for a whole people constituting a state to thus put such an im- mense monopoly into the hands of a few capitalists, either at home or abroad, is ruinous to their liberties and welfare, and that the accumulation of interest com- pounded in such manner must eventually swallow up the whole property and values of the state. Why should these capitalists have the power to say what is to be GOVERNMENT ISSUES AND BONDS. I9 would correspondingly prosper by the receipt of the money. But what was the result ? A few years later — in 1873 — a money panic swept over Germany, quite as destructive as our own panic of 1857, and from the effects of which that country is still suffering intensely, after the lapse of full two years. Meanwhile no country in Europe, not even excepting England, has been and is still so prosperous as France, which has experienced an unparalleled^ development of her commerce, industry and agriculture. And what is the reason of this remarkable phenomenon? The five milliards were not only a debt incurred by the citizens of France, but equally an increase of the world's money, which proved all the more valuable to France, as her citizens subscribed the whole of it. That debt launched five milliards more of francs into circulation. The Germans, supposing that the transaction was merely one of debit and credit, credited themselves in their minds with an addition to their own national wealth of the five milliards and thus went into a fever of extravagance and speculation, which finally spent itself in the memorable crash of 1873. The French also supposed, that the transaction was to them simply a debit, an additional burden of five milliards. Hence they concluded, that they must retrench, economize and make increased exertions to develop all their resources. (See Appendix to Part I.) money ? Why should not the people themselves in their organic law decide upon this matter, and agree among themselves what they all intend to receive as money, thus all pledging to each one the security of the money and the permanency of its value forever ? The only objection made is this : that so long as each state of the world is an absolutely separate organization, the paper m-oney of one state on never become the legal currency of any other state, and that gold and silver must therefore always remain the only possible world-money. To what extent this objection is valid, and how it is to be overcome, will be considered hereafter. " There is, however, still another and even more disastrous view to be taken of this issuing of interest-bearing bonds by a state. It is virtually the mortgaging by the state, as a political body, of all the rights, liberties, wealth, and franchises of its citizens to foreign bondholders ; and to what extent this can be carried was very effectively shown in the case of Mexico, when the foreign bondholders, with their claims upon the state of over eighty-three millions of" dollars, succeeded in inducing their Euro- pean governments to impose a foreign emperor upon the Mexican people, plunging them into those fatal wars that were to end in the tragic death of Maximilian. " No state government should have the power to sell its citizens into possible foreign slavery, thus laying a mine under the political fabric that may at any moment shatter it into fragments. The issue of bonds bearing interest is the exercise of such power. It puts shackles on a nation even more effectually than a mortgage does on the individual who hypothecates his farm." " Liberty and Law," PP.IS3-IS6. 20 ABSOLUTE MONEY. In a similar way the English National Debt, incurred during the Napoleonic wars, proved not merely a burden, but was also the main factor in that enormous development of English wealth, which, as Mr. Gladstone says, has increased since the beginning of this century more than during all the previous History of Great Britain for eighteen centuries. • There appears, however, to be still so much skepticism in regard to this two-fold character of national bonds,' as being both a debt and money, that I shall quote two eminent authorities, who have recognized it in the first instance of government obligations — namely, that of the Bank of Venice — and whose views may have all the more weight with some of my readers, in that both of the writers still cling to specie payment, in direct conflict with their own arguments. McPherson, in his "Annals of Commerce," Vol. I., p. 342, says of the Banco del Giro of Venice : " If I mistake not this Bank is also the most ancient establishment of a permanent national debt." And Mr. Colwell, "Ways and Means of Pay- ment," p. 296, remarks: "The facility of payment furnished by the Bank of Venice * * * * consisted in substituting, as a medium of payment, the debt of the republic for current coin.' ' CHAPTER VI. BANKS AND BANK ISSUES. But enormously as the world's money of account has been in- creased by the issue of government bonds, it has been still further expanded by the organization of public and private banks within the present century all over the world. Computation of the amount of money of account thus created is simply impossible ; but it may be safely stated, that only from three to five per cent, of all the commercial and financial transactions of the world are carried on nowadays by what is called "real," or "metallic" money. The other ninety-seven or ninety -five per cent, are settled by drafts, checks and Bills of Exchange. BANKS AND BANK ISSUES. 21 The modus operandi in which banks manage to effect this inter- change of money, without using the "real" money supposed to be at the base of it, I cannot describe better than by quoting from an article in a recent number of "Blackwood's Magazine" on ^' The Rate of Discount." After referring to the fact, that Sir John Lubbock, in analyzing the nineteen millions of the receipts of the banking house of Roberts & Co., of London, found that only three per cent, of these receipts were in cash, the ninety-seven per cent, being checks, drafts and other means of exchange, the "writer of that article says : "The mystery of banking, if there is a mystery, will be un- ravelled by discovering what these 97 things are. What, then, are they ? Cheques, bills, dividend-warrants, pieces of paper, which liave debts inscribed on them, and empower a bank, if it chooses, to demand and receive the several sums of money mentioned on those papers. Palpably, then, on its receiving side, a bank is a •collector of debts. These debts which it has to collect are its resources. These are what it has to pass on and lend to traders. These debts are paid to the bank beyond doubt ; but in what form? In money, the cash which the bank indisputably can demand? By no means. The bank does not ask for money, nor, as to these 97 things, touch it. The mode of settling these debts is quite a dif- ferent process. The banker, whose aim is profit, finding that he "has so many debts to collect, at once authorizes some borrowers on discount to sign fresh pieces of paper with sums of money inscribed on them, fresh cheques, and to buy goods with them, and he, the "banker, undertakes to pay these cheques when presented. These two sets of paper — the cheques which the banker received to col- lect, and the cheques which he empowered his borrowers to draw upon him — meet at the clearing-house, and there cancel each other. The settlement of one set of debts is thus effected, by the ■creation of a second. The final result at the bank, nay, the sole action of the bank, is a registry in its ledger of a debt which it owes to its depositor, and of a second or counter debt which its borrower owes it in turn. The resources have passed through the bank, have travelled from one set of men to another, and all that they have actually done at the bank in their passage through it is to cause entries to be made under various names. These entries, this action of the bank, required no cash whatever. They were merely items of accounts, lines in the bank's books, recording, indeed, relations of debtor and creditor — still in themselves only 22 ABSOLUTE MONEY. figures. The cheques were hot cash, and were not paid in cash. All these paper orders to pay or receive money are nothing but title-deeds to money — legal evidence of debt, valid and possessing worth only because, as evidence, they are able to persuade a court of law to send the sheriff to collect the specified money from the debtor ; but a title-deed and legal evidence able to obtain posses- sion are not the property itself. Beyond doubt they can procure money, if the banker asks for it ; but he does not, and that is a fact, a positive, real fact, of the utmost significance for understand- ing the nature of banking. Money demanded and retained would bring the banker no profit, whilst permission given to a borrower to draw a new cheque on him, enriches him with a charge for inter- est. Thus he collects the debt which the depositor gave him to receive through the agency of a third person, a borrower. Some- thing clearly passes through the bank by means of these two entries, and that something is a power of buying goods in th^ shops and markets. This purchasing power is what the banker transfers on to the borrower : its nature and action we must now proceed to investigate. "We must return to the debts sent in for collection, the cheques and other paper orders to receive money paidinto the bank. How do they originate ? They are all at their origin, omitting subse- quent transfers after they have reached the bank, the children of the sales of goods. Let us appeal to the actual events of com- mercial life, to the buying and selling effected by means of bank- ing. A farmer sells to a miller ricks of wheat of the value of _;^iooo. He is paid with a cheque, which he deposits with his banker ; but of the proceeds of the sale he needs only ^^400 for immediate purchases and payments ; the remaining ;^6oo he will not require, say for three months. These facts we must suppose the banker to know; so he at once infers that of the ;^iooo he has to collect, ;^4oo will be needed to face the cheques drawn by the farmer ; the other ;£6oo are at his disposal for three months. He may, if he pleases, collect the whole sum in coin, and store up the unneeded portion in his vaults; but he does not, for what profit would he then get -out of banking ? That would be to convert himself into a mere warehouseman. He seeks a borrower ; he finds an iron-merchant in search of means, and he lends him ;£6oo for three months, on the discounting of a bill. The merchant buys iron, pays for it with a cheque, and all the three cheques meet at the clearing-house — the first for _;^iooo, the second for ;^4oo, and BANKS AND BANK ISSUES. 2$ the third for ;^6oo — and there clear each other. The transaction is completed. The banker on the settlement at the clearing-house has to pay as much as he received, and no money passes. The farmer has parted with his wheat, which has been exchanged, partly for some goods which he: has bought for his own use, partly for iron. He has become a creditor of the bank for ;^6oo, and the merchant a debtor for the same sum. The grand final result is, that goods have been exchanged for goods ; and that is the whole of the matter. The banking has been mere agency — ;absolutely nothing more. The banker, manifestly, in all this has been simply a broker, an intermediate agent, and nothing more — a man who brings two other men together, a farmer who wants to lend wheat and an iron-merchant who wants to borrow iron. ' ' In another place he expresses the modus operandi still more con- cisely, as follows : " By the simple but effective contrivance of a bill acknowledging a debt and pledging repayment at a deferred day, the trader goes to work with means which are not his own. The large manufac- turer buys his cotton or wool with bills, and when they are due, he meets them by the help of another set of bills, for which he has in turn sold his merchandise. These, the bills he has received on the sale of His goods, he gets discounted at a bank, and a new round of operations commences. So it is with the merchant. He sells a cargo at Calcutta, and is paid with bills. Without the assistance of a bank Se must have vtraited till the bills were paid before he could have gone on with his trade. A bank takes, that is, buys, his bills, and furnishes him with the means of continuing his business." CHAPTER VII. THE HISTORY OF OUR AMERICAN PAPER MONEY. Before proceeding further and describing the system of Absolute National Money, which I propose to substitute for the present irregular, multifarious and unsecured money issues of private and public corporations, it will be well to review the history of our own paper money, since any new system must after all connect practi- 24 ABSOLUTE MONEY. cally with the existing state of things. Besides, the financial experience of our own past is exceedingly instructive, and calcu- lated to throw fresh light on the great reform needed in our money issues. I quote from "Liberty and Law." " In the year of the Declaration of Independence of the United States, the Continental Congress, having no control of sufficient gold and silver to carry on the revolutionary war, was forced by that great exigency to establish a paper currency, and authorize the issue of such money as the only available means for exchanging values and prosecuting the conflict with Great Britain to a success- ful close ; but it had no clear comprehension of the sovereign right of the new republic to create a national money of its own. During the year 1776 twenty million dollars were issued, and before the close of the war more than three hundred and fifty-seven million dollars of continental currency was in circulation in the United States. "While the colonists were battling for their right to a free representative governm.ent against the despotism of the British Parliament, they did not seem to be aware of the fact that an equally dangerous money-despotism, controlled and wielded with great skill by their adversary, could be counterbalanced only by a national financial system of their own creation. To a certain extent this was accomplished by the plan adopted j but if that Congress had made its currency, to the exclusion of all other money, a legal tender for all demands, secured, as it would have been, by the wealth and resources of the nation, even then so richly endowed, a rational money system would have been established by the new republic, facilitating the triumph of its arms, compensating it for the great losses and expenses of the war, and at the same time breaking the shackles of the money-despotisms of the Old World in our republic, which to this day continue to oppress and embarrass our people. " The continental money was created merely as a temporary war measure, necessary to insure success to our arms in that memorable conflict ; but as soon as the crisis was over, it was repudiated in bad faith, to the ruin of many patriotic soldiers and citizens, and the injury of our national credit and financial standing among nations. If that currency had been made a legal tender when issued, the total amount of the issues would not have been one- fourth of the amount repudiated in 1782-83, and would have greatly added to the prosperity of the people of the States, by AMERICAN PAPER MONEY. 25' giving them a universal national money-medium of intercommuni- cation to develop their, inexhaustible resources, to unfold to full activity all the producing, manufacturing, trading and commercial industries of the people, and to defend them against and emancipate them from all foreign as well as domestic monetary monopolies. After that repudiation, great financial distress ensued, paralyzing all kinds of business, for the want of money to carry it on, until the year 1791, when the establishment of a United States bank by Congress relieved in a great degree the previous money-pressure. " The charter of that bank expired in 181 1, and no other money- tokens remaining but gold and silver, wholly insufficient in quantity !to furnish a circulating medium for the increasing business and •commerce of the people, another period of suffering for the want of money ensued, and the war of 1812, with Great Britain, so increased it, that a second United States bank of issue was chartered for twenty years, in 1816, which again temporarily relieved and restored the business activity of the people. ' ' Meanwhile the States of the republic began to charter banks with power to issue paper money, in violation of the spirit of the Con- stitution ; although the federal Supreme Court, under the pressure of an apparent public necessity, held their charters to be valid. The paper-money issues of the federal and State banks furnished a large addition to the circulation and exchanges ; but different kinds of money were thus introduced, in addition to coin, and the almost universal depreciation of the value of many of the State bills, at any considerable distance from the place of their issue and redemption, injuriously affected business and commerce, by subject- ing such bank-notes to brokerage discounts, and thereby forcing the banks into a continual warfare" with each other, to compel coin redemptions for the protection of their several issues. " This kept alive and flourishing the coin-money system, and finally created a conflict between the federal banks and State banks, that culminated in 1833, when President Jackson,,espousing the cause of the State banks, compelled the government moneys to be removed from the United States Bank to certain State banks, which became the depositaries of the public moneys and the authorized agents of the Treasury. The opposition of the President and the Democratic party, and the removal of the deposits, caused the downfall of the federal bank, and the national credit and moneys passed to the State banks that were known as "pet banks." " Then arose an era of irresponsible, illegal State banking, con- 26 ABSOLUTE MONEY. trolled exclusively by private corporations, for their own profit,, resulting in enormous issues of paper money, causing an extravagant inflation of the currency and increasing speculative manias, to suclt an extent that nearly all those banks suspended in 1837, with an irredeemable currency flooding the country. The universal distress and prostration of all business and trade was such that Congress^ passed acts, in 1837, 1838 and 1839, for the issufe of Treasury notes to the amount of ten million dollars in each of those years, for the: relief of the people, by furnishing them a national money amply secured by the credit and vast resources of the repul^lic. " These laws gave some temporary relief to the extraordinary- stringency of the money market, but the government did not yet perceive the true remedy for financial revulsions to be a nationall currency, and these wise acts were repealed in 1841, and Congress in the same year deemed it necessary to pass a national bankrupt act. " The State banks that did not forfeit their charters or discontinue their business, one after another resumed specie payments, and the working of the monetary system under their management, from 1843 to 1861, illustrated the ruinous results arising from the dele- gation to States or corporations of the sovereign power of making money or issuing notes to form a circulating medium for the people of the United States. "The frequent recurrence of panics during that period pitived this by demonstrating the fallacy of keeping up a permanent circulation of paper money, issued by divers State banks, that was always to be redeemable in specie on demand. The mutual jealousy of such banks will ultimately reduce the circulation to the coin on hand, and a great scarcity of money will ensue j or, if the issues greatly exceed the specie in their vaults, and a demand for gold arises, as in 1857, the banks so organized must suspend specie payments, to the ruin and distress of all persons depending upon their circulatioijj for the transaction of business. "At the breaking out of our civil war in 1861, the federal government had no paper money outstanding, and gold and silver were its only recognized standard of value. It immediately became apparent that sums of money immensely beyond the sum of all the gold and silver on hand would be needed to supply the sinews of war, and the stringency seemed all the greater in that the effects of the monetary crisis of 1857-58 had not yet passed away. The State banks had already proved wholly insufficient for managing AMERICAN PAPER MONEY. 27 the monetary affairs of the nation in time of peace, even with the assistance of the Sub-treasury, organized in 1846;* and no other course remained than the organization of a money system indepen- dent of coin, and in July, 1861, the issue of sixty million dollars- of demand notes, receivable for duties and imposts, was authorized by Congress. "But the government, instead of continuing the money-policy thus inaugurated, and making all its issues a legal tender for all debts thereafter contracted, changed the issue, from 1862 to 1864, to legal-tender notes, receivable for all debts except duties and imposts. Four hundred million dollars of this currency were issued during that period, and to make it the supreme paper money of the country, a heavy tax was levied upon the circulation of the State banks, which were thereby virtually suppressed. Thus three kinds of money were established : the demand notes, the legal-tender notes, and gold and silver, — placing a premium oa the coin, over which the government had no control. The legal- tender currency issue was too small, and for some unaccountable- reason Congress would not authorize the issue of more currency,, and hence was forced to create a fourth kind of money, in the forrrn of bonds of the United States, bearing heavy interest payable in. coin, — although the principal of these bonds, known as 5-20's, was generally understood to be payable in legal-tender currency, — and caused them to be sold at a ruinous discount for gold, which Congress had greatly enhanced in price by requiring all duties to- be paid to the agents of the Treasury in specie, thus directly depreciating the legal-tender notes by refusing to receive them for duties payable to the government. "The issue of these interest-bearing bonds during the war forced: the government into the market to sell its own securities for its owrt legal-tender notes or for gold, and to do this it was deemed neces- sary to employ bankers and brokers, pay heavy commissions, and. contract immense future obligations in the way of interest, in order that some banking-houses, with not a millionth part of its wealth and resources, might indorse its bonds and undertake their nego- tiation. Thus this wealthy and powerful government, by an unpardonable financial blunder, placed its finances at the mercy of foreign and domestic money-monopolies; nay, sacrificed the wealth and prosperity of future generations, by unnecessarily * This arose from their usurpation of the power to issue paper-money, which power the Constitution reserves in Congress. 28 ABSOLUTE MONEY. incurring an interest debt which already demands a most oppressive rate of taxation and duties to meet it. "The true policy, and the one suggested to the Secretary of the Treasury at the breaking out of the war, was to recommend to Congress the passage of a law for the creation of a national money, by the issue of* legal-tender Treasury notes, receivable for all debts, demands and duties, to the exclusion of all other money, thereby rendering gold and silver mere articles of commerce, like copper, lead, iron and other products for import or export. "If this proposed policy had been approved by the Secretary of the Treasury, or adopted by Congress without his recommendation, the war expenses would have been greatly diminished, and at the restoration of peace there would have been no national bonded war debt and no national taxes, and the people would have had a reliable national money for general circulation, to the exclusion of all other money, and better suited for business, commercial, and governmental purposes than any other money in the world. "Instead of adopting this economical and statesman -like policy to meet the public exigency, many vacillating, speculative, and unwise schemes were proposed by the Treasury, adopted by Con- gress, and abandoned alternately, until the bond credit of the United States, in 1864, sank below that of the Confederate States about twenty per cent, in the London money market. This was the plain result of our own inconsistent, suicidal financial schemes, as will clearly appear from a brief review of them. "The issue of the demand notes in 186 1-2 was followed by an issue of common legal-tender notes in lieu of them, then coin interest-bearing 5-20 bonds, 7-30 interest-bearing bonds, Treasury three-year notes, three per cent, certificates, niore 5-20 bonds, compound six per cent, notes, five per cent, notes, and gold certificates, until about two thousand million dollars 5-20 bonds had been issued. "In fact, the main purpose of the financial administration of our affairs during the whole progress of the war seemed to be to create an enormous national debt, bearing a high rate of interest, and entailing upon the people ruinous taxes, tariffs, and other burdens. " But worse than all these extravagant and inconsistent measures, the government, finding that the people needed more currency for ready interchange, instead of issuing legal-tender notes in propor- tion as they were needed, created, in 1863, one of the most powerful monopolies in the world, by the National Bank Act, and AMERICAN PAPER MONEY, 29 transferred to the money corporations to be organized thereunder the national sovereign power of making United States national bank-notes, paying them, moreover, virtually an annuity of six per cent, in coin to accept this most valuable franchise.* "In 1869 there were sixteen hundred and twenty of these national banks, with a circulation of two hundred and ninety-nine million, seven hundred and eighty-nine thousand eight hundred and ninety- five dollars, secured by United States 5-20 bonds for three hundred and forty-two million four hundred and seventy-five thousand six hundred dollars, deposited by them in the Treasury to secure their several circulations, issued upon such bonds, the redemption of which in legal-tender notes was guaranteed by the United States. That is, the government paid those sixteen hundred and twenty banks an interest bonus of six per cent, in coin a year on three hundred and forty-two million four hundred and seventy-five thousand six hundred dollars of United States bonds, to accept the privilege of issuing three hundred million dollars of such currency so issued to them, and loaning them out at the .highest rates of interest. " This ruinous scheme of finance, invented, it is said, in the Treasury, to aid the federal government, is about equivalent to a. loan of money by Mr. Prodigal to Mr. Shylock for twenty years, on a special agreement that the lender should pay the borrower six per cent, yearly interest in coin for accepting the money so loaned, and assuming the trouble of lending it, at the highest rate of usury possible, for his own profit ! "But in order to rivet these chains of debt and interest more- firmly upon the necks of the people, so that no future Congress, could remove them, it was necessary for the bondholders, broker- ing speculators, and the national bank stockholders to procure the passage of a law declaring the 5-20 currency bonds to be redeem- able only in coin ; and to prevent the repeal of such an unjust law,, another enactment was required, authorizing the issue -of new bonds, with special contracts inserted therein, binding the govern- ment to pay the principal and interest in coin, whereby, on the sale of the new bonds for gold, the proceeds would be used for the- redemption of the 5-20 currency bonds in coin. * Since the passage by Congress of the Act directing the resumption of specie payment in 1879, this franchise has not only lost all its value, but has become a posi- tive burden, of which the National Banks will have to relieve themselves by the sur- render of their charters, in order to prevent their utter ruin, as I have shown in the: last chapter of this book. 3° ABSOLUTE MONEY. " To accomplish this purpose, Congress, on the i8th of March, 1869, passed a joint resolution pledging the faith of the nation to redeem the 5-20 bonds in gold ; and on the 14th of July, 1870, another act, authorizing the issue of new gold bonds with gold coupons, to be sold for the redemption of the 5-20 currency bonds at par. " About two thousand million dollars of 5-20 currency bonds were thus changed into coin bonds by the act of 1869, the burdens of it falling with crushing force upon the tax-payers and producers of the present and future generations of our own people. These 5-20 bonds had most of them been purchased at an average coin price of about fifty cents on the dollar. By this inexcusable legislation of Congress the national debt, and all secured debts of individuals, contracted for currency during the war, were in reality doubled for the sole benefit of usurers, bondholders, and monopolists, and a new obligation was created for the American people, which it is impossible to fulfill. There is not half gold enough to be had anywhere to pay off the 5-20 bonds. It is a physical impossibility, and, by the resolution assuming to pay it in coin. Congress vir- tually forced upon the nation a gigantic short sale of two thousand million dollars in gold, for two thousand million dollars in 5-20 bonds that had already been sold for currency prices and were then ■outstanding, to be redeemed in legal tenders. " It was a bold, treasonable cornering of the nation in the in- terest of the bondholders; and, injurious as its consequences have Already been in producing universal financial distress and numerous bankruptcies, the far more threatening calamities of national insolvency and revolution that it holds out for the future can be avoided only by the repeal of the acts of 1869-70, and the passage of an act prohibiting the further sale of new gold bonds, and requiring the redemption of all the remaining 5-20 currency bonds in legal-tender notes to be issued for that purpose, as was the •original intention and understanding.* But even these miserably inconsistent financial measures of issuing several different kinds of Treasury notes, bonds, and national "bank-notes, demonstrated in a general way the wisdom of making .a national money controllable by the government. An era of prosperity for the United States began, and continued from 1863 to 1869-70, that made us almost forget the expenses and ravages * The manner in which this can be accomplished, without violating the national faith, has been explained by me in the Second Part of this work. AMERICAN PAPER MONEY. 3! of a gigantic civil war. Commerce, agriculture, and manufactures multiplied in wonderful proportions, and great public improve- ,ments of all kinds increased rapidly on every side ; and this rnational prosperity would in all probability have been permanent it the acts of 1869-70 had not been passed, and a policy had not been adopted by the Treasury subjecting the established national •currency to a ruinous conflict with the old coin despotism, sup- porting and supported by the money-monopolies that now rule the nation with a rod of iron. "Before these incorporated despotisms the federal Congress, many of the State legislatures, and great numbers of the people bowed down in submissive adoration, like the idolatrous Hebrews in their worship of the golden calf at Mount Sinai ; and now, since these powers are supposed to have attained absolute supremacy, the redemption of the 5-20 bonds in coin and the sale of the new gold laonds are urged with such eager haste by the Treasury that financial ruin stares our merchants and manufacturers in the face, and the Taankrupt courts are overrun with applications. To complete our financial ruin we need but one more suicidal act of Congress, pro- viding for the resumption of specie payments, which would bring the fatal conflict between the legal-tender currency system of the country and the old coin despotism to a close by destroying our national money, and inevitably force the nation and the people into bankruptcy, repudiation, or revolution." "Liberty and Xaw," pp. 159-172. 32 ABSOLUTE MONEY. APPENDIX I. There is no financial transaction in the history of the vrorldt which is so instructive as the negotiation of the five milliards loan by the French government after the peace of Versailles, and the- results of that loan. Nor could I better illustrate the fundamental principles of my money system than by referring to the particulars, of the negotiation of that loan. This, let me hope, will be a sufficient excuse for quoting here at length from ap exceedingly able article on that subject, which is taken from the February- number of "Blackwood's Magazine." " As soon as it becam!e known, five years ago, that France had to hand! over ;£200,ooo,ooo to Germany, it was generally predicted that the finan- cial equilibrium of Europe would be upset by the transfer of so vast a^ sum from one country to another, and that the whole system of inter- national monetary relationship would be thrown into confusion. Appre- hensions of an analogous nature were abundantly expressed when the two- French loans successively came out. Wise bankers shook their heads, in Frankfort, London, Amsterdam, and Brussels, and assured their listeiiers that, though the money would probably be subscribed, it could not possibly be paid up under five years at least. And yet: the whole of this vast transaction was carried out between ist June,. 1871, and 5th September, 1873 1 twenty-seven months sufficed for its completion ; and not one single serious difficulty or disorder was produced by it. The fact was that the commercial world had no idea of its own power; it thought itself much smaller than it really is ; it failed altogether to suspect that its own current operations- were already so enormous that even the remittance of five milliards from France to Germany could be grafted on to them without entailing any- material perturbation. Such, however, has turned out to be the case ; and of alf the lessons furnished by the war, no other is more practical or- more strange. The story of it is told, in detail, in a special report which has recently been addressed by M. Leon Say to the Commission of the- Budget in the French chamber. " But before explaining the processes by which the war indemnity was- paid, it will be useful to recall the principal features of the position in which France was placed by her defeat. It is now computed that the entire cost of the campaign amounted, directly and indirectly, to about ;£4i6,aoo,ooo; and this outlay may be divided into five sections, — the- first three of which were declared officially by the Minister of Finance;- THE FRENCH FIVE MILLIARD WAR LOAN. 33 in his report of 28th October, 1873, while the two others have been arrived at by a comparison of various private calculations. They are composed as follows : 1. Sum paid by France for her own military operations, ;£i97, 203,000 2. Sums paid to Germany (The Five Milliard Francs and interest), .... 224,478,000 3. Collateral expenses, ..... 39,814,000 4. Requisitions in cash or objects, ... 15,000,000 5. Loss of profits consequent upon the suspension of trade, . 30,000,000 " Now the payment of the indemnity, ;£20o,ooo,ooo, and the detailed conditions under which that payment was to be made, were stipulated in the three treaties or conventions signed successively at Versailles, Ferrieres, and Frankfort, in January, March, and May, 1871. It was determined by the last-named treaty that ' payments can be made only in the principal commercial towns in Germany, and shall be effected in gold or silver, in English, Prussian, Dutch, or Belgian bank-notes, or in commercial bills of the first-class.' The rates of exchange on coin were fixed at 3f. 75c. per thaler, or at 2f. 15c. per Frankfort florin ; and it was agreed that the instalments should be paid as follows : 30 days after the suppression of the Commune, - - £ 20,000,000 During 1871, -.-..- 40,000,000 In May, 1872, -...-. 20,000,000 2d March, 1874, ...... 120,000,000 Total, ..... ;£2oo,ooo,ooo " The last ;£ 120,000,000 were to bear interest at 5 per cent. " It must be particularly observed that no currency was to be ' libera- tive ' excepting coin, German thalers or German florins. " Furthermore, it was declared that the instalments must be paid at the precise dates fixed, neither before nor afterwards; and that no pay- ments on account should be allowed. " Two main conditions, therefore, governed the operation : the first, that all payments made in anything but coin or a proper German form were to be converted into a German form at the expense of France ; the second, that the proceeds of all bills or securities which fell due prior to the date fixed for an instalment, were to be held over until that date. " As the annexation of Alsace-Lorraine to the German Empire obliged the Eastern Railway Company of France to abandon all its lines within those provinces, it was agreed that Germany should pay for them, that the price should be ^13,000,000, and that this sum should be deducted from the indemnity. This was the first exception. The second was, (hat Germany consented, as a favor, to accept ;^5,ooo,ooo in French bank-notes. By these two means the ;^20o,ooo,ooo were reduced to ;^i82,ooo,ooo. But thereto must be added ;^i2,o65,ooo for interest which accrued successively during the transaction, and which carried the total for payment in coin or German money to ;^ig4,o65,ooo. And even this was not quite all, for France had to furnish a further sum of 3 34 APPENDIX. about ;£58o,ooo for exchange, and for expenses in the conversion of foreign securities into German value. This last amount does not appear to be finally agreed between the two Governments — there is a dispute about it ; but as the difference extends only to a few thousand pounds, the final sum remitted may be taken at about ;^i94,645,ooo, or at ;£i99,645,ooo, if we include the ;£5,ooo,ooo of French bank-notes. The ;£l3,ooo,ooo Credited for the railways carried the entire total of the indemnity, with interest and expenses, to ;£2 12,645,000. " The first payment (in French bank-notes) was made on 1st June, 1 87 1. As the first loan was not brought out until the end of the same month, ;^5,ooo,ooo were taken for the purpose from the Bank of France ; but with that exception, and subject to temporary advances {as will be seen hereafter), the funds for the entire outgoing were provided by the two great loans ; the interest was, however, charged separately to the bucJget. Consequently, the money was derived successively from the following sources : The value of the Alsace-Lorraine railways, - - £ 13,000,000 Loan from the Bank of France, - - - . 5,000,000 Out of the first loan for two milliards, - - 62,478,000 Out of the second loan for three milliards, - 120,102,000 Out of the budgets of 1872 and 1873 (interest), - - 12,065,000 Total, . . . , . ^212,645,000 ********** " After these preliminary explanations we can now begin to show the means by which the transfer was performed. We will divide them, in the first instance, into four categories : 1. German bank-notes and money collected in France after the war, - - - - £ 4,201,000 2. French gold and silver, 20,492,000 3. French bank-notes, - - 5,000,000 4. Bills, - - - , - - 169,952,000 ' Total, - - ... _£i99,645,ooo " The first observation to be made here is, that the German money found in France amounts to a singularly large sum ; indeed, if this proof of its importance had not been furnished, no one could possibly have suspected that the invaders, for their personal and private necessi- ties, had spent anything like so much. " The ^20,492,000 of French money was composed of ;£io,92o,ooo in gold and ;£9, 572,000 in silver. But it should be said at once that these figures express only the amounts transmitted by the French Government officially, and do not comprise the quantities of French gold bought by Germany or forwarded by private bankers to cover their own bills ; these other quantities will be referred to presently. ;£6,ooo,ooo of the Government gold were supplied by the Bank of France ; the rest was bought from dealers or furnished by the Treasury. Of the silver, THE FRENCH FIVE MILLIARD WAR LOAN. 35 ;^i;, 840,000 were obtained in France, and ;^3,732,oco were drawn, in bars, from Hamburg, and coined in Paris. " But these direct remittances of German and French cash repre- sented, after all, only about one-eighth of the entire payment ; the other seven-eighths were transferred by bills, and it is in this section of the- matter that its great interest lies. It will at once be seen that, as no remittance in paper became ' liberative ' until it was converted into anj equivalent value in thalers or in florins, the French Treasury could obtain no receipt for an instalment until all its various elements had been so converted ; its object, therefore, was to, obtain the largest possible amourit of bills on Germany, so that, at their maturity, their proceeds might be at once available in the prescribed form. But, at the same time, it was quite impossible to collect in France alone, within the' time allowed, anything approaching to the quantity of German bills required. The result was, that it was found necessary not only to hand in a large amount of bills on other countries, which had to be converted into German values at the cost of France, but also, as regards the purchase of direct bills on Germany, to effect it frequently in two stages. In the first stage, bills were bought in Paris, as they offered, on England, Belgium, or Holland ; in the second, a portion of the proceeds of those bills was reinvested in those countries in other bills on Germany itself. Of course the French Government was very anxious to employ every sort of means to increase the quantity of German bills, and to avoid leaving to the German Treasury the right of converting foreign paper into German value at French expense. At the origin of the operation the importance of this element of it was not fully realized ; but by degrees the French minister discovered that it was far more advantageous to effect his conversions himself than to leave them to be carried out anyhow at Berlin. The result of this discovery was, that while ^454,000 were paid to Germany for the 'cost of conversion on the first two milliards, only ;£ii,ooo were paid to her under the same head on the remaining three milliards ; after the experience of the first twelve months, France sought for bills on Germany wherever she could get them, all over Europe ; and it may be added that she was somewhat aided in the effort by the special position of Germany, who, at the moment, was in debt considerably to England, not only for the war loans she had issued there, but also on commercial account as well. But, as has just been mentioned, a good many of these bills were substitutions for each other, and consequently the amount of paper shown as bought. is considerably larger than the real sum paid to Germany, the reasoni being that a good deal of it appears in the account twice over. The' following table gives the composition of the total quantity of bills; bought by France : 36 APPENDIX. ^^62, 5 50,000 9,548,000 43,218,000 3,172,000 61,780,000 21,432,000 20,856,000 I2,952,COD . ;£234, 508,000 " But though the foregoing table shows the quantities of bills, of each ■kind, that were bought by the French Government as vehicles of trans- mission, it in no way indicates the form in which the money was in reality handed over to the German Treasury. Most of the above figures •were largely modified by conversions and substitutions ; and when all the bills had been cashed — when the whole payment had been effected — it appeared that the real totals of each sort of currency which had been finally delivered to Germany were as follows : Bills on Germany, bought direct, in thalers, Do. do. in florins. Do. bought, in thalers, with the proceeds of other bills, . . Do. in reichsmarcs, . Bills on England, in sterling, Do. Hamburg, in marcs-banco. Do. Belgium, in francs, .... Do. Holland, in florins, .... Total, French bank-notes, . French gold, .... French silver, German notes and cash, Bills— Thalers, Do. — Frankfort florins, Do. — Marcs-banco, . Do. ^Reichsmarcs, '. Do. — Dutch florins, . Do. — (and in silver) — Belgian francs, Do. — Pounds sterling. £ 5,000,000 10,920,000 9,572,000 4,201,000 99,412,000 9,404,000 10,608,000 3,190,000 10,020,000 11,828,000 25,490,000 Total, ...... ;£i99,645,ooo " This catalogue shows, at last, in what shape the bills were really utilized and made ' liberative,' either in German money direct, or by the equivalent in foreign value in thalers or florins. The differences of ■composition between this definite list and that of the bills originally bought, are only partially explained by M. Leon Say ; it is not, however, necessary, nor would it be interesting, to follow out precisely the various conversions which took place ; — we will only mention, as an illustration, that, out of the ;£6 1,780,000 of original bills in England, ;£3 1,687, 000 were converted here into other bills on Germany, that ;£2 5,400,000 were sent to Berlin in sterling bills, and that the balance remains unexplained. As regards the direct delivery, by France herself, of English, Belgian, ■or Dutch bullion, the report says nothing ; it is only stated, incidentally, that ;£720,ooo of Belgium francs were sent to Berlin in metal, and that the London agency of the French Treasury bought ;^i, 132,000 here in gold and silver, which, probably, was also shipped to Berlin ; but these are the sole allusions to the subject. It is probable, as indeed has always been supposed, that the bullion which was withdrawn, during the THE FRENCH FIVE MILLIARD WAR LOAN. 37 operation, from London, Brussels, and Amsterdam, was not taken for French account, but by Germany, out of the sums at her disposal in each place after the bills on that place had matured. " We have now before us, in a condensed form, the main elements of this prodigious operation ; we see now what were the conditions which regulated it, where the money came from to realize it, how that money was successively employed, and in what shape the payments were at last effected. We recognize that France herself provided, in her own notes and coin, " that German money and bills on Germany produced, " and that bills on England, Belgium, and Holland contributed, . Total, ..... £ 25,492,000 126,815,000 47.338.000 ;£ 199,645,000 " And now we can approach the most important and interesting point in the whole transaction. How came it that £170,000,000 of bills could be got at all? We have given a general answer to the question at the commencement of this article ; we will now consider it more in detail, partly with the aid of M. Leon Say's report, partly by reference to other sources of information. It appears, as might have been expected, that various measures were employed by the French Government in order to render possible the collection of such a huge mass of paper. In the first place, particular facilities and temptations were offered to foreigners to induce them to subscribe to the two loans ; commissions varying from J to I per cent, were offered to them. Secondly, everything was done to encourage anticipated payments of those instalments, so as to hasten the dates at which they could be drawn for. Thirdly, as some fear was felt that the second loan might possibly not be eagerly subscribed, coming, as it did, so immediately after a previous issue which was not quite paid up, it was thought desirable to get a portion of it guaranteed by bankers. But, in order not to risk giving to those bankers a large commission for nothing, it was stipulated with them, as a part of the arrangement, that they should supply the Treasury with a fixed quantity of foreign bills. By the two former plans of action the immense amount of ;£70,92o,ooo of drafts on other countries were obtained, ;£i 5,960,000 of which were on account of the first loan, and £ 54,960,000 on account of the second ; and it may be remarked at once, before we proceed, that though this figure supplies decisive evidence of the fact that at least one- third of the two great loans was paid up by foreign subscribers, it is certain that nearly the entire amount has been bought back since, and that almost the whole of the new stock is, at the present moment, in French hands. By the third plan, the bankers who formed the syndicate — and it may be mentioned that fifty-five of the first houses in Europe were associated for the purpose — engaged to supply ;£ 28,000,000 of 38 APPENDIX. paper. Consequently, by these admirably devised schemes,;^ 98,920)000 of drafts were successively procured, and the exact quantity to be bought in the open market was reduced to ^^7 1,032,000. " It must, however, be observed, that though we can regard these drafts on foreign countries for loan instalments as a special product of the occasion, and are therefore justified in counting them apart, the same cannot anyhow be said of the ;£28,ooo,ooo of bills furnished by the syndicate of bankers. The latter were evidently composed of ordinary commercial paper, and consequently must be added to the total which had to be supplied from commercial sources proper, so putting that total' at ;£99,032,ooo. Now bills of this sort necessarily, imply an effective counter-value of some kind ; so, as we have already seen, that at the outside only ;£i8,ooo,ooo of that counter-value was supplied in bullion, there remained at least ;£8 1,032,000 of bills which must necessarily have been, based on ordinary trading or financial operations. What were those operations ? Very often the general chaTacter of a bill is indicated on its face ; but in this case a test of that kind could not be applied, not only because there were so many bills to handle that a serious examination of their nature was impracticable (there were, in all, one hundred and twenty thousand of them, of every conceivable amount, from £\o to ;£20o,ooo), but also because every possible kind of business transaction must have been represented in that accumulation of securities from all parts of the world.* Bank credits, circulation bills, settlements for goods delivered, remittances on account of_ future purchases, drafts against the coupons of shares and stocks special paper created for the occasion — all these forms, and many others, too, were, according to M. Leon Say, included in the collection. It was not possible to seek out in detail the origins and meanings of such a varied mass ; but we may take M. Say's general description of it to be true, not only because it corresponds with probabilities and experience, but also because he was himself Minister of Finance during a part of the operation, and has therefore a personal knowledge of its main circumstances. Researches, however, which could not be attempted with the bills themselves, may be practically and usefully pursued if they are directed towards the general signs and symptoms of the fiuancial state of France. It is probable that a relatively small amount of bills were created specially to be sold to the French Govern- ment. We may, indeed, talce the supposed ;£i8,ooo,ooo of exported bullion as indicating the approximate extent of uncovered or manufac- tured paper ; all the rest was evidently based on mercantile transactions. Now we know that mercantile transactions imply the delivery of prop- erty of some kind, and that the two main forms of property, com- mercially, are merchandise and stocks. It is therefore necessary, in order to arrive at an idea upon the question, to glance at the actual position of France in her dealings with other nations in these two values. " We have already alluded to the development of French trade, and THE FRENCH FIVE 'MILLIARD WAR LOAN. 39 to the general influence of that development on the payment of the war indemnity as a whole ; but we must go into a few figures here in order to make the bearings of the subject clear. The value of the foreign commerce of France — importations and exportations together — was £257,000,000 in 1871, £293,000,000 in 1872, and £301.000,000 in 1873. Now it will be at once recognized that the amount of bills necessitated by this quantity of commerce, supplied a solid foundation for carrying the additional paper whose origin we are now seeking to discover. M. Say is of opinion that scarcely any part of the indemnity bills was furnished by the current commercial trade of the country ; but, as we have just seen, that the quantity required from trading sources was £81,000,000, or about £40,000,000 per annum, it does seem to be possible, notwithstanding his contrary impression, that some portion of that relatively reduced quantity may have been found in the ordinary commercial movement. For instance, it may reasonably be argued — as indeed M. Say himself admits — that bills drawn against French exports to Germany or England would be included, to some extent, amongst those which were offered to the Government. There seems to be no reason why this should not have been so. " But if M. Say considers that the habitual commercial paper of France has not been of much service to the Treasury in its conduct of this operation, he holds a totally different opinion with reference to the influence of foreign investments of the French people. " The movement of the precious metals forms a separate element of the subject, and one that is not easy to trace out; for in France, as in most other countries, the public returns of the international trade in specie are very incomplete. We know how much gold and silver are raised from mines, and how much thereof is coined by each country ; but we are very ill informed as to what becomes of them when once they have issued from the Mint. On this head also, however, M. Leon Say has collected some valuable facts. The Custom-house Reports .inform us that during the three years from 1871 to 1873, £53,400,000 of bullion were exported, and £50,480,000 were imported ; on this showing, therefore, the loss of bullion was only £2,920,000. But as private information gave good reason to believe that the amounts must have been in reality considerably larger, calculations have been made in order to arrive at a more correct conclusion. It appears, from official publi- cations, that the stock of gold and silver in the Christian world is supposed to have increased by £371,000,000 from 1849 to 1867 ; but the augmentation has not occurred in both the metals — it has taken place in gold only ; the quantity of gold is greater by £428,000,000, while, in consequence of exportations to Asia, the quantity of silver has diminished by £57,000,000.* Now, out of this £428,000,000 of new gold, France » Nevertheless the price of silver has fallen in Europe, and for no other reason than that it is no longer a universal Legal Tender. 40 APPENDIX. alone, in the first instance, received more than half ; at least we are justified in supposing so, fi-om the fact that, during the same period, the Paris Mint converted ;^230,ooo,ooo of bar gold into French coin. Of course this quantity of gold did riot remain permanently in France ; its whole value was not added in reality to the general French stock of metal ; as gold arrived in France silver went away ; indeed it is imagined that, out of the ;^2oo,ooo,ooo of silver which have been coined in France since the year 1800, only ;^40,ooo,ooo remained in the country in 1869. It is, however, calculated that the ;^ioo,ooo,ooo of hard cash, gold and silver together, which were said to really belong t6 France in 1848, have doubled since ; and M. Wolowski, who is regarded as an authority on such questions, declared in the French Chamber, on 4th February last, that, in his opinion, the national stock now ranges between ;£20o, 000,000. and ;£25o,ooo,ooo. " But whatever be the interest of these computations, and useful as it may be to count up the amount of bullion which has come into France, we must look elsewhere for information as to the quantity of it which the consequences of the war took out. We know that the German Mint melted down, for its own coinage, ;^33,88o,ooo of French Napoleons. It is also known, says M. Leon Say, that the Bank of England bought nearly ;^8,ooo,ooo of the same sort of money between 1870 and 1873. Here, therefore, we can trace the passage out of France, since the war, of nearly _;^42,ooo,ooo of her gold. But, as Germany drew from London ;£i, 680,000 of the Napoleons which she put into the furnace, it may be that that sum was included in the ;£8,ooo,ooo of the Bank of England, and is therefore counted twice. For this reason the amount reall]» sent to Germany and England may be put at ;£40,ooo,ooo. M. Leon Say adds, that the Bank of Amsterdam bought a further ;^3,6oo,ooo of French gold; but, as he fancies that this may not have come direct from France, he does not add it to the total, arid he holds to ;^40,ooo,ooo as representing probably the effective loss of gold which France had to support after the war. Of this sum, ;£ 10,920,000 were exported to Berlin, as we have already shown, by the French Government itself; the other ;^2g,o8o,ooo were consequently carried out by private firms for transmission to Berlin, and for various other purposes. Silver, however, arrived in considerable quantities to replace the gold. ;^9, 500,000 of silver were coined in Paris between 1870 and 1873; ^1"^ ^^e Custom- house returns, which are -almost always below the truth, show an importation of ^12,160,000 of it. From all this, M. Say concludes that ;^4o,ooo,ooo of gold left France ; that ;£i2,ooo,ooo of silver came to her ; and that the ;£28,ooo,ooo of difference between the two represents the real total loss of bullion which the war entailed. " But in ;naking this calculation M. Leon Say commits a most wonder- ful mistake; he entirely omits to take account of the ^9,572,000 of silver which the French Government sent to Berlin, and which must, of course, be added to the outgoing. When this strange error is corrected. THE FRENCH FIVE MILLIARD WAR LOAN. 41 the loss becomes, not ^28,ooo,ocx), but ^38,000,000, of which the Government exported ;^ 20,000,000 — ^leaving, apparently, ^18,000,000, instead of £ 8,000,000, as the sum contributed by private bankers. This difference -of ^10,000,000 in the issue of the calculation gives some value to another computation which M. Leon Say has made, but which would have had no foundation if this error had not existed. He says — probably with some truth — that the quantity of money in circulation in a country remains usually at the same general total, during the same period, whatever be the nature of the various elements which compose it. He then goes on to argue that as the issue of French bank-notes was ;^44,ooo,ooo higher in September, 1873, ^^^.n in June, 1870, that increase ought to approximately indicate the amount of metal withdrawn ^in the interval from circulation, and replaced by notes. But, according to his theory, that amount of metal did not exceed ;£28,ooo,ooo, leaving an excess of ^16,000,000 of notes, which excess he explains by saying that it represents an equal sum in gold which the French people had hidden away ! Now everybody knows that the lower classes of the French people do hide money — do ' thesaurise,' as they say ; but such an explanation of the missing ;^i6,ooo,ooo is so purely imaginary that it cannot merit any serious credit. The theory assumes, however, a very different form when the error of the £io, is, that when a country does not want paper money, it ought to have a great supply of it ; and when it does require paper money it shall have none. When a country has enough of specie, it ought to double its currency by issuing an equal amount of bank-notes ; and when there is no specie, there should likewise be no notes. Is it necessary to discuss such a theory? In order to be refuted it only requires to be stated ; in order to be rejected, it only needs, to be understood. It is a theoretical monstrosity which common ' sense revolts against, a burlesque of reason, which even the present generation will love to laugh at." CHAPTER VI. THE TRUE BASIS OF ABSOLUTE MONEY. So much has been written pro and con on these two subjects of a specie basis and a bond basis, that I will condense my views on it into two distinct propositions : I. That the pretence of redemption in gold and silver — whether asserted by a government, or by a municipal or private corporation — is of necessity a delusion and an absurdity. II. That the holder of an interest-bearing bond — whether issued by a government, or by any municipal or private corporation — is not a whit more "secured" than the holder of a non-interest bearing legal-tender note of the same government or corporation. Now I propose that both of these bases, specie and bonds, shall be abolished altogether, by making the national treasury of the na- tion the general bank of issue and causing its exchange or money to be issued upon the only safe and sufficient " basis " conceivable ; first for the payment of the national debt, and subsequently upon their own total trade, annual products, power, wealth and sover- eignty. The people will support the money that represents their own debts, and the power and wealth of their own country. Their money will not be " a promise to pay," but it will be the medium. THE TRUE BASIS OF ABSOLUTE MONEY. 75 and the only medium wherewith to interchange all their commodi- ties and transact all their business.* This absolute money, therefore, in the nation that issues it, will be redeemable not only in specie — as ordinary bank-notes are, or rather pretend to be, since they never can be so fully redeemed — but will be redeemable, or rather convertible into all the commo- dities of that nation, into all its products, including gold and silver. No panics, no revulsions in trade can, therefore, affect it ; indeed, it will prevent all such panics and revulsions. The present annual products of the country amount in value to more than |18, 000,000,- 000, of which 1176,000,000 are in gold and silver. All these eight thousand millions of products would be, as it were, a security for that national money, since that money would always be a legal tender, and the only legal tender in the country for the purchase of them ; and it must be further remembered, that every year swells, the amount of our annual products in enormous proportions, and increases the security of this absolute money in a corresponding ratio. This is another reason why the gold basis is utterly unsuited for the transaction of modern trade and business. Not more than $200,000,000 of gold and silver money now exists in the United States, as a basis for our inter-state business, and for our foreign ex- changes in the yearly interchange of our products and commodi- ties. This amount of gold and silver money remains comparatively stationary, and hence is evidently altogether too narrow a basis to meet the requirements of our inter-state commerce, and for the constant and rapid increase of our business transactions. Hence, I propose to substitute in its place a redemption or conversion of the absolute money so large that it can never fail. It is in our * That this absolute money is not a new or visionary scheme I have already proved, by citing the opinions of Jeiferson and Calhoun. I now add what Benjamin Franljlin-— surely one of the most practical statesmen of all times, and a man of special financial ability — reinarks on the same subject, in vol. IV., page 82, of his works, as follows : " Gold and silver are not intrinsically of equal value with iron. Their value rests chiefly iu the estimation they happen to be in, among the generality of nations. Any other well founded credit is as much an equivalent as gold and silver. Paper money, well founded, has great advantages over gold and silver ; being light and convenient for handling large sums ; and not likely to have its volume reduced by demands for exportation. On the whole, no method has hitherto been formed to establish a medium of trade, equal in all its advantages, to tills of credit made a general legal tender." This, it will be seen, covers the whole ground of the propositions advanced by me, for those bills of credit are identical with the absolute money proposed by me for the circulating medium of the United States. "3 6 ABSOLUTE MONEY. ■eight thousand million dollars of annual products, and our foreign and inter-state trade therein, and in all the other revenues and wealth of the people and the government, its public lands and its taxation, that we find the only basis large enough to support the •amount of money needed by our country. These are the factors that will support and redeem, by perpetual •conversion, the absolute national money ; and what other redemp- tion should it need ? It is the exchange, conversion and use of the .annual products that makes the absolute money system necessary ; and what greater security can be conceived than its exclusive applicability for that exchange, use and conversion ? This money, besides, will be based upon the whole bonded debt ■of the people of the United States ; for the whole of that debt will lie redeemed by this money gradually, as I shall show more at length hereafter. This money will, therefore, represent in reality only the amount of the national debt now owing by all the citizens of this country. What is the use, then, of trying to redeem in .gold and silver coin, and of thereby cancelling a money medium which represents their own debts, and at the same time serves in its function as a circulation to carry on all their business opera- tions, and the development of all their industries on the safest and -most practical basis? Each citizen being equally interested in the co-operative govern- ment of the United States, in proportion to his capital and industry, and bound to accept this money as the only legal tender of the nation, it is absurd to speak of an artificial and deceptive redemption in specie in connection with it. E^ach citizen at present •owes his share of the public debt, and is bound to pay his portion of it out of all the commodities and annual products of the ■country ; and Congress has full power to make such payment legal, and bind all the citizens to liquidate the debt by taxing them. But Congress has also full power to liquidate the debt by substitut- ing in its place an absolute national money, and bind the citizens to take it, by making it the exclusive legal tender of the country ; and I submit that, apart from all the other reasons advanced by me, the immense economy resulting from such a substitution of ijioney for bonds drawing interest, ought alone to decide in its favor. Based thus upon all the products, commodities, the wealth, power and sovereignty of the nation, this money would operate in repre- senting absolute value without any intrinsic value of its own, some- THE TRUE BASIS OF ABSOLUTE MONEY. 77 what like an execution issued upon a judgment for the collection. of, say, gioo,ooo out of the property of a defendant. This, as an instrument representing values, has no intrinsic value of itself. It is a piece of paper, with the seal of the court attached to it, and an or- der to the sheriff to levy upon the defendant's property and sell it to make the amount out of it which is necessary to pay the plaintiffs' judgment. The power of the execution and its value in fact and in law, depends not upon the value of the material on which it is written or printed, but upon the available wealth of the defendant wherewith to pay or satisfy it, and the authority of the state, within whose jurisdiction the writ is issued, to compel the enforcement of the process. The same governmental power that makes the execu- tion so capable of representing value, gives the national money power to satisfy the execution. One piece of paper satisfies the other — in this way the absolute money issued by the government would represent all the available wealth, present and future, of the nation and each one of its taxable inhabitants. The advocates- of a specie basis sneer at this proposition of a currency irredeema- ble in specie. But why call it irredeemable, when I propose that the government shall make it redeemable in all the commodities of the nation, receivable for all salaries, debts, judgments and taxes, duties and imposts, by constituting it the only legal tender for all time to come ? It seems to me, rather, that specie would be irre- deemable, when once deprived of its legal tender character. This is by no means an exaggerated statement, put in here for antithetical effect. Gold, for instance, is not "redeemable" in the greater part of Asia. Silver, on the other hand, is not " re- deemable " in Germany, and has even in England fallen nine per cent, in price during the last three years. Germany has demone- tised ^300,000,000 of silver coin, and is very anxious now to get rid of it at a considerable discount. Belgium and Holland alsO' evince a disposition to demonetise silver, and if they do there will be another ;gioo,ooo,ooo thrown upon the market. But there is very little demand for it. Nobody wants the "precious metal" in Europe, strange as this may sound to our American specie wor- shippers, who are always pointing to Europe as the country we should pattern after in financial affairs. The only demand for silver is in Asiatic countries, amongst the effete populations of China, and India. But the commerce of those nations is so limited, that their requirements fall far short of the amount of silver put up for sale in the European market. England last year exported to the 78 ~ ABSOLUTE MONEY. East and to Egypt _;^6,84o,ooo, which is only some ^£'3, 000,000 in excess of her average annual export of silver to those countries. These _;^3, 000,000 or ^15,000,000 came from Germany; but if the demand grows no larger the price of silver will probably fall still ■considerably below its present discount of nine per cent., especially as the supply of that metal from our mines in Montana, Nevada, Utah and New Mexico is likely to increase constantly. And why is silver not wanted by the people of Europe? Clearly not because the opening of new mines have produced an ■excess of money in Europe, as the specie worshippers argue ; for if there were an excess of money, the people would not increase their money circulation by issuing more paper money, as they do in every European country. Paper money is not at a discount in England, in France, or in Germany. It is only specie (silver) money which has depreciated in value. Let our specie-spou|ing financiers in the federal Congress explain why we should re-establish as money a metal which has been demonetised in one of the largest countries of Europe, is now at a discount of nine per cent, in London, and will, according to all appearances, continue to depreciate for a long time. " Redeemability " of our legal tender in (silver) specie would, therefore, not only be a fraud, but it would be a downright swindle perpetrated upon the holders of the legal tender. The advocates of a specie basis also call a currency, irredeema- ble in specie, a forced loan. But the same term might apply to the gold and silver coins, which they propose to constitute the ex- clusive money of the country. Besides, has not the check and draft system of our banks also the character of a forced loan ? And ought the largest corporation of a country, the government itself, to be deprived of a privilege which it confers now upon the directors ,of every village bank which it charters? Is it not a downright ab- surdity that we should pay 23,340,000 dollars in gold annually in interest to National Banks, for giving them the privilege of issuing a currency, upon the security of our government. bonds, when the government itself could issue such a currency with far more secur- ity, and at a great saving to the people at large. And is it not equally absurd to look upon the legal tender notes of the national government as unsecured because they have no "specie basis," and at the same time to speak of the notes of the National Banks as secured, because they have a "bond basis"? The legal tender note is a paper issue of the government of the United States, and so is the bond pledged for the redemption of THE TRUE BASIS OF ABSOLUTE MONEY. 79 the issue of the National Banks. Is the bond, which bears interest .a better security than the legal tender, which bears no interest ? I should say, rather the reverse ; and for the simple reason that the .amount of the legal tender notes does not increase by the accumu- lation of interest. It is gratifying, however, to notice that the minds of the people at large are gradually becoming convinced of the uselessness and expensiveness of this national banking system, and warrants the hope that they will also, in course of time, see the uselessness of the bond system, and the immense advantage of substituting in its place a pure legal-tender money, large enough in volume to meet the requirements of all the busi- ness, trade and manufactures of this vast country. That the people of the United States will ultimately establish such a money, I do not doubt in the least, since even some of our most eminent public men have already cast off their old superstitious faith in the almighty power of coin as money. Thus the Hon. Ceorge Opdyke, who is not only distinguished as a political econ- omist, but also as a practical banker, defines money, not as gold and silver coin, or the representative of coin, but as " an instru- ment of commerce designed to facilitate the exchange of all other ■commodities, by presenting an equivalent in a portable and con- venient shape." And the Hon. O. S. Halsted, Ex-Chancellor of New Jersey, in quoting Mr. Opdyke's definition, in a letter to the Hon. John G. Drew, of Massachusetts, who also is a convert from the faith in coin almightiness, says -. " I am glad to be able to agree in Mr. Opdyke's definition of money. We hear it said now-a-days that gold is mere merchandize. ■Gold dust, ingots and nuggets are merchandize, * * * * ^yt gold coined by government is money. A government, however, can make money ('Opdyke's Instrument of Commerce,') of any ^material and of any shape dud value it pleases. Our government has made what we call legal tenders, money, or instruments of commerce j can it be said that those legal tender notes are merchandize? One and the same thing cannot be both money and merchandize." In this place I may as well answer the objections which Mr. Patterson raises in his work, " The Economy of Capital," against such a system of National absolute money, as I have proposed. The reader will have already seen from the various quotations I have made from Mr. Patterson's excellent work, that in the main. 8o ABSOLUTE MONEY. , his views on finance agree entirely with mine. He holds, as I do, that the value assigned to gold as the exclusive money medium, or, as Mr. Patterson phrases it, the "canonization "of gold, has its origin simply in fiction or superstition. He holds, as I do, that it makes no difference at all whether the substance of which money is composed has any intrinsic value at all ; " that gold, silver, copper, iron, shells, pieces of silk, cotton strips, stamped leather and stamped paper" have been used and are used in different parts of the world as money with equal success ; and that the one quality which gives these substances their circulating power as money is simply "the agreement on the part of nations to recognize those substances as representatives of wealth." Mr. Patterson agrees with me, furthermore, that gold and silver are altogether unsuited and inadequate to carry on the trade, commerce and enterprizes of modern times ; unsuited, on account of their weight, their suscep- tibility to wear, and their great bulk; inadequate, because the amount of gold and silver in the world would not be able to trans- act five per cent, of the world's business, not even the business <5f London alone. Mr. Patterson, therefore, agrees with me, that it is an absurdity, and productive of constant financial distresses, if the business of the world makes still the pretence of being carried on upon a specie basis ; especially as the banks, through whom the interchange of that business is effected are constantly crippled, by being supposed to operate upon a specie basis, which they demonstratively cannot do. He proposes, therefore, that paper money, which has hitherto been only a representative of gold money, should become a substitute for gold money; the same . proposition that I have made. But from this point on we differ. Whilst I propose that the paper money should be only of one kind and issued by the Nation, guaranteed by the annual products, trade, commerce, business and all the power, wealth and sovereignty of the nation, and made the exclusive legal tender over the whole country, Mr^ Patterson would have the issue of currency entrusted to a number of private banks, and leave it to the discretion of the bank directors and the confidence of the people how large such issue should be. But I will let Mr. Patterson speak for himself, both in regard to his argument against a National Bank and in favor of private banks. Having alluded to our American Legal Tender issue, of which he speaks as in the nature of State Bank issues, he says : (p. 343 Id.) THE TRUE BASIS OF ABSOLUTE MONEY. 8 1 "A State bank* would unquestionably have certain advantages. Its notes being receivable in payment of taxes, and being issued on the security of government, would be made a legal tender throughout the kingdom. They would furnish an adequate currency for the whole internal trade and domestic requirements of the coun- try. And thus, in great emergencies and exceptional times, these state notes would supply an adequate currency for the country, even if, owing to an absence of gold, they were temporarily incon- vertible. Nay, more. By means of such a state currency the precious metals, and the fluctuation inseparable from them, could be dissociated from the currency, and their value would be measured in if like that of all other commodities. With such a currency, in fact, gold and silver would be bought and sold just like corn or coal, iron or cotton. "Attractive as such a currency system is, it is open to what we regard as a fatal objection. It is in the form of a state currency alone, that the paper money of a country can be depreciated. The note issues of banks never cause the currency to become redun- dant, * * * fQj. tjig banks of a country have no motive to di- minish their profits by unduly lowering the rate of discount ; and if there be no undue lowering of the rate of discount, there can be no undue expansion of the currency. The trading and industrial classes will not pay for more discounts than they want; and it is only by means of discount-operations and such like advances, that a bank can get its notes into circulation. But with a government the case is widely different. A government expends many millions of mo- ney every year, and all these payments can be made in its own notes. Any amount of paper money may thus be forced into circu- lation, whether there is a demand for it or not. ' ' Before proceeding to answer Mr. Patterson's objection to a. " state " (or national) " bank," and his arguments in favor of pri- vate bank?, I desire to call attention to a singular admission on his part in favor of a "state bank," to which he attaches paramount sig- nificance in various other parts of his book. He says, that the fluc- tuations, inseparable from a specie basis, could be dissociated from a "state bank" currency, and that the value of the precious met- als would be measured in it like that of all other commodities. This means, of course, that such a "state" or national currency would • Whenever Mr. Patterson uses the term "State Bank," let the' American reader translate it " Bank of the United States," as the states of our Union are not states within the European meaning of the word. 6 Sa ABSOLUTE MONEY. be subject to no fluctuation whatever — a proposition which I have conclusively demonstrated in previous parts of this work, and that " no variations could take place in it as a measure of value," to use Mr. Patterson's own words. But this "variation" is pre- cisely the main objection, which he raises against the present money system of Great Britain. He says, "Economy of Capital," page 286 : " Far greater and infinitely more injurious to the commu- nity" — than a change in other measures would be — "are the va- riations, which at present take place in our measure of value. That measure" — the money measure of the bank-notes issued on a specie basis — " is constantly expanding and contracting in a manner that baffles all calculation. It varies sometimes even to the extent of a third or a fourth — to the extent of twenty, twenty-five or even thirty per cent." By which he means, that the expansion or con- traction of the volume of currency, which volume here he calls the measure of values, raises or lowers the price of commodities; a pure assumption, as I shall show, and as Mr. Patterson elsewhere also admits ; since the volume of currency or circulation has very little to do with the prices of things, unless it becomes so small as to paralyze or cripple trade. Now Mr. Patterson supposes, that this money measure of Great Britain can be made far more uniform if the circulation of the country is so regulated as to avoid recurring scarcity or redun- dancy ; and since that circulation is composed of two factors, specie and bank-notes, his proposition is, that as specie is withdrawn, more notes should be issued to take its place and fulfill its functions, •whilst if specie accumulates notes should be withdrawn. But if there ." is an extra demand for money," then an extra issue of notes should be made also ; since in that case the effect of such issue would be simply "to preserve the measure of value unchanged." Id. p. 297. This would still give a sort of specie basis to the banking system of Great Britain, and hence would leave unremoved the difficulty which the financiers of that kingdom have never been able to solve : to organize a banking system upon a specie basis, which would fur- nish the people a permanently reliable " measure of value ; " Mr. Patterson himself admitting that no stable or fixed measure of value has ever existed in the United Kingdom since the organization of the Bank of England in 1694. For no matter how the withdrawal or accumulation of coin and the issue of bank-notes niay. be made to correspond with each other, two great factors will always act as THE TRUE BASIS OF ABSOLUTE MONEY. 83 •disturbing elements and vary the ' ' measure of value ; ' ' namely : first, the growth of trade and enterprise ; and secondly, the increase of .gold and silver money from the mines; an increase, that, during the past twenty -seven years has reached the large sum of over $2- 400,000,000, and during the operation of which the " measure of value ' ' has become more uncertain than ever, and panics conse- ■quently more destructive. And it must further be taken into con- sideration, that this uncertain and constantly. fluctuating increase of specie money, is made still more variable by the wear of the , precious metals. In gold, intrinsically the most worthless of all metals, this wear assumes astonishing proportions. The gold wor- shippers may find it rather hard to believe, but it has, nevertheless, been ascertained by careful calculations in various countries, that the gold coins of a country, in actual circulation, loose about one thirtieth in value every year from mere wear. A thousand dollars ■of gold coins are thus reduced to zero within thirty years ; and the above $2,400,000,000 added to the world's metal money in the ■course of the last twenty-seven -years, have been already reduced by wear to about ^1,600,000,000. If Mr. Patterson, however, really does not desire a specie basis and proposes to bring permanency into the " measure of value " of Great Britain, by leaving the issue of paper money solely to private banks, he will still less accomplish his object by that plan. And this leads me to the promised criticism of his system and its comparison with mine. If there is no governmental money in a country, this is Mr. Pat- terson's argument, no goverment bank, in short, under the con- trol of legislation, but if the issue of bank-notes is left entirely to private incorporated banks, unrestrained by law in any manner, and kept in check only by the demands, needs and confidence of the people, then that country will have a perfect system of bank- ing, and fluctuation in the value of the "money measure " will be next to impossible. The discount operations of these private banks will be, in Mr. P. 's opinion, the restraining element against ex- cessive expansion, "since it is only by means of discount and such like advances that a bank can get its notes into circulation; " and since " the trading and industrial classes will not pay for more dis- counts than they want." It were well if this were true — if people would not borrow any more money than they needed ! If this were so, we should have less "enterprise " in the world, but also proportionately less bank- 84 ABSOLUTE MONEY. ruptcy and financial distress. But the whole history of finance- proves rather the reverse, namely, that people will pay discount for all money they can get, no matter what kind of money it is. Whether a bank has a right to issue money, or whether by issuing it, the bank endangers its financial position, the borrower does not stop to inquire ; all that he cares for is, that the money shall serve- his immediate use. He wants to build a railroad, for instance ; hundreds of miles away from the bank with which he negotiates- his loan. The bank has no notes to spare just now ; but under Mr. Patterson's rule, that the loan would not be asked for if there were- not an actual need of the money, the bank issues as many notes as the borrower desires. He builds his road and pays out the- notes, which thus become scattered all over the country. What does he care whether the notes will remain current or not ? Sup- pose that the railroad enterprise turns out a failure before he has- repaid the bank its advance. Will not the bank bear the whole loss? And will not every bank under the operation of such an unchecked system be tempted to negotiate just such loans, and in- such amounts as must necessarily drive them at the end into bank- ruptcy? It is true, that in Scotland a similar system has been extremely successful. But Scotland is a small country, and its people are exceptionably prudent and honest. The experience of every country in the world, where such unchecked issues of private banking corporations have been tried, contradict the- experience of Scotland, flagrantly. In this country we have had special facilities to become ac- quainted with the practical operation of Mr. P.'s banking scheme. A number of my readers will recollect the results that followed President Jackson's breaking up of the United States- Bank, and the removal of the federal Treasury deposits to the state banks, which were precisely such private incorporated banks- of issue and discount as the Scottish banks that are Mr. P.'s- ideal. From 1833 to 1837 the issues of those banks and their discounts were so excessive, that a universal speculating mania set in, which was followed, as a matter of course, by a general suspen- sion and financial depression, so terrible in its effects, that it took the country full ten years to recover from it. On a still larger scale — in proportion as the settlement of the country has enlarged and new States been added to the Union — was the panic of 1857. Again every state had its countless number of banks of issue and discount, all of them practically unchecked in their operations;. THE TRUE BASIS OF ABSOLUTE MONEY. Sj ifor although the law required each bank to hold a certain propor- tion of their circulation in gold on hand in their vaults (in most of the states one-third), that regulation was virtually inoperative. ^Supervision by the law or by the banks themselves over each other was, in fact, absolutely impossible, considering the number of banks and their remote locations. The demand for discount was unlimited. Everywhere railroads were constructed, towns built, land bought and put in cultivation, manufactories started ; and nearly all this enterprise was carried on by money obtained from ■the banks, who never thought of "lowering their rate of discount " .as they increased their circulation — as Mr. P. seems to think must be the effect of expansion — but, on the contrary, were generally enabled to raise their rate of discount in the face of this universal demand for money. Suddenly a small storm-cloud of ■distrust arose in New York, owing to the suspension of a large bank, the Ohio Life and Trust Company, and spread with the ;«peed of lightning over the whole country, letting loose all the fiiry and violence of a money hurricane. Every bank was forced to suspend, the greatest number forever. It is true, that the more -cautious and stronger banks of New York City and Boston, although obliged to suspend temporarily, were able to come out right again after the first violence of the storm had passed over, and that the circulation of those banks never depreciated ; but the number of incautious banks was incomparably larger. Nor can I -conceive by what methods and regulations the imprudent excessive issue of circulation and discounts, which brought on the panic of 1857, can be prevented, especially where the number of banks is :so large, and where they are scattered over so extensive a territory as the United States. I do not mean to say that the amount of money put forth by those banks in 1857 was larger than the -country needed at the time ; likely enough it was not even suffi- cient. But as that paper money was issued by private banking •corporations, it had necessarily a "redeemable basis," which at that time was a specie basis — and this was the real cause of the runs on the bank and the consequent suspensions. Had those banks been national . banks or private banks, using for their •circulation national legal tender notes irredeemable in specie, but convertible into all the products of trade and industry in the -nation, there would have been no runs and no suspensions, even if the circulating medium had been twice as large. This has been «hown by the panic of 1873, when there was no run to speak of 86 ABSOLUTE MONEY. upon National Banks for the redemption of their notes in legal tender money, and when gold was lower in price than it had ever been since the outbreak of the war, or has ever been since. And this brings me — having shown Mr. Patterson's argument irt. favor of private banks to rest on a false presupposition — to meet his objection against a national money system, such as I have- proposed in this work. For he has only one objection to such a. money, though he admits its advantages to be numerous and great. He admits, that an absolute national money system would furnish., "an adequate currency for the whole trade and domestic require- ments of the country; " adequate even "in great emergencies and exceptional times," and even "if they were temporarily incon- vertible into specie. Nay, he admits that such a state or national currency would put an end to the fluctuations arising from a specie- basis, and thus achieve the greatest of all financial desiderata — an unchangeable measure of values. And what is the one objection which in Mr. P.'s opinion out- weighs all these admitted and inestimable blessings? Because- "it is in the form of a State" (national) "currency alone, that the paper money of a country can be depreciated." Why? The answer shows the weakness of Mr. Patterson's objection most clearly. Because " a government expends many millions of money every year, and all these payments can be made in its own notes." As if every government did not possess this right to issue bonds, notes, or any other kind of pledges to meet financial emergencies- — no matter whether there are private banks of issue in existence- or not ! That power of a government, therefore, which Mr. P. considers the only objection to a . national money issue, namely, the power to increase its money or debts by new issues- for either annual or extraordinary expenses, cannot be taken away from a government at all, 'being inherent in its sovereignty. Hence, so far as that objection is concerned, it is altogether indifferent, whether a government is always the exclusive issuer of bank-notes for a country, or whether it leaves such issue to private banks during ordinary times, and resorts to issues of its own only during extraordinary times. In truth, Mr. Patterson himself, in other parts of his work (see especially pages 455-6), seems to suggest that government, or "ordinary legislation," as he says, ought to exercise that power in extraordinary times, namely, the power of increasing the money circulation of a country. Or else what does he mean when he congratulates Great Britain, that " a. THE TRUE BASIS OF ABSOLUTE MONEY. 87 great war and serious necessities of the state ' ' forced the govern- ment to introduce the blessings of paper money into that country, and expresses a belief, that " another great war and 'pressure of state necessities " would do away with the last " errors of the buUionist theory;" which can only mean in the connection, that it would end in the abolition of a specie basis, and in the issue of more money, directly or indirectly through the government. What Mr. P. says of the French Assignats and other national money schemes of the past, I have controverted elsewhere ; but when he cites our greenbacks in the same category, he is essentially mis- taken. The strict truth is, that our greenbacks have never been a depreciated currency. That is to say, the price of all commodi- ties, with the exception of gold and silver, has remained pretty well stationary during all the issue of greenbacks. The few things that rose in value beyond the ordinary rate, were chiefly war necessaries ; but then numberless other things fell in price for some time. I need merely allude to real estate in most parts of the country. Greenbacks had, therefore, not depreciated. But it has become the fashion of late to state, as an axiom which no man would dare to dispute, that it was not gold which was at a premium here, but our greenbacks which were at a discount. That this axiom is utterly false appears from what I have just said. If greenbacks were at a discount, the price of all commodities would be raised in propor- tion to the discount. But it is a notorious fact, that it was and is only gold and silver upon which the price has been raised. Though gold was quoted at 50 per cent, premium, as against greenbacks, in Wall street on one day, and at 200 per cent, premium a few days after, the price in greenbacks of lands, houses, rents, groceries, nearly all the dry goods, &c., remained quietly the same. The currency, therefore, was not depreciated, but gold was through the agency of coin and stock gambling, at a premium. So was gunpowder and labor ; so were cannons and cannon balls ; and these were real premiums produced by the stern demands of war. If that sort of argumentation held good, that our currency de- preciated during the war because Wall street speculation, of the wildest, most unsubstantial kind, sent the price of gold up to two hundred and seventy-five per cent, premium for a short time, what must we say of the depreciation which gold suffered in England during the same period, since the price of cotton rose in that 88 ABSOLUTE MONEY. country, from 1860-1864, full four hundred per cent. As against cotton, the gold money of Great Britain had, therefore, depreciated considerably more than our legal-tender money had depreciated as against gold in Wall street, with all the stock and coin gamblers to support it. And, what is more, the legal tender depreciation here was merely a speculative affair, while the gold depreciation as against cotton in Great Britain was a grim reality, for awhile spreading fearful ruin over the manufacturing districts. The de- mand for cotton and gold in the respective localities regulated the price of each commodity, according to the laws of trade. But I go further and deny Mr. Patterson's assumption, that under a well-regulated national money system, like mine, the gov- ernment would settle its payments in its own notes, and thus force "any amount of paper money into circulation." Its yearly pay- ments would be settled .by its yearly revenues ; which by close calculation can always be made large enough to meet every con- tingency. Should there be a deficiency, however, I don't see why it would be more improper to supply it by an issue of treasury notes than by an issue of bonds, as governments are now in the habit of doing. I am fully convinced, however, that a well- regulated system of annual statistics, and a carefully prepared report, made by a Board of Commissioners based upon those sta- tistics, and stating the amount of additional money — if any — needed by the country, would render any extra issues unnecessary, except in the case of another war. But all these points I have dis- cussed elsewhere in this work. CHAPTER VII. RELATION OF ABSOLUTE MONEY TO FOREIGN EXCHANGES. The main objection that is raised against such a purely national legal-tender money as I have proposed^-apart from the objection raised by Mr. Patterson, which I have answered in the previous chapter — is, that it might lead us into difficulty in our foreign exchanges. But this fear is wholly groundless. We do not now RELATION OF ABSOLUTE MONEY TO FOREIGN EXCHANGES. 89 make our foreign exchanges by means of gold and silver coins, but almost exclusively by means of cotton, pork, wheat, petroleum, tobacco and other commodities. A comparatively small part of ■our exports or imports is constituted of gold bars and gold coins, and that part we shall always export and import in the same way. Even now it not unfrequently happens that gold is shipped from Europe' to the United States, instead of being exported by us. Gold may be worth fifteen per cent, here, while London exchange sells at five to eight per cent, premium. This whole matter of foreign exchange is, indeed, easily regulated every "day, not by coin, but by drafts and bills of exchange. If any one doubts this, let him inquire how England managed to settle her foreign exchanges in the critical period from 1797- 1815, when there was hardly a guinea in circulation in the whole kingdom, and when extraordinary foreign payments had to be made ; or let him inquire how foreign nations settle their exchanges with China, where gold is not received as money, and silver is the ■only legal tender. The suggested difficulties in procuring foreign exchanges are, indeed, altogether imaginary. We shall' never lack exchange enough to meet our wants;* and if exchange should turn against us, we need only reduce our unprofitable luxurious imports corres- pondingly to balance the account. Besides, the Europeans who come here will always bring foreign exchange with them, and sell it for legal tender here. Legal tender here, again, will always buy gold drafts on Europe. It is so done now, and will be so done hereafter. Then, again, just as soon as the nature and power of these legal tenders became known in Europe, they would be as acceptable there as our bonds are now, on account of their pre- eminent security over all other monies of the world, and just as the notes of the Bank of England are current all over Europe and * Should this appear extravagant to some of my readers, I call their attention to the fact that, even during the panic of 1857, when all the New York banks suspended specie payment, the notes of those banks not only continued at par, but actually, at one time, rose to a high premium compared with gold, in the purchase of foreign exchange. The Times, of October 31st of that year, states : " Good sight bills on London could still be purchased at an exchange of loi ;'' and adds : " The extra- ordinary fact is, therefore, exhibited of the inconvertible currency of the New York suspended banks being actually at a high premium, compared with the specie curren- cies of other countries. That is to say, a bill on London could be purchased in the notes of the New York suspended banks at a price which, after allowing for interest and all charges, would bring back in gold a larger sum than had been paid for it." 90 ABSOLUTE MONEY. here. As I have hinted, however, in my work, "Liberty and Law,"f it is quite possible that the creation of a national cur- rency by the United States would be accompanied by so many beneficial results, as would induce other nations to follow our example, and gradually lead to the establishment of an Interna- tional Clearing House, where foreign exchanges would be settled under the direct control of the governments concerned. The people would then not be forced to rely upon private bankers for their supply of foreign exchange, and would not be subject to such losses and inconveniences as resulted from the late failures of Bowles Bros. & Co., Jay Cooke & Co., and others. My system, therefore, would prove not only practicable, but beneficial even in its relation to our money transactions with foreign countries. t " In the course of time it will, no doubt, be feasible to arrange treaties with alt civilized foreign countries regulating the value and standard of money, and thereby to allay altogether this spectre of foreign exchange, under pretext of which the peo- ple are imposed upon in every direction by money-monopolies. The superstitious notions concerning the god of Mammon, as represented by gold and silver, must be swept away, even like all other superstitions handed down to us by preceding^ generations. " To state this feasibility in the concisest way : it is quite as practicable to establisb an international clearing-house, as it has been found practicable to establish clearing- houses in every large city. In this international clearing-house the paper moneys or drafts of each separate state in the world would be sent for exchange, as such exchange may be wanted, and rules could easily be arranged between the several nations composing this international clearing-house, concerning the way in which the balances should be settled or adjusted, and the international code and judicial depart- ment for the administration of international justice would aid the clearing-house in effecting these measures. " Situated as our country is, in the most favorable geographical position, between the two great oceans of the world ; the developed civilization of Europe on the east and the wealth of Asia on the west, connected already with the one continent by several lines of telegraphic cable, and undoubtedly soon to be connected in like manner with the East Indies, China, and Japan ; exhibiting a wealth many million times in excess of pur outstanding circulation, and a productiveness in all articles o{ commerce which, under the exercise of judicious economy, is amply sufficient to balance our imports by our exports, and having the capacity of establishing a com- mercial marine that would control the commerce of the two oceans, no other nation is so able and competent to introduce the purely rational system of money herein developed, and be the first to reap its incalculable blessings." — " Liberty and Law," pp. 176-7. ABSOLUTE MONEY WOULD NOT PRODUCE INFLATION. 9 1 CHAPTER VIII. ABSOLUTE MONEY WOULD NOT PRODUCE INFLATION. The same can be said in regard to the other chief objection urged against it, that it would constitute an inflation of currency, which though for a time it might stimulate an unusual development of our commerce and industry, must end very soon in general bankruptcy. This objection has some "weight when urged against an increase or "overissue" of currency convertible into bonds, or promising to be redeemable in specie ; though even in the latter case, disasterous results do not follow, so long as the banks of issue retain popular confidence.* But the money, which I have sug- gested, is not susceptible to any sort of depreciation, since it does not pretend to accomplish more than it can do; though it does propose to accomplish that, guaranteed and supported as it will be by the whole power, wealth and sovereignty of fhe nation that issues it. What would be the effect, then, of its issue? Not only would it save our people an annual tax of -one hundred and seven million dollars, paid now as interest on the bonds which this cur- * This has been admirably shown by Mr. Patterson in his " Economy of Capital," pages 187, &o. Speakihg of some " overissues " of the Bank of England, during the great monetary crisis af 1836-9, he says : " The increase of the bank's issues to the- extent of a million or two above the ordinary amount, was held capable of produc- ing the most momentous consequences. It ' depreciated the currency,' and was the parent of our recurrent monetary crises. The upholders of this theory, it is true^ never demonstrated, by a reference to prices, that the currency was depreciated." (Indeed, so far from the currency being depreciated during the disastrous years, from 1836-9 — when one of those " overissues " took place, the case was the reverse. Nor did the much greater "overissue" of 1852-3 produce a crisis or difficulty of any kind.) " It is a very neat theory. But it will not square with the facts. We, who have seen ^^300,000,000 added to the general currency within fifteen years, with so little effect that it is still doubted by many authorities whether there has been any depreciation of money at all, and when the loanable value of our currency has notably increased, may well be skeptical as to the doctrine of overissues, even if we- had not other and direct evidence to the contrary." » * » * And again : "What are we to think of a theory which attributes our monetary crises to ' overissues," when it is a fact, that in every crisis during the last seventy years, the very thing which at length stopped tfie run upon the bank has teen a sudden, and sometimes a great increase of its circulation, by an expanse of its discount operations ?" 92 ABSOLUTE MONEY. rency would replace, and the enormous expenses of our Internal Revenue system, which it would abolish, but it would furthermore cause the holders of that money — since it could no longer be con- verted into interest-bearing bonds — to loan it out at cheap rates of interest, or to put it to use by building houses at cheap rents, constructing railroads at cheap rates, and erecting manufactories. It would develop our commerce and industries, and increase our annual products beyond the most sanguine expectations ; and not being convertible into bonds, could not possibly cause that pros- perity to fluctuate. While, therefore, in one sense it certainly "would be an inflation, in another sense it would be no inflation at all. For as matters stand now, the bonds which this currency would replace, serve in pari, as money, though in a cumbersome and expensive way. In other words : the substitution of such national money notes for bonds would not change the quantity but only the quality of our currency, would simply make it more useful, and compel the owners of that money to invest it usefully or loan it out at cheap rates ; whereas now they hoard their bonds, and levy an oppressive tax on the citizens for the payment of the coupons, while they themselves escape taxation on the bon ds held by them. It is mainly due to this hoarding of bonds, that real currency has become so scarce as to check our building of railroads and close our factories, and that financial depression has spread over ev- ery part of our country. We are told, that scarcity of money can not be the cause of this depression, since money is more than plen- tiful in the large financial centers of the country — in New York, Boston and other places — and that the rate of interest in those cities has never been so low as now. But this argument rests upon the fallacy, that because there is a superabundance of money in New York , money can not be scarce in the country at large. The reverse proposition is much nearer the truth; for when money is plentiful in the country it does not go begging low rates of inter- est in New York. But even for New York city that statement does not hold good. There is not a superfluity of money in the city ; that abundance is only in Wall street and on the Stock Exchange of New York. Merchants and manufacturers find it as difficult to borrow money in New York as in other cities; it is only the stock brokers and banks, who borrow money on call and upon collateral, that can be immediately realized, for whom money is plentiful and cheap. The rest of the country languishes under the want of mo- ABSOLUTE MONEY WOULD NOT PRODUCE INFLATION. 93 ney, and can not find means wherewith to advance further the pros- perity of a few years ago. The only remedy for this state of things- lies in the proposed substitution of an absolute legal-tender na- tional money for the interest-bearing bonds that are lying idle in the treasury and in the vaults and safes of our banks now, and the employment of that money for the development of our resources. The history of all money panics and financial depressions proves, that this increase of currency is the only remedy, and is immediately effective. In the.great crisis- of 1797, when the Bank of England was almost without a sovereign in its coffers, and had to suspend specie payment, it extended its issues of paper ;^2, 000,000, and the panic was 'stopped almost on the instant. In the crisis of 1826, again the bank issued notes to the amount of ;^5, 000,000, and "the panic was stayed almost immediately.' ' The same truth is exemplified by a comparison of the volumes of currency in Great Britain and France with the currency circulation of the United States, and the per capita relation of the currency > in each country to its population. The following tables furnish the- figures : FRANCE. Gold coin in circulation ^ 800,000,000 Silver *' " 300,000,000 Bank of France paper ' 600,000,000 Total ;{Si, 700,000,000 Population of France 35,844,314. Circulation, per capita, J47.22. GREAT BRITAIN. Coin in circulation ^5500,000,000- .Bank-note " 2S9.oo3.o°o Total ^759,000,000 Population 32,000,000 Circulation, per capita, ;J23.72, UNITED STATES (November ist, 1874). Legal Tender ;g382,ooo,ooo- Fractional Currency 48,151,024 National Bank Notes 348,791,152 Total 1778,942,176 Less the bank reserve in Legal Tenders 150,000,000- 25623,942,176- Population 40,000,000,000 Circulation, per capita, $\$.lo. It will be seen from this, that by the increase of our present circu- lation to about 12,000,000,000, as it would be by the time that my system were fully established, the circulation per capita in the- 94 ABSOLUTE MONEY. United States would be only three per cent higher than it is in France, surely not too much, considering that the area of France isonly 204,o9osquare miles, while that of the United States is 3,611,- 844 square miles, or nearly eighteen times as large. And this ele- ment of the area of a country, in calculating the proportion of its circulation in comparison with that of other countries, is a very important matter, as I have shown elsewhere — though writers on finance have hitherto failed to take notice of it. It will also appear from these tables, how utterly without foun- dation has been the cry of the specie worshippers, that our circula- tion was in excess of that of other countries. It is only one-third in proportion of the circulation of France ; and two-thirds of the circulation of Great Britain. Do not these figures account suffici- ently for the financial depression visible everywhere in the United States, and the amazing prosperity of France, which is even greater now than that of England ? I might multiply instances in illustration of this truth, but my readers will no doubt be able to verify it from their own experi- ■ ence.* Whenever the money volume of a country is not large enough to furnish a circulation sufficient for the business of the people, all trade will suffer, the manufactories will be stopped, enterprizes checked, the debtors become insolvent, and as a final consequence, • Nevertheless I will briefly refer to the effects, produced by the same cause, scar- city of money, in our own country, by quoting the following statistical statements from a speech, delivered by the Hon. Daniel W. Voorhees, at Greencastle, Indiana, on the 24th of September, 1874. Mr. Voorhees said : " According to the report of the secretary of the treasury, issued August, 1865, the volume of our circulation at that time, including the five per cent, legal-tender notes and certificates of indebtedness which were used in the larger transactions of trade and financial exchange, amounted to ^1,152.914,892.67, upward of four hun- «ired millions more than we have now. What was the effect of this large amount of paper circulation on the business of the country? It will be found by reference to ".Hunt's Magazine and Year Book " for 1870, a standard authority, that during the years of 1863, '4 and 's, the years of the greatest expansion — the aggregate liabilities of all the commercial failures in the United States amounted only to the sum of J34,- 103,000. It was then, however, that Hugh McCuUough, secretary of the treasury, began his favorite policy of contraction — of destroying the circulation in the hands of the people for the benefit of the moneyed corporations and monopolists. The same authority I have just cited, shows the fruits of his policy. The aggregate lia- bilities for the commercial failures of 1866 amount to ^47,333,000, being ;gi3, 230,000 more in one year under contraction, than in the three years previous. Take the next three years, however, while the work of contraction was going on, and the result is still more astounding. During the years 1867, 1868 and 1869, the liabilities for com- mercial failures reached the enormous sum of ^208,739,000. But does some one ABSOLUTE MONEY WOULD NOT PRODUCE INFLATION. 95 the laboring masses will be thrown out of employment and reduced to the verge of starvation. An increase, of the money medium to the proportion required by the growing development of trade in the country, on the other hand, will necessitate an increase of all kinds of enterprizes and effect a corresponding prosperity amongst all classes of people. It is very wrong to argue, as some would-be financiers do, that an increase of the money medium expands prices * of all kinds, and hence by making expenses greater, cannot possibly affect the prosperity of the people. The increase of money does not operate in that way at all in a progressive country, but rather like a lever ; it enables men to do more than when money is scarce. Money is an instrument which moves commerce and enterprizes of all kinds, as the lever moves weights. It is true, that a slight increase of prices has occurred since the money of the world has increased so rapidly; but that rise of prices is altogether out of proportion to the increase of currency, as I shall show directly, and due mainly to increased demand. Indeed, it may be set down as a financial axiom, that prices advance only in accordance with the demand for commodities, and~that the volume of currency has nothing to do with them. It is not. to influence the prices of things, that I hold it the duty of every nation to furnish its people a money medium large enough to carry on its trade, industry and enterprizes of all kinds, but in order to foster prosperity and create remunerative employment to the laboring classes, who would otherwise soon sink down to the lowest stages of barbarism and crime. A greater economy not only of capital, but also of labor, than would result 'from the ask the amount of contraction during that period ? I will answer. Mr. McCulIough, in his report of July, 1868, shows, as a thing to boast of, that he had withdrawn from circulation, since August, 1865, the vast sum of S372.3S4.779i27. But a fraction less than Ji2S,ooo,ooo a year of contraction I No wonder, that the withering and deadly influence of such a policy continued to blight the business prosperity of the country. The years of 1870, 1871 and 1872 exhibited the sum of ^286,005,000, of liabilities growing out of the commercial failures of these three years. And as a cul- mination, for the present, at least, of this most disastrous financial idea, we find, that during the one year of 1873, the liabilities, arising from similar failures in business, reach the fearful sum of ;Ja28 ,499,000." , •"I apprehend;, that bank notes, bills or cheques, as such, do not act on prices at all."— James S. Mill. To which quotation Mr. Bonamy Price, Professor'of Political Economy in the Uni- versity of Oxford, adds: "This is a fundamental truth of immense importance in currency; it kills off at once a multitude of empty theories about inflations of bank. notes, which expand the circulation, and swell prices, and engender crises, and smite the commercial world with desolation." " Principles of Currency," page 168 (1869). 96 ABSOLUTE MONEY. establishment of the absolute money system proposed by me, is not well conceivable. As for the relation of prices of commodities, and the amount of circulating money in a country, there is so- widespread a misapprehension of the subject, that I shall have to treat it somewhat at length. Common sense will show that prices can be but imperceptibly, if at all, affected by the amount of money in circulation, and experience will corroborate common sense by citing the tables of prices and of money increase for a series of centuries. Of course there are exceptional cases, and these I propose to point out first. In densely populated districts money can be readily transferred by credits or bank accounts ; but in thinly settled districts bank accoiilits are practically unavailable, and the actual money has to pass. Bank checks or drafts would be useless to a farmer living far from a city ; he needs the money. In proportion as this need is felt the demand for money increases ; meaning by money the na- tional legal tender, the absolute money, which has the power ta purchase everything, and cancel every obligation. The same de- mand for more money increases as the population of a country increases in numbers ; for each additional individual requires more money. This explains why people demand that money should be- elastic; but all other systems that I know of, have failed to trace this requirement to its true origin, and hence to prescribe the proper remedy. Numberless plans have been suggested, it is true, but all artificial ; my plan is, I believe, the only one based on science, and hence adequate. Senator Morton, in his celebrated reply to Mr. Schurz's speech on our national finances, has explained the reason, for this need of elasticity very tersely by a comparison of the cir- culation of our country with that of England. "In England," said he "there is hardly a man who has not a- bank within five miles. Hence the facilities of banking are much greater there, and much more made use of; and instead of currency, bank-checks are the chief medium of money interchange. But our country is so extensive a territory and in most parts so thinly popu- lated as yet, that we must do a proportionately much larger amount of our business by the ifiretri agency of money. We can not use bank-checks to nearly the proportion that they are used in Eng- land." But surely, if we need this large amount of absolute money, as distinguished from the indirect money of bank-checks, it is cer- tainly much preferable to have it in the shape of government paper ABSOLUTE MONEY WOULD NOT PRODUCE INFLATION. 97 s ■money than in the cumbersome shape of government coin. Then, -again, if we are compelled to use ready money, in the most prac- tical shape of paper legal-tender currency, and if we need more than England needs, it certainly was not extravagant on the part of Mr. Morton to argue that we ought to have at least as large a cir- •culation as England. But instead of that, our whole circulation of money is in proportion one-third lessjier capita than that of Eng- land. For the same reason, if a person stands in great need of actual ■money, or currency, and can not use anything but money for his purpose, and if at the time, and at the place where he lives, money is, from some reason or other, very scarce, these circumstances may compel him to sell his commodities at a much lower figure than he otherwise, and under ordinary circumstances, would have thought of doing. It makes no difference in his case how large the general money circulation of the country is, the price of his wares are ruled by the local state of the money market at that par- ticular time. The holder of the money which he desires to have, is in the same position as the holder of a piece of property which an adjoining neighbor is determined to possess, or as the owner of provisions would be towards a man starving, but with plenty of money in his pockets. He can demand his own price. What makes all necessaries of life so dear in newly opened mining dis- tricts? Not the amount of money in circulation — for that,~-as a rule, is preciously small there — ^but the fact, that those necessaries are scarce, and that men must have them. Why do some people have to pay twenty-five per cent, interest, no matter whether cur- rency is ''plentiful " or "scarce?" It is not the amount in cir- culation which aifects that rate — for the average rate might be four or ten per cent., and still their rate of interest would remain the same — but the absolute, immediate need of it. It is the superabundance of an article — and especially of perish- able articles, such as dry goods, grain, flour, &c. — which causes a •downfall of prices, and it is the scarcity of a necessary article which causes the rise in its price. The amount of currency in cir- culation has next to nothing to do with it. Montesquieu, in his famous work " L' Esprit des Loix " (book 22, chapter VII), did probably more than any other writer to give currency to the erroneous proposition which I have just contro- verted. His poetically-tinged mind was struck by the simplicity of the theory, that the totality of commodities in the world is in 7 98 ABSOLUTE MONEY. price always coequal with the amount of money in circulation, " L' establissement du prix des choses depend toujours fondamentale- ment de la raison du total des choses au total des signes " (of money), Hume and Locke adopted Montesquieu's notion, and assisted greatly in disseminating it ; nor could Sir James Stewart's early contradiction of that theory eradicate the error that had so widely- spread amongst the English theorists of political economy; an error which would have never entered the mind of a purely prac- tical financier. To exhibit most flagrantly the error of that view, let us look at the facts of the history of money and prices. In the 13th century the average price of the chief necessaries- of life (wheat, barley, &c.) was, in comparison with the aver- age prices of the same commodities in the first decade of this century ^ SH to 20 In the fourteenth century as 6 5-12 to 20- In the fifteenth century as 4^ to 20- In the sixteenth century as 5 1-6 to 20- In the seventeenth century as 9 5-28 to 20- In the eighteenth century as 10 8-9 to 20- At the close of that century, however, the comparison was as- 15 to 20. It will thus be seen that prices fluctuated very little be- tween the thirteenth and the sixteenth century, although gold had. poured in during that time from America to the amount of more than ^14,000,000. The whole average advance of prices from the- lowest figures of the fifteenth century, to the highest figures of the first decade of the present century, are in proportion only as i to 3,- while the increase of gold and silver money for the same period foots up as I to 1 1 . As this comparison leaves entirely out of view the increase 01"" money of account — drafts, checks, bonds, and exchanges — during the same period, it will appear at a glance how foolish it is to attempt to trace a connection between prices and the quantity of a country's circulation of money. The only ground for the unde- niable increase of prices during that period is to be found in the enormous increase of business, commerce, and industry, which, took its start in the seventeenth century, and increased the demand for all kinds of commodities, but especially of provisions and labor. No one will dispute that this increase of commerce and industry,, and hence the rate of prices, was in a great measure due to the increase of gold and silver money, and especially to the increase MAR 18 1929 ABSOLUTE \o»ETOJS»'OULD NOT JfRODT^E INFLATION. 99 of the money of accouM^J^fey^ jlj&^^&t^as chiefly indirect. It was only the increased demand Tor commodities, which raised their price. The amount of money in circulation had but very little to do with the prices. To prove this still more strikingly, I desire to ball attention to- the fact, that while the average prices of the seventeenth century show an advance of 1 1 1 per cent, over the prices of the fifteenth century, a period during which paper money was not yet in general use, the prices of the eighteenth century, when a large amount of paper money had swelled the circulating money of Europe enor- mously, show an advance of only ii per cent, over the prices of the seventeenth century. Let me use another illustration'; During the late war our money circulation increased substantially at least one thousand million of dollars. Did the prices of commodities increase in a correspond- ing ratio ? By no means. It is true, that the most immediately necessary articles, such as gunpowder, saltpeter, quinine, and quartermaster's stores rose rapidly in price and attained enormous- figures , but the articles that were not in request, such as real estkte, &c., were for a long time a drug in the market. Then there were other commodities that rose in price because heavy duties were levied upon them — whiskey, tobacco, dry goods, and drugs ; and labor rose in price, and caused all articles, in the manufacture of which labor was employed, to rise in price, because our army withdrew so many hands from employment. Still another illustration : the price of wheat in France ranged from 1680 to 17.97 — a period in which most extraordinary addi- tions were made to the money of the world* — from |6. lo-ioo/^r setter, to ^5.77-100, the lowest rate being j52. 37-100 in 1723. , It would be unnecessary to say so much on this subject were it not that a great number of our American legislators, who in the last Congress essayed to discuss our national finances in advo- cacy of an early return to specie payments, and of a repeal of the legal tender act, have insisted that an increase of currency must be' followed by higher prices, and that the true policy of the govern- ment is, therefore, to contract the circulating medium and thus reduce the cost of living. Had their counsels been listened to,, the prices of commodities would be as high as ever, and our circulating money still less than it is now. Business would have been only half what it is at present; but the cost of living would. * See Colwells " Ways and Means of Payment," p. 563. lOO ABSOLUTE MONEY. have been the same, and the result would have been pauperism and repudiation, or a revolution. Probably the best authority on this subject of prices is Mr. Thomas Tooke, a prominent merchant of London, and author of "A History of Prices and the State of Circulation, from 1793 to 1858," a work equally distinguished for the comprehensiveness of its general views, which have never been refuted, and the accuracy of its practical details, which has never been questioned. In that -work Mr. Tooke emphatically denies that currency regulates prices. He gives tabular statements of the prices of forty different articles, four times a year, from 1782 to 1840, and remarks that "there is not, so far as I have been enabled to discover, any single com- modity in the whole range of articles embraced in the most extensive list of prices, the variations of which do not admit of being distinctly accounted for by other circumstances.' ' He adds, elsewhere, ' ' that these circumstances operate sometimes so forcibly as to reduce prices in the face of an expanding currency, and to ■advance prices when the currency is diminishing. ' ' This language has all the more force, as the period investigated by Mr. Tooke was characterized by great fluctuations of prices and great changes in the quantity of paper currency. ' ' If anything of fact or authority had been wanting to overthrow the doctrine of a proportion between the quantity of circulating medium and prices, it has been amply furnished in the addition which has been made to the metallic medium since the discoveries ■of the gold mines of California and Australia. The annual pro- portion of gold has, within the last ten years increased five-fold. The first effect of this extraordinary influx was an increase of exports to the gold-producing countries. Commerce experienced a great impetus, and, of course, prices were affected by increased •demand and greater activity ; a considerable advance took place : but whether that advance would average ten or thirty per cent, it would require much investigation to ascertain. How much of this advance could be attributed to the mere increase of money no one could pretend to say ; but no observer could fail to see that the enhanced prices were to be ascribed chiefly to the increased activity of trade. Certain it is, that the rise in prices maintained no proportion with the increased production in gold. This is as true of the United States as of Europe. Something like such an advance occurred in California ; but that rise was clearly owing to the condition of a new territory, in which the demand for labor " ABSOLUTE MONEY WOULD NOT PRODUCE INFLATION. lOI — and the necessaries of life, as I have shown — "was, for a time,, far beyond the supply. Prices there were clearly not determined by the quantity of gold, but evidently by the quantity of the article, which the holders of the gold wished to purchase. It is known that, as laborers and the commodities of consumption increased, the prices gradually fell, although the production of gold was increasing. It is probable, that general prices in California, fell fifty per cent, during a period in which the production of gold increased 100 per cent." Colwell, "Ways and Means of Pay- ment," pp. 573-4. I may further add, that although in the United States money circulation, coin, banknotes, etc., increased from 1310,235,721 in the year 1848, to ^641,748,862 in 1856 — nearly doubling itself, therefore — prices advanced very little; and whatever advance took place is explainable from other causes than "the increase of money. There is no financial theory more generally mischievous than the supposition that the amount of a circulating currency affects the prices of commodities, and .no theory so much in favor with dabblers in a science of which they know nothing, or, what is worse, but little. This, however, does not affect at all my propo- sition, that there must be a sufficiency of currency in circulation to supply the needs of all those parts of a country where mOney of account cannot be a substitute for actual mor;ey, as I have shown above, which is especially the case in a country so extensive as the United States, a large portion of which is but thinly populated, and has therefore no banks to create an artificial money. That our present volume of currency is insufficient to meet this require- ment must be apparent to any one who does not wilfully close his eyes to the existing financial distress. But even in large cities, where banking facilities are developed to the utmost, it is necessary that a large amount of actual money should constantly be kept on hand. Let me explain this necessity by quoting the following from Mr. Patterson's "Economy of Capital: " "It is extraordinary to mark what a small variation in the amount of the currency suffices to produce the changes in our measure of value (money), and which equally would suffice to prevent them. The currency of the United Kingdom amounts to fully ;^i5o,ooo,ooo (1864), yet the variations, which occasion our calamities seldom exceed five or six millions. This seems a strange lact. It happens in this way: By far the greater portion of our currency (amounting to about ;£ioo,ooo,ooo), is in constant use 102 ABSOLUTE MONEY. in carrying on the retail operations of daily life. It is constantly passing from hand to hand, and accordingly is not available for any other purpose. It is only the portion of our money which is kept in the banks (about forty millions), that is available for the discount operations by which trade is carried on. Or rather, it is only a portion of this money tliat is so available — only the surplus portion which remains after the banks have made provision for the usual requirements of their depositors. It is this portion of our currency alone which is available to meet variations in the monetary requirements of the community. To withdraw five millions from a currency of one hundred and fifty millions, is in itself a trifle ; but when that diminution takes effect wholly upon this small portion of the currency, the effect produced is very great. An alteration of five per cent, in the quantity of the currency is thus made to alter its value to five or six times that extent." " Economy of Capital," pp. 290-291. Most of my readers will remember, that the same phenomenon occurs here every once and a while. A few bold speculators in New York, who have calculated how much of the actual currency of the country is distributed over the various sections of the United States, and how much there is held by the New York banks, and who have found the situation favorable for their scheme, club together to " make money scarce." They know exactly what amount of greenbacks the New York banks hold, and what amount they need for the daily requirements of their depositors. Deduct- ing the latter from the former they obtain the surplus, upon which to speculate. Let us assume that surplus to be ten millions, an amount which can do the work of a hundred million dollars and more a day if held by the banks and employed by them for other purposes than the needs of their depositors, that is, for outsiders. The clique thereupon begin to borrow the money from the banks on whatever security they have, but instead of redepositing it, and thus keeping it in circulation, they carefully lock it up, where it cannot be touched. All at once the banks discover that this surplus money has vanished. They telegraph, perhaps, to Boston and Philadelphia for currency, but find that the clique has operated in those cities in the same quiet way. General consternation ensues. The New York banks are unable to accommodate their outside . customers, mostly stock-brokers ; the stock-brokers in '■despair, bid one per cent, per day, two per cent, interest per day — and still there is no money forthcoming. Nothing remains now ABSOLUTE MONEY FOR NATIONAL BONDS AND BANK NOTES. I03 "for them to do but to sacrifice their property. Stocks are thrown tipon the market to an alarming amount, prices fall five, ten, twenty per cent, a day ; a general panic sets in ; and though it Tnay be confined to Wall street, it may also extend to the banks, and thence to the commerce and industry of the country, pro- ■ducing universal ruin ; the clique meanwhile pocketing the profits resulting from their having sold stocks "short" when tlje prices ■were high and when they began to "lock up money," and bought them again at panic prices with the then unlocked money. If there were an abundance of actual money in circulation, such things could never happen ; and it must further be considered that these paltry ten millions of actual money represent under our present system of banking, nine hundred and fifty millions of "money of account. That is to say, as I have explained elsewhere, it is a demonstrated fact, that for every five dollars of actual money which a bank has on hand under our present system, it transacts one hundred dollars business. The clique, therefore, which locks up the ten millions of currency, virtually disturbs business transactions to the amount of ^950,000,000. If the locking up process continues only for a few days, the banks may ■find means to keep things going smoothly, by carrying on those transactions without any real money basis at all ; but any continu- ance of the pressure cannot fail to compel the banks to demand a ■settlement of those transactions, which means failure and bank- aruptcy of most of the persons engaged in them. CHAPTER IX. HOW TO SUBSTITUTE ABSOLUTE MONEY FOR OUR BONDS AND NATIONAL BANK CIRCULATION. In regard to the way, finally, in which this national legal tender money could be put into circulation and substituted for our bonds, I can offer, of course, only general suggestions, since the practical •carrying out of the scheme must be largely influenced by existing circumstances. 104 ABSOLUTE MONEY, On the first of March, 1875, ^^^ whole of the bonded debt of the United States was as follows : 6 percent, coin bonds ;^i, 151, 992, 500- 5 " " " S72>i37>750' Total ^1,724,130,250 The whole of the currency (legal tender), issued by the federal governrpent was at the same time : Legal Tender Notes 1^382,072, 147' Fractional Currency 44,904,963, Total ;{i426,977,iio. The remaining floating debt of the government is too insig- nificant to deserve mention. On those gi, 724,130,250 of the federal bonded debt, the people- of the United States are required to pay by taxation annually, the- sum of ^107,119,812.21 interest in coin.* The question now is, how to substitute absolute legal tender- national money for those bonds, so as to save those one hundred and seven million dollars of coin every year to the people and at the same time raise the volume of the currency of the natioifc during the next fifteen years to about two thousand million dollars, or nearly twice the amount of our circulation in 1865, when it was- ;^i, 152, 914,892. There can be no question, that the country now needs fully twice the amount of circulation it required ten years, ago, especially when we remember that the circulation of 1865 was used chiefly in the Northern States, and that since then all the States of the South have had to be supplied with money, whilst at the same time the Northern States have so developed in commerce,, industries and production as to need surely a much larger volume- than was sufficient for them then. Our own legal-tender notes and fractional currency can, as a. matter of course, be cancelled and exchanged for the new absolute money at any time without any difficulty. The problem is, there- fore, limited to the substitution of that money for the federal bonds and the National Bank circulation. Of the ^1,724,130,250 bonds, the National Banks of th's country have deposited in the Treasury to secure their circulation, ;?390,- * Hon. R. H. Bristow's Report as Secretary ol the Treasury, on the Finances^ p. iv., 1874. ABSOLUTE MONEY FOR NATIONAL BONDS AND BANK NOTES. IOC 421,750, which circulation, on November ist, 1874, was ^348,- 791,152, being about ninety per cent, of the amount of bonds deposited, as the law requires. With the establishment of such a money system as herein pro- posed, the National Banks would, of course, cease to be banks of issue. They would, therefore, have to draw in their circulation, and in order to do this would be compelled to sell their bonds. As the federal government holds those bonds, and as the banks would require the new absolute money for the redemption of their notes, they could scarcely do otherwise than sell their bonds to the federal government — at a price to be agreed upon — receiving in payment the new money, and surrendering their own circulation for cancellation simultaneously with their bonds which yvould be cancelled also. This process, of course, would be gradual, but it need not extend over a great length of lime, and its result would be that the federal government would lessen its bonded debt about ^^389,000,000, bearing ^23,340,000 coin interest per year, and substitute its own currency, bearing no interest, for that of the National Banks. If the bonds now owned by the National Banks were thus redeemed by the federal government and cancelled in the mode I have described, there would remain nearly ^1,400,000,000 of United States bonds outstanding. How could absolute money be substituted for them ? I do not think that any serious practical d"ifficulties would arise. About one-half of the amount, say ^700,000,000, are supposed to be held in the United States as investments. These bonds are constantly thrown upon the market in smaller or larger quantities. They could, therefore, be gradu- ally bought up and cancelled by the government with its new money. It is of course possible, though to me it seems improbable, that the market price of these bonds would rise for a time after the establishment of the new money system. But the government could well afford to pay a handsome premium, since it would save the interest on the bonds, which would more than make up for the premium. Besides, the government need be in no hurry, and could suit its own convenience to effect the exchange. The remaining ^700,000,000 are assumed to be held in Europe, and require an annual interest of some ;^40,ooo,ooo in coin. But ' a considerable number of these bonds, also, are constantly thrown on the New York market, where they can be gradually bought up 106 ABSOLUTE MONEY. by the government. At all events, however, our government can purchase enough of specie, and especially of foreign exchange, to pay off both the principal and the interest of those bonds without the slightest inconvenience. It is a great mistake to assume that the actual coin would be necessary to pay off our public debt ; and I once more refer to the payment of the Five Milliard Indemnity by Trance to Germany as a conclusive demonstration of this proposi- tion. When we have once established an absolute national legal tender money, we shall be able to pay off that debt by all the com- TOodities — including gold and silver — which we export to Europe. For it is not money which pays ; payments are made by that which the money represents, the commodities of a nation ; and money is merely an instrument of commerce to facilitate the manner of the payment. CHAPTER X. RELATION OF ABSOLUTE MONEY TO NATIONAL BANKS. I have tacitly assumed in the previous chapter, that the National IBanks will offer no obstacles to the establishment of an Absolute National Money system, and their consequent severance from control and supervision by the federal government, and their dis- continuance as banks of issue. In truth, I believe that they will not only consent to such a change, but heartily co-operate in bringing it about as soon as they begin to understand its operation and effect upon themselves. Under their present organization, the National Banks enjoy only two advantages. The first is, that, as banks of deposit and dis- count, their title, "National Banks," gives them a certain hold upon the confidence of the people, which is strengthened by the fact, that it is known they are under a constant and close supervi- sion of the federal government in all their operations. But this object can be equally attained when they shall have become private banks, incorporated under state laws. The second is, that, as banks of issue, they are enabled to derive a double interest on a large part of their circulation, since they not only draw interest on RELATION OF ABSOLUTE MONEY TO NATIONAL BANKS. I07 that amount of their circulation which they loan out, but also on the whole amount of bonds pledged by them as security for their issue furnished them by the government. But the advantages •which they would derive from severing their connection with the federal government, and ceasing to be banks of issue, are of far ■more weight. First of all, they would be relieved of a federal tax, which, in 1874, amounted to $7,030,038. This is comparatively a minor matter, however. But so long as they are banks of issue, they must keep constantly on hand a reserve fund of legal tender notes for the redemption of their own issue and to secure their deposits. This reserve fund is quite an important item for the banks, and was of still greater importance before , the passage of the act of June 20th, 1874. There was then required of the country banks a reserve fund of legal tender notes amounting to fifteen, and of the large city banks, or banks of redemption, a reserve fund amount- ing to twenty-five per cent, of their circulation and deposits. This is now changed so as to require that fifteen and twenty-five per cent., respectively, only of the deposits of those banks shall be kept in reserve ; but the amount is still large enough to make that requirement extremely expensive ; for all this reserve fund lies practically idle in the vaults of the banks. During the panic of 1873, the, legal-tender notes thus locked up in the banks •of redemption alone amounted on the 12th of September, to 24.9 per cent, of their circulation and deposits, and so great a fear was produced by the spectre of redemption, that by the 26th of December, the banks had increased the reserve to 28.1 per cent. ; a sum bringing in no revenue to the banks, and at the same time kept out of circulation, to the great detriment of all financial operations. So long as they are quasi banks of issue, furthermore, they must labor under perpetual dread of the spectre of specie resumption. During every session of Congress this dread will haunt them daily and check all free movement. Should the present law, providing for resumption of specie payments in 1879, continue in force, «very National Bank in the country will shortly be obliged to draw in its currency and provide itself with legal' tender, at a rate which must reduce the circulation of the country nearly one-half of what it is now, and thus increase the present financial stringency beyond endurance. This contraction will, of course, make the business of those banks utterly unprofitable ; but even that will not save Io8 ABSOLUTE MONEY. them. The moment that greenbacks are divested of their legal- tender character, and gold and silver re-established as the only lawful money of the land, the faith in greenbacks will vanish as suddenly as it came, and a universal rush for the glittering metals will result. There are not two hundred million dollars of gold, money in all the United States.* Not more than one-half of that amount would find its way into the United States treasury and the banks. And what would jgioo,ooo,ooo of gold signify in the face of a paper money circulation of ^730,791,152 — not to mention the deposits in all the banks, national and private, of the United States. National bankruptcy, and the suspension of every bank of issue, and nearly all the banks of discount and deposit, would be the inevitable consequences. If Congress, however, should repeal that act for the resumption of specie payments, the National Banks would still continue as heretofore to operate, with the dread of that spectre of redemption in legal-tender notes weighing upon ^hem ; whilst by ceasing to be banks of issue, and co-operating in the establishment of my system of money, they would gain a free- dom of movement, which would turn out as much to their health as to their profit. By ceasing to be quasi banks of issue, and severing their connec- tion with the government, they would also gain the great advantage of being relieved from a number of irksome rules and regulations, to which they are now subjected by the Treasury Department at Washington ; and which, while their establishment may be neces- sary for a proper control of the banks by the federal government, in view of the great number of these banks, and the extensiveness- of the country over which they are scattered, are practically for the banks themselves and their customers of no value whatever, and a mere annoyance and expense. While thus being relieved from unnecessary supervision by the federal government, they would nevertheless be equally, if not more, checked in imprudent management ; partly because each, state would supervise the condition of the banks incorporated under its laws, which it could do far more effectually, and yet with greater justice to the banks, than the federal government can do, which must prescribe the same rules and regulations for the banks of all the states — the same rules for Portland as for Galveston, for Du- luth as for San Francisco — although the banks of each section of the country operate under different circumstances ; and partly be- * Hon. R. H. Bristow gives the amount as $166,000,000 in 1874. • RELATION OF ABSOLUTE MONEY TO NATIONAL BANKS. I09 ■cause, under my system of money, the banks are guarded against being so imprudent as many of them are when they are banks of issue. They will have their capital in the national money, for ■which they have exchanged their bonds and bank-notes, and this •capital will remain the firm, unchangeable basis of their discount •operations. The most ordinary prudence in apportioning a part •of their deposits to discount, in regulating the time of their loans so that they shall fall due gradually, in order that part of them will be paid in again almost every day, and in seeing that the dis- counts are well secured, will render them so safe that failure will be next to impossible. If the Scottish Banks,* with the burden •of a bank-note issue and a specie basis to sustain, have been able to operate with so unparalleled a success, that only six failures have occurred within a century, and that only two of the banks that failed have been unable to pay their depositors and redeem their •circulation in full, what may not our banks achieve when relieved •of the spectre of specie payment and redemption of notes, and when their only danger will be in losing the confidence of their ■depositors ! Nor is there any doubt, that the profits of the banks would in every way exceed the profits realized under the present system. -According to Secretary Bristow's Report of 1874 (pages 142-43), the average dividends declared by the National Banks during the year September i, i8'73 — September i, 1874, upon their capital, were a small fraction less than ten per cent. — and as declared upon both the capital stock and the surplus, a fraction less than eight ^er cent. It will be readily acknowledged that this is a very . small profit, especially in view of the fact that few of the banks pay interest on current accounts, and that on their time deposits they pay only from two to four per cent, interest. Now the Banks •of Scotland pay an average interest on all their deposits, current and time, of three per. cent., and yet are able — although they keep on hand a reserve averaging over thirty per cent. — to pay a dividend of from eleven to twelve per cent, on their paid up capital ; while the Joint Stock Banks of England, which keep a much smaller reserve on hand, and pay less interest to their customers, can afford to pay a dividend on their capital amounting from fifteen to twenty-five per cent. It is evident, therefore, that our National Banks, if once freed from the unnecessary obstructions that now -hamper them, and conducted on judicious principles of free * See Appendix to Second Part. no ABSOLUTE MONEY. banking, could, easily double the profits they now make, and at the- same time be of far greater service to the community. By this severance of their connection with the government the National Banks would fall into line with the banks now in exist- ence and be incorporated under the laws of their several States. We should have only one class of banks, as we should have only one- kind of money, and each of those banks would be vitally interested in upholding and supporting the national money. Every argument urged in its behalf would be appreciated with special force by the managers of the institutions through whom most of the money- transactions would, after all, have to be done. They would have, what they never enjoyed before, a single kind of money — in place of the multitudinous kinds we have had in the past, and have, ini. great part, still. Only one kind of money, subject to counterfeit- ing, instead of thousands of different kinds of bank notes, which must all be studied separately in order to detect counterfeits upon them. A money, current and a legal tender, of equal value inr. every corner of the country, subject to no fluctuation, and to no^ deterioration by wear. The volume of currency would be so- constant in proportion to the development of the business and manufactures of the country, that the most accurate calculation could be made by the bank managers concerning their financial! operations. They would never be subject to any run upon them, unless by mismanagement and flagrant imprudence they should lose the confidence of their depositors ; and while thus placed in a position of far greater safety, they would nevertheless be enabled to operate with much more freedom, extend increased facilities to- their customers, and earn larger profits. We should then have really that freedom of banking which Mr. Patterson so ardently desires for Great Britain, and which Mr. Gairdner (see appendix to Part II.), claims as the prominent characteristic of Scottisk banking ; a freedom of banking', moreover, which would not be trammeled by the fetters of a money issue on a coin basis, with its- inseparable dangers of forced redemption. And while the banks and their depositors would enjoy the blessings of free banking, the political commonwealth of the United States would get rid of the grave danger threatening from a National Banking system, under the constant control of Congress. By that separation of the National Banks from all control by the federal government, one of the most obnoxious features of the centralizing policy, to which this country has become subjected during the last fifteen years^ DIVORCE OF NAT L BANKS FROM TREASURY AND CONGRESS. Ill will have been removed, and the control of their finances remitted, to the people of the several States, to be managed for their own best interests. We shall no longer be troubled at every session of Congress with speculations as to what Congress may do, or may not do, in the way of amending the National Banking Act, and thus- interfering with the circulation of the country ; nor shall we see again agents of the National Banks thronging the lobby at Wash- ington during every session, and squandering the money belonging" to their shareholders in bribes to prevent legislation obnoxious tO' the banks, or push through amendments favorable to them. If it should be objected to this, that my system of a national money would confer upon Congress even greater power to interfere with the finances of the country than that body can exercise now- through amendments of the National Banking Act, I reply, what I have already urged before, that the only power which my system would give to Congress, would be to increase the volume of circulation. It could never decrease it. But three things must be remembered in regard to the "power of Congress to make that, increase. 1. After the establishment of that system, and after the jiational money shall have been substituted for our public debt in the- manner explained by me in the previous chapter, Congress can, under ordinary circumstances, increase the volume of currency only upon the report of the Board of Commissioners, mentioned. elsewhere, stating that such an increase is necessary, and the amount which is necessary to meet the requirements of trade. 2. Whilst under extraordinary circumstances Congress certainly could increase the currency, it would, in so doing, exercise no- power especially conferred upon it by my system, but a power inherent in it as the representative of the sovereignty of the nation, and especially granted to it by the constitution. If, for instance, another war should be forced upon us, Congress certainly would have the right to issue, say five hundred millions more of currency, just as it issued our present legal tender circulation during the late civil war. But would that disturb our finances any more than if Congress were to issue a thousand million dollars in bonds, sell those bonds in Europe at fifty cents on the dollar, as was done in 1864, and in this roundabout and ruinously expensive way, likewise increase our money medium by five hundred millions ? Is it not apparent to the dullest eye, that the effect upon the finances would be the same in either case, so far as ar». 112 ABSOLUTE MONEY. increase of the circulation were concerned, whilst my proposed method of meeting such an emergency would save the nation five hundred millions immediately in escaping the discount, and sixty millions every year in interest. Far from according Congress, therefore, more power than it holds now, my system would restrain that power within safer limits than now exist. 3. Congress would be very little disposed to increase the volume of our circulation in ordinary times, and thus interfere with our financial condition, however much it may now be ready to inter- fere with it indirectly by tinkering at the National Banking system. For in the latter case, should such interference result disastrously, Congress could always throw the blame upon the National Banks, as it usually has done, whilst in the former case it would make itself directly responsible to the people. All the objections urged against the establishment of the absolute national money system thus fall in every case to the ground, and in rebounding, like the boomerangs of the Australians, end only in striking the present rotten system, in defence of which they are urged forward. The pbsitive advantage of my system, however, and the great blessings which it would spread in all directions, remain beyond the reach of assail. Let me recapitulate some of them. 1. It would unite the people of the United States by ties even stronger than those of historical tradition and nationality. 2. It would at the same time abolish a dangerous centralization of financial power as it now exists in the federal Congress, and restore absolute freedom of banking to the people of the several States. 3. It would free us from financial leading-strings of foreign countries, and thus make us what now we merely pretend to be — a free and independent nation. 4. It would extinguish our national debt and prevent the incur- rence of any new public debt in the future. 5. It would relieve us from the main burden of our taxation, and thus make possible the abolition of the Internal Revenue and Tariff systems, and the introduction of absolute Free Trade. 6. It would furnish us with a uniform and elastic legal tender money, subject to no fluctuation or change of value, and yet accommodating itself always to the requirements of the country. 7. It would relieve the present insufficiency of our money circulation, and thus lower the rate of interest and compel the FINANCIAL SOLIDITY AND ELASTICITY GUARANTIED. II3 employment of the money in aiding the development of all our industries. 8. It would abolish the cumbersome, expensive and unstable specie money, and substitute in its place the safest, most con- venient and economical money medium possible. With all these advantages so clearly pleading in favor of the adoption of my system, may I not ask for it the thorough, impar- tial consideration of the people of this country, of its bankers, and of our representatives in Congress, to whom the vast respon- sibility of deciding the future financial fate of this country, for weal or woe, has been entrusted? We are rapidly approaching the most momentous crisis in the history of our internal development. If the Congressional Act, directing the resumption of specie pay- ment in 1879, is not repealed, it is quite certain that national bankruptcy will occur within three years after the celebration of the centennial anniversary of the day which gave birth to this, nation, and that a financial distress will extend over the whole country, which may threaten even its political unity, so lately saved from a murderous civil war. That such a result would in- evitably follow the resumption of specie payments must be admitted, I believe, by every one who has read this work attentively. A. continuance of our present uncertain money system, with its utter instability and inadequateness for the needs of the country, is. however, impossible. A change must take place. We need a. financial constitution, if I may coin the phrase, as fixed and per- manent as the political constitution which our ancestors made for us. We need it now, at once ; and could a more fitting time for the inauguration of our financial freedom be conceived than the one hundredth anniversary of the day which gave us political freedom? We have re-established our political nationality on a wider and safer basis than that upon which it rested in the early days of our republic; let us now also establish our financial nationality, and thus complete the work — which was begun a hun- dred years ago by the mighty men of the American revolution — in the spirit which animated them, and in the form which they pointed out for us. 114 APPENDIX. APPENDIX TO PART II, THE SCOTCH BANKS. The Scotch banks furnish an admirable illustration of the profit and safety of banlcing, when conducted on proper principles and relieved from the risks and dangers attendant upon banks of issue, for although the banks of Scotland issue notes to a certain extent redeemable at the main offices, the circulation is a minor feature of their organization, and in reality is attended with no risk at all, as redemption of the notes scarcely ever occurs. The origin of the Scotch banks dates back to 1695, and is thus relaled by John Holland, the author of a rare work " The Ruine of the Bank of England, and all Publick Credit Inevitable," published in the year 1715. He said : " In the autumn of the year 1695, an honest and ingenious friend of mine, a Scotch gentleman, impor- tuned me one day to think of a bank for Scotland. I told him I had done with framing of schemes for banks, and all other publick societies, and resolved, as in some measure I had done a few years before, to l^ad a country life. He replied that I should have, an act of Parliament upon my own conditions. Upon this I immediately drew up so much of the constitution as was necessary to be in the act, and in three or four days he brought me a formal bill drawn up in the Scotch style, and he told me that he had spoken to most of his nation that were in town, and that he had good reason to believe the bill would pass that session according to the draught, which it did accordingly. Upon this subscriptions were taken for twelve hundred thousand pounds Scot, which is one hundred thousand pounds sterling, and I agreed to go down to Edinburgh and stay there, and return upon my own charge ; but they generously ordered a noble present to be made to my wife, more than my charge amounted to, and though they were utter strangers to a bank, yet all the time I was there the Bank of England could not pay their bills, and although we had many enemies, we ob- tained in about two months' time, a strange credit upon our bills." The terms of the bank charter which Mr. Holland thus helped to push through the. Scotch Parliament, were much more advantageous to its joint stock incorporators, than those of the charter which the Eng- lish Parliament had passed the year before, for the organization of the Bank of England. For whereas the latter charter provided expressly, " that any persons, natives or foreigners, " who shall advance to his Maj esty, the sum of ^1,200,000, shall have the exclusive privilege of bank- ing in England for the term of twelve years," the Scotch incorporators obtained for their bank, the exclusive privilege of banking in Scotland for twenty-one years, and without any consideration whatever ; nay. APPENDIX. IIS -with a special provision in their charter, that the bank should not lend, anoney to " his Majesty" under a heavy penalty. Soon after its estab- lishment, the bank of Scotland began to issue notes for ^loo, ^^50, J^'io, £\o and ;^5 ; and in 1704, the managers of the bank at last con- sented, in obedience to the general public demand, to issue notes of smaller denominations, down to one pound notes. No other measure could have tended more to increase the popularity ■of the bank, for the want of universally recognized circulating money medium under £t^, had been a serious evil, " a restraint upon the indus- try of the country for carrying on its manufactures, agriculture and trade, and for facilitating numerous small transactions." (See Lawson's ■" History of Banking," p. 406). The people, particularly the poor peo- ple, wanted a money medium in such denominations as would suit their daily necessities. They did not care what it was made of, so it passed as money. For a long time brass or wooden tallies, with the stamp of the "bank, were talked of for sums under ^£5, but notes were finally determined Tipon as more convenient. As an instance of financial blindness, I may liere add in passing, that although this Scotch practice of issuing small notes, has proved eminently successful, and so endeared the paper money to the hearts of the people, that gold has virtually ceased to furnish the circulating money for Scotland, still the bank of England has not yet followed the Scotch practice, and English financiers are still discus- :sing its expediency. John Law immediately perceived the great advan- tage of this new feature, of which he said in a letter, that it would make the Bank of Scotland " more national than either the Bank of England or that of Amsterdam, because its notes, many of wrhich are as low as twenty ;shillings sterling, pass in most payments throughout the country, whereas those of the Bank of England are of little use but in London." Not many years after the expiration of the twenty-one years, during ■which the Bank of Scotland enjoyed the exclusive privilege of banking in that country, other banks were gradually organized, and after a severe -contest with the old bank, settled down on a footing of harmony and good understanding, which has been kept up to this day, and resulted in substituting a system of mutually protective co-operation between them, in place of the mutually aggressive system of competition. One ■by one joint-stock banks were established, all of them following the principles that governed the old bank in its management, a.nd gradually extending their operations throughout the provinces. Each of these branch-banks had a local manager, and all of them act in perfect union ■with the parent establishment at Edinburgh, which again, were all in connection with each other, each receiving the notes of each other, and ■" clearing " balances every week. Subsequently the "clearing "took place twice a week, and no bank was allowed to present the notes of another bank for redemption, except on the specified "clearing" days. All of these'features have been substantially retained up to the present dme. With an original subscribed capital of their own, the business of Il6 APPENDIX. these banks consists iii receiving deposits, for all of which they allow- interest, discounting notes and granting cash accounts, drawing bills or exchange, and transacting all the general business of banking, besides- issuing notes for circulation from one pound upward. There are at pres- ent twelve of these banks, with nearly seven hundred branches, in all. parts of Scotland, so that almost every little town is provided with one.. Their total circulation was, on the 17th of April, 1875, ;£Si535.iJ8, and the- gold held by them was ^3,957,277. It will be seen from this, that as I. have already said, the profits derived from their circulation are compari- tively of small importance, as the amount exceeds that of the gold kept oil- hand, only by some fifteen hundred thousand pounds sterling. Their real profits, indeed, arise purely from the legitimate banking transactions . of discounting and selling exchanges, the issue of notes being more di- rectly for the mutual convenience of the banks and their customers. The chief cause of the exceptional success enjoyed by the Scottish, banks, is owing, indeed, next to the co-operative policy which they pur- sue toward each other, to their systematic and untiring efforts to serve the interests of the people. Fully aware that the only reliable "basis'" jor banking is the possession of the confidence of the people, they make- this their chief obj ect. They keep a large amount of specie on hand,though . it is never called for, merely because the people have still a sort of blind- reverence for metallic coins. They pay interest on every deposit, no matter how small it is, though it be left but a single day, in order to interest the poor class as much in their success as they interest the bus- iness and industrial classes in it by their liberality in discounting. This- liberality, however, is accompanied by an equal share of prudence. Most of the advances made to customers are made on running accounts,, which can be called in at any moment at the option of the bank, and before opening such an account, the bank enquires carefully into the- financial position of its customer, and the purposes for which he needs, the money, besides taking from him a bond with two sureties for the- amount. These open accounts are known in Scotland, as "cash credits," mean- in? a credit given to a customer on the books of the bank, upon which he can drawn to the extent agreed upon. The banks invariably ad- vance their own bank notes on these accounts, and generally in small notes, so as to secure them a good circulation. So careful are the banks,, however, in opening these accounts, that a loss on them is one of the rarest occurences. A Mr. Blair, who was examined by a Parliamentary committee on the subject in 1826, testified : " I literally have hardly ever- heard of a bad debt by cash accounts. The Bank of Scotland, I am sure, lost hardly anything in an amount of receipts and payments of" hundreds of millions; they may have lost a few hundred founds in a century." jfc The general advantages of the Scotch banking systernTnave been ad- mirably set forth in a reply by Mr. Charles Gairdner, manager of the- APPENDIX. 117 Union Bank of Scotland at Glasgow, to certain^questions proposed to him by the Conseil Superieur du Commerce de France, on the subject of banking and currency. In answer to a question as to the advantages of free banking, Mr. Gairdner says': " In reply it may be stated, that the argument in favor of freedom in trade apply equally to freedom in bank- ing ; and further, that in England and Scotland, the principle of free- dom in banking is now all but universally accepted. A difference of opin- ion exists as to the propriety of allowing all banks to issue notes, but in Scotland the right to do so is regarded as an integral and important part of the business of banking. The advantages conferred by the system of banking pursued in Scot- land, are seen : 1. In the facilities afforded to the public by the establishment of branch-banks in even the most remote districts. Money, the lever and instrument of trade, is brought to all points. At present there are nearly seven hundred banking offices in Scotland, emanating from twelve par- ent banks. 2. In the economy of capital so effected — the ebb and flow of the money-tide is most uniform — it being the universal practice of people, even of the most moderate means, to lodge their money with the banks, from whence it flows out again to support trade. The cash de- posits in Scotland approach sixty millions sterling. The population is about three millions. 3. In the allowance of interest by the banks on all the money held by them from the public. 4. In the advantages afforded to the industrial classes throughout the country, by means of loans and advances. 5. In the perfect security afforded to the public — there never having been an instance of a joint-stock bank in Scotland failing to pay its debts in full ; and the cases in which in former times the failure of a private bank involved loss, were extremly rare. 6. In the manner whereby, through being free, the banking institutions of the country have been able to adapt themselves to the changing cir- cumstances of the country. If, with the adoption of my system of an absolute national money, the issuing of notes for circulation were to be entirely dissociated from the legitimate business of banks of discount and deposit, there is no reason why American banks should not soon establish a reputation equal to that of the Scotch banks, and realize profits equally large. They would then prove an unmixed blessing to the people, whilst now the frequency of bank failures impairs largely the good which they accomphsh. LIBERTY AND LAW UNDER FEDEI\ATIYE GOYERN/VLENT BY BRITTON A. HILL. The Second Edition, now in Press, will be for sale by Soule, Thomas & Wentworth, 208 South Fourth Street; and by Gray, Baker & Co., 407 North Fourth Street, St. Louis ; and in all the principal cities of the United States and Great Britain. Price $1.50 in Muslin ; $1.00 in Paper. OPINIONS OF THE PIJESS 0\ THE FIIgT EDITION. Prom tlie New Orleans Picayune. The book is well written ; the language is compact and clear, and presented with great logical force. From the St. Louis Journal. Mr. Hill has accomplished a work of which he may be proud, a work certain to attract wide-spread attention ; and we may feel gratified that our own city has pro- duced a thinker so original. From the Chicago Times. It is unquestionably the work of a cultivated mind. » • » Mr. Hill is of the opinion that there should be a complete revolution in our national and state govern- ments. Our federative republic must be completely transformed in order to become truly federative and really republican. OPINIONS OF THE PRESS. From the Philadelphia Agre. A very thoughtful contribution to political science * * * carefully prepared both as to matter and style. » * * The author has fortunately never surrendered tis judgment to any one-sided theory, and his writings, whether they treat of secular or religious interests, are equally earnest and impartial. From the St. Louis Globe. This ^ork is certain to produce a sensation in literary circles and a lasting im- pression upon the people. It is the most hopeful book of the century. * * * We Ibelieve the book is one for the tim^s, as well as for the age, and the author has estab- lished his claim to be one of the truest friends of humanity, of whom we have record. From the St. Louis Bural World. We call the attention of the Patrons of Husbandry, the Sovereigns of Industry and the Labor Union Leagues to a new and original book, entitled " Liberty and Law united in Federative Government," by the Hon. Britton A. Hill of St. Louis. All the problems of those branches of the government now of especial interest to the people, money panics, inflation of national money, redemption of 5-20 bonds, reduction of all classes of taxes and tariffs, etc., are critically examined in this work, and the remedies for all the evils, frauds, legal despotisms and official robbery" are carefully and practically stated, so as to be thoroughly understood by all. // is one of the most complete and perfect works on these abstruse questions now in print. From the St. Louis Bepublican. It Is evidently a work that required for its production a practical knowledge of law, an intelligent understanding of the machinery of governments, and a deep interest in the whole subject. » * * This treatise on " Liberty and Law " may, .therefore, be regarded as the formulated results of the life work of a successful lawyer, presented for the consideration of the future law-makeis of peoples, who would govern themselves. * * * It is ^ work worth reading and listening to and is oifered in the best interests of republican institutions, which are rapidly gaining ground in the thinking and activity of mankind. * * * Mr. Hill's book is a pre- sentation of facts, fruits that the past has borne, and a series of hints and suggestions towards purification from errors, and the highest form of liberty and law under federative government. It is clearly and forcibly written, and the various subjects treated follow in logical sequence. * « » The scope of the work embraces domestic as well as political economy, and the book is an honest and effective effort to benefit mankind. From the Journal of Speculative Philosophy. This most able aud scholarly quarterly, published in this country, devotes several pages of Editorial comment to Mr, Hill's book, from which we extract the fol- lowing : " It will be noticed by this index that Mr. Hill has discarded the theory of gov- ernment that limits the scope of its functions to the maintenance of justice among men. He would have it also secure social well-being — nurture, if we may so call it. In the current philosophical view, the functions of nurture, social combination, and the maintenance of justice, are separated, and assigned respectively to one of the OPINIONS OF THE PRESS. three institutions — the family, civil society, the state. It is quite evident that wit hii» the family, for instance, wherein the perpetuation of the race is cared for, a strict application of the principle of justice could not be expected. It would destroy the race if one were to treat all infants as though they were perfectly responsible beings, and with this view were to return upon them the consequences of their deeds. Nurture is the shape of a rational treatment of the race in its infantile years, and nurture is even the predominating feature of the most rudimentary states — e.g. that of China. Civil society is an organism whose function is the supply of human wants — food, clothing, and shelter. In this organism, each man labors to produce a special product which he contributes to the general store (t. e. sells it in the market), and withdraws from the general store (t. e. purchases in the marltet) a quantity of special products measured by the value of his own contribution. Each works for all and all for each. But it is not done after the manner which Communism proposes. It is not equal contribution, neither is it equal distribution. In the family, however, there is community of goods : the wants of each are supplied from the common fund regardless of the source of the contributions to it. This is nurture. In civil society, on the other hand, each draws out of the supply created by the combined endeavor of all, only an equivalent of what he puts in. Hence each man is self- determined — receives the fruits of his own deeds. It is clear that this institution is governed^ by a principle which would destroy the race if it were applied within the family, and the infant were to receive only what he earned. » » » * • " Right here comes in the phase of municipal organization and public corpora- tions. The labor of the individual in producing special products for the market is 'imited to such special products as may be exclusively possessed and used by others iildividually. But there are thousands of modes in which the welfare of society can be promoted by the application of labor to the removal of general obstacles or to the creation of general facilities : the highway, the bridge, the railroad, the canal, the acqueduct, the sewer, the useful invention, &c., &c. No single person can consume, entirely, one of such products as these. They are valuable to a whole community and to a series of generations. In order that human labor may be applied to such substantial productions as these, there must be some form of guaranty that such flabor shall be remunerative ; that it shall be able to convert into money its present labor, expended not for special commodities, but for the general good of the com- munity at large, and it may be for the generations that are to come ; that it shall be able to realize for itself special commodities for such general productive activity. Tbe device invented for this purpose is the chartered corporation, a semi-political, semi-social institution. Jt is clear that Mr. Hill would absorb, if not all, at least the greater part of this sphere into the state itself and make it solely political. What is for the public weal shall belong to the state, is the principle set up in his book. The public health, the public education, money, highways — even the newspaper^ shall come into the h