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THE 
 
 CAUSES AND AUTHORS 
 
 FINANCIAL DEPRESSION, 
 
 WITH PASSING HINTS AT 
 
 REMEDIAL MEASURES; 
 
 FRENCH FINANCE. 
 
 BY 
 
 HON. WM, D. KELLEY, M. C. 
 
 PHILADELPHIA : 
 
 HENRY CAREY BAIRD & CO., 
 INDUSTRIAL PUBLISHERS, BOOKSELLERS AND IMPORTERS, 
 810 WALNUT STREET. 
 
 1877. 
 
18/7 A 
 
 Ka8l 
 
the causes and authors 
 
 OF THE 
 
 FINANCIAL DEPRESSION. 
 
 WITH PASSING HINTS AT REMEDIAL 
 MEASURES. 
 
 By Hon. Wm. D. KELLEY. 
 
 [From the Iron Agc.~\ 
 
 When the war closed in June, 1865, the question of reconciliation and 
 reconstruction became paramount. Whatever measure would promote 
 social intercourse between the people of the North and those of the South, 
 or tend to involve them in common interests, was one of highest patriot¬ 
 ism, and entitled to the support of every department of the Government 
 and of the citizens of every section of the country. The army and navy 
 had done their work, and the pursuits of peace invoked the fostering care 
 of statesmen and social economists. 
 
 To say that the South was prostrate, is to inadequately express the fact. 
 Her people were dispirited and almost destitute. Their fenceless and un¬ 
 tilled fields were without stock or implements of husbandry. Their homes 
 were in ruins. Their industrial system was not only demoralized, but 
 had been overthrown; and, after the protracted and terrible paroxysms of 
 war, they were in the condition of a patient whose frame, worn well-nigh 
 unto death by fever, had sunk into that typhoid state in which heroic 
 treatment would be fatal, and the object of physician and nurse must be 
 the strengthening of the system and the restoration of vitality and circula¬ 
 tion by the use of such stimulants as the extremity of the case would per¬ 
 mit. Little less grave and difficult of solution were the questions then 
 arising in the North. During the war the government had been the great 
 customer, and, by its special necessities, had given direction to the forms 
 of industrial development; but, with the return of peace, the demand for 
 ships, arms, clothing and other munitions of war was to cease, and capital 
 ( 3 ) 
 
4 
 
 must discover new and profitable employment for the skilled men previ¬ 
 ously employed, and those who, having served in the army and navy, 
 were to return by hundreds of thousands to the walks of civil life. 
 
 Where these discharged soldiers would settle, and what part they would 
 take in the restoration of prosperity, were questions demanding grave 
 consideration. Many of them had learned by observation that the South 
 was not a purely agricultural region—was not, as they had believed, one 
 vast cotton, tobacco, rice and sugar field; but that, while it was wonder¬ 
 fully endowed with the capacity to produce these elements of national 
 greatness and independence, and might rival India in the production of 
 jute, ramee and other fibrous plants, it was capable of producing all the 
 grains, fruits, trees and plants they had known in the North, or the distant 
 countries in which they had been born; that its minerals were more varied 
 and richer than those of the North, and included gold, cinnabar, corun¬ 
 dum, the peculiar ore for speigelizen, and others which are rare or un¬ 
 known at the North; and that all these were attended by a climate and 
 seasons which lessen the exactions of labor and increase the charms of life. 
 Men from New England and the cold Northwest had been incredulous 
 when told that in Georgia, Texas and elsewhere throughout the South, 
 corn could be planted with the absolute certainty that the season would 
 permit it to ripen and be gathered from fields from which a luxuriant crop 
 of wheat had been taken in May, and that a volunteer crop of potatoes, 
 equal almost in size and quantity to the cultivated crop, followed the latter 
 in almost every field. But when their eyes beheld these things, their 
 incredulity yielded, and they believed. 
 
 That, in view of such facts, there was a general impulse among the 
 more intelligent and enterprising workingmen of the North to settle in 
 the South, is not remarkable. Nothing could have been more natural or 
 more beneficent than such a movement; and, but for the restrictive 
 financial policy announced by Mr. McCulloch in the latter part of 1865, 
 upon which he entered in 1866, and which, with the sanction of Congress, 
 has been pursued by all his successors in the Treasury Department, such 
 emigration, guided by intelligent enterprise, and sustained by abundant 
 capital, would have penetrated every Southern State, and, under its be¬ 
 nign influence, long ere this, the era of good feeling, which we hope is 
 now dawning, would have been a consummate experience. How different 
 would then have been the history of the last decade ! Whose pen will 
 attempt to depict the marvelous progress the South would have made 
 under such an impulse of enterprise, skill and capital: to tell how many 
 prosperous villages with school-houses and churches would have risen be¬ 
 side the abounding water-power that flows through her cotton fields, or in 
 the midst of her rich deposits of coal, iron, copper, zinc, nickel, and 
 other metals; or to indicate which of her chief towns would now be 
 
5 
 
 thriving cities, connected with each other by railroads, which, under the 
 continuance of our present financial policy, will be premature a century 
 hence? Mine will not essay the task. 
 
 How shall we set to work these millions of able-bodied people, includ¬ 
 ing the freed people and poor whites of the South and the disbanded 
 soldiers and sailors of the North—at such wages as will enable them, while 
 largely consuming each other’s productions, to make generous commercial 
 exchanges with foreign countries?—should have been the all-absorbing 
 question among those charged with the administration of the Government. 
 There was special need for the labor of all of them : for there was not only 
 no surplus of goods on the market, but never had there been a time when, 
 measured by the necessities of millions of people, and their ability to pro¬ 
 duce the means of paying for them, an increased supply of general com¬ 
 modities was more urgently demanded. The fields of the South were to 
 be fenced and stocked with cattle and implements; ancient homesteads 
 were to be rebuilt, and new ones created and furnished; desolated and 
 decaying cities and towns were to be restored, and the whole people were 
 to be reclothed. 
 
 Dogmatists and doctrinaires are burdening the press with plans for the 
 extension of our foreign trade as a means of relieving our people from 
 want and despair begotten of enforced idleness; but none of them seem to 
 conceive the magnitude of the home market that then opened upon us 
 (and which, under a more statesmanlike management of our debt and cur¬ 
 rency, is still open to us), or condescend to discuss the social and political 
 consequences that would have followed our entrance upon it. The offer 
 of work at remunerative wages would have tempted the undisciplined poor 
 of the South into habits of industry and thrift, and would have enabled 
 freedmen and poor whites alike to imitate their more fortunate neighbors 
 in the occupancy of homes with floors and the enjoyment of tables, chairs, 
 plates, spoons, knives, forks, simple cottage furniture, and even such lux¬ 
 uries as carpets and wall-paper. The increased demand for these, and the 
 infinitude of minor articles that are found in the homes of small farmers 
 and skilled laborers in the North, would have taxed our producing ca¬ 
 pacity :—for the prosperity that would have attended such an extension 
 of our market would have augmented the tide of immigration, which in 
 1872 reached 450,000 per annum, but which, under the policy of resump¬ 
 tion by contraction, steadily shrinks to smaller numbers. The adoption 
 of this stimulating policy of development must have obliterated antagonism 
 between the sections, by establishing the fact that identity of interest re¬ 
 sults from diversity of productions. The demands of the South upon our 
 workshops would have secured employment in legitimate channels to the 
 labor and capital of the North; while the ability to furnish an increased 
 supply of cotton, tobacco, rice, sugar, naval stores, and a growing quan- 
 
tity of ramee, American jute and other fibres, would have brought the 
 comforts and conveniences of life to which I have alluded, within the easy 
 reach of every thrifty family of the South. 
 
 Could the people of the South then have been furnished, in exchange 
 for fields, mines, or water-power, with money to enable them to engage in 
 improving their condition by the application to the property they retained 
 of the industrial methods and appliances of the North; could they have 
 seen their countrymen come among them to help build up their waste 
 places, and beheld immigrants from Europe landing by thousands at their 
 wharves, they would have been diverted from politics. Industrial pros¬ 
 perity would have become their leading object, and politics have soon 
 come to be regarded as an incident, and not the supreme object of life. 
 The prosperity that would have attended this reorganization of labor, and 
 the infusion of these new industrial elements, would also have demon¬ 
 strated to the most obtuse the value of the services of the docile and faith¬ 
 ful laboring people upon whom they had previously relied, and who are 
 familiar with all their ancient industries. And more than all this, though 
 but a secondary effect, long before this every prosperous person in the 
 South would have been bound to the Union by the strong ties of direct 
 personal interest. That where the treasure is there will the heart be also, 
 is true now as of old; and had not McCulloch departed from the policy 
 of Chase, vast amounts of the public debt now held by foreigners would 
 have passed into the possession of the Southern people, who being the 
 recipients of a large share of the taxes collected by the Government, 
 would not have tolerated the efforts now frequently made by the baser 
 sort among them, to escape taxation even by means of conspiracy and 
 fatal violence. Prosperity would have brought peace to the country. 
 
 These are not the unsubstantial fancies of a Utopian. They are re¬ 
 sults that lay in the pathway of our progress as inevitable consequences of 
 causes then in active operation. To avert them required the diversion of 
 the course of events by active and efficient measures. Had Mr. Secretary 
 McCulloch been content to let well enough alone, and so far as the na¬ 
 tional debt and currency were concerned, to travel in the established 
 paths of experience, the wonderful story of the rapid recuperation of 
 France after her prostration by Germany, would have had a precedent in 
 our history so far exceeding hers in the splendor of its results, as to have 
 made what is now regarded as that page of her financial history which re¬ 
 cords the marvelous, seem natural and commonplace. Lincoln, Chase, 
 Stevens, and the practical men with whom they consulted, had given us a 
 financial system which, while providing for the expenses of the war, had 
 furnished an adequate medium for such freedom of exchange between 
 individuals as to have induced the creation of wealth as by magic. Let 
 me not be understood as speaking of imaginary profits, or fortunes nomi- 
 
7 
 
 nally increased by the inflation of prices, or any other unreal and unsub¬ 
 stantial thing. I allude to solid wealth—to the subjugation of prairie, 
 hill-side and woodland to the purposes of civilization and settlement; to 
 the creation of towns and the enlargement of cities; to the opening of 
 mines, the construction of furnaces, forges, mills, and the utilization of 
 water-power by the erection of factories and factory towns where land and 
 water had both been waste; to the founding of schools, colleges, scientific 
 institutions, and the erection of churches of all denominations, all of which 
 had gone on between 1862, when the greenback was issued, and 1873, 
 when, by its partial withdrawal, and the retirement of every other form 
 of national credit which had been used as money, our financial system 
 collapsed, and in place of social, intellectual and national progress, bank¬ 
 ruptcy, poverty and despair began to overshadow the land. 
 
 By referring to Secretary Chase’s last report, transmitted to Congress on 
 the 10th of December, 1863, Mr. McCulloch would have found a chart 
 marking all the financial shoals and quicksands that endangered the ship 
 of state, and channels thoroughly sounded and amply buoyed, by sailing 
 within which her voyage to the haven of unquestioned prosperity would 
 have been calm and brief. He would there have learned how “the great 
 evils brought upon us by the war might be transmuted by a wise alchemy 
 into various forms of utility;” how, “ from the bitter root of debt, great 
 good might grow,” and that $400,000,000 of national notes, with a re¬ 
 serve of $50,000,000 to meet convertible bonds, then known as tempo¬ 
 rary loan certificates, “if presented in excess of current deposits,” had 
 been found to be not in excess of the legitimate demands of the business 
 of the country, or instrumental in inflating prices. On the last point Mr. 
 Chase said: 
 
 “It is an error to suppose that the increase of prices is attributable 
 wholly, or in very large measure to this circulation. Had it been possible 
 to borrow coin enough, and fast enough, for the disbursements of the 
 war, almost if not altogether the same effects on prices would have been 
 wrought. Such disbursements made in coin would have enriched fortunate 
 contractors, stimulated lavish expenditures, and so inflated prices in the 
 same way and nearly to the same extent as when made in notes. Prices 
 too would have risen from other causes. The withdrawal from mechani¬ 
 cal and agricultural occupations of hundreds of thousands of our best, 
 strongest and most active workers, in obedience to their country’s sum¬ 
 mons to the field, would, under any system of currency, have increased 
 the price of labor, and, of consequence, the prices of the products of 
 labor; while the prices of many things would have risen in part from other 
 causes, as, for example, the price of railroad bonds from vast increase of 
 income through payments for military transportation, and the price of cot¬ 
 ton from deficient supply.” 
 
 Unfortunately for the country, the administration of which Mr. McCul¬ 
 loch was a member, was not composed of practical statesmen like Mr. 
 Chase, but of doctrinaires, who, influenced by the false teachings of pur- 
 
8 
 
 blind and shallow schoolmen, ignored the palpable truth that it is labor and 
 not coin that supports the public credit and the framework of society. 
 Regardless of the function of money, which is the life-blood of trade, they 
 considered only the material of whigh, in their judgment, it should be 
 made, and, in order to make it as costly and as difficult to be obtained as 
 possible, resolved to withdraw paper, and, let the experiment bring what 
 disasters it might upon industry and enterprise, to attempt to use gold as 
 the sole legal tender of the American people. They applied heroic treat¬ 
 ment to a typhoid patient. The system taught by their school required 
 blood-letting; and though they knew the patient would probably die under 
 the operation, bleed him they would, if but in honor of the professors at 
 whose feet they had studied. In other phrase, they determined to reduce 
 the amount of money in circulation, to increase the value of its unit, and 
 to give the holders of national, state, municipal, corporate and private 
 debts, in payment of interest and principal, dollars which, measured by 
 the average product of the labor of a day or yield of an acre, were two, 
 four, or six times as valuable as those contemplated by both creditor and 
 debtor when the obligation was contracted. They did not pause to con¬ 
 sider whether the scheme was practicable. They would brook no discus¬ 
 sion of their simple proposition that a gold dollar was intrinsically worth 
 more than a paper dollar (which, when regarded simply as commodities, 
 was a truism not to be disputed), and proceeded to make the experiment, 
 let it cost the people what it might, and whether or not it could prove 
 ultimately practicable. 
 
 The first of the inevitable results of this stupid or wicked policy was to 
 make money scarce and increase the rate of interest on loans to individu¬ 
 als. Scarcity of money and high rates of interest produced industrial par¬ 
 alysis, and deprived labor of employment and laborers of the power to 
 consume the products of each other’s toil. Trade and commerce felt the 
 shock. Each additional discharge of laborers or material reduction of 
 wages, further contracted the market. Bankruptcies became frequent, and 
 confidence was shaken. Capital was not needed to pay idle laborers; 
 there ceased to be a market for money, and, ceasing to circulate, money 
 concentrated in the Treasury and the vaults of the banks as dead capital. 
 Our shallow philosophers pointed to the fact that money had lost its use, 
 and was lying idle, and claimed this untoward condition of things as proof 
 that money was superabundant, that the currency was inflated, and pointed 
 to the shrunken and depreciating stocks of goods in the warehouses of 
 ruined merchants as evidence that an excess of money had caused a blame¬ 
 worthy over-production of commodities. And even now, when real estate 
 does not earn rent, or money beget interest, and labor is denied the op¬ 
 portunity to earn wages, our rulers refuse to investigate the condition of 
 the people, but, counseled by the oracles of the schools, whose faces 
 
should be on the back of their heads, as their eyes are ever turned toward 
 the past, attempt to pacify the starving masses by crying out “ over-pro¬ 
 duction,” and demanding the discharge of other laborers, and the further 
 reduction of wages and prices generally as essential preliminaries to the 
 establishment of gold payments. 
 
 To this end the Government employs syndicates to induce foreigners 
 to accept mortgages upon the land and annual earnings of the peo¬ 
 ple, and, in order to accomplish this undesirable purpose, binds pos¬ 
 terity by issuing bonds to run for a period so protracted that the bare 
 suggestion of it would have made Mr. Chase recoil from him who submit¬ 
 ted such a proposition as from one who would barter the interests of his 
 country. As Secretary of the Treasury he deplored the fact that ex¬ 
 treme exigencies compelled him in 1861, upon the breaking out of the 
 war, to consent to the issue of a small amount of bonds which had so 
 long as twenty years to run; and yet Secretary Sherman demands plaudits 
 from his countrymen for having induced foreigners to take our bonds with 
 thirty years to run. On this point Mr. Chase was most explicit. On 
 page 14 of his report, above referred to, he said : 
 
 “The object of future controllability has also had a prominent place 
 in the regards of the Secretary. Under the conditions which existed at 
 the outbreak of the rebellion, he acquiesced in the necessity which seemed 
 to dictate the negotiation of bonds payable after 20 years ; but he acqui¬ 
 esced with reluctance , and, as soon as permitted by circumstances, rec¬ 
 ommended the enactment of laws authorizing the issue of bonds payable 
 after shorter periods, as well as the creation of temporary debt in other 
 forms. In harmony with these views, Congress provided for the issue of 
 the bonds known as the 5-20’s; and also for the issue of Treasury notes 
 payable three years from date, for certificates of indebtedness payable in 
 one year, and for temporary loans by deposits reimbursable after ten 
 days' notice. At the last session, Congress repealed some embarrassing 
 restrictions of former acts, and authorized the issue of bonds payable 
 after ten years, and of Treasury notes payable at pleasure or three years 
 from date. These Treasury notes were made legal tenders for their face 
 value, or convertible for amount and interest into U S. notes. [Green¬ 
 backs.] 
 
 “ The Secretary availed himself of this legislation, by placing with the 
 people as large an amount as possible of 5-20 bonds, and by using the 
 other powers so as to put the whole debt, except the long loans first nego¬ 
 tiated, in such a shape that prompt advantage can be taken of favorable 
 circumstances to diminish the burdens it imposes on industry. 
 
 “ Whenever the constitutional supremacy of the nation shall be re-es¬ 
 tablished over all its parts, it will be within the power of Congress and the 
 Secretary to fund the whole or any part of the temporary debt in bonds 
 having a very moderate interest, and redeemable at the pleasure of the 
 Government eifter very brief periods, or perhaps at any time after their 
 issue. Nothing further seems desirable on the score of controllability.” 
 
 Mr. Chase saw that the proper fund for the payment of taxes was the 
 current profits of the people. He knew that so long as the taxes absorbed 
 
10 
 
 but a percentage of current profits, the people would pay them without 
 regarding the government as an oppressor, as they do now when no form 
 of productive industry yields a profit, and citizens are impoverished by 
 paying their annual taxes out of their shrunken principal; and he there¬ 
 fore recognized the vital necessity of maintaining a medium adequate in 
 amount to secure the most perfect freedom of exchange and the largest 
 possible production of exchangeable commodities. The first object to be 
 considered was, in his judgment, the prosperity of the people—the source 
 of all public revenues. The next was the controllability of the debt, 
 that it might under all the varying circumstances of the country and 
 financial conditions of the world, be so managed as to impose the least 
 possible burdens upon the people, and abstract the smallest possible per¬ 
 centage from their profits. To this end he sought to keep the debt at 
 home, and make the American people the sole creditors of the American 
 Government, and announced as a controlling proposition “ that the bur¬ 
 dens of debt, always heaviest when loans are held by a few, and especially 
 by foreigners, diminish in proportion as the receivers of interest become 
 identified with the payers of taxes.” 
 
 The idea of transferring our debt to foreigners was repulsive to him 
 from the first. On this point I have personal knowledge, having, at a 
 very early day after Congress made provision for a loan, been selected, 
 by the representative of a number of German capitalists, as a medium to 
 offer the Secretary $40,000,000 on 20-year bonds. He heard the propo¬ 
 sition, and remarked very quietly in reply that it would be time enough 
 to seek foreign aid when the American people failed to provide the 
 treasury with means, and requested me to be at the hotel at which the 
 agent was stopping in thirty minutes, that I might receive and deliver to 
 him his answer in writing. At the appointed time the answer came, and 
 was, as nearly as my memory serves me, and I think it is accurate, 
 “ The Secretary declines to seek funds in foreign markets for the present, 
 and hopes to be able to rely on the resources of the American people for 
 the means of carrying on the war.” The following passages from the re¬ 
 port from which preceding extracts were made, illustrate Mr. Chase’s 
 views on this point, and sustain the belief I have expressed, that the re¬ 
 tention of the national debt in this country would have been a potent 
 bond of union between the people of the different sections: 
 
 “ The final object of the Secretary was to extract from the unavoidable 
 evil of debt as much incidental benefit as possible. 
 
 “To this end he desired authority to receive temporary loans in the 
 form of deposits reimbursable after a few days' notice. This measure was 
 regarded by many with something less than favor at first; but Congress, 
 after full consideration, authorized the receipt of such deposits at an in¬ 
 terest not exceeding five per cent., to the amount of $25,000,000; then 
 raised the limit to $50,000,000, and then to $100,000,000, and pro- 
 
11 
 
 vided a reserve of $50,000,000 of United States votes to meet demands for 
 reimbursements beyond other convenient means of satisfaction. It was not 
 long before these deposits reached the highest limit, and before the flow 
 could be well checked, somewhat exceeded it. 
 
 “The utility of the measure was very conspicuous on the recent occa¬ 
 sion of great stringency in New York, when the Secretary was able to re¬ 
 imburse over fifty millions of these deposits during the last weeks of the 
 year ; by which action the pressure was sensibly alleviated, with the use 
 of only a fifth of the reserve. In former reports the Secretary has stated 
 his convictions, and the grounds of them, respecting the necessity and 
 utility of putting a large part of the debt in the form of United States 
 notes, without interest, and adapted to circulation as money. These con¬ 
 victions remain unchanged, and seem now to be shared by the people. 
 For the first time in our history has a real approach to a uniform cur- 
 re?icy been made, and the benefits of it, though still far from the best at¬ 
 tainable condition, are felt by all. The circulation has been distributed 
 throughout the country, and is everywhere acceptable. So, too, real 
 and great advantages are derived from the wide diffusion of the debt 
 among the people, through business transactions, and through the exer¬ 
 tions of the officers of the departments, and the agents for loans, already 
 noticed. It is impossible to estimate the advantages to national unity ana 
 national strength secured by this distribution. Every holder of a note or 
 bond, from a five cent fractional note to a five thousand dollar bond, has 
 a direct interest in the security of national institutions and in the stability 
 of national administration. And it is another and no small advantage of 
 the distribution that the burdens of debt, always heaviest when loatis are 
 held by few, and especially by foreigners, diminish, in proportion as the re¬ 
 ceivers of interest become identified with the payers of taxes. 
 
 “ In these several ways may even such great evils as are brought upon 
 us by rebellion be transmuted, by a wise alchemy, into various forms of 
 utility. The Secretary has endeavored to use this alchemy; with what 
 success the country will judge when time and trial shall have applied to 
 his work their unfailing tests." 
 
 Not only did Mr. Chase not regard $400,000,000 as too large a volume 
 of national notes or greenbacks, but in the course of his report he recom¬ 
 mended certain modifications of the law, among which was a provision 
 giving “a. simple authority to the Secretary to ascertain from time to 
 time the amounts destroyed or lost, and to replace them by new issues." 
 He did not believe in sudden contraction of the currency, either delib¬ 
 erate or accidental, but knew the value of a sufficient volume of the 
 medium of exchange, and the importance to trade of its steady mainte¬ 
 nance. Am I asked how the Secretary hoped to place the whole of the 
 national debt “ in bonds bearing a very moderate interest, and redeema¬ 
 ble at the pleasure of the Government after very brief periods, or perhaps 
 at any time after their issue"? If so, I refer my interlocutor to the re¬ 
 port from which the foregoing quotations have been made. He will find 
 by reference to page 16 that it was by the adoption of the convertible 
 bond system, the support of which has brought upon me such derision 
 from the organs of the foreign bondholders and their American allies. 
 
He called them temporary loans, and a provision of the statute which pro¬ 
 vided for their issue required ten days’ notice of intention to present them 
 for redemption; but experience proved that this was an unnecessary re¬ 
 striction, and the Assistant Treasurer at New York gave notice that they 
 would be paid on presentation without notice. They were thus in all re¬ 
 spects convertible bonds, such as are advocated by those who are known 
 as the friends of the “rag baby,” and the unlimited issue of which, as 
 was recommended by Secretary Chase, would, by keeping our debt at 
 home, have prevented the mortgage of the land and productive power 
 of the country to foreigners. As to the safety of this system, its great 
 value to the commerce of the country, and to those whose small earnings 
 need a safe place of deposit, he was most explicit, saying : 
 
 “The limits of deposits for temporary loan are fixed at $100,000,000. 
 The amount of this deposit on the first day of December had been reduced 
 to $45,506,120.01, and payments of $10,000,000 had been made from 
 the reserve. The additional payments will be confined within the narrow¬ 
 est possible limits, and can hardly exceed $25,000,000. The reflow of 
 deposits has already begun, and will probably soon exceed reimburse¬ 
 ments, and so arrest payments from the reserve. The whole reflow be¬ 
 yond the amount of these payments will be available as part of the 
 additional loan required, and may be stated without much risk of mistake 
 at $25,000,000. The Secretary perceives no solid reason for retaining the 
 restriction on loans in this form to $100,000,000. It may, as he thinks, 
 be usefully removed. As the advantages of these deposits become better 
 and more generally understood, the loan in this form will, doubtless, in 
 the absence of restriction, be largely increased, and the possibility of de¬ 
 mands for reimbursements beyond means to meet them can be fully pro¬ 
 vided for by an increase of the existing proportion between deposits and 
 reserve. 
 
 “ Such an arrangement, the Secretary inclines to think, wcmld operate 
 beneficially by increasing the amount of currency when unusual stringency 
 shall require increase, and reducing its amount when returning ease shall 
 alloiv reduction .” 
 
 Notwithstanding the length to which this communication has grown, 
 justice to the subject requires me to extend it. To the weight of Mr. 
 Chase’s great name I wish to add that of another, whose death took from 
 us one of the most sagacious counselors of the American people. I refer 
 to Horace Greeley. How Mr. Chase’s temporary loan system, which is, 
 as I have shown, identical with the convertible bond system, would affect 
 the commerce and general industries of the country, was set forth by Mr. 
 Greeley with a clearness which I cannot hope to attain; and I therefore 
 close this communication with an article from his pen, which appeared in 
 the New York Tribune of Nov. 9, 1871, and which the present managers 
 of that paper will not, in response to any amount of persuasion, reproduce, 
 but the existence of which they have frequently denied: 
 
13 
 
 “ HOW TO REDUCE THE INTEREST ON THE NATIONAL DEBT. 
 
 “Mr. Boutwell’s plan of funding the national debt has had a pretty 
 fair trial. True, the times have been adverse, but we have generally 
 found them so when we needed to borrow money. 
 
 “The sum and substance of the Secretary’s success is the funding of 
 $200,000,000 at five per cent, on the payment of a bonus of i ]/ 2 per cent, 
 to the syndicate of foreign bankers who have agreed to take the loan. 
 We would not disparage this achievement, for we regard it as decidedly 
 better than nothing. Add to the interest ($3,000,000) $1,000,000 more 
 for the aggregate cost of printing the new bonds, advertising, explaining 
 and commending the loan, and the entire cost of funding the $200,000,- 
 000 at 5 per cent, for ten years, is $4,000,000. It seems to us that this 
 does not justify a hope that our $1,500,000,000 of instantly or presently 
 redeemable sixes can be promptly funded even at 5 per cent. 
 
 “ Having given to the Secretary’s efforts a hearty support throughout, 
 we urge that a radically different plan may next have as fair a trial. Be¬ 
 fore we send another bond abroad to be hawked from banking house to 
 banking house throughout Europe, we ask the Government to try—-just 
 earnestly to try—to fund the bulk of our debt at home. We could not 
 have sold our bonds during the dark hours of our civil war to Europe at 
 any price, no matter how ruinous, if we had not first shown our faith in 
 them by taking hundreds of millions of them ourselves. So now, having 
 seen how reluctantly they take our reissues at 5 per cent., with discount, 
 let us show them that we stand ready to take a larger amount at a lower 
 rate of interest at par. Here is the gist of our proposition. 
 
 “Let Congress make our greenbacks fundable, at the pleasure of the 
 holder, in bonds of $100, $1000 and $10,000, drawing interest at the rate 
 of one cent per day on each $100 (or 3.65 per annum), and exchangeable 
 into greenbacks at the pleasure of the holder. Now authorize the Treas¬ 
 ury to purchase and extinguish our outstanding bonds so fast as it is sup¬ 
 plied with the means of so doing by receipts for customs or otherwise, and 
 to issue new greenbacks whenever larger amounts shall be required, every 
 one being fundable in sums of $100, $1000 or $10,000, as aforesaid, at 
 the pleasure of the holder, in bonds drawing an annual interest of 3.65 in 
 coin per annum, and these bonds exchangeable into greenbacks whenever 
 a holder shall desire it. 
 
 “ The benefits of this system would be these : 
 
 “ 1. Our greenbacks, which are now virtual falsehoods, would be truths. 
 The Government would pay them on demand in bonds as aforesaid, which 
 is in substantial accordance with the plan on which the greenbacks were 
 first authorized. 
 
 “2. Every person having greenbacks for which he had no present need 
 would present them at some sub-treasury and exchange them at par for 
 these bonds. Suppose he has $10,000, which he expects to use a month 
 hence, he can make them earn him $30 meantime, without incurring the 
 smallest danger of loss by bank failures or otherwise, and with a positive 
 certainty that the money would be ready for him whenever he chose to 
 take it. 
 
 “ 3. A merchant leaves New York with $1,000,000, which he proposes 
 to invest in wheat at the West or in cotton at the South. He calls at our 
 sub-treasury, exchanges his greenbacks for these bonds, and takes or 
 sends these to Chicago, Saint Paul, New Orleans or Galveston, to be ex- 
 
14 
 
 changed for use when needed. After looking about for a month, he buys 
 half the produce he originally intended, converts half his bonds into 
 greenbacks, receives $50 per day, or $1500 in all, as interest, and makes 
 his payments. After traveling and looking about for another month, he 
 invests the remainder of his capital, receives $3000 as interest thereon 
 for the two months he has held the last half million of bonds, and lays his 
 course homeward. His bonds may have lain nearly all the time he owned 
 them in the vaults of some bank; but they were earning money, not for 
 that bank but for him. 
 
 “4. Our greenbacks, no longer false, but convertible at pleasure into 
 bonds bearing a moderate gold interest, and exchangeable as aforesaid, 
 could not fail to appreciate steadily until they nearly reached the level of 
 gold. Indeed, they would, unless issued too profusely, be really better 
 than gold. Drawing a higher rate of interest than British consols, and 
 convertible at pleasure, as these are not, they would in time obtain cur¬ 
 rency even in the Old World. 
 
 “5. The trouble so inveterately borrowed by thousands with respect 
 to over-issues, redundant currency, etc., would (or at least should) be 
 hereby dispelled. If there were at any time an excess of currency, it 
 would tend to precipitate itself into the bonds aforesaid. If there should 
 ever be a scarcity of currency, bonds would be exchanged at the Treasury 
 for greenbacks till the want was fully supplied. Black Fridays and the 
 locking up of greenbacks would soon be numbered with lost arts and hob¬ 
 goblin terrors. 
 
 “ 6. Though the demand for these bonds might for months be moder¬ 
 ate, their convenience and manifest utility would soon diffuse their popu¬ 
 larity and stimulate an ever-widening demand for them. They would be 
 a favorite investment with guardians and trustees who should expect to be 
 required to pay over the funds held by them at an early day, whether 
 fixed or uncertain. They would say, though I might invest or deposit 
 these funds where they would command a higher interest, I choose to 
 place them where I know they will be safe and at hand when called for. 
 
 “7. Ultimately, we believe they would become so popular that hun¬ 
 dreds of millions of them would be absorbed at or very near the par of 
 specie, and that with the proceeds an equal amount of our outstanding 
 sixes might be redeemed and canceled, without advertising for loans or 
 paying bankers to shin for us throughout Europe. The interest thus saved 
 to our country would be an important item. 
 
 “Such are the rude outlines of a plan which we did not originate, but 
 which we heartily endorse. Why not give it a trial? We should dearly 
 like to inform Europe that, since she seems not to want any more of our 
 bonds at 5 per cent., we have concluded to take the balance ourselves 
 at 3 2 A” 
 
 To the Editor of the Iron Age —Dear Sir: The number of letters of 
 inquiry and suggestion I have received from your readers since you were 
 kind enough to lay before them my paper on “The Authors and Causes 
 of the Financial Depression,” is my justification for appealing to you for 
 the privilege of again communicating with them. Surprise is expressed 
 by one of your readers that the support of a measure which had been so 
 earnestly approved by Secretary Chase and Horace Greeley should have 
 
15 
 
 caused papers like the New York Tribune , the paper Mr. Greeley founded, 
 its namesake of Chicago, and the Cincinnati Commercial to brand me as a 
 lunatic and to make me the object of almost universal derision and carica¬ 
 ture, as they had done. 
 
 In common with your readers you will probably be surprised to learn 
 that Secretary Sherman, then Senator from Ohio, was among the earliest 
 and ablest advocates of the convertible bond theory, and as he thus held 
 views more in accordance with the then prevalent financial opinions than 
 those of the late William Pitt Fessenden, was made to displace that dis¬ 
 tinguished gentleman from the chairmanship of the Finance Committee 
 of die Senate. Senator Sherman in supporting the measure appealed, as 
 you will see by the following extract from his speech of February 27, 
 1868, to right and duty as well as to expediency : 
 
 “I desire now to make a few observations in regard to the sections of 
 the bill relating to the United States notes, and these I consider as vitally 
 important. We propose to restore to the United States note the right to 
 be funded at the pleasure of the holder into the new bonds whenever he 
 desires. There is more ground of discontent and more real discontent 
 among the people of this country because of the discrimination made be¬ 
 tween the bondholder and the holder of the greenback than from any 
 other cause. You compel every citizen of this country to take the green¬ 
 back as money, willing or unwilling. It is the measure of the value of 
 his labor, and yet it has no purchasable power except the hope that in 
 some future time the United States will redeem it. It may be forced 
 upon another man in payment of a debt; it may be applied to pay taxes, 
 but it cannot be converted into income except at a discount. 
 
 “A man cannot take United States notes payable on demand to any 
 broker and receive in exchange any form of security issued by the 
 United States. There is a wide discrimination made between the bond¬ 
 holder and the noteholder, which gives rise to popular clamor and is the 
 cause of a great deal of just complaint. In 1863 we were compelled for 
 wise purposes to take away the right of the holder of the greenback to 
 fund it, because we wished then to force our loans upon the market, and 
 while that right was outstanding we could not do it. Now that the war 
 is over, that the whole process of funding is intended to be voluntary at 
 the discretion of the noteholder, we ought promptly to restore this right 
 to allow the note to be converted at any time into some kind of bond; 
 and we propose, also, to allow the bond to be converted into notes, keep¬ 
 ing within the limits of notes fixed by law. Then there is no discrimina¬ 
 tion ; the bondholder and the noteholder are both public creditors; both 
 depend upon the public faith. The noteholder may go to the treasury of 
 the United States and demand his bond ; the bondholder may go also and 
 demand his note. They are put on a basis of equality. This destroys all 
 speculation in government securities. Both will then stand on the same 
 footing, and both will be of equal value. The noteholder may, at his 
 option, draw interest in gold by converting it into bonds; and the popu¬ 
 lar cry of demagogues, that we have provided gold for the bondholder 
 and notes for the people, will be silent. 
 
 “And, sir, there is no reason why the note issued to the laboring man 
 
16 
 
 should be less valuable than any other form of government security. It 
 makes one of those salient points before a popular audience just and cor¬ 
 rect, which is the cause of complaint, and will be until it is removed. An 
 important effect of this provision will be to furnish money to redeem the 
 bonds or any other securities that offer, and without resorting to a sale of 
 bonds. I do not propose, nor do the committee contemplate, the issue of 
 any new greenbacks. We propose that the process of funding these notes 
 they pouring into the treasury, will furnish ample means to redeem all the 
 outstanding bonds and securities as they be'come redeemable. I have no 
 doubt the same process will go on here that occurred in Europe—a very 
 small amount of money will pay a large amount of bonds. The mass of 
 the bonds will be exchanged without money. The transactions paid by 
 money, compared with the transactions paid by checks and other forms of 
 paper, are as one to a thousand. The daily balances in the exchanges in 
 the New York clearing house amount to many millions, and yet the amount 
 of currency to pay these balances is often less than one per cent, of their 
 nominal amount. Other reasons may be given for the new feature of 
 this bill, giving the holder of these bonds the right to convert them into 
 notes. This is indispensably necessary to guard against sudden contrac¬ 
 tion and panic. There are times when the notes will float into bonds so 
 rapidly as to contract the currency, and thus derange business and pre¬ 
 vent the movement of crops. This privilege will give flexibility and 
 movement to the currency of the country. Every exchange will be 
 a benefit to the country. If the holder of a government security bear¬ 
 ing interest surrenders it to the Treasury for a note without interest the 
 United States saves the interest. If, on the contrary, the notes are 
 funded for a bond, the notes may be used in the redemption of other 
 bonds bearing a higher rate of interest. If the money market becomes 
 stringent, if currency becomes scarce, the holder may be willing to sur¬ 
 render his bond, bearing five per cent, interest in gold, in order to get 
 currency with which to pay his debts, and why not give him that priv- 
 1 i 1S a benefit t° tbe United States, and it is the only mode by 
 which, during the suspension of specie payments, we may make a flexible 
 currency. 
 
 tt • A n i thi l loan wdl be tbe g reat sav ihg fund of the people of the 
 
 United States. Every man having money for a time idle will float it into 
 these ten-forty bonds, and while we have the money we shall pay off 
 bonds having a higher rate of interest. When he desires it again he can 
 come back and get the bond, and so this operation may be carried on with 
 per ect safety. Now the deposits in the savings banks amount to over 
 
 Tr^A°v> 0 °?vu W J? ,?° uld , not this mone y be de Posited in the 
 treasury? Why should not these little streams of the savings of the 
 
 T a jn?£d g cAf n hC P i t0 fl ° at r he pubHc credit? The government of the 
 Jf s ,rh ? f eS i° U ^ nott ,? 1 feel t0 ° hi g h to acknowledge the services 
 to "A , a AA , T hey "7 11 be usefub They will enable the depositor 
 where he <251 7 ^ ° f A m ° ney ‘ Now he de POsits in savings banks 
 5? ® he ? ets , four or fi ve per cent, interest in paper money. Under 
 
 thus P d r enn S X n H he ir y A money in these bonds > and the money 
 1 hteheTSeV- enab \ the government to pay off bonds bearing 
 sition h nffer f e f , In every view we COlll d take of this propo- 
 thouahtb L« he amp . le consid eration, we (the Finance Committee) 
 thought it was a wise provision, and would work well. The trouble and 
 
17 
 
 cost of printing these bonds and exchanging them one for another, 
 being carried on at the Treasury Department or at the depositories or 
 other proper places of exchange, will be done without cost, except that; 
 of printing. It is purely voluntary, and will be adapted to the wants of 
 trade. It will tend to give increased value to the United States notes, 
 and my firm conviction is that under the process both notes and bonds 
 will gradually rise, step by step, until they reach the standard of gold, 
 and then the whole process ceases, according to the provisions of the bill. 
 I look upon this provision as the most rapid way to specie payments.” 
 
 These were not casual or hasty utterances. They were made in the 
 course of a two hours’ speech in support of a bill the speaker had reported 
 from the Committee on Finance; and, inasmuch as Mr. Sherman was in¬ 
 terrupted with questions (not, however in this part of the speech), it was 
 withheld for several days for revision, and appears in the appendix to 
 the Congressional Globe , second session, Fortieth Congress, pages 187 
 and 188. 
 
 Are the American people ready to believe that Chase and Greeley in 
 the very prime of their intellectual vigor were lunatics, and that he who 
 now administers with such terribly destructive power the finances of this 
 government had, before the opening of 1868, been bereft of reason ? Or, 
 in deference to the memories of the great dead, and respect to the most 
 potent citizen of the Republic, will they cease to brand the humble dis¬ 
 ciple of these men as one fit for a ‘‘straight jacket,” and one who re¬ 
 quires “bladders of ice about his fevered temples” when Ire travels? 
 Should the organs of the contractionists, who have treated me with such 
 want of candor, in this connection invite attention to the fact that Senator 
 Sherman spoke of gold interest, those who have heard me speak on the 
 subject or read my writings, will bear witness that I have always said if it 
 were deemed preferable to make the interest payable in gold, so be it; 
 but as my object was to diminish the difference between our paper and 
 gold, I preferred to add a new use to the paper dollar, and withdraw one 
 from the commodity which had long since ceased to circulate as money 
 in our country. Hoping you will pardon this liberty, I remain, 
 
 Yours, very truly, William D. Kelley. 
 
 FRENCH FINANCE. 
 
 [A letter to the Philadelphia Times.'] 
 
 To the Editor of The Times : 
 
 In grateful compliance with your request I avail myself of the earliest 
 leisure to reply more precisely than I could without reference to official 
 papers to your questions as to the causes of the wonderful power of 
 France as shown in her payment, in anticipation of the time named by 
 
18 
 
 her conqueror, of the enormous war fine inflicted upon her, and the 
 maintenance of the industries of the people during the war and the suc¬ 
 ceeding interval, which has been one of such terrible financial depression 
 to Germany, the recipient of the fine, and to Great Britain and the 
 United States. 
 
 Any discussion of French finance would be delusive which did not 
 keep steadily in view the fact that under all changes of dynasty and forms 
 of government since the days of Colbert, the labor of France has been 
 protected by the most elaborate and ingenious tariff and system of prohi¬ 
 bitions ever devised, and that, until the making of the first commercial 
 treaty with England in i860, the importation of immense numbers of 
 articles of foreign manufacture was prohibited, and that many of the 
 prohibitions which were until then applicable to all countries still exist in 
 her general tariff, which regulates importations from non-treaty nations. 
 Thus the importation of American cutlery is prohibited by the law of 
 December, 1796, which has not been disturbed during the long interim; 
 and while our raw cotton is admitted free as material for manufacture, 
 our cotton yams and fabrics are excluded by a prohibition established in 
 1809. 
 
 Another primary fact in this connection must also be remembered— 
 the patronage of art by the French government. The diffusion of a love 
 of art and the knowledge of its laws among the producing classes secures 
 a maket for French fabrics and wares when the home and foreign markets 
 of other nations are shrinking, as those of Germany, England and the 
 United States now are, and have been for the last three years. While 
 these suffering nations offer substantial commodities, heavy cottons, 
 weighty woolen goods, etc., France commands markets for her lighter 
 commodities by the genius, taste and skill with which a smaller amount 
 of material is wrought into equal superficial quantities and so embellished 
 as to commend them to the admiration of the world. This blending of 
 art with utility not only secures to France universal markets, but 
 enables her to send imponderable things, such as genius, taste, art and 
 skill, which may be carried to the most distant commercial countries 
 without such freight charges as burden the heavier goods produced else¬ 
 where. Thus much as an essential preliminary. 
 
 THE BASIS OF FRENCH FINANCE. 
 
 The distinguishing characteristic of the financial policy of the French 
 government is found in the fact that it assumes the duty of preventing 
 alternate periods of inflation and their inevitable consequent contraction, 
 and that to accomplish this end, whenever war or other exigency has 
 caused an issue of irredeemable paper, it has invested such issue with the 
 character of legal tender—made it available for all purposes to which 
 
19 
 
 money coulcl be applied in France, whether the transactions were be¬ 
 tween citizens or between citizens and the government or vice versa— 
 and has taken measures to prevent the withdrawal of the paper until a 
 continuous balance of trade has brought into the country metallic money 
 enough to supply the channels temporarily filled by the paper money with 
 which the exigency had been met. Colbert taught the French people, 
 and Napoleon emphasized the lessons of Colbert, that it is labor that 
 supports government and society, and that to arrest the employment of 
 productive industry is to impoverish the public treasury and produce dis¬ 
 content and possible disorder among the people. And I hesitate not to 
 say that had this lesson been borne in mind by our government—had our 
 paper money been, as the House of Representatives when providing for 
 the issue of the greenback insisted that it should be—received by the gov¬ 
 ernment in payment of all dues, and had there been no attempt to retire 
 any part of the paper which had been invested with the character of 
 legal tender until a metallic substitute had been purchased by the export 
 of our surplus commodities, we should never have been without the free 
 use of gold and silver at a rate of premium no greater than that which 
 has prevailed in France, where it never exceeded two and a-half per 
 cent., and that but for a brief period ; and that the question of the re¬ 
 sumption of specie payments would have been one of as little consequence 
 to the American people as it is now to the French people, who use gold, 
 silver and irredeemable bank notes interchangeably. Indeed, it is a fact 
 that, while the government will not permit the bank to close the opera¬ 
 tion by which its notes were made legal tender, the bank will not, with¬ 
 out a compensatory premium, receive any considerable amount of gold 
 or silver in exchange for its notes, because it holds an excess of bullion, 
 and there is a tax of $1.50 on $1,000 on its circulation. We pay our 
 banks 4, 4)^, 5 and 6 per cent, for issuing notes which the government 
 furnishes them. France, even in the greatest of her exigencies, main¬ 
 tains her power over the money of the country by demanding a slight 
 tax upon circulation whenever she authorizes the bank to issue notes irre¬ 
 deemable, as our national bank notes are, and pays the bank but 1 per 
 cent, on the amount of such notes loaned it when first issued. 
 
 Great Britain and the United States adopt another and opposite finan¬ 
 cial policy. They restrict the volume of legal tender money to the nar¬ 
 rowest possible limits available as a basis for bank circulation, and compel 
 the enterprising and producing' classes to pay tribute to capitalists, 
 foreign or native, for credit upon which to conduct their undertakings. 
 France seeks to give the whole people money; we, following 4 he exam¬ 
 ple of England, seek to compel them to use credit, or currency obtained 
 through banks at such rates of discount as may prevail. 
 
20 
 
 THE GERMAN SYSTEM. 
 
 Germany, prior to the war, was as free from commercial and financial 
 crises as France had been. Her financial system was kindred to that of 
 France. Her circulation consisted of silver money and bank notes. 
 The great volume of paper met with in circulation was notes of small 
 denominations, many of them for less than American money. But 
 after the war she discarded both silver and small bank notes, ordained 
 a gold currency, established the Imperial Bank, and prohibited the issue 
 of any bank note for less than the equivalent of ^5 or £25; and the 
 mere attempt, ineffectual as yet, to carry out this scheme, has reduced 
 both government and people to a condition contrasting painfully with 
 that which they exhibited for years before this mad experiment was un¬ 
 dertaken. I now proceed to exhibit some of the facts from which these 
 conclusions have been deduced. 
 
 FRENCH PRECEDENTS. 
 
 After the French Revolution of 1848, on the night of the 15th of 
 March, the Republic, by decree, made the notes of the Bank of France 
 a legal tender, limiting the issue to 350,000,000 francs, and reducing 
 the denomination of the smallest notes to 100 francs, or $20. One of the 
 great difficulties mentioned in the official report of the transaction and 
 its effects, was to print these 100-franc notes fast enough for the public 
 consumption, though in ten days the amount issued in this form had 
 reached 80,000,000 francs; and in a very able article in the London 
 Times on the 16th of February, 1849, a writer for that paper, which 
 one year before had deprecated the decree as visionary and one that 
 must inevitably lead to the destruction of the commerce and industries 
 of France, said: 
 
 “ M. D’Argout resolved to make every effort to keep alive what may 
 be termed the circulation of the life blood of the community. Money 
 was to be found to meet not only the demands on the bank, but 
 the necessities, both public and private, of every rank in society. It 
 was essential to enable the manufacturers to work, lest their workmen, 
 driven to desperation, should fling themselves among the most violent 
 enemies of public order. It was essential to provide money for the food 
 of Paris, for the pay of the troops, and for the daily support of the 
 ateliers nationaux. A failure on any one point would have led to a 
 fresh convulsion.” 
 
 As illustrative of the truth that it is labor and not coin that maintains 
 society and governments, I cite another brief passage from the article in 
 the Times: 
 
 “No sooner was the bank relieved from the necessity of paying away 
 the remnant of its coin,.than it made every exertion to increase its 
 metallic rest. About forty millions of silver were purchased abroad at a 
 high price. More than one hundred millions were made over in dollars 
 to the Treasury and Executive Departments in Paris. In all, taking into 
 account the branch banks, five hundred and six millions of five-franc 
 
21 
 
 pieces have been thrown by the bank into the country since March, and 
 currency was thus supplied to all the channels of the social system.” 
 
 Had the government refused, as ours did, to receive the notes which it 
 had made legal tender among the people, gold and silver would have 
 gone to such a premium that the bank, instead of buying specie, would 
 have sold it, as our banks did, whereby some of them were enabled to 
 declare dividends of one hundred per cent.; but as paper, silver and gold 
 were at par with each other, the bank could buy bills of exchange on 
 foreign countries from French merchants, and thus procure the specie 
 with which it should soon resume cash payments. 
 
 But the recent experience of France, as to which you more particularly 
 invited an expression of my views, is even more striking than the fore¬ 
 going. 
 
 The war between France and Germany was declared July 19, 1870, 
 and was terminated by the treaty of May 10, 1871. In April, 1870, the 
 circulation of the Bank of France was $288,750,000, and it held of spe¬ 
 cie and bullion $261,550,000. In August the government required it to 
 suspend specie payments, and by the same decree made its notes a legal 
 tender. The first statement published after peace had been restored 
 showed a circulation of $442,000,000, with $110,000,000 of specie. In 
 consideration of the suspension of specie payments and the use of its 
 notes as legal tender, the bank loaned the government $306,000,000, at 
 one per cent, interest, and agreed to pay the tax above referred to on its 
 entire circulation. When, in August, 1870, the French armies had been 
 defeated, and consternation had seized upon the people of Paris, the 
 Bank of France and the other credit institutions of that city entered into 
 co-operation, and determined as a matter absolutely necessary to the 
 maintenance of society to make liberal advances to the people, and 
 within a fortnight, advanced 180,000,000 francs, ($36,000,000), and 
 it is a matter of history that not a single failure of moment took place 
 in France pending the use and liquidation of these loans. If you ask 
 to whom these immense advances were made, I answer in the language 
 of the late Thomas Balch, Esq., whose long residence in Paris made 
 him familiar with the financial magnates of Europe, and as communi¬ 
 cated to J. W. Schuckers, Esq.: 
 
 “To merchants, manufacturers, shopkeepers, artisans and mechanics; 
 to any citizens, indeed, whose books showed that their business during 
 a sufficiently long period had been fairly prosperous, and whose industry 
 and integrity were established, and of course much importance was at¬ 
 tached to this latter fact. Many of the advances to artisans and me¬ 
 chanics were made without indorsement or collateral at all; on no other 
 security, indeed, than a fair business and an honest name. The effects 
 of this extraordinary operation were of commensurate public importance. 
 In the midst of the most frightful and accumulated military and political 
 calamities, in the gradual environment of the French capital by the Ger¬ 
 man hosts, the trade and labor of France were preserved and even stim- 
 
22 
 
 ulated; and it was altogether owing to this patriotic and most sagacious 
 audacity that, in a period of special and terrible trial, no noteworthy 
 commercial or industrial failure occurred, and that France was afterward 
 enabled to provide for the payment, without serious difficulty, of an in¬ 
 demnity intended permanently to crush her, and which excited by its 
 magnitude the astonishment of the whole world. ” 
 
 The decree of legal tender (cours force) fixed the maximum of the issue 
 of the bank at $480,000,000. It was, however, increased by the law of 
 December 29, 1871, to $560,000,000, and finally by the law of July 15, 
 1872, to $640,000,000. What effect had the issue of this vast amount 
 of paper money on the premium on gold ? Did it, in accordance with 
 the theory of Secretary Sherman and the British economists our free¬ 
 traders and bullionists so delight to honor, expel the precious metals from 
 France? Or did it show that their wisdom is folly, and that their so- 
 called science, which John Stuart Mill, truly said was “ a science based 
 on assumptions,” is no science at all, but a mere mesh-work of human 
 reason based on false and delusive assumptions ? Fortunately the facts 
 of history speak on this point with no uncertain sound. 
 
 In November, 1871, when a large payment on account of the war fine 
 (which, as you know, amounted, with interest and charges, to $1,100,- 
 000,000, in addition to the transfer to Germany of the magnificent 
 provinces of Alsace and Lorraine and their wealthy and industrious 
 people) was due, the premium on gold rose to its highest point, 2)4 per 
 cent., at which, to the French people, exorbitant rate it remained for 
 but a few days; and when the irredeemable circulation had subsequently 
 been increased from $460,000,000 to $490,000,000 the premium fell to 1 
 per cent.; and in October, 1873, when the volume of notes had actually 
 reached $614,000,000, the premium was merely nominal, and was only 
 demanded on large sums. Legal tender, gold, silver and paper money, 
 were then circulating in common and at par with each other. As I 
 have said, the war fine amounted to $1,100,000,000. The total cost of 
 the war to France has been officially estimated at $2,000,000,000, and 
 the direct loss to agriculture at $800,000,000; yet the last payment on 
 account of the war fine was made on the 5th of September, 1873, or i n 
 two years and four months after the conclusion of the treaty of peace. 
 Does history present any such striking illustration as this of the harmony 
 of the interests of a State and its people ? The advance of the banks to 
 the manufacturers in August, 1870, enabled them to maintain their in¬ 
 dustries, and by paying living wages to place the whole people in a po¬ 
 sition to not only respond to the demands of the government for taxes, 
 but to meet its call for two loans, one for $550,000,000 and the other 
 for $827,000,000, the tenders in response to the latter call amounting to 
 the fabulous sum of $8,600,000,000, or four times the amount of the na¬ 
 tional debt of the United States. 
 
23 
 
 THE TRANSFER OF BULLION. 
 
 But omitting many facts that would be pregnant and instructive, I 
 must, ii} view of your limitation as to space, hasten to a conclusion. 
 The German Empire entered upon what may prove to be a fatal experi¬ 
 ment when, under the mistaken notion that she was to receive the bullion 
 then held by France with that which she might earn in the time stipulated 
 for the payment of the fine, she determined to establish a gold currency, 
 demonetize silver, and to exclude small notes from circulation. The 
 highest estimate I have seen anywhere of the loss of the precious metals 
 by France in the payment of the war fine is $240,000,000, but that this 
 estimate is excessive is shown by French and other official figures. The 
 French Government shipped $100,000,000 of specie and bullion directly 
 to the German Government. Yet the tables of the two countries, and 
 they are confirmed by the British tables of exports and imports of specie, 
 show that France lost from her intercourse with Germany, from January 
 1, 1871, to December 31, 1874, but $140,000,000 in gold and silver. 
 
 This is the statement of M. Leon Say, made during the time he was 
 Finance Minister, which he continued to be till MacMahon changed his 
 Cabinet. Great Britain took temporarily some of the French rentes, as 
 she has during the present depression taken our 5, 4j£ and 4 per cent, 
 bonds, to be held as certificates of deposit on call. Between January 
 1, 1871, and December 31, 1874, the dates just referred to, she sent 
 $110,000,000 more of gold and silver to Germany than she drew from 
 her. Assuming, which there is no good reason for doing, that all this 
 went on French account, and it appears that Germany received but 
 $250,000,000 of cash from France in payment thereof. The truth is 
 that France being, for the reasons stated in my introductory remarks, the 
 creditor of all commercial nations, paid Germany in bills drawn against 
 foreign debtors by the French people, or, in other words, Germany was 
 paid in foreign merchandise, the imports of which in excess of exports, 
 from January 1, 1870, to December 31, 1874, having been, according to 
 the Bavarian Vaterland , $1,132,000,000. Many of the earliest of these 
 bills were drawn against German merchants and bankers, and served to 
 transfer money which had been in circulation in Germany to the Im¬ 
 perial Treasury, and thus withdraw it from commercial use. Thus the 
 industrial and financial sagacity of the French Government enabled 
 France to revenge herself upon Germany by the methods with which it 
 settled the unconscionable war fine imposed upon her. 
 
 AN INSTRUCTIVE STUDY. 
 
 The legal and actual condition of the Bank of France at this time fur¬ 
 nishes an instructive study for those of our statesmen who are endeavor¬ 
 ing to bring about a resumption of specie payments by so contracting our 
 legal tender paper as to further reduce the price of wages and commodi¬ 
 ties, which are already below hard-pan, or the prices which ruled in the 
 days of 1859-60, when our bank paper was supposed to be convertible into 
 specie on demand. The Bank of France is burdened with an excess of 
 gold, in addition to which, it is said, she holds $100,000,000 of silver, 
 
24 
 
 which, like gold and paper, is legal tender; yet the law will not permit 
 her to resume specie payments until January i, 1878. She does now, 
 and has for nearly two years, paid in gold or silver sums of 1,000 francs 
 or less, and, to escape the tax on circulation, would have resumed more 
 than a year ago had the government consented. As this statement may 
 seem incredible to those who are not familiar with the facts, it may be 
 well to state that the latest returns of specie held, and they are but three 
 weeks old, coming down to August 30, show that the Bank of England 
 holds $125,146,000, the Bank of Germany $133,845,000, the Bank of 
 France $442,483,000. Thus it appears that, allowing $100,000,000 of 
 the bullion in the Bank of France # to consist of silver, and assuming, what 
 is very far from the fact, that none of the bullion in the banks of England 
 and Germany is silver, it is shown that the Bank of France has, by the 
 aid of irredeemable paper, by which the industries of France were kept 
 active, accumulated nearly $100,000,000 of gold more than the united 
 stock of the banks of England and Germany. 
 
 Writing in July, 1873. in the Revue des Deux Mondes, M. Victor Bonnet estimated 
 
 the metallic circulation of France at.$1,200,000,000 
 
 From Jan. 1, 1874, to June 30, 1877,-France gained by import, specie 
 
 and bullion to the amount of. 485,000,000 
 
 August 30, 1877, the circulation of the Bank of France was. 490,000,000 
 
 Giving a total circulation of.$2,175,000,000 
 
 Population of France, 36,000,000. The population of the United 
 States being now over 47,000,000, this is equivalent to a circulation of 
 $2,840,000,000 for this country. But it has been claimed that France 
 has pursued the same policy of contraction as that of our Treasury De¬ 
 partment. This is not the case. The bank is desirous of reducing its 
 circulation by reason of the tax, and it has retired its smaller notes, in 
 the place of which it gives specie; but has since increased the circulation 
 of those of larger denominations, and it charges a premium for exchang¬ 
 ing notes for bullion. Otherwise its operations are purely the result 
 of its legitimate business with the public and the State, and the circu¬ 
 lation contracts or expands day by day and week by week as may be 
 necessary.* While between October, 1873, and August 30,1877, its cir¬ 
 culation had been decreased $124,000,000, an addition of specie and 
 bullion outside the vaults of the bank had been made of $188,000,000, 
 thus adding $64,000,000 to the money in the hands of the people, over 
 and above that at the time of the largest circulation reached by the bank. 
 In other words, the bank has not taken its notes from the people without 
 giving thetn an equal or a larger amount of specie instead. 
 
 In view of these facts may not the stricken people of the United States 
 wisely order a halt in the work of contraction, and, following the exam¬ 
 ple of France, demand the repeal of the resumption act, the remoneti¬ 
 zation of silver, and the maintenance of the existing volume of our legal 
 tender paper money, which measures will enable them to go to work at 
 honest wages, and to earn the gold and silver with which, in due time, 
 we can, if desirable, resume specie payments? 
 
 Yours very truly, .Villiam D. Kelley. 
 
 West Philadelphia, Sept. 22, 1877. 
 
 * Note, Oct. 29, 1877. For instance, while the circulation of the Bank, Aug. 30,1877, was but $490,- 
 000,000, Oct. 4, 1877, it was $493,000,000. In Sept., 1875, it was but $469,000,000.