* VIE W S OF J. W. SCHI7CKEBS, ESQ. OF PHILADELPHIA, RESUMPTION OF SPECIE PAYMENTS. DELIVERED TO THE COMMITTEE OF THE HOUSE OF REPRESENTATIVES ON BANKING AND CURRENCY, JUNE 5, 1878. WASHINGTON: GOVERNMENT PRINTING OFFICE. 1878 . f5eX'^AA,^\ 187 SA Sdk~18 VIEWS OF MR. J. W. SCHUCKERS. Washington, D. C., June a, 1878. Mr. Ewing. We are informed that you were private secretary to Mr. Chase while he was Secretary of the Treasury. Mr. Schuckers. I held a confidential position under Mr. Chase during nearly the whole of his administration of the affairs of the Treasury Department, and for a considerable part of the time was his private secretary, as well as when he was Chief Justice. Mr. Ewing. I suppose you have given a good deal of study and at¬ tention to the currency question ? Mr. Schuckers. Yes, sir; I have. Mr. Ewing. Particularly with reference to resumption of specie pay¬ ments? Mr. Schuckers. Yes, sir; specially with reference to the question of resumption. Mr. Ewing. Will you please state whether, in your judgment, it is practicable and consistent with the public welfare to resume specie pay¬ ments on the 1st of January next, according to Mr. Sherman’s proposed plans? Mr. Schuckers. In my judgment it is not consistent with the public welfare to resume specie payments on the 1st of January next, nor at any other time; and I see no reason for believing that Mr. Sherman can establish a successful system of specie payments, as he says he can do eight mouths hence. Air. Ewing. The premium on gold is down to one-fourth and three- eighths of 1 per cent. Air. Schuckers. Yes; gold has fallen. But the decline in the price of gold is due to progressive prostration of the industries and commerce of the country under the surgery of the resumption act, and to “rigging” of the exchange-market by the bank-syndicate. This method of de¬ pressing the price of gold is not new. Air. Chase tried it during the early part of the war. It produced temporary effects, and was a good thing for bankers and importers, but was a poor thing for the Treasury, and was abandoned. Air. Sherman and the syndicate will abandon it also. My belief is that it will be found a good deal more difficult to get rid of the present apparently nominal premium of one-half to one per cent, than it was to reduce the premium from 8 or 10 per cent, down to 1. The season of the year at which Air. Sherman will begin operations will be favorable to him, but I feel assured that he cannot bring gold and paper to an actual par between this time and the 1st of January next. Besides, a nominal par does not constitute specie payments. 4 Mr. Ewing. You say that you do not believe it consistent with the public welfare to resume specie payments on the 1st of Jauuary next, nor at any other time. Will you please explain this ? Mr. Schuckers. In my judgment the public welfare lies in exactly the opposite direction. I think it of the greatest possible importance that the country shall be permanently relieved of the despotism of the bank-paper or semi metallic system. I am aware that this is not an orthodox New York or New England or Old Eugland view, and that I am likely to be referred to our continental bills of credit and the French assignats as dreadful examples of the evils of inconvertible paper notes. The bills of credit and the assignats seem to constitute the entire stock in trade of the resumptionists. I have read a good deal about both, and am willing to allow that many hardships attended upon their use; but can’t see how the American colonists could have got along without the bills, nor has the possibility of so doing been pointed out by any¬ body. The Revolution would have failed before the end of the first year of the war except for their use, and the French never could have made their revolution successful, nor prevented themselves from passing under the dominion of foreigners, but for the assignats. Both the bills and the assignats were the inexorable necessity of people struggling for freedom, and they wrought immense services. The revolutionary war was sustained for five years by the bills. There was little or no specie in the country; the Continental Congress had no power to tax, and all they could do was to print bills, which they did; and I think rightly. Mr. Breck says specie was so scarce, that in the two years 1777 and 1778 the whole amount of metal disbursed by Congress was less than $157,000; a sum, he says, which in gold would weigh 700 pounds, and might have been put in a wheelbarrow; and it was used by the com¬ missaries of prisoners in places where the bills would not pass, that is, in places in possession of the British. Bad as the bills were, they were far better than no money at all. But I am sure that the mischiefs wrought by them bear no sort of proportion to the mischiefs wrought since by paper notes professedly convertible into specie on demand. It seems to be forgotten or unobserved that although our national life under the Federal Constitution began only eighty-nine years ago, we have spent nearly thirty of them in the use of inconvertible paper money, and that thirteen of the thirty have been spent in operations for bringing the people down to what in the resumption slang is called “rock bottom.” There are more people out of employment in the coun¬ try at this hour and in actual want, as a consequence of operations under the resumption law, than there were inhabitants in the whole thirteen colonies during the war of the Revolution. I may add, too, that the operations of the last three and a half years for “hard-pan” (which is another of the truly-elevating watch-words of the resumption¬ ists) have wrought more injustice and suffering than resulted from all the monetary disorders of the country during the rebellion and up to 1875. The convertible system is one that can stand no severe strain. Adam Smith said a hundred years ago that a nation might as well go to war with paper guns as with paper money, but experience shows that a resort to inconvertible paper is the one fundamental fact of modern war. The convertible system always collapses in war; then the inconvertible system is resorted to; then, when the war is over, the people are forced into the hardships and losses attending upon a restoration of the me¬ tallic standard; and after it is restored we are no better off than we were belore. We suffer as great fluctuations in prices, speculation is as rife, and commercial convulsion as frequent and severe, if not more frequent 5 and more severe, than under the paper system. Besides which, we have seen that system explode three times in this country in time of peace; and, what is remarkable, the more brilliant and promising the outlook, the more imminent was the danger of collapse or explosion. The Chairman. But has not the system operated well in Great Britain ? Mr. Schuckers. The convertibility of the paper-notes has been bet¬ ter sustained in Great Britain than in the United States, but in other respects the metallic system has been no better than in this country; and there is the distinguished authority of Lord Overstone for saying that the Bank of England between 1825 arid 1844 was three or four times on the verge of suspension, and saved herself by producing an extra¬ ordinary and destructive pressure on the commercial community. There was a great panic in England in 1825, up to that time unparalleled in the history of the kingdom, so extensive and distressing in its effects that even Mr. Tooke, in commenting upon it, said that it was doubtful if the evils of the convertible system were not so great and preponder¬ ating as to outweigh all considerations that could be urged in its favor. Then there was the panic of 1837 and the “pressure” of 1839, and then the panic of 1847, and those of 1857, 18GG, and 1875, to say nothing of difficulties and pressures of greater or less intensity at intervening times. Bichard Oobden,in his evidence before a committee of the Hviise of Commons in 1840 on banks of issue, declared that the fluctuations in the British currency in the two years 1836 and 1837 had produced greater evils, pecuniary, social, and moral, than had resulted from the direct failures of all the banks of issue that had taken place since such banks were first established in the kingdom; which shows that,in the judgment of so eminent a man as Richard Cobden, the measures neces¬ sary to sustain the convertible paper system operated more destructively upon the public than an outright explosion. That system puts the whole commerce and industry at the mercy of a few millions of metal. I don’t know that I can give any better illustration of its malignant character than by recounting its operation in Great Britain in 1847, at a time of extraordinary calamity and distress. It was the year of the Irish famine, as you will recollect. The suffering from the famine was appalling. The number who perished of actual hunger and deprivation in Ireland, and from disease engendered by want, from beginning to end, is estimated at over a half million of persons. England did not escape, and the extent of the suffering in that part of the kingdom is shown by the fact that in Liverpool there were a hundred and thirty-two thou¬ sand applications to the parochial authorities for poor’s relief in the? course of a single week. The facts are these: There had been a failure of the potato crop in 184G, and a serious deficiency besides in the w heat harvest. There was a partial failure also on the Continent, so that in the fall of the year there was an extensive rise in the price of bread- stuffs, which continued throughout the winter into the spring of 1847, at which time the greatest apprehensions of impending famine pre¬ vailed. In these circumstances the British merchants began the im¬ portation of corn from the Continent and from America, and to with¬ draw gold from the Bank of England to export in payment. One would suppose that, in circumstances like these, the presence of a great reserve of gold to be freely had in exchange for notes, solemn promises to pay gold on demand, would prove a true national blessing. But it was not so; the promise wms a cruel and infamous lie; for, in the midst of these operations of the merchants, the Bank suddenly, and without warning to them or to the general public, shut down upon 6 them with effects so powerful and trenchant that gold already in ships at Liverpool ready for departure to America was actually relanded and restored to the custody of the Bank! The expected and intended conse¬ quence of the measure of the Bank was—panic; and the whole kingdom was plunged into financial disorder and distress, which continued with more or less severity throughout the whole summer, and finally culmi¬ nated, in September and October following, in business failures which, according to Mr. Tooke, were beyond all precedent in the history of the country. And thus it was that, to the horrors of famine in some parts of the kingdom and want in all parts of it, were added financial calam¬ ity and suffering. The losses occasioned by this panic, produced by the action of the Bank, were stated by Air. E. S. Cayley, a distinguished member of the House of Commous, at three hundred inillious of pounds sterling, or fifteen hundred millions of dollars!—a very dear price, he said at the same time, to pay for the convertibility of a hundred millions of bank notes! But it was a roaring time for the Bank and the money¬ lenders; they garnered what others, with exceeding labor and pains, had sowed and reaped. The Bank of England made profits in 1847 amounting to more than 2500 thousand dollars as against 1100 thousand in 1840; and in the three panic years, 1847, 1857, and 1806, made over nine millions of dollars, while its profits in twenty-two years of ordinary business were a yearly average slightly over eleven hundred thousand ! Now, 1 defy you to find in all the aunals of inconvertible paper money, either in war or peace, anything more shocking and infernal than this honest-money smash-up in Great Britain in 1847. And I may observe here, that after this panic, as after every other that has taken place since resumption of specie-payments in 1821, an event which, according to Mr. Peel, Mr. Ricardo, Mr. Canning, and the rest, was to make panics forever impossible, the British people have been regularly lec¬ tured by the honest-money press and sopliisters of the kiugdom about their extravagance, their overproduction, and their general deviltry and “ cussedness,” but they lecture not at all about overbanking, which is the real difficulty at last. Bankers and money-lenders are like the king, of whom it is said that he can do no wrong. Mr. Ewing. But was not the Bank compelled to resort to severe meas¬ ures in order to keep her reserves from utter exhaustion ? Mr. ScnucKERS. No doubt it was. There is no doubt at all that, under the paper system existiug in Great Britain, the Bank had no alter¬ native but to destroy as she did. But what I say is, that a system which imposes such necessities is radically vicious and profligate, and ought not to be allowed to exist in any country. Mr. Bell. Suppose there had been an inconvertible paper system existing in Great Britain at that time, such as now exists in the United States; what then 1 Mr. SCHUCKERS. I will tell you what I thiuk. Having no gold to send, they would have sent commodities to France and America to be exchanged for corn and beef at lower prices than formerly. No doubt this would have compelled increased exertions and sacrifices on the part of the laboring people, but the capitalists would have had to bear their share of the sacrifice, if not of the labor; and in the greater activity of the markets of the kingdom, and in the certainty of work to do and pay for doing it, the workers would have had some compensation at least for their sufferings. As it was, thousands and tens of thousands of them were put out of employment, and the miseries of themselves and their families fearfully intensified, while scores and hundreds of merchants and manufacturers were bankrupted and ruined, and the 7 trade of the kingdom immensely obstructed. Although there was a great fall in prices, in the absence of work and wages, the laboring peo¬ ple could not profit by the fall; but, as I have before said, it was a rous¬ ing good time for banks and bankers; and they made money. Lord Ashburton, in his celebrated pamphlet on “The Commercial Crisis Con¬ sidered,” commenting on the occurrences of 1847, says that the charac¬ ter of the demand for gold that then took place ought to be regarded; ■“it was,” he says, “for food suddenly wanted.” Mr. Ewing. You would prefer the inconvertible system ? Mr. Schuckers. Yes, sir; I would. Mr. Bell. How would you regulate such a system ? Mr. Schuckers. I would prefer a constitutional provision, but in the absence of that would be willing to intrust the regulation of the cur¬ rency to Congress. Mr. Bell. There is great prejudice in the public mind against giving Congress the power to regulate the currency. It is believed that it would be badly exercised. Mr. Schuckers. Yes; such an objection is urged. I would like to see a constitutional provision on the subject, but would not be afraid to trust Congress. We intrust great powers to Congress; among others, those of laying taxes, of borrowing money, of regulating commerce, of coining money and fixing its value, of declaring war and making peace, and, of course, of raising armies and providing a navy, and, in a word, of conducting all the great affairs of state. The exercise of these powers touches every interest, public and private; and while it is undoubtedly true that iu some instances weakness and corruption prevail in legisla¬ tion, the general rule is, that the legislative powers are honestly and wisely exercised, and that the real wish of Congress is to promote the public good. I don’t believe it would be very dangerous to intrust to it the further power of regulating the currency. The country would be as watchful and jealous of its rights and interests iu that respect as it is jealous and watchful of its rights and interests iu respect of the other matters committed to the action of Congress, and there would be no serious danger, iu my judgment, of any great abuse of that power. Besides, if it is not limited by constitutional provision, it must be exer¬ cised either by the banks, or by the Secretary of the Treasury, or by Congress. Mr. Sherman informs us that, so far as the United States notes are concerned, he is himself going to regulate them after the 1st of January next. 1 don’t know where he will get authority to exercise so extensive a prerogative ; there is nothing in the resumption act confer¬ ring it, that I am able to see, and I don’t believe Congress could consti¬ tutionally delegate to him such a power, eveu if it would, but he says he is going to exercise it any way. He proposes to erect a great national bank, of which he will be president, vice-president, board of directors, and Grand Panjandrum generally; and a great deal a “bigger man” than Nicholas Biddle ever dreamed of being, when he reigned as king of the money-markets of this country. Mr. Sherman will make United States notes scarce or plenty as he shall think best; at times and iu such ways as he shall think best; with or without notice to the public, or to Congress, or to the banks, as he shall think best. He says he won’t abuse this power, because he will always be under the eye of Congress. To be sure he won’t always be under the eye of Congress; but it strikes me that if Congress is wise and honest enough to regulate a Secretary who regulates the currency, it is wise and honest enough to regulate the currency with¬ out the intervention of the Secretary. And I may here remark, that the Secretary’s proposition to make legal-tenders scarce or plenty, as he 8 shall think best, in order to keep them convertible into coin, exhibits in a sentence the vicious character of the methods necessary to that kind of a currency. It implies a systematic unconstitutional coercion and in- terference with the business of the country which is not likely to make Mr. Sherraau very popular, or to be long endured. Our present system needs no such coercion and interference with the business affairs of the people by aFederal officer. Theduty of Congress with respect to it is very simple, and this duty is discharged by keeping the volume uniform and ex¬ panding it proportionately to the growth of the country. That Congress has been more steady and attentive to the public interest, or, at any rate to what Congress believed to be the public interest, in the management of the United States notes, than the banks have been with respect to the management of their part of the circulation, a reference to our financial history during the last ten years will prove. The outstanding green¬ backs on the 1st of January, 1808, were 356 millions, increased to 382 millions, or 7£ per cent., on the 1 st of January, 1875; and reduced to 349 millions, or Of per cent., on the 1st of January, 1878. The reduc¬ tion since 1875 has taken place in pursuance of the resumption policy_ a policy supposed to be, most mistakenly, as I think, however, in the public interest, by restoring the metallic standard. The banks increased their circulation from 300 millions on the 1 st of January, 1868 to 354 millions, or 18 per cent., on the 1st of January, 1874, and’ down to 300 millions, or 18 per cent, again, on the 1 st of'January last. Their reduction in 1876 was 25 millions, or 7§ per cent, in the course of a single year. This reduction was not in the interest of the public but was exclusively iu the private interest of the banks, and was done to secure the high price of bonds prevailing in that year. While it would no doubt be altogether the best to have the circulation limited by con stitutional provision, it is quite certain from this showing that Congress would be more likely to keep it uniform in volume than the banks The government circulation has varied 17 per cent, in ten years, and would not have varied so much but for the persistent and pernicious influence of the banks on Congress; while that of the banks has varied 36 per cent., not in answer to the requirements of the public, but solelv to pro mote the private interests of the bankers. 1 flexible? ELL * W ° Uld a cnrreucy re S ulated ^ Congress be sufficiently Mr. Schuokeks. A really flexible currency does not exist A cur rency to be flexible, in the sense in which you use the phrase, ought to be sufficiently so to meet great exigencies, but no convertible currency is so or can be made so; and I do not know, indeed, that the object of making bank or other notes convertible into coin upon demand proceeds at all upon the idea of securing flexibility. The real purpose of convertibility is to make the whole currency uniform in volume and value. The proof that a convertible currency cannot be flexible is found in the constant necessity the banks are under to prevent the free movement of gold and silver between the nations by coercive measures, sometimes productive of great calamities and suffering. If the system were really flexible the metals would, of course, be allowed to come and go without artificial obstructions of any kind. But they are not allowed to do so The Bntish panic of 184 4 furnishes a painful illustration in point. Although there was at that time the greatest possible necessitv for the exporta- tion of gold—none greater can well be imagined—it could not be allowed At the very moment an expansion of bank-notes became necessary to the public in order that the gold might go, it became necessary to the^system to contract the notes that the gold should not go. When pleutier money 9 and low rates were of the first importance to save the public, scarce monev and high rates were necessary to save the system. In September, 1846 , the circulation of the Bank of England was 107 millions, and the rates of discount on first-class bills 3 to 3