THE FINANCES. 
 
 WASHINGTON CORRESPONDENCE 
 
 THE PHILADELPHIA PRESS, 
 
 GIVING 
 
 THE VIEWS OF THE HON. WM. D. KELLEY, M.O., 
 
 October 30,1873. 
 
 L E T T E It 
 
 IION. WJM. D. KELLEY, M.C., 
 
 TO 
 
 THE PHILADELPHIA PRESS, 
 
 November 4,1873. 
 
 PHILADELPHIA: 
 HENRY CAREY BAIRD, 
 
 INDUSTRIAL PUBLISHER, 
 
 406 WALNUT STREET. 
 
 1873. 
 

 
 
 
THE FINANCES. 
 
 (From the Philadelphia “Press,” October 31, 1873.) 
 
 Washington, October 30, 1873. 
 
 Tiie Hon. William D. Kelley, Representative in Congress from the 
 Fourth district of Pennsylvania, has been here several days, in con¬ 
 sultation with the President, the Secretary of the Treasury, General 
 Spinner, and other prominent officials, on the financial situation. 
 Since the beginning of the panic, Judge Kelley has given special 
 attention to this subject, and he is as familiar with it in all its phases 
 as he is with the other great question of revenue. He came here with 
 certain fixed views with regard to resumption of specie payments, 
 and the remedy for the monetary troubles that have overtaken the 
 country. These are the result of careful inquiry and mature reflec¬ 
 tion. In addition to the government officials, Judge Kelley has com¬ 
 pared opinions with leading financial men ; and while he absolutely 
 refuses to detail his interview with President Grant, he has no hesita¬ 
 tion in saying, as already stated in these despatches, that he “finds 
 the President’s views much more accordant with his own than he had 
 expected.” Your correspondent called upon Judge Kelley to-day and 
 requested him to state his views at length. Without interruption he 
 proceeded to say:— 
 
 Widespread disaster sure to follow specie payments if attempted arbi¬ 
 trarily . 
 
 I find that a return to specie payments appears to be regarded as 
 the paramount object of those I meet here. For my own part, I am 
 indifferent to it unless it should come about naturally, and by the 
 presence of gold coin enough to serve as the basis of a convertible 
 currency establish the fact that the balance of trade is in our favor. 
 When specie payments shall be thus inaugurated, they may be main¬ 
 tained, but should such payments be attempted arbitrarily they can¬ 
 not be continued, and the attempt will result in panic and wide-spread 
 disaster. Whatever differences of detail there may be, I hear but two 
 general plans of resumption suggested. One is the contraction of the 
 currency, and the other is the imparting of flexibility or elasticity, 
 to that currency, involving at times an expansion thereof. In my I 
 judgment no measure of contraction, whether great or small, gradual J 
 or abrupt, would bring us to specie payments. On the contrary, a | 
 
4 
 
 TIIE FINANCES. 
 
 vigorous contraction would produce almost universal individual and 
 corporate bankruptcy; would check immigration and cause an im¬ 
 mense emigration of recently arrived skilled workers, and would, in 
 all probability, disable the government for a time from paying with 
 regularity the $100,000,000 of gold interest annually due upon our 
 bonds. We seem to the superficial observer to be nearer specie pay¬ 
 ments than we were seven years ago, but such is not the case, except 
 that the ultimate day when specie payments will come about is seven 
 years nearer than it was. What I mean to say is that we have made 
 no progress by the application of appropriate means, and are now 
 further off than we should have been had there not been great mis¬ 
 takes in our legislation and the administration of the treasury. In 
 60 far as our resources are more largely developed, and we are produ¬ 
 cing a larger share of the iron and of cotton, woollen, silk, and other 
 goods we consume, we are in a better condition than we then were. 
 But in so far as our gold-bearing indebtedness has been transferred 
 from Americans to foreigners, and it has been done very largely, the 
 resumption of specie payments has been postponed. 
 
 How our bonds have been driven abroad. 
 
 Let me illustrate by showing you how our currency has been con¬ 
 tracted, and the American holders of our bonds thus been compelled 
 to sell them to foreigners. When the war closed there were many 
 millions of compound interest notes outstanding, also of the seven- 
 thirties, and the three per cent, certificates of indebtedness, which to¬ 
 gether amounted, I think, to over two hundred millions of dollars. 
 There were four hundred millions of greenbacks and three hundred 
 millions of national bank notes, making altogether over nine hundred 
 millions of currency. You say the compound interest notes, seven- 
 thirties, and three percents, were not circulating notes. I admit that 
 you are technically correct, but assert that they were part of our cur¬ 
 rency, inasmuch as they were held by the banks as part of their reserve. 
 Amounting to more than two hundred millions, they permitted the 
 entire volume of the greenbacks and national bank notes to be in 
 circulation. Then money was cheap. The banks were glad to dis¬ 
 count paper at six per cent., and merchants, manufacturers, and capi¬ 
 talists generally were able to hold bonds, and found profit and conve¬ 
 nience in doing so; for while they could borrow money for six per 
 cent, currency, they received six per cent, gold with which to meet 
 foreign purchases or to sell at the ruling premium. In the mean time 
 the Secretary of the Treasury was criticized for keeping more than 
 one hundred millions of gold in the Treasury, and not selling it fast 
 enough to satisfy the resumptionists. So long as this condition of 
 things remained, we were developing our resources, stimulating immi¬ 
 gration, constructing machinery and importing it together with 
 skilled workmen to manage it, and impelling and quickening all those 
 agencies by steam and electricity. We could then afford to build 
 “premature” railroads,and thus develop the mineral and agricultural 
 resources of new sections of our country, and were on the road to 
 
THE FINANCES. 
 
 5 
 
 manufacturing and commercial supremacy, which would have made 
 ours the country in which the world’s balances would be settled, as 
 they now are in London—but unwise counsels prevailed. 
 
 McCulloch's mistakes and their results. 
 
 The compound interest notes matured and were paid off, which was 
 a material contraction of the currency. The seven-thirties matured 
 and were paid, still further contracting the currency. Secretary 
 McCulloch had issued his Fort Wayne letter, promising that we should 
 resume specie payments before the last of these obligations would 
 mature, which letter cost the country hundreds of millions by the 
 paralysis it inflicted upon our productive industries. If resumption 
 was to be brought about thus rapidly, no prudent man wanted to be 
 caught with incomplete enterprises upon his hands, or to manufacture 
 goods to be sold in a rapidly-falling market. But, worse than all this, 
 having compelled the banks to hold a reserve of greenbacks instead of 
 compound interest notes or seven-thirties, Congress absurdly permitted 
 Mr. McCulloch to retire four millions of greenbacks for eleven con¬ 
 secutive months, making a reduction of eleven per cent, of the entire 
 amount. What was the result? Money became scarce and dear,and 
 the rate of interest went up so high that it was no longer a matter 
 of profit, or convenience to enterprising Americans to hold our bonds. 
 They had to sell them in order to escape the ruinous rates of interest 
 demanded, and the only market for them was abroad. But deluded 
 by the fact that we were paying our debt at the rate of one hundred 
 millions a year, and the belief that we must therefore be approaching 
 specie payments, another measure of contraction to the extent of 
 seventy millions was consummated at the cost of doubling the rate of 
 interest on that amount of the national debt; The three per cents, 
 were in the nature of a call loan, but they never would have been 
 called, because our banks held and used them as part of their reserve, 
 and were thus receiving three per cent, on that part of their reserve 
 which was composed of these certificates. As the banks would have 
 to supply the vacuum created by retiring part of their greenbacks, 
 which were not interest-bearing, but by loaning which they were re¬ 
 ceiving six per cent., they never would have called for their payment, i 
 If the seventy-millions of dollars with which the three per cents, 
 were redeemed had been applied to the redemption of six per cents., 
 our interest account would have been one million five hundred thou¬ 
 sand gold less than it now is annually, and the interest would have 
 been paid to Americans instead of the increased amount being paid 
 to foreigners. Thus it has come to pass that all our bonds, except! 
 those held by the national and savings banks, are now held by for¬ 
 eigners, and our payments of interest in gold to foreigners, from the I 
 Government and on gold-bearing bonds of corporations, is more than 
 one hundred millions of dollars annually, or forty millions more than! J 
 the annual product of our mines. 
 
6 
 
 THE FINANCES. 
 
 The absurdity of a proposition demonstrated. 
 
 Nobody now complains that the Treasury keeps a hundred millions 
 useless gold, but everybody is glad to know that it probably holds 
 fifty millions. The absurdity of the proposition that “the way to 
 resumption is to resume” is demonstrated by the tact that if the 
 Treasury were to announce that it would pay specie for greenbacks, 
 the national banks, preferring to hold their reserve in gold rather than 
 greenbacks, would present bills for one hundred and twenty-eight 
 millions, or one hundred and fifty per cent, more than the gold held 
 by the Treasury. And having exhausted the Treasury no man could 
 call upon them for a dollar, inasmuch as their notes are redeemable 
 in greenbacks and not in gold. The attempt to resume would result 
 simply and solely in a transfer of the coin from the vaults of the 
 Treasury to those of the banks. Its range of circulation would have 
 no greater extent than this. 
 
 Tivo paths to resumption. 
 
 But you ask, Are we never to come to resumption ? I answer, Yes, 
 there are two paths to it. One, and the longer one, is to struggle on 
 until, by the progress of a long series of years, our exports shall come 
 to steadily exceed our imports, and foreigners, in payment of balances, 
 shall send us back our gold-bearing bonds, and then settle balances in 
 gold. But he who looks for specie payments by this process looks 
 through a very long vista. The other process is to promote the transfer 
 of our bonds to our own people by making money cheap, or, in other 
 words, by expanding our currency and issuing bonds payable principal 
 and interest in lawful money, and thus reducing the rate of interest to 
 a point as low or lower than it was before we insanely entered into 
 forcing our bonds on foreign markets by contraction. To accomplish 
 this, IT think the banking law should be so modified as to make the 
 payment or receipt of interest on deposits by a national bank a cause of 
 forfeiture of charter, and to prohibit, under serious penalties, the certi¬ 
 fying by national banks of any check which did not represent an actual 
 deposit in the vaults of the bank. This in itself would be a measure 
 of contraction. I would therefore relieve the banks from maintaining* 
 a reserve to secure either their circulation or deposits. Here let me 
 pause to say why I would abolish the reserves: Primarily to increase 
 the volume of currency to counteract the contraction; secondly, to 
 remove restraints from banks that are conscientiously managed, but 
 which are disregarded by those managed by unscrupulous specula¬ 
 tors. But again, I would do it because such reserve is not needed 
 as security for the notes. The bonds deposited with the Government 
 secure them, and secure them adequately, for the notes are only 90 per 
 cent, of the face value of gold-bearing 6 per cents., which, even in 
 this crisis, are at a considerable premium. For the Government to 
 compel the banks to maintain a reserve to protect depositors is absurd. 
 It is at best when fully maintained a delusion, for it amounts to but 
 twenty 4^ cpjLt.of the deposits, and yet it leads people to believe 
 
THE FINANCES. 
 
 7 
 
 that there is a reserve which makes their deposits secure. In connec¬ 
 tion with these modifications of the banking law, and to avert the 
 effects of the contraction of credits they would produce, I would pro¬ 
 vide for the issue of bonds payable, principal and interest, in lawful 
 money, at the rate of 3/VV interest per annum, or 1 cent a day, and 
 make those bonds interchangeable with greenbacks. IIow largely 
 such bonds would be taken by our people few are now prepared to 
 believe. There are two periods in each year when there is but small 
 use for money and bank credits, during which merchants of good 
 standing have large balances of unemployed capital,and when farmers 
 and tradesmen of the interior districts have greater or less sums for 
 which they can find no profitable employment. This money is now 
 loaned, subject to call, to banks, bankers, and brokers, at a low rate 
 of interest, and it finds its way to Wall Street, where it is employed 
 in making corners in gold, greenbacks, and stocks. By these appli¬ 
 ances the'industry and trade of the country are embarrassed, the peo¬ 
 ple are swindled and robbed, and crises like that which we are now 
 experiencing and that of the famous Black Friday are brought about. 
 Take as an illustration the case of the farmers of Missouri, Wisconsin, 
 and Illinois, who may have one thousand or a few hundred dollars for 
 which they have no employment. They deposit their money with 
 bankers in their neighborhood, at a low rate of interest. Inasmuch 
 as this money is deposited on call, these bankers cannot loan it on 
 mortgages or long^notes to their customers, but they can and do send 
 it to Chicago, St. Louis, or Milwaukee at an increased rate of interest. 
 Speculation is not strong in those Western cities, and the banks there! 
 send their money to New York, where it is again loaned on call at 
 still higher rates. Being on call, the banks cannot invest it perma¬ 
 nently, and they, in turn, loan it on call at a still higher rate of inte¬ 
 rest to bankers and brokers, such as Fisk & Hatch and Henry Clews 
 & Co., who again lend it at from one-quarter to two and a half per 
 cent, a day to what is called “ the street,” or the parties who get up ; 
 corners in gold and stocks. Now, here we have the traditional row j 
 of bricks. The time comes when many of the original depositors; | 
 simultaneously want their money. They call on the bankers with 
 whom they deposited. They in turn call upon Chicago, St. Louis, i 
 and Milwaukee. The latter make a demand upon New York banks, j 
 and so on to the end of the line; or, on the other hand, one great ! 
 failure occurs in New York or Philadelphia, as happened on the 18th ! 
 of September, and behold, every depositor and every bank with whom i 
 balances were deposited want all the money standing to their credit J 
 with any other bank or banker. Now, the issue of such bonds as I j 
 have spoken of would effectually put a stop to this whole vicious sys4 
 tern. The bonds should be issued in small amounts, twenty-five and! i 
 fifty dollars, with those of larger denominations. The smallest balance] 
 of a farmer put into such a bond would earn him a higher rate of 
 interest than he is in the habit of getting from his local banker. The 
 security would be absolute, and he would know that the money would! 
 be forthcoming in greenbacks on demaud. So much for the country. 
 
THE FINANCES. 
 
 Our merchants would adopt these bonds as the proper means of em¬ 
 ploying their capital during the dull months of the year, and capi¬ 
 talists having large sums of money with which they do not wish to 
 speculate, but hold for investment when opportunity offers, would 
 place them in such bonds, and while the country would be protected 
 against the gold and stock gambling of Wall Street, its capital would 
 be employed. Any bill providing for the issue of such bonds should 
 require the Secretary of the Treasury to invest the money thus ob¬ 
 tained as closely as prudence would permit in the purchase of five- 
 twenty gold-bearing bonds, and to hold any surplus of gold that 
 might accrue for the express purpose of calling in and extinguishing 
 overdue gold-bearing bonds. In this way the American people would 
 soon become owners of a large share of the indebtedness of the coun¬ 
 try. The interest account against the Government would be greatly 
 reduced, and the amount of gold to be paid annually he reduced still 
 more largely, as these bonds would carry interest in lawful money. 
 We would then be on the highway towards resumption, the lion in 
 the path being, as I have said before, the annual payment to foreigners 
 of a hundred millions of gold. 
 
 Secretary Richardson's 'payment of silver. 
 
 I have given you my views very frankly on these grave questions. 
 I may add that I have had most agreeable conferences on this subject 
 with the President, the Secretary of the Treasury, and General Spin¬ 
 ner, and I have heard no suggestion from any of them to shake my 
 confidence in the views with which I came to Washington. And 
 now, permit me to say a few words on the subject of the Secretary of 
 the Treasury’s alleged attempt to resume specie payments by the use 
 of silver. This allegation does him great injustice. He found him¬ 
 self unable to sell gold without taking from the people greenbacks 
 at a time when their possession was of vital interest to them ; but he 
 also found that the relation of the price of silver to gold was such 
 that, coupled with the fact that our subsidiary silver coinage is like 
 that of all other nations, worth intrinsically less than its nominal 
 value, he could, by the coinage of silver, give employment to many 
 people in the mints and to those who supply them with material, 
 while using profitably certain portions of the funds under his control, 
 lie saw, also, that, if this practice continued long, or, in other words, 
 that if the relative value of gold and silver remained as they are for 
 some time, he might add a few millions to the volume of the cur¬ 
 rency, and at the same time keep one of our staple products—silver— 
 from depression. Viewed in its proper light, the Secretary’s action is 
 highly commendable, while people who have been led to suppose that 
 he was about to issue silver change as a step towards resumption were 
 right in treating the proposition with derision. Mr. Secretary Rich¬ 
 ardson is incapable of such folly. 
 
THE FINANCES. 
 
 9 
 
 (From the Philadelphia “Press," November 6, 1873.) 
 
 Philadelphia, November 4, 1873. 
 
 My dear sir: The Evening Bulletin , of Saturday, contained what 
 purported to be a despatch from Washington, saying the President 
 was “ considerably surprised at the statement put forth, apparently 
 with Judge Kelley’s sanction, that the two virtually agree on financial 
 matters.” Other papers, mistaking this for an Associated Press de¬ 
 spatch, gave it circulation as such. I am quite sure that the report 
 that I had made such a statement, if he did really hear it, did not 
 surprise the President more than it did me, as I have been scrupu¬ 
 lously careful not to repeat anything that was said to me on such 
 matters by the President or any officer of the Government. Nor 
 have I represented him or any of them as agreeing with me. I have 
 made the general remark that I “had found the President’s views 
 more accordant with mine than I had expected to.” This is true, 
 and whatever may be his opinions on the question of the issue of 
 convertible bonds, or of the increase of currency, to neither of which 
 I have attempted to commit him, it is also true, as I know from 
 personal intercourse with him, that he holds many opinions on the 
 paramount questions of the day that I will, consistently with my 
 past record, find pleasure in maintaining during the coming session 
 of Congress. In the course of a somewhat extended expression of my 
 opinions to Mr. Macfarland, the Washington correspondent of The 
 Press, as appears by his report thereof, I alluded to the interviews 
 I had had with the President, with the Secretary, and with General 
 Spinner, and said I had “ heard no suggestion from any of them to 
 shake my confidence in the views with which I came to Washington.” 
 This language did not imply that my views on the questions under 
 discussion had been approved by them, but rather that they had con- a 
 troverted them. 
 
 But if my opinions on such grave questions are sound, and it be j 
 true that the President is opposed to them, so much the greater is , 
 the importance of presenting to the people, who are suffering so ? 
 severely and who are the final arbiters of policies, the reasons by 
 which my conclusions are sustained. Will you not, therefore, permit 
 me again to address your readers ? 
 
 Always opposed to contraction. 
 
 Nearly six years ago, on the 18th of January, 1868, I spoke in 
 opposition to the policy of contraction which Secretary McCulloch | 
 was enforcing with unreasoning vehemence, and brought to the f 
 attention of Congress the following remarks from Allison’s History ; 
 of Europe: “The evils complained of arose from the unavoidable 
 result of a stationary currency, coexisting with a rapid increase in 
 the numbers and. transactions of mankind, and these were only 
 aggravated by every addition made to the energies and productive ; 
 powers of society.” * * * “But if an increase in the numbers and ! 
 
10 
 
 TITE FINANCES. 
 
 industry of men coexists with a diminution in the circulating 
 medium by which their transactions are carried on, the most serious 
 evils await society, and the whole relations of its different classes to 
 each other will be speedily changed; and it is in that state of things 
 that the saying proves true,‘That the rich are every day growing 
 richer, and the poor poorer.’ ” 
 
 Mr. Johnson’s Administration was wise in its own conceit, and 
 would not listen to the admonitions of reason or history ; and we 
 see in the widespread ruin which prevails a terrible demonstration of 
 the truth of the averments of the philosophic historian. Since 
 January, 1868, we have added two millions to our population by 
 immigration alone; have constructed and equipped more than 31,000 
 miles of railroad ; have subdued the “Great American Desert,” and 
 arc working its almost fabulous deposits of the precious metals; have 
 established railroad and telegraphic communication between the 
 Atlantic and Pacific States, and have nearly if not absolutely doubled 
 the productive power of the country. Our annual production of 
 grain, cotton, tobacco, and wool, of gold, silver, copper, lead, iron, 
 and petroleum has never equalled that of this year. But what is the 
 condition of our people now, when November gales herald the 
 approach of winter? 1 do not exaggerate by saying that hundreds 
 of thousands of industrious and frugal people are unemployed, and 
 in moody despair are exhausting the wages they have saved in past 
 years ; and that there are tens of thousands of skilled workmen daily 
 begging the poor privilege of toiling that they and theirs may be 
 enabled to eat the bread of honest independence. 
 
 "Want and superabundance dwell side by side in every part of our 
 country. Our productive power and ability to consume are so greatly 
 restricted that the public revenues are diminished, the national debt 
 increases, and foreigners, to whom we are heavily indebted, send us 
 coin with which to move our crops and animate our industries. And 
 why has this season, in which nature has lavished upon us with 
 unsparing hand her choicest gifts, been thus clouded by want and 
 despair? Is it not because our circulating medium has been con¬ 
 tracted, while our numbers and productive power have been increasing 
 with marvellous rapidity? The fact that, could a sufficient supply of 
 currency to move our superabundant crops and facilitate the ordinary 
 exchanges of the country have been obtained on government bonds 
 and other undoubted securities, the crash would have been averted, 
 proves that it is the result of artificial causes, and is due to the finan¬ 
 cial policy of the government, and to that alone. We have contracted 
 the currency when we should have maintained or increased its volume, 
 and given it, as we could have done by the early issue of convertible 
 bonds, such a measure of elasticity as would have prevented the 
 possibility of such a crisis. 
 
 This we should have done. Let us see what we have done. While 
 refusing to allow the people currency enough to make the daily 
 
TIIE FINANCES. 
 
 11 
 
 exchanges of society, and withholding from employers a sufficient 
 number of one, two, and tive dollar notes with which to pay their ; 
 workmen weekly for labor performed, we have, by thus making ; 
 money scarce, not only enhanced the rate of interest and reduced the 
 demand for labor, but have increased the value and purchasing power 
 of every dollar hoarded by capitalists. Nor are these all the baneful I 
 consequences for which our unwise legislation is responsible; for, by ; 
 refusing to issue bonds payable, principal and interest, in lawful 
 money, bearing a low rate of interest, but a rate equal to that paid 
 by banks on current deposits, convertible at the will of the holder, j 
 in which balances might be temporarily invested, we have enslaved i 
 enterprise to usury, and intensified Speculation by compelling mer¬ 
 chants, manufacturers, and mechanics to sell their government, bonds 1 
 and other sound securities in order to escape from the payment of the 
 ruinous rates of interest demanded by bankers, whose capital is 
 borrowed at low rates, and consists chiefly of corporate and individual 
 balances deposited on call. 
 
 Bonds forced to go abroad. 
 
 We have thus forced our gold-bearing bonds on foreign markets,; 
 and by allowing national banks to pay and receive interest on r 
 deposits, and to certify checks drawn against nominal or prospective ;• 
 deposits, have poured fictitious credits upon each other until Wall I 
 Street became a financial maelstrom in which the reserves of the ■ 
 banks and bankers of the country were engulfed. And while we ? 
 were denying industry and productive enterprise sufficient lawful 
 money with which to make current payments, the average daily ] 
 clearing of checks in the New York Clearing House, for the year end¬ 
 ing October 1,1872, the latest report to which I have access, amounted 
 to no less than $105,904,277. This is the process by which the cur¬ 
 rency is inflated. Here is where expansion and contraction are 
 effected when either will best suit the purposes of men like Fisk, \ 
 Drew, Gould, Vanderbilt, and their kind, whose moral code would 
 startle most inmates of penitentiaries. 
 
 The policy I advocate would, by absorbing private balances in con¬ 
 vertible governments, deprive these robber chieftains of their power, 
 give laborers prompt cash payments, and secure quick settlements in 
 every department of trade. And that it would contract the fictitious 
 credits of Wall Street, by means of which gamblers in stocks, gold, 
 and bonds gather to themselves the substance of manufacturers and 
 merchants, and transmute the sweat of the laborer’s brow into pala¬ 
 tial mansions and magnificent equipages, no sane man will, I think, 
 deny. It may be that the President does not approve it, and that j 
 Congress will reject it; but with great deference to the opinions of j 
 both, I shall continue to believe that with the growing intelligence 
 and power of the people, the year is not remote in which a congress 
 will provide for it, and an administration inaugurate it in obedience 
 to the expressed will of the people. 
 
12 
 
 TIIE FINANCES. 
 
 An unsurpassed currency. 
 
 Our national notes—greenbacks, as they are called—are the best 
 currency we have ever had, and, as I believe, are as good a system as 
 the wit of man will ever devise. But, like everything human, the 
 system is not perfect. It wants elasticity. The law by which it was 
 established embraces one almost fatal provision—that which limits 
 the amount that may, under any circumstances, be issued. The same 
 vice taints the national bank law. It was borrowed from Sir Robert 
 Peel’s law of 1844 for the regulation of the Bank of England. But 
 the cases are not parallel. Our laws are inflexible, but those of England 
 may be suspended by the government : and this provision of the 
 English law was not meant to be inflexible. Indeed, it had not been 
 on the statute-book three years when, in 1847, it was suspended by 
 an order in council, and has since been twice suspended. And I 
 hazard nothing in affirming that the ultimate basis of the British 
 credit system is not gold or faith in the honest or judicious manage¬ 
 ment of the bank, but is found in the knowledge that the government 
 will, under any circumstances and at any time, avert the commission 
 of the fact of bankruptcy by the bank, by ordering it to violate the 
 restraints provided by law, and issue notes enough to relieve, not 
 only itself, but all who may otter good securities. The last exercise 
 of this power was in 1866, and the next will, if I do not gravely mis¬ 
 take the signs of the times, occur in time to shed light upon the duty 
 of Congress in the present emergency. This is the process by which 
 England gives elasticity to her currency, and averts or mitigates 
 financial crises. 
 
 Experiences of the Bank of England. 
 
 Referring to it, Mr. "Walter Bagehot, in his recent volume on 
 “ Lombard Street,” says:— 
 
 Three times “ Peel’s act” lias been suspended because the banking department was 
 
 empty. Before the act was broken— 
 
 In 1847 the banking dept, was reduced to.£1,994,000 
 
 1857 do. do. do. 1,462,000 
 
 1866 do do. do. 3,000,000 
 
 In fact, in none of these years could the banking department of the Bank of England 
 have survived if the law had not been broken. 
 
 ********** 
 
 In most bnnks there would be a wholesome dread restraining the desire of the share¬ 
 holders to reduce the reserve ; they would fear to impair the credit of the bank. But 
 fortunately, or unfortunately, no one has any fear about the Bank of England. The 
 English world, at least, believe that it will not—almost that it cannot —fail. Three 
 times since 1844 the banking department has received assistance, and would have failed 
 without it. In 1825, the entire concern almost suspended payment; in 1797, it actually 
 did so. But still there is a faith in the bank, contrary to experience, and despising 
 evidence. 
 
 But no one in England ever dreams of questioning the credit of the bank, and the 
 bank never dreams that its own credit is in danger. Somehow everybody feels the 
 bank is sure to come right. In 1797, when it had scarcely any money left, the govern¬ 
 ment said not only that it need not pay away what remained, but that it must not. 
 The effect of letters of license to break Peel's act has confirmed the popular conviction 
 
THE FINANCES. 
 
 13 
 
 that the government is close behind the bank, and will help it when wanted. Neither 
 the bank nor the banking department have ever had an idea of being put into liquida¬ 
 tion • most men would think as soon of winding up the English nation. 
 
 ’ * * * * * * * * * * 
 
 Since 1797 the public have always expected the government to help the bank if 
 necessary. I cannot fully discuss the suspensions of the act of 1844 in 1847. 1857, and 
 I860, but indisputably one of their effects is to make people think that government 
 will always help the bank if the bank is in extremity. 
 
 A more miserable catalogue than that of the failures of the Bank of England to keep 
 a good banking reserve in all the seasons of trouble between 1825 and 1857 is scarcely 
 to be found in history. 
 
 But more strikingly to the point is the following extract from 
 evidence given in 1858 before a select committee of the House of 
 Commons, by Mr. Alderman Salomon, the manager of the chief joint 
 stock bank in London :— 
 
 By Mr. Weguelin. —You of course felt quite certain that your deposits in the Bank 
 of England might be had upon demand ? 
 
 We had no doubt of it. 
 
 You did not take into consideration the effect, of the law of 1844, which might have 
 placed the banking department of the Bank of England in such a position as not to 
 be able to meet the demands of its depositors ? 
 
 I may say that that never gave us the smallest concern. 
 
 You therefore considered that if the time should arrive the government would inter¬ 
 fere with some measure as they had previously done, to enable the bank to meet the 
 
 demands upon it? 
 
 We should always have thought that if the Bank of England had stopped payment, 
 all the machinery of government would have stopped with it, and we never could have 
 believed that so formidable a calamity would have arisen if the government could have 
 
 prevented it. 
 
 By the Chairman.—The notion of the convertibility of the note being in danger 
 never crossed your mind ? 
 
 Never for a moment; nothing of the kind. 
 
 By Mr. Weguelin.—I refer not to the convertibility of the note, but to the state of 
 the banking department of the Bank of England. 
 
 If we had thought that there was any doubt whatever about it, we should have taken 
 our bank notes and put them in our own strong chest. We could never for a moment 
 believe in an event of that kind as likely to happen. 
 
 Therefore, you think that the measure taken by the government of issuing a letter 
 authorizing the Bank of England to increase their issues of notes upon securities was 
 what was generally expected by the commercial world, and what in future the com¬ 
 mercial world would look to in such a conjunction of circumstances? 
 
 We looked for some measure of that nature. That, no doubt, was the most obvious 
 one. We had great doubts it would come as it did, until the very last moment. 
 
 Have you ever contemplated the possibility of the bank refusing to advance under 
 circumstances similar to those which existed in November, 1857, or upon good banking 
 securities ? 
 
 Of course I have, and it is a very difficult question to answer as to what its effect 
 might be. But the notion appears to me to be so thoroughly ingrained into the minds 
 of the commercial world that whenever you have good security it ought to be con¬ 
 vertible at the bank in some shape or way, that I have very great doubt whether the 
 bank can ever take a position to refuse to assist persons who have good commercial 
 securities to offer. 
 
 The necessity of flexibility. 
 
 As I have said, our law is inflexible, and the power to suspend it 
 at discretion cannot and should not be imparted to the Executive; 
 and yet there must be somewhere a reserve of legal-tender notes 
 
14 
 
 TIIE FINANCES. 
 
 equivalent in their paying power to those of the Bank of England, 
 which may be brought into circulation on extraordinary occasions 
 and returned when these occasions have passed. This is essential to 
 the steadiness and life of business. Nor is the necessity for such a 
 reserve peculiar to countries whose currency is in part or in whole of 
 pa]ier. This is shown by the crisis in Hamburg, and the embarrass¬ 
 ment of the Bank of Hamburg when the currency was purely metallic. 
 Ricardo says:— 
 
 On extraordinary occasions a general panic may seize the country, when every one 
 becomes desirous of possessing himself of the precious metals as the most convenient 
 mode of realizing or concealing his property. Against such panics banks have no 
 security on any system. 
 
 The first and main question for Congress to consider will, in my 
 judgment, be, Can we safely create such a reserve of money, and 
 enable the people to command it when in their judgment the exigen¬ 
 cies of the case require its use? My reply to this question is that 
 we can do it, and in such a manner as to reduce the average rate of 
 interest; to recall from abroad and extinguish many of our six per 
 cent, gold bonds; to reduce the Government’s interest account, and 
 by diminishing the demand of the Government for gold to pay interest 
 on its bonds reduce the premium thereon and the difference between 
 gold and our paper money. 
 
 The convertible-bond plan. 
 
 These advantages, I believe, may all be attained by the issue of 
 bonds for $25 and multiples thereof, bearing 3'65 per cent, interest, 
 payable, principal and interest, in lawful money, and interchangeable 
 for such money at the will of the holder. 
 
 The money received for such bonds should be closely applied to the 
 purchase of six per cent, gold-bearing bonds. To prevent the em¬ 
 barrassment of the Treasury by a sudden and unusual call for the 
 conversion of 3-65 convertibles, a special issue of greenbacks, to be 
 known as the redemption fund, should be prepared and held for their 
 redemption and for no other purpose. This fund would rarely, and 
 it may be would never, be drawn upon, but it should be known to 
 exist—and when drawn upon should be fully reimbursed by the 
 deposit of the first moneys received for this series of bonds after the 
 excitement which had caused the withdrawal had passed. This 
 would produce no general inflation of the currency, but would pre¬ 
 vent speculation by preventing the accumulation of corporate and 
 individual balances at a few money centres while the canals are 
 closed and while maturing crops are not ready to be moved. It 
 would also give flexibility to our currency and prevent such panics 
 as that which is now turning our boundless prosperity into bank¬ 
 ruptcy and want. 
 
 It will be observed that the foregoing propositions are not sub¬ 
 mitted as a plan of relief for prevailing embarrassments, but as a 
 method by which their recurrence may be prevented. The measures 
 
tiie finances. 
 
 15 
 
 by which Congress may give immediate relief to the commercial 
 world and animate our paralyzed industries are in my judgment very- 
 simple; they are, first, to require the Secretary of the Treasury to 
 invest in six per cent, gold bonds so much of the $44,000,000 retired 
 by Mr. McCulloch as may not be required to meet the current ex¬ 
 penses of the Government, and, second, to repeal the provisions of 
 the bank laws which require national banks to maintain a reserve to 
 secure either notes or deposits. The expansion of the currency thus 
 produced would restore confidence, and if the amount should prove 
 to be somewhat redundant the surplus would soon find its way into 
 the Treasury in exchange for 3-65 convertibles, and be applied to the 
 purchase of six per cent, gold bonds. Thus would a somewhat re¬ 
 dundant paper currency facilitate and expedite the resumption of 
 specie payments by the American people. 
 
 Hoping you may, notwithstanding its length, be able to find space 
 for this, I remain 
 
 Yours, very truly, WM. D. KELLEY. 
 
 Col. John W. Forney.