THE 
 
 MONEY 
 
 QUESTION 
 
 
Hate QJallege of Agriculture 
 
 At Cornell Iniaerattg 
 3tfotra, S. % 
 
 Htbrartf 
 
Cornell University Library 
 HG 583.P82 
 The money question; a handbook tor the « 
 
 3 1924 013 681 808 
 
Cornell University 
 Library 
 
 The original of this book is in 
 the Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924013681808 
 
THE MONEY QUESTION 
 
 A HANDBOOK FOR THE TIMES 
 
 BY 
 
 HENRY V. POOR 
 
 Author of "Money and its Laws," "Resumption and the Silver 
 
 Question," "Twenty-two Years of Protection," 
 
 "Poor's Manual of the Railroads 
 
 of the United States," 
 
 etc., etc. 
 
 NEW YORK 
 
 H. V. & H. W. POOR 
 
 44 Broad Street 
 1898 
 
PHE33 OT 
 
 $0r&fo*U aria tffetw&ffl 
 
 BOSTON 
 
PREFACE. 
 
 In the following pages money is treated as a subject coming 
 within the range of the exact sciencesj every proposition, if properly 
 elaborated, having all the force of demonstration. 
 
 Three kinds of money are in use in the United States : 
 
 I. Metallic money, the universal equivalent, and consequently 
 the standard of value, its value being measured by its weight. 
 
 II. The notes and credits of. banks and bankers, issued or as- 
 sumed to be issued, in the discount of merchants' bills. 
 
 III. Notes of the Government, for the redemption of which, pre- 
 vious to their issue, no adequate means are provided. 
 
 The first kind need not be considered at any length, as its value is 
 measured by its cost and the demand therefor, the insignia of Govern- 
 ment adding nothing to its value. 
 
 The value of the second kind of money depends on the provision 
 made for its retirement previous to its issue. If the institutions 
 issuing it are restricted to the discount of bills representing merchan- 
 dise prepared for, or in process of distribution, it will be retired 
 by its use, being accepted equally with metallic money by the 
 holders of merchandise, and by the issuers in the payment of bills 
 in the discount of which it was issued. As it is safer and more con- 
 venient in use than metallic money it will have the preference, its 
 use discharging capital from the exchanges. It has become the 
 money of all commercial communities, metallic money having with 
 them little other function than the discharge of balances arising in 
 their foreign or domestic trade. 
 
 At the foundation of our Government provision for the second 
 kind of money, that of commerce, was made through the instrumen- 
 tality of a National Bank which served as the custodian of the public 
 revenues collected and discharged by means of its notes. The Bank 
 was restricted in its issues to bills of exchange representing merchan- 
 dise in the process of distribution, its issues being a part of the 
 
PREFACE. 
 
 machinery therefor. They could not be in excess, as they were 
 presently used in the place of metallic money to reach their con- 
 stituent, being retired by their use. No restriction was imposed as 
 to the amount of notes that might be issued other than the limit to 
 the discount of merchants' bills. 
 
 At the foundation of the Government State Banks were in operation. 
 Their number was rapidly increased and to such an extent that they 
 always supplied the greater part of the currency. Their issues were 
 received by the National Bank in the payment of the revenues, as in 
 the ordinary course of business. As the Bank had to account to 
 Government, at the par of coin, for the notes, received in the pay- 
 ment of the revenues, of the State Banks, it required the daily dis- 
 charge of all balances found against their issuers. In this way the 
 restriction imposed upon the National Bank was imposed upon all 
 others, so that there could be no excess of issue either by the 
 National or State Banks. The result was a currency perfect in its 
 kind, convenient in use, and always of the value of the merchandise 
 which it represented, and consequently of metallic money, being 
 accepted equally with this in the sale or purchase of merchandise. 
 
 The Bank, upon which the whole monetary system of the country 
 necessarily rested, was overthrown, being, as was alleged, a menace, 
 through the vast capital wielded by it, to the liberties and welfare of 
 the people. The State Banks took its place as the custodian of the 
 public revenues received and disbursed in its notes. As they were 
 not restricted in their issues to the discount of merchants' bills, and 
 as with most of the States the object was an increase of money, 
 whatever the kind, they were speedily compelled to suspend specie 
 payments. As the National Bank was not to be restored, and as 
 the State Banks could be no longer used, the only alternative to the 
 Government was to collect the revenues in metallic money to be 
 held in its own strong box, leaving the people, always to use paper 
 money in some form, to take care of themselves. In time measures 
 were gradually adopted by them for the improvement of the cur- 
 rency, among the most important of which were Clearing Houses, 
 at which the rule of the stronger became that of the weaker, so 
 that on the breaking out of the war of the Rebellion, especially in 
 the older States, a currency well based and adequate to the wants of 
 the people was provided. 
 
 While the operations of the Government were on a small scale, their 
 
PREFACE. V 
 
 amount not exceeding $ 100,000 daily, the payment and disburse- 
 ment of the revenues in metallic money was not a matter of much 
 inconvenience or disturbance, only small balances remaining in the 
 Treasury. Upon the outbreak of the war of the Rebellion, the expen- 
 ditures of the Government reaching $3,000,000 daily, a return by it 
 to the use of the money of banks, of commerce, or to notes of its own 
 to serve as money, was inevitable. At the time the metallic money, 
 gold, held as reserves by banks of the cities of New York, Phila- 
 delphia, and Boston equalled $63,000,000. To reduce the amount 
 would be to reduce in fourfold greater ratio their ability to make 
 loans. One of the first measures of the Government, when the sit- 
 uation was adequately appreciated, was to apply to the banks for a 
 loan of $150,000,000, these being the only parties or institutions that 
 could undertake to supply so large a sum. The banks urged upon the 
 Secretary of the Treasury, Mr. S. P. Chase, that payment should be 
 made in their issues, as these would be wholly acceptable to those who 
 were to receive them, representing as they did the subjects of con- 
 sumption to secure which the proceeds of the loan sought, whatever 
 their form, would be used. The Secretary refused to accept anything 
 but gold. In the law authorizing the loan was a provision for the 
 issue by the Government of notes to serve as money to the amount 
 of $5 00,00,000. These, freely thrown into circulation pending the ad- 
 vances made by the banks, were largely used in place of gold or its 
 equivalent in the payment at banks of their bills. Although the notes 
 were not legal tender the banks could not refuse to receive them 
 without inflicting a fatal blow to the credit of the Government. The 
 inevitable result was that in consequence of the action of the Govern- 
 ment the banks, some time before they had completed their advances, 
 were forced into suspension of specie payment. As the Government 
 would not accept their issues, and as all the specie in the country 
 suddenly disappeared, being hoarded or exported, no alternative was 
 left to it but to carry on its operations by its own legal tender notes, 
 which were issued until the amount in their various forms reached 
 the sum of $700,000,000. 
 
 Upon the close of the war the Government, as was natural, at 
 once entered upon the work of retiring its notes, which were re- 
 garded as only a temporary or war measure. Their retirement went 
 on until their amount was reduced to $346,000,000. As the banks 
 were required to put up government bonds for their notes, the amount 
 
VI PREFACE. 
 
 of these, from the burden imposed, fell far short of the public wants. 
 By the time that the government notes were reduced to the sum named, 
 great complaint arose of the inadequacy in amount of the currency. 
 There would have been no complaint had the privilege of issue of 
 notes which the banks had previously enjoyed been restored to them, 
 as they could have supplied all the currency wanted, a currency of 
 the value of gold. The provision for the further retirement of the 
 government notes was not only repealed, but their reissue was made 
 obligatory. With the law forbidding their further retirement came 
 the Act of February 28, 1878, authorizing the purchase for coinage 
 of silver to the amount of #2,000,000 monthly at the ratio of 16 to 1, 
 although the value of silver compared with that of gold had recently 
 fallen 10 per cent. The act would have been harmless, as no one 
 would have used the silver dollars as money, but for the provision that 
 the holder of #10 and upwards might deposit them in the Treasury, 
 receiving certificates therefor. These certificates, having all the out- 
 ward appearance of paper money ordinarily in use, were from the out- 
 set regarded as promises of the Government payable at the option of 
 the holder in gold. They consequently readily circulated as money. 
 Under the Act of 1878 silver to the amount of 29i;272,oi8 ounces, 
 the equivalent of about #377,000,000, was purchased at a cost of 
 #308,279,260. The Act of July 14, 1890, superseding that of 1878, 
 authorized the purchase of silver at the rate of #4,500,000 monthly. 
 Under it 168,674,682 ounces, the equivalent of about #218,000,000, 
 were purchased by an issue of legal tender notes equal in amount to 
 the cost of the silver purchased. Under the two acts, up to No- 
 vember 1, 1897, 452,715,792 silver dollars had been coined, of which 
 392,517,014 were in the Treasury and 60,196,778 in circulation. 
 Against the dollars in the Treasury silver certificates to the amount of 
 #372,838,919 had been issued. The amount of legal tender notes 
 outstanding against the silver bullion in the Treasury equalled #I09, T 
 313,382; the silver coinage and silver notes equalled the sum of 
 #562,626,072. The greenbacks, #346,681,016, added made an 
 aggregate, in round numbers, of #908,000,000 of government money 
 at present in circulation, or in the Treasury. 
 
 As the moneys of the Government were debt for the discharge of 
 which, previous to their issue, no adequate provision was made, they 
 were to their whole extent inflations, instruments of disturbance and 
 waste. Their effect was to create large balances, to be discharged 
 
PREFACE. 
 
 in gold, in the foreign and domestic trade of the country, the 
 amount required for their discharge to be supplied by the Government 
 as the great issuer of currency. The demand had to be met by it 
 by the creation of debt in another form. That it was forced to 
 resort to borrowing to meet its obligations in the form of money 
 showed how improperly these were issued. Banks resorting to sim- 
 ilar expedients would be immediately seized and wound up — a fact 
 illustrating the wide difference between them and the Government 
 as issuers of currency. Could the Government be subjected to the 
 restrictions imposed by common consent upon banks it would long 
 since have been driven out of the field as an issuer of currency. 
 To meet the calls upon it, nominally to take in its notes, it was, by 
 an issue of bonds, compelled in a comparatively short period to 
 provide gold to an amount of nearly $300,000,000. Loans by 
 banks when well made, equalling in amount the demand obligations 
 of the Government, are returned to them without the payment on 
 their part of a dollar in gold — another pertinent illustration of the 
 difference between the moneys of governments and of banks. No 
 issues by governments on a large scale like that of the United 
 States are ever well made, for the reason that no means will ever be 
 provided previous to their issue for their discharge, the test, as to 
 fitness, to which all kinds of paper money are to be subjected. As 
 the Government was reduced to great straits, its gold reserves falling 
 at one time below $50,000,000, excessive alarm was created, result- 
 ing in losses exceeding, according to the Secretary of the Treasury, the 
 whole amount, $930,000,000, of the demand obligations of the Gov- 
 ernment at the time outstanding. 
 
 On the coming in of the present Administration attention was at 
 once turned to the situation and to measures proper to meet it. On 
 the 29th of October, 1897, the Secretary of the Treasury, Mr. Gage, 
 submitted to the Cabinet an elaborate paper, the recommendations in 
 which were afterwards embodied in his annual report of December 7, 
 1897. On the i6thof December, in conference with the Committee 
 of Banks and Banking of the House, he restated the situation and the 
 measures considered by him necessary to be taken. The principal 
 recommendation submitted was that the amount of the demand 
 obligations of the Government, $930,000,000, then outstanding, be 
 reduced by $200,000,000. With such a reduction all, he declared, 
 would be well. He differed from the advocates of unlimited issues 
 
Vlll PREFACE. 
 
 of government money only in amount, not in kind, — a fatal error, as 
 paper money properly issued is only an instrument for the distribu- 
 tion of merchandise to consumers, a function which, having nothing 
 for distribution, governments can never exercise. In assuming that 
 our own may issue notes to serve as money he threw himself, so far as 
 the argument was concerned, wholly into the hands of the advocates 
 of the unlimited issue of government notes. If $730,000,000 of 
 government notes be good money to-day, certainly #830,000,000 will 
 be good money a year hence from the constantly increasing use 
 therefor. As the occasion was one of the greatest importance and 
 significance the proceedings of the Conference have been given at 
 great length, from the additional opportunity afforded for restating 
 the laws of money, of which neither the Secretary nor the Com- 
 mittee on Banking and Currency seem to have had any adequate 
 conception. 
 
 Another matter to which much attention has here been given is 
 the report of the Committee of the Indianapolis Convention, and 
 that of the Commission appointed by it. The Convention was the 
 voluntary gathering of the friends of sound money throughout the 
 country: It is needless to repeat that the Commission appointed to 
 reflect its views, in pronouncing in favor of the silver coinage at the 
 rate of 1 6 to 1 , and of maintaining in circulation the certificates repre- 
 senting the same, as imperfectly mastered the subject as the Secretary 
 of the Treasury or the Committee on Currency and Banking of the 
 House. The test to which the conclusions of- all have been subjected 
 has been that money must be capital, or the symbol, retired by its 
 use, of capital. If the proposition be correct the conclusions of the 
 Secretary of the Treasury, of the Committee of the House, so far as 
 they were expressed, as well as those of the Monetary Commission, 
 in retaining a large amount of government money in circulation, 
 must be wholly wrong. 
 
TABLE OF CONTENTS. 
 
 PAGE 
 
 What is Money ? i 
 
 Function of Governments in the Matter op Metallic Money . 2 
 
 Metallic Money of the United States 3 
 
 Symbolic Money — Banks of Issue 4 
 
 Savings Banks . . 16 
 
 Money by Law 17 
 
 Bank of the United States 19 
 
 Overthrow of the Bank and the Inflation of the Currency . 56 
 
 Change of Standards. Acts pf 1834 and 1837 84 
 
 Debasement of the Silver Currency. Act of 1853 . . • . . 84 
 Consequences resulting from the Abandonment by the Govern- 
 ment of Oversight of the Currency 86 
 
 United States Notes 91 
 
 United States Safety-Fund Banking System 108 
 
 Gold Certificates 112 
 
 Demonetization of the Silver Dollar. Act of 1873 .... 112 
 
 Remonetization of Silver 123 
 
 Act of 1890 146 
 
 Position of the Late Administration 150 
 
 The Sound Money Wing of the Democracy 156 
 
 The Free Coinage Democracy 158 
 
 Position of Present Administration 158 
 
 Bi-metallism 162 
 
 The Remedy 168 
 
 NOTES AND ILLUSTRATIONS. 
 
 The Silver Recoinage in England .... ... 183 
 
 Paper Money in France. — The Mississippi Scheme 
 Adam Smith 
 
 ADDITIONS TO THE SECOND EDITION. 
 
 190 
 
 I9S 
 
 The Secretary of the Treasury on the Monetary Situation . 203 
 The Indianapolis Convention and the Report of the Monetary 
 
 Commission 288 
 
 Answers to the Interrogatories of the Monetary Commission . 320 
 
 Extracts from " Money and Legal Tender in the United States," 327 
 
MONEY. 
 
 T N every age the most valued possession has necessarily been the 
 money of the race, the standard of value, the universal equiva- 
 lent. At an early stage cowries and wampum served as money. 
 As man rose in the scale, with increased transactions, copper, from 
 the wider range of its uses, became his most valued possession, con- 
 sequently his money. For the same reason, with his continued ad- 
 vance, copper gave place to silver, and silver to gold, with nations 
 whose exchanges, from the extent of their productions, are on a 
 very large scale. As every form of life that has existed still exists, 
 copper is still the money of races on a comparatively low plane ; 
 silver with races highly civilized, but whose transactions, large in 
 the aggregate, are inconsiderable . in ratio to their numbers ; and 
 gold with all the great commercial nations of the world. In the sub- 
 stitution of one metal for another as money the rule of convenience 
 was alone followed, precisely as it has been in the substitution of 
 the railway for the ordinary earth-road, of ships driven by steam 
 instead of wind, and of power for hand looms. Every one through- 
 out history has sought to convert his products into the article in 
 most general request, into money, or into promises to pay money, 
 certain of being able, by direct exchange, to obtain anything of 
 which he might stand in need. Such article became money by 
 common preference, in which neither governments nor concert had 
 more to do than with the selection of articles of food or clothing. 
 
 The qualities fitting a metal to serve as money are a high relative 
 value ; a capacity of subdivision without impairing its value ; of 
 resisting the action of the elements ; of receiving, no matter how 
 minute the piece, an impress denoting the weight of pure metal it 
 contains, consequently its value ; and a uniformity in value through 
 long periods of time due to a uniformity in the cost of its 
 production, and in the demand therefor based upon a sense of 
 
2 FUNCTION OF GOVERNMENTS. 
 
 beauty as well as use. Gold would not make a good tool or railroad 
 bar, but were it in sufficient abundance it would be in the greatest 
 demand for structures, furniture, and domestic utensils, as well as in 
 the arts. As it is not abundant, it is chiefly used for decoration or 
 ornaments for which a high price is paid, as for other choice articles, 
 food, drink, or clothing. Diamonds which have a high relative 
 value, due chiefly to their rarity and use as ornaments, are for 
 obvious reasons unfit to serve as money. The greater its rela- 
 tive value the better fitted, other things being equal, is an article to 
 serve as such. It is plain that without some article for which a 
 supreme preference was felt, and which consequently became the 
 universal equivalent and the solvent of all transactions, man could 
 never have risen above that condition in which all exchanges are in 
 kind, a condition alike incompatible with progress or wealth. 
 
 The capacity of an article to serve as reserves adds to its value 
 over and above that due to it from the demand for it in the arts. 
 Unlike other articles of merchandise, money has two functions, — 
 one, like that of iron, in the arts and industries of life ; the other 
 as reserves by means of which one may, in small compass, safely 
 treasure up his accumulations for future use, certain that under all 
 conditions they will retain the value at which they were received. 
 Unlike metallic money articles of food may have no value unless 
 consumers can be presently found. Of two kinds of wood, each 
 equally well adapted to certain uses, the most durable would have 
 the preference as to price. 
 
 Of the value of an article fitted to serve as money it would be 
 fruitless to inquire the proportion due to its use in the arts and that 
 due to its use as the money, or reserves, of individuals or society. 
 The proportion, however, of the amount used as money or reserves 
 is regularly decreasing from the steady increase in the use of instru- 
 ments or symbols by which the greater part of the exchanges of 
 society are now carried on. 
 
 FUNCTION OF GOVERNMENTS IN THE MATTER OF METALLIC MONEY. 
 
 As it is inconvenient, or impossible, for individuals to determine 
 the degree of fineness, or weight, of any piece of metal serving as 
 money, one of the most obvious and important duties of govern- 
 ments is, by assay, to determine such fineness, and to impose upon 
 
METALLIC MONEY OF THE UNITED STATES. 3 
 
 each piece issued evidence of the weight of pure metal it contains, 
 to be ready alike for present or future use. It is a duty akin to that 
 of providing standards of extension or weight. The action of a 
 government no more affects the value of the metal subject to it 
 than does the provision of weights and measures affect the value of 
 articles measured thereby. When a metal used as money is to be 
 used in the arts, it is usually in the form of coin or stamped bars, 
 the amount used being thereby easily determined. Coinage estab- 
 lished, all contracts are assumed to be payable in the unit, or its 
 multiples, which, by agreement of the parties thereto, as well as by 
 the action of the government, become legal tender between them. 
 
 METALLIC MONEY OF THE UNITED STATES. 
 
 Gold Coins. The coinage of the eagle, having a value of $10, 
 was authorized by the act of April 2, 1792. Its weight was 270 
 grains; its fineness, 916^ grains. The weight was changed by the 
 act of June 28, 1834, to 258 grains; the fineness to 899.225 
 grains. By the act of January 18, 1837, the fineness was changed 
 to 900 grains. The act of April 2, 1792, also authorized the coin- 
 age of the half and quarter eagles of proportional weight and fine- 
 ness. Double eagles and coins of one dollar were authorized by 
 the act of March 3, 1849; the three-dollar piece by the act of 
 February 21, 1853. All the coins were to be of the standard 
 weight and fineness. 
 
 Silver Coins. The silver dollar was authorized by the act of 
 April 2, 1792. Its weight was 416 grains; fineness, 892.4.1 The 
 weight was changed by the act of January 18, 1837, to 412^ 
 grains; its fineness to 900 grains. By the act of 1792 the ratio 
 was 1 of gold to 15 of silver. By the act of 1837 the ratio estab- 
 lished was 1 to 16. By the ratio of 1792 gold was undervalued, 
 and was not used as money. The object of the act of 1 834 chang- 
 ing the ratio was to bring gold into use. As by it silver was under- 
 valued the small amount coined went out of use, being more valu- 
 able for export as merchandise than as money. By the act of 
 February 12, 1873, the coinage of silver was discontinued, to be 
 restored by the act of February 28, 1878, at the ratio of 1 to 16. 
 By the act of November 1, 1893, the coinage of silver dollars was 
 discontinued. 
 
SYMBOLIC MONEY. 
 
 SYMBOLIC MONEY. BANKS OF ISSUE. 
 
 Metallic money being the equivalent, in value, of articles sought 
 in exchange, so far as it can be dispensed with a corresponding 
 amount of capital is discharged from use. It is to-day almost wholly 
 so discharged by means of what may be termed " symbolic money," 
 consisting of bankers' bills drawn against merchandise moving 
 between different countries and widely separated sections of the 
 same country, such bills entitling their holder to that which they rep- 
 resent ; of merchants' bills drawn against merchandise moving from 
 producer to consumer in the same country, and of the notes and 
 credits of banks and bankers issued in the discount of the same. 
 An importer of merchandise into the United States, for example, 
 remits in the payment thereof a banker's bill drawn ordinarily upon 
 his correspondent in London, the Clearing House of the world. To 
 provide the means for its payment the banker purchases bills 
 drawn against exports of merchandise equal in value to his own. 
 So far as that exported equals in value that imported no metallic 
 money interposes in the foreign commerce of a country, imports 
 and exports offsetting one another. If the imports exceed the 
 exports in value, both alike being the ordinary subjects of consump- 
 tion, the banker himself becomes an exporter of merchandise in 
 the form of coin, of the universal equivalent, now gold, equal in 
 value to such excess, all commerce between solvent nations and 
 communities being reciprocal in amount or value. If the exports 
 exceed the imports in value, the excess comes back in merchandise 
 in the form of the universal equivalent, which, in international com- 
 merce, interposes as a rule only in discharge of balances, the transfers 
 of merchandise being almost wholly effected by symbols. These 
 are always payable, whether so expressed or not, in metallic money, in 
 case the holder prefers this to the merchandise they represent, and 
 as a guarantee that such merchandise has a value in gold equal to 
 its nominal amount. 
 
 In the exchanges of merchandise between widely separated parts 
 or sections of the same country, as in the exchanges between differ- 
 ent nations, metallic money ordinarily interposes only in the pay- 
 ment of balances. The merchandise, for example, moving from 
 Chicago to New York is accompanied by a bill or bills representing 
 its value, the proceeds of which are to serve for the payment of 
 
SYMBOLIC MONEY. 5 
 
 merchandise of equal value moving from New York to Chicago. 
 Remittances on either side are made by bills of bankers who, to 
 provide the means for their payment, purchase, as in the foreign 
 trade of the country, merchants' bills equal in amount to their own. 
 If the amount, in value, of merchandise moving from one city equals 
 that moving to it from the other, the proceeds on either side serve 
 for the payment of the bills drawn, no metallic money interposing. 
 Bills representing merchandise moving in gross are ordinarily drawn 
 on such time as experience has shown to be required for the distri- 
 bution to consumers of that which they represent. As they serve for 
 the transfer of the title of their constituent, they perform, as instru- 
 ments of exchange, all the functions of metallic money. 
 
 The instruments for the distribution of merchandise represented 
 by bills from merchants to consumers are the notes, and credits in 
 the form of deposits to be drawn by cheques, of banks and bankers, 
 issued in the discount of such bills. The two differ only in the 
 manner in which the proceeds of discounts are taken. They are 
 accepted by the holders of merchandise, the makers of the bills 
 discounted, as they will pay their bills at bank equally with coin. 
 As they are convertible into merchandise they are accepted as 
 money by those who have occasion to purchase the same, the use 
 of metallic money, as such, being to reach some other article of 
 merchandise. They are consequently paid out by producers, in 
 whose favor the bills given were discounted, in the purchase of labor 
 and material to be used in new creations of merchandise to take the 
 place, as fast as it is consumed, of that upon the market. By their 
 use by consumers, in the purchase of merchandise, they fall into 
 the hands of the makers of the bills discounted and are returned to 
 the issuers in the payment of the same. As the process of discount 
 at bank consists of a mutual exchange of obligations, so the process 
 of payment consists of the mutual cancellation of the same, but not 
 until they have been instrumental in the distribution of merchandise 
 represented thereby equal in value to their nominal amount. Such 
 illustrations cannot be too often repeated, as they serve to show 
 why metallic money is no longer used, and that it is impossible it 
 ever should be used in considerable amounts except in the discharge 
 of balances, unless indeed a return be made to barbarism in which 
 all methods by which the operations of society are now carried on 
 are forgotten. They also serve to show what an elastic currency is 
 
6 SYMBOLIC MONEY. 
 
 - — one that measures the means of the people to consume. If 
 merchandise be plenty, its symbol, money, will be plenty. If scarce, 
 money will be scarce, the remedy being an increase of merchan- 
 dise, always to have its symbol, the possession of which entitles the 
 holder to that which it represents. 
 
 In the sale of merchandise, the holders of the same, the makers 
 of the bills discounted, receive alike the notes and credits of all 
 banks of good standing, as these will be received at all equally with 
 their own in the payment of their bills. A bank, in fact, prefers to 
 receive in payment of its bills the notes and credits of other banks 
 rather than its own, as, in ratio to the amount so received, specie 
 can be demanded, its own issues remaining in circulation. 
 
 The exchanges taking place in the United States afford a striking 
 illustration, the best probably that could be produced, of the degree 
 of the substitution of symbolic for metallic money — capital — and of 
 the advantages resulting therefrom. In 1892 the railroads of the 
 country moved, say, 750,000,000 tons of merchandise, the value of 
 which, at $20 the ton, equalled $ 15, 000,000,000. A portion of this, 
 say one-half, was duplicated, but the value of the net tonnage 
 equalled fully $40 the ton. The value of the tonnage of the Erie 
 Canal, of which a careful record is kept, little or no portion of which 
 is duplicated, and which consists of freight having the lowest rela- 
 tive value, averages #30 the ton. If it be assumed that the water- 
 borne tonnage of the country and that over ordinary highways equals 
 one-quarter the whole, the aggregate for the year equalled 1,000,- 
 000,000 tons, having a value of $20,000,000,000. For the transfer 
 of the title of such tonnage two sets of instruments, as has been 
 shown, were used : one of bills for its movement, in gross, from the 
 producer to the merchant ; and one of notes and credits issued in 
 the discount of such bills for its distribution, piece by piece, from 
 merchant to consumer. The amount of symbolic money, merchants' 
 bills for distribution in gross, and the notes and credits issued by 
 banks and bankers for distribution, piece by piece, employed in the 
 movement of merchandise from producers to consumers for the year, 
 in the United States, and performing so far all the functions of 
 metallic money, equalled #40,000,000,000, no metallic money 
 directly interposing except in the form of subsidiary coins. 
 
 The provision of symbolic money by banks and bankers in the 
 United States, September 30, 1892, according to the Comptroller 
 
SYMBOLIC MONEY. J 
 
 of the Currency, equalled $3, 100,943, 227, as follows: Deposits 
 with National banks, #1,775,251,128; with State banks, $648,- 
 513,809; with Trust companies, $411,654,996; with private banks 
 and bankers, $93,091,148; notes of National banks, October 31, 
 1892, $172,432,146. The whole arose out of the discount of bills 
 to the amount of #3,217,738,732, as follows : Discounts by National 
 banks, $2,153,498,826; by State banks, $654,654,490; by Loan 
 and Trust companies, $330,174,726 ; by private bankers, $79,310,- 
 684. If it be assumed that the bills discounted were drawn for 
 periods averaging fifty days, the total amount under discount for the 
 year was very nearly $20,000,000,000, a sum equalling very nearly 
 the value of the merchandise moving, in gross, during the year, from 
 producer to consumer. Interest, at the rate of 4 per cent., upon 
 a sum of metallic money equal to the provision of the symbolic 
 money, the notes and credits of banks and bankers, would 
 amount to $124,000,000 annually. The saving effected in the 
 matter of interest, whatever it may be, is by no means 
 the chief advantage resulting from the substitution of symbolic 
 for metallic money. Were metallic money to interpose in all 
 transactions, the expense, inconvenience, and risk attending 
 its care and movement would be so great as to reduce transac- 
 tions in all commercial countries to one-tenth their present 
 volume. Symbolic money is so much more convenient in use that 
 no one, not even the warmest advocate of silver money in the 
 United States, would, if he could get the former, touch a dollar of 
 the latter, or of gold even, if there were piles of it as high as 
 Pike's Peak at every station on every line of railroad between the 
 mining districts of the continent and the Atlantic coast. He would 
 greatly prefer to have his money in the form of bits of paper which 
 he could carry securely on his person, no matter the amount or 
 value, these being convertible into metallic money at his pleasure, 
 or into any other form of merchandise, to be held and cared for by 
 others without post or annoyance to himself till he had occasion for 
 their use. Metallic has given place to symbolic money for the same 
 reason that cowries or wampum gave place to copper, copper to 
 silver, and silver to gold, as instruments of exchange. It is hardly 
 too much to say that should a merchant in New York accompany 
 an order for 10,000 barrels of flour upon a manufacturer in Minne- 
 apolis with gold, an inquest de lunatico inquirendo would soon be 
 held to determine his sanity. 
 
3 SYMBOLIC MONEY. 
 
 The difference between the notes of a bank and credits granted 
 by it to take the form of deposits is one of form only. The notes, 
 which are promises to pay to the holder an «quil amount of coin, 
 are what may be termed subsidiary paper money — pocket money, 
 for transactions inconsiderable in amount ; or where it is not known 
 that the person offering cheques is entitled to draw them ; or where 
 a person having occasion to make payments has not his cheque-book 
 by him. The tendency everywhere in commercial countries is to 
 cheques in preference to notes, from the greater safety and con- 
 venience of their use ; cheques, in addition to their use as money, 
 serving as valuable records of the transactions to which they relate. 
 The proportion in amount, or value, of cheques to notes in the 
 United States, were the issue of each alike free, is of course a matter 
 of conjecture ; but it is probable that the use of the former as 
 money would be tenfold greater than that of the latter, the propor- 
 tion of cheques constantly increasing from the establishment of 
 banks in every considerable place of trade, with which every one in 
 affairs opens accounts for the safe keeping, as well as the conven- 
 ient use, of his money. As it is, while the deposits in the national 
 banks equalled #1,775,251,128, the notes of the same in circulation 
 October 31, 1892, equalled only #143,423,298. At the same 
 time, however, the notes of the United States — greenbacks, 
 equalled #346,681,016 ; silver certificates and notes circulating as 
 money, #487,744,654 ; the two equalling #834,425,670. Should the 
 United States ever return to a normal and healthy monetary system, 
 its notes, except such as might be used as instruments, never legal 
 tender, for the collection of the revenues, evidences of debt, not 
 of capital, would be wholly retired. 
 
 So great has been the progression the instrument, symbolic money, 
 by which the exchanges of all commercial countries are now carried 
 on, that metallic money, except in the form of subsidiary coins, 
 is almost wholly discharged from use. When it interposes, and then 
 only in inconsiderable amounts, it is in the discharge of balances 
 arising between nations and widely separated districts of the same 
 country, and between banks and bankers, issuers of symbolic money, 
 for distribution from hand to hand. Its chief use is in the dis- 
 charge of balances arising between the latter. If all bills discounted 
 represented merchandise certain to be taken for consumption within 
 the period in which they were to mature, and if all had the same 
 time to run, balances arising between issuers of symbolic, or bank 
 
SYMBOLIC MONEY. 
 
 money, would be only nominal. The amount daily arising between 
 issuers of such money in the United States is well shown in the oper- 
 ations of Clearing Houses 1 now established in every considerable 
 
 1 Statement showing the number of Banks, members of the New York Clearing 1 House 
 established in 1833; their aggregate capital; clearings; balances; average daily clearings; 
 daily balances, and percentage of balances to clearings at the same, for thirty -nine years, 
 1854 to 1892, inclusive. 
 
 i 
 
 C.K 
 
 . B 
 O « 
 
 1 
 
 in 
 bo 
 
 a 
 
 V 
 
 3 
 
 V c jl 
 
 -T3 
 
 n 
 
 h 3 C 
 
 < 
 
 Average 
 daily bal- 
 ances paid 
 in money. 
 
 2S • 
 
 5*71 "> 
 £ u M 
 
 pq-- 
 
 1854 . 
 
 5 S 
 
 $47,044,900 
 48,854,180 
 
 $5,759,455,987 
 5,362,912,098 
 
 $297,411,494 
 
 $19,104,505 
 
 $988,078 
 
 *5-2 
 
 ifss ■ 
 
 48 
 
 289,694,137 
 384,714,489 
 
 17,412,052 
 
 940,565 
 
 5-4 
 
 1856 . 
 
 S° 
 
 52,883,700 
 
 6,906,213,32s 
 
 22,278,10s 
 
 1,079,724 
 1,182,246 
 
 4.8 
 
 i|S7 • 
 
 1858 . 
 
 5 2 
 
 64,420,200 
 
 8,333.226,718 
 
 365,313,902 
 
 26,965,371 
 
 4.4 
 
 46 
 
 67,146,01s 
 
 4.756,664,386 
 6,448,005,956 
 
 314,238,911 
 
 "5.393.736 
 20,867,333 
 
 1,016,954 
 
 6.6 
 
 1859 . 
 
 47 
 
 67,921,714 
 
 363,984,693 
 
 1.777.944 
 
 5.6 
 
 i860 , 
 
 S° 
 
 69.907.435 
 
 7,321,143.057 
 
 380,603,438 
 
 23.401,757 
 
 1,232,018 
 
 5-3 
 
 1861 . 
 
 So 
 
 65,000,605 
 
 5,915,742,758 
 
 353.383,944 
 
 19,260,520 
 
 1,151,088 
 
 6.0 
 
 1S62 . 
 
 So 
 
 6S,375,82o 
 
 6,871,443,591 
 
 415.530.33> 
 
 22,237,6S2 
 
 1.344.758 
 
 6.0 
 
 1S63 . 
 
 So 
 
 68,972,508 
 68,586.763 
 
 14,868,597,849 
 
 677,626,483 
 
 885,719,205 
 
 ".035,765,108 
 
 48,428,657 
 
 2,207,252 
 
 4.6 
 
 1864 . 
 
 49 
 
 24,097,196,926 
 
 77.984.45S 
 
 2,866,405 
 3.373.S2S 
 
 3-7 
 
 "SS ■ 
 
 55 
 
 80,363,013 
 
 26,932,384,342 
 
 84,796,040 
 
 4.0 
 
 1866 . 
 
 5j 
 
 82,370,200 
 
 28,717,146,914 
 
 1,066,135,106 
 
 93.54i.i9S 
 
 3.472,753 
 
 3-7 
 
 1S67 . 
 
 58 
 
 81 ,770,200 
 
 28,675,129,472 
 28,484,288,637 
 
 ","44.03.45" 
 
 93,10I|l67 
 
 3.717.414 
 
 4.0 
 
 1S6S . 
 
 59 
 
 81,270,200 
 
 "."25.455.237 
 1,120,318,308 
 1 ,036,484,822 
 
 92,lS2,l64 
 
 3,645,250 
 
 4.0 
 
 1S69 . 
 
 59 
 
 82,720,200 
 
 37,407,028,987 
 2 7 .804,539,400 
 29.300,980,682 
 
 121,451,303 
 
 3.637.397 
 
 3.0 
 
 1S70 . 
 
 61 
 
 83,620,206 
 
 90,274,479 
 
 3,365,210 
 
 3-7 
 
 1S71 . 
 
 62 
 
 84,420,200 
 
 1,209,721,029 
 
 95,"33,074 
 
 3,827,666 
 
 4-" 
 
 1S72 . 
 
 61 
 
 84,420,200 
 
 33,S44,369,S6S 
 35,461,052,826 
 
 1,428,582,707 
 
 109,884,317 
 
 4,636,632 
 
 4.2 
 
 1S73 • 
 
 59 
 
 83i370,2O0 
 
 1,474,508,035 
 1,286,758,176 
 
 II5,8S5,764 
 
 4,818,654 
 
 4.1 
 
 1S74 . 
 
 59 
 
 81 ,635,200 
 
 22,855,927,636 
 
 74,692,574 
 81,899,470 
 
 4,205,076 
 
 H 
 
 'S75 . 
 
 59 
 
 80,455,200 
 
 35,061,237,902 
 
 1, 408,608,777 
 
 4.693.297 
 4,218,378 
 
 5-6 
 
 .87S . 
 
 59 
 
 Si, 73 1,200 
 
 «..W7r»74>»47 
 23,289,243,701 
 22,508,438,442 
 
 1^895,042,029 
 
 79,349,428 
 
 S-9 
 
 1S77 . 
 
 58 
 
 71,085,200 
 
 ',373,996,302 
 
 76,358,176 
 
 73,55S,9SS 
 82,015,540 
 
 4,504,906 
 
 S 2 
 
 1S7S . 
 
 1S79 . 
 
 57 
 
 63,61 1 ,500 , 
 
 i,307.S43.S57 
 
 4,274,000 
 
 5-8 
 
 59 
 
 60,800,200 
 
 25,178,770,691 
 37,182,128,621 
 
 1,400,111,063 
 
 4,560,622 
 
 5-6 
 
 1SS0 . 
 
 57 
 
 60,475,200 
 
 i.5"6,53S,63i 
 
 121,510,224 
 
 4,956,009 
 
 4.1 
 
 1SS1 . 
 
 60 
 
 61,162,700 
 
 48,565,818,212 
 
 1,776,018,162 
 
 159.232.19" 
 
 5,823,010 
 
 3-5 
 
 1SS2 . 
 
 61 
 
 60,902,700 
 
 46,552,846,161 
 
 1,595,000,245 
 1 ,568,983,166 
 
 " S'.637.93S 
 
 5."95.440 
 
 3-4 
 
 ■S83 . 
 
 63 
 
 61,162,700 
 
 40,293,165,25s 
 
 "32,543.307 
 
 5,161,129 
 
 3-9 
 
 1SS4 . 
 
 61 
 
 60,412,700 
 
 34,092,037,33s 
 
 ",524.930,994 
 
 111,048,982 
 82,789,480 
 
 4,967,202 
 
 4-5 
 
 1SS5 . 
 
 64 
 
 58,612,700 
 
 25,250,79", 440 
 
 ",295,355,252 
 
 4.247,069 
 
 5-' 
 
 1SS6 . 
 
 63 
 
 59,312,700 
 
 33.374.6S2.216 
 34,872,848,786 
 
 ",5'9,565,3S5 
 
 109,067,589 
 
 4,965,000 
 
 4-5 
 
 1SS7 • 
 iSSS . 
 
 64 
 
 60,362,700 
 
 1,569,627,325 
 ",570,ioS,S2S 
 
 "■4,337.209 
 
 S.'42.3"6 
 
 4-5 
 
 63 
 
 60,762,700 
 
 30,863,686,609 
 
 101,192,415 
 
 S."4S,"9S 
 
 5-" 
 
 1889 . 
 
 63 
 
 60,762,700 
 
 60,812,700 
 
 34.796,465^29 
 
 ".757.637.473 
 
 114,839,820 
 
 5,800,784 
 
 S-o 
 
 1890 . 
 
 64 
 
 37,660,686,572 
 
 1.753.040,145 
 1.584,635.500 
 
 "23.074.139 
 
 5,738,859 
 
 4-7 
 
 1S9I . 
 
 63 
 
 60,772,700 
 
 34,053,698,770 
 
 """.65",47" 
 118,561,782 
 
 5.'95.S26 
 
 4.6 
 
 IS92 . 
 
 64 
 
 68,233,500 
 
 36,279,905,236 
 
 1,861,500,575 
 
 6,oS3,335 
 
 S-" 
 
 Total 
 
 
 168,515,265 
 
 t9S6,597.2> 2,585 
 
 }43.4"0,277.3 2S 
 
 tS2.470.719 
 
 t3.7o-.883 
 
 t44 
 
 I Yearly average for 39 years. J Totals for 39 years. 
 
 The Clearing-House transactions of the Assistant Treasurer (a member of it), of the 
 
 United States at New York, for the year ending October 1, 1892, were as follows : 
 
 Exchanges received from Clearing House $3301004,236 19 
 
 Exchanges delivered to Clearing House 124,324,68s 45 
 
 Balances paid to Clearing House - $206,579,547 74 
 
 The balances, $206,579,547.74, were paid to the Clearing House as follows : 
 
 United States gold certificates $83,355,00000 
 
 United States Treasury notes 75,275,00000 
 
 Legal tenders and change 47,949.547 74 
 
IO SYMBOLIC MONEY. 
 
 place of trade. The exchanges at the fifty-seven Clearing Houses 
 in the United States in 1892 equalled $61,017,839,067; the daily 
 average being about $200,000,000. The balances daily arising 
 averaged about $16,000,000, or about 8 percent, of the exchanges 
 taking place. In the city of New York the exchanges at the Clear- 
 ing House for 1892 equalled $36,279,905,236, the daily average 
 being $118,561,782; the daily balances, $6,083,335, a sum equal- 
 ling 5.1 per cent, of the exchanges. Clearing Houses, enforcing 
 daily settlements between all their members, are now the great 
 correctives to any tendency to over-issues of currency. No greater 
 amount of metallic money (not including subsidiary coin) would be 
 required in the internal commerce of the country, equalling $40,- 
 000,000,000 annually, than that now required at the Clearing 
 Houses, as at these the debtors one day are creditors the next, 
 but for extraordinary calls to which issuers are exposed 
 from disturbances arising alike in our domestic and foreign 
 trade. The amount of reserves, gold, held by the Bank of 
 England, ending with 1892, for its own issues, as well as for those 
 of all other issuers in the United Kingdom, the aggregate averaging 
 $3,000,000,000, equalled about .£23,000,000,* or $115,000,000. 
 London, the Clearing House of the world, is first called upon to 
 supply the lack of capital in every part of it. It has to consider 
 quite as much the political and military as the financial and indus- 
 trial situation the world over. When peace is menaced the first 
 care of the belligerents is to provide plentiful supplies of gold, the 
 only kind of money to be depended upon as having the same value 
 in all countries and in all emergencies. Were the monetary system 
 of the United States a normal one, a sum not exceeding one-half 
 that maintained by the Bank of England, the greater part to be held 
 in New York, the Clearing House of the country, would be ample 
 as reserves for all the issuers of symbolic money within it, and for 
 the discharge of all balances arising in the domestic and foreign 
 
 1 Statement showing the amount in pounds of gold held by the Bank of England near 
 thefirst day of January of each year, for twenty years, ending -with i8q2. 
 
 Year. Amount. Year. Amount. 
 
 1553 . . £22,355,000 iSSS . £10,455,412 
 
 1554 . 20,360,721 18S9 io,7i2,3fiS 
 1885 20,826,856 1S90 17,782,374 
 18S6 19,929,836 1891 . 23.465.S34 
 1SS7 20,238,539 iS92 22,468,478 
 
 The average amount at the beginning of each year was £20,659,541, the average amount 
 held being somewhat larger, but not exceeding that given. 
 
SYMBOLIC MONEY. II 
 
 trade of a country subject to very few of the disturbing influences 
 to which Great Britain is exposed. The United States is usually, 
 and always, with a -proper monetary system, would be, the credi- 
 tor nation. With a proper monetary system and with Clearing 
 Houses in all the great business centres, it would be impossible that 
 there should be any considerable fluctuations in trade, or that any 
 large balance should be found due abroad, or from one section to 
 another, or between issuers of symbolic money. But assuming that 
 the reserves of the issuers of symbolic money in the United States 
 should be in the same ratio to their liabilities as are those held by 
 the Bank of England, the amount required by them would not ex- 
 ceed $100,000,000, to increase with the increase of the exchanges. 
 We are consequently paying an enormous penalty for our unnatural 
 and fantastic system. According to the report of the director of 
 the mint, the amount of gold in the public treasury, November, 
 1893, was $162,683,854; in the hands of the public, $498,121,679; 
 in both, $660,805,533. The amount of silver in the public 
 treasury was $488,318,428 ; in the hands of the public, $58,834,149 ; 
 in both, $547,152,577 ; the total of the two being $1,207,958,110. 
 It will thus be seen that we are carrying as dead weight more than 
 $1,000,000,000 in the form of silver and gold, counting silver at its 
 nominal value, which, as capital, might, but for our vicious mone- 
 tary system, be made the basis of new industries, increasing vastly 
 our production of merchandise and with it the amount of the sym- 
 bolic money of the country. 
 
 As the issues of a bank made in the discount of bills of exchange 
 are ordinarily returned to it through the purchase for consumption 
 of the merchandise they represent, its share capital which con- 
 stitutes its reserves may be wholly paid in in bills, a portion of 
 them to mature in season to ' provide the coin necessary to take in 
 such of their issues as are not returned to it in the manner de- 
 scribed. If pressed for gold this can ordinarily be had by a pledge 
 of bills the constituents of which have ordinarily the value of an 
 equal nominal amount of gold. No small portion of treatises upon 
 money is taken up with the discussion of the proportion of reserves 
 in coin to liabilities, such proportion, in the books, to be all the 
 way from a quarter to one-half of liabilities, plenty of illustrations 
 being offered. The proportion depends upon the constituents of 
 the bills discounted. If it be merchandise, the liabilities of the 
 
12 SYMBOLIC MONEY. 
 
 issuer are returned without any intervention on his part. If not mer- 
 chandise, the borrower ordinarily will be unable to meet his loans. 
 No empyrical rule, consequently, can be laid down. Little or no 
 coin may be necessary to the entire solvency of a bank. In case of 
 a suspension on a large scale provision for resumption is not neces- 
 sarily that of coin, but that the bills of a bank should represent 
 merchandise, the ordinary subjects of consumption. In such case 
 no greater amount of gold may be required when banks resume than 
 when they suspended specie payment. Resumption is not the taking 
 in in coin of the liabilities of a bank, but that its issues should repre- 
 sent merchandise having a value in gold equal to their nominal 
 amount. The process of resumption on an extended scale may not 
 involve the use or movement of a dollar of coin. The capital 
 of new banks is ordinarily paid in in the form of cheques upon 
 other banks against deposits which grow out of the discount 
 of merchants' bills. Every one possessed of merchandise is capa- 
 ble of issuing instruments for its distribution entitled to circulate 
 at the par of gold. Such methods have been frequently resorted to, 
 but are no longer necessary, banks standing ready to discount all 
 bills given for merchandise, supplying a higher form of currency 
 than that issued by a single producer whose credit, no matter his 
 means, is limited to a narrow circle. 
 
 As already shown, the only difference between bills discounted 
 and the notes and credits issued in their discount, both being alike 
 at the option of the holder payable in coin, is in the time in which 
 they are respectively to mature ; the bills being payable on such 
 time as is assumed to be necessary for the distribution for consump- 
 tion of their constituent ; the notes and credits presently, it being 
 assumed that provision therefor has been made in the merchan- 
 dise put upon the market which the bills, and notes and credits, 
 issued in their discount, alike represent. If no such provision is 
 made the issuer has to supply the merchandise in the form of the 
 universal equivalent. Credit, as expressed by bills, is the necessary 
 condition of the issue of symbolic money. But for it metallic 
 money, as an equivalent, would be required alike for the movement 
 of merchandise in gross as for its distribution, piece by piece, to 
 consumers. It is the essential quality of symbolic money that pre- 
 vious to its issue provision be made for its return to the issuer in 
 the merchandise which such money represents. If the public are 
 
SYMBOLIC MONEY. 13 
 
 solvent the banks must be, although unable to meet upon the in- 
 stant any considerable demand for specie. If called upon they may 
 have no alternative but to suspend payment. Their bills paid, no 
 new loans being made, they would again have all their capital in hand 
 in its original form. Under such conditions, suspension of specie 
 payments may be a matter of a few days only. The consumption 
 of merchandise would go on as before, the liabilities on either side 
 being discharged by mutual offset until they are wholly retired. A 
 suspension of specie payments may have hardly any other injurious 
 effect than to arrest for a time the operations of production and 
 trade. It is a common thing to speak of the issues of banks as 
 " paper money based upon specie." The exact reverse is the fact. 
 Paper money is based, not upon specie, but upon merchandise, and 
 is retired thereby, specie interposing, as a rule, not between pro- 
 ducer and consumer, but only between issuers of symbolic money. 
 
 The proceeds of bills discounted are ordinarily taken in the form 
 of credits to remain on deposit with the issuers, to be drawn ac- 
 cording to the wants of those in whose favor they are granted. 
 Notes, subsidiary paper money, find their way into circulation chiefly 
 by means of cheques against deposits for the payment of wages, 
 current expenses, and the like. As they are drawn for specific pur- 
 poses they presently return in greater part to the issuers, a small 
 amount as pocket money remaining in the hands of the public. 
 
 As the capital of banks when first established may be largely paid 
 in in bills, these supplying in their payment, which may be demanded 
 in coin, the reserves properto be held, to the extent that the pro- 
 ceeds of loans made by them are undrawn, these may be treated, in 
 part, as reserves for new loans. Issues so made do not inflate the 
 currency, as they have behind them the proper constituent for 
 their redemption. The owners of undrawn proceeds of loans well 
 understand the use that is to be made of them and do not object, 
 the banks being strengthened instead of weakened thereby. When 
 demanded in large sums, all that the banks have to do is to call in 
 their loans, or negotiate new ones for themselves, payable in coin, 
 for gold is always to be had at prices not ordinarily much above 
 those demanded for other kinds of merchandise. It is to be remem- 
 bered that nearly all the issues of symbolic money, though nominally 
 payable in gold, are resolved by merchandise, the ordinary subjects 
 
14 SYMBOLIC MONEY. 
 
 of consumption. The holder of a barrel of flour is just as potential 
 in money as the possessor of gold who has to purchase and consume 
 flour as the condition of existence. Gold, however, has the advan- 
 tage that it is not subject to decay, while the uses to which it can be 
 put are always certain to maintain its value the world over. It has 
 the same significance everywhere. There can be no overstock of 
 it, while flour may be largely in excess of demand, the consumption 
 of it on a large scale being restricted to a few races. Ordinarily, 
 however, the supply of merchandise for consumption, and of gold, 
 keep an even pace, so that the holder of gold has no advantage 
 over a holder of merchandise, even of the kind which, to maintain 
 its value, must be presently consumed. 
 
 The greater part of the issues of banks and bankers in all com- 
 mercial countries is based upon the undrawn proceeds of loans. 
 On the 30th of September, 1892, the loans of the National banks of 
 the United States equalled #2,153,498,829. Their own loanable 
 capital equalled $1,029,077,041, made up of $686,573,115 of share 
 capital, #238,871,425 of surplus funds, and #103,632,501 of un- 
 divided profit. Their deposits equalled $1,775,251,128. Their 
 loans consequently exceeded their own means by $1,124,421,788. 
 The loans and discounts of the State banks equalled #654,654,490; 
 of Trust companies, $310,174,726; of private banks and bankers, 
 $69,310,687; the total being $1,034,139,903. The share capital of 
 the State banks equalled $233,751,171; the surplus funds and un- 
 divided profits, $90,358,080. The capital of the Trust companies 
 equalled #80,645,972; their surplus and undivided profits, 
 $60,768,148. The capital of the private banks and bankers 
 equalled $34,590,227; their surplus funds and reserved profits, 
 #11,259,164. The total loanable capital of the three equalled 
 $510,372,762. Their loans in excess of their capital equalled 
 $>5' ! -3>l ( >l> 1 4' 1 - Their deposits equalled #1,153,264,953, made up 
 of #648,513,809 with State banks, $41 1,659,996 with Trust com- 
 panies, and #93,091,148 with private banks and bankers. The loans 
 of all classes of issuers equalled #3,187,637,732, a sum $1,648,187,- 
 929 in excess of their loanable capital, amounting to $1,539,649,- 
 903. Their deposits equalled $2,928,516,081. By the means 
 described the whole available capital of the country is made the 
 basis of reproduction, not a dollar that can be spared remaining 
 unused. The advantage inures chiefly to workmen, as their 
 
SYMBOLIC MONEY. 
 
 15 
 
 wages are in ratio to the amount of capital employed, while the 
 prices of all articles of consumption are reduced in like ratio. 1 
 
 As all issues of currency properly made are retired automatically 
 and within brief periods by the consumption of their constituent, 
 their denomination or amount is to be suited to the means or wants 
 of the humblest as well as the largest consumers. There is the same 
 reason for the issue of notes of one dollar as of ten or fifty dollars. 
 No bank, however, would on the score of convenience and economy 
 issue notes for less than one dollar. It is often urged that no 
 notes should be issued for less than ten dollars, in order to force 
 specie into use, so that in the event of a breakdown in paper money 
 the people shall have something to fall back upon. The same reason 
 might be used against the use of cheques of less amount than fifty 
 dollars. It is to be remembered that the purpose of symbolic 
 money is to take the place of metallic money, which is to be wholly 
 discharged from the exchanges, except as subsidiary coins. There 
 can be no more inflation with a symbolic currency, properly issued, 
 than with a metallic currency, as the purpose of each as money is 
 to reach some article of consumption. The amount of specie to be 
 held is a matter of experience, the issuer, where the capital of a bank 
 is fully paid, always inclining, as a matter of caution, to an excess, as 
 much to maintain a high credit as to be always prepared for any 
 emergency. With a proper system no considerable adverse balance 
 could arise in the foreign trade of the country, as the instruments 
 could never be in excess of the means of expenditure. 
 
 1 Statement showing the number ; amount of share capital ; loans and discounts ; surplus 
 funds ; undivided profits , and deposits of the National banks of September 30, 1892, and 
 of the Slate banks. Loan and Trust companies, and private banks and bankers at the close 
 of the fiscal year iSg2. 
 
 
 3.773 
 National banks. 
 
 3.'9" 
 State banks. 
 
 16S 
 
 Loan and Trust 
 
 companies. 
 
 1,161 
 Private banks 
 and bankers. 
 
 Share capital 
 Surplus Funds 
 Undivided profits . 
 
 $6S6,573.'IS 
 238,871,425 
 
 103.632,50" 
 
 $233.75".'7" 
 66,725,191 
 23,632,989 
 
 $So,645,972 
 45.324,747 
 ■5.943.40" 
 
 $32,590,227 
 7.730.5S7 
 3.S2S.577 
 
 Loans and discounts 
 Deposits . 
 
 $1,029,077,041 
 
 2.I53.49S.829 
 ".775.25". "2« 
 
 $324,109,351 
 
 654.654.490 
 648,513,809 
 
 $142,414,120 
 
 3>o,i74.7 J 6 
 411,659,996 
 
 $43,349.39" 
 
 69,310,687 
 93,091,14s 
 
l6 SAVINGS BANKS. 
 
 SAVINGS BANKS. 
 
 In addition to the deposits with banks and bankers which, as capi- 
 tal, are made the basis of increased issues of symbolic money, are 
 deposits with savings banks, the accumulated earnings, or reserves, 
 of those who, having no adequate means of investing their earnings 
 or savings, intrust them to institutions especially equipped for such 
 purpose. As the deposits with savings banks are ordinarily made 
 in the notes of banks of issue, or in cheques upon the same, they 
 represent capital in a form fitted to serve as a basis of reproduction, 
 for the prosecution of enterprises of all kinds, or for permanent in- 
 vestment. Deposits with savings banks, as with banks of issue, are 
 payable presently in gold, as an undertaking, or guarantee, that the 
 property upon which they are loaned, or into which they are con- 
 verted, has a value equal to that of an equal amount of gold, — of 
 the universal equivalent. There is this difference between deposits 
 with banks of issue and those with savings banks. The former, 
 arising out of the discount of bills, are used as the instruments for 
 the distribution of the merchandise which such bills represent, and 
 are retired by their use. If not returned to the issuer, through the 
 purchase of merchandise, they are to be taken in by paying out 
 a corresponding amount of specie. However issued, they are cer- 
 tain to pass into the hands of the holders of merchandise by whom 
 they are presently deposited in a bank which, if not the issuer, to 
 strengthen itself, immediately demands from the issuers payment in 
 specie. On the other hand, deposits in savings banks, though paya- 
 ble on demand in coin, represent accumulations to be invested, their 
 owners having no present use for the same. As they will be drawn 
 only to meet the occasional wants of the depositors, the aggregate 
 amount, with a healthy state of affairs, steadily increases so that the 
 whole mass at any one time may be safely treated as a proper sub- 
 ject for investment. Of course in the event of disturbance or appre- 
 hension there may be runs upon savings banks for specie, to be 
 ordinarily returned, as the apprehension subsides, to the banks from 
 which it was drawn, or to some other institutions of the kind. As 
 the purpose of savings banks is to invest the money of the laboring 
 classes, or of those who cannot well invest for themselves, and as 
 it is always understood that the deposits are to be invested in prop- 
 erty which cannot be immediately converted into gold, in the case 
 
SAVINGS BANKS. \>J 
 
 of a run upon them they are allowed to defer payment for such time 
 as is assumed to be necessary for the conversion of their assets. The 
 amount of deposits in all the savings banks of the United States, 
 September 30, 1892, equalled $1,712,769,626, of which $705,777,- 
 557 were held by the savings banks of the New England States, the 
 amount averaging $150 per head of their population. As in these 
 States savings banks may make loans to manufacturing corporations, 
 they are of great aid in carrying large stocks of merchandise for 
 which there may be no present remunerative demand, as the money 
 of these banks for such purposes, and in any amounts, can be had 
 at the lowest current rates. The manufacturers in these conse- 
 quently have a great advantage over those in other States who 
 ' have no such facility for borrowing. In the State of New York the 
 ■deposits in the savings banks equalled $588,425,421. The depos- 
 its in the savings banks of the State of California equalled $127,- 
 000,000. Had all the States deposits in savings banks at the rate 
 of those in New England, the total for the country would reach 
 $10,000,000,000. There are few manufacturing establishments and 
 no savings banks in the States of Mississippi and Texas, which may 
 largely account for their hostility to interests in which they have 
 little or no share, but out of which deposits in savings banks chiefly 
 
 MONEY BY LAW. 
 
 There are two kinds of money by law — a debased coinage, and 
 notes payable at the pleasure of the issuer ; both to be received at 
 their nominal value in the discharge of debts. The latter is by far 
 the more dangerous and disastrous expedient, as debased coins 
 have, ordinarily, no other support than the value of the metal they 
 contain ; and by no sophistry can one be persuaded that a coin of a 
 half an ounce of silver has the value of a full ounce. New con- 
 tracts will be made in them only at the value of the metal they 
 contain. So soon, therefore, as those existing are discharged the 
 mischief resulting from the debasement is substantially at an end. 
 
 Notes issued to serve as money are a very different affair. They 
 may be issued and accepted in entire good faith, being promises 
 
1 8 MONEY BY LAW. 
 
 of a government for which, through its taxing power, the whole- 
 means of its people are assumed to be pledged. They are at the 
 outset always well received from the credit attached to them, from 
 the increased activity they impart to all the operations of society, 
 and as a facile expedient for meeting any great emergency. The 
 occasion of their issue is usually one which has roused the spirit of 
 the people to the highest pitch, so that little attention is paid to any 
 voice of warning, the great mass being content to forego present 
 payment for the good of the cause, confident that, the crisis passed, 
 abundant provision for their redemption will be made. As the 
 community among whom they are issued is impoverished in ratio 
 to their amount, as they are instruments in excess of the means of 
 expenditure, each succeeding issue, no matter how great has been! 
 the depreciation, is, consequently, always more eagerly welcomed 
 than the preceding one. The Continental currency, though resting 
 on very feeble foundations, the joint action of the several States over 
 which Congress had no control, was well received, and circulated- 
 for nearly two years at the par of coin. As the contest was pro- 
 longed the amount was necessarily rapidly increased, prices, from 
 the distrust created, being inflated in far greater ratio. Still no one 
 hesitated to take them at a price, as the greater the depreciation the 
 greater the gain, should it turn out that the Government would event- 
 ually provide the means for their redemption. They were as 
 readily taken at one-fifth as at their par value. Nothing, however, 
 could arrest the decline as issue followed issue till the amount 
 equalled $250,000,000. At last their worthlessness became so 
 patent that they fell a vast and lifeless mass to the ground. The 
 histories of the time are full of pictures of the sufferings from the 
 extravagance and waste necessarily resulting from the possession of 
 vast sums which, at a rate, served all the purposes of money ; and 
 from the losses to the holders when the final crash came. To 
 greatly aggravate the catastrophe the several States vied with the 
 National Government in vast issues of notes for the common cause, 
 all of which shared a common fate. The terrible disasters that were 
 suffered were held up as warnings for all time, and led to the inser- 
 tion in the Constitution of the new National Government of an 
 article forbidding the States to emit " bills of credit ; " that is, 
 notes to serve as money, a restriction which on several occasions- 
 has been held to be as imperative upon the National Government 
 
MONEY BY LAW. 19 
 
 as upon those of the States. When the former turned its attention 
 to the subject of the indebtedness contracted for the prosecution 
 of the war, it provided, by way of recognition only, for the funding 
 of the notes at the rate of one per cent, of their nominal value, 
 although they were still held in great amounts by persons who 
 received them at the value of coin, and although they contributed 
 essentially to the success of the great cause. Not a word of remon- 
 strance was raised at the meagre provision made for them. It was 
 felt on all hands that no plan could render substantial justice to the 
 holders ; that the notes were obligations very different in kmd from 
 other forms of indebtedness, and that they had about them a taint 
 of fraud in which the people and the Government were alike 
 involved. They were consequently virtually repudiated, while debts 
 contracted by the ordinary methods were funded at their full value, 
 interest added, those of the several States contracted by similar 
 methods for the common cause being also assumed, no provision 
 whatever being made for their notes issued to serve as money. 
 
 The occasion of the issue of notes to serve as money by our 
 National Government was the war of the Rebellion. Although 
 nearly thirty-five years have elapsed since their issue, we have not 
 yet had the hardihood to repudiate, nor the manliness, honesty, or 
 sense to retire them. They still remain, in vast mass, the pest and 
 menace of the nation. An explanation of their issue after we had 
 become a great, prosperous and powerful nation, possessed of 
 ample means for every emergency, and of the failure to retire them,, 
 involves a monetary history, in brief compass, of the United States. 
 
 BANK OF THE UNITED STATES. 
 
 Upon the formation of the National Government four matters of 
 paramount importance were committed for his consideration to 
 General Hamilton, Secretary of the Treasury : Provision proper 
 to be made for the public debt contracted for the prosecution of the 
 war ; a protective tariff; the coinage ; and a symbolic money as the 
 ordinary instrument of exchange. The latter, the only one that here 
 concerns us, was to be provided by a Bank of the United States 
 upon which three prime conditions were imposed — a paid-up 
 capital (of $ 10,000,000) ; that it should take interest at a rate not 
 exceeding 6 per cent., and that it should deal with nothing but bills 
 of exchange and gold and silver bullion. A double guarantee for 
 
20 BANK OF THE UNITED STATES. 
 
 the safety of the holders of its issues was thus provided — capital, 
 the preservation of which would be the first care of its managers ; 
 and loans only upon evidences of merchandise the speedy consump- 
 tion of which would return its issues automatically, and without any 
 interposition on its part. It 'might make losses by the discount of 
 bills for the constituent of which there was no present demand, such 
 bills, however, to bear only a very small proportion to those properly 
 based, and which, consequently, were certain to be paid, the losses 
 being too inconsiderable to affect the general result. The exchanges, 
 of merchandise, in gross, are almost wholly effected by the use of 
 bankers' and merchants' bills, the holders being entitled to that 
 which they represent, or to the proceeds of the same. There is no 
 occasion for the interposition of the Government in such issues. 
 Those receiving the same can easily ascertain whether they have their 
 proper constituent. As those who are to receive the issues of banks, 
 for the distribution of merchandise, piece by piece, are further removed 
 from the original transaction, the making of the bills, and have no 
 means of ascertaining the adequacy of the security on which they are 
 based, it is proper for Government to see that it be adequate by pro- 
 Tision of merchandise, as well as of coin reserves. If it assumed no 
 such duty a currency, the instruments of distribution, piece by piece, 
 would, in time, equally with bills of exchange for its distribution, in 
 gross, be issued by individuals or firms, every one possessed of 
 capital being competent to issue instruments for its distribution. 
 Such currency would in many respects be superior to that of cor- 
 porations from the greater uniformity of issue, more abundant pro- 
 vision of capital, and more competent and trustworthy management, 
 the chief care of the issuers being the preservation of their capital ; 
 and as no issues would be accepted by the public but those of con- 
 cerns of undoubted standing and solvency. Railroads could be 
 constructed at less cost and operated far more economically by 
 individuals than by corporations, from the keener sense of personal 
 interest that would always be present, but such advantages have to be 
 foregone from the amount of capital often involved, and for the reason 
 that, being institutions, their management must be intrusted to bodies 
 having perpetual existence. The advantages of banks are that they 
 are the only means by which, in numerous places, capital dedicated 
 to a specific object, and subject to few risks, can be combined. A 
 currency alike for distribution of merchandise in gross, and piece by 
 
BANK OF THE UNITED STATES. 21 
 
 piece, should be issued where it is produced. As the issues of banks 
 should always and everywhere have the same value, it is proper 
 that they be under the supervision of a common authority. The 
 newer States will never, in such matters, adopt proper precautions, 
 so strong with them will be the temptation to create banks for the 
 purpose of borrowing instead of lending money. 
 
 The Bank of the United States was the custodian of the public 
 revenues which were made receivable in its notes (never legal 
 tender). As it received in the ordinary course of business, for 
 whatever purpose drawn, the notes of the State Banks, of which great 
 numbers were speedily created, it had to account to the Government 
 at the par of coin for such as were received in the payment of the 
 revenues. The bank consequently, for its protection, enforced daily 
 settlements, all balances on either side being payable in coin, unless, 
 as the stronger institution, it extended credits, as was often the case, 
 on balances in its favor. By such provision a Clearing House was 
 in effect established of which every bank in the country, as the 
 necessary condition for securing circulation of its issues, was, whether 
 willingly or not, a member. With such provision it was impossible 
 that there could be any inflation of the currency, or that any con- 
 siderable balances, to be discharged in coin, could arise either in 
 domestic or foreign trade, the currency in use being wholly one of 
 symbols, every issue being discharged by the purchase for consump- 
 tion of its constituent within a period of,- say, sixty days, no new 
 issues to follow but to represent new creations of merchandise. As 
 for the Government it never had the custody of a dollar of its funds. 
 All accumulations of these, beyond its immediate wants, were 
 loaned by the bank, and remained in the channels of production 
 and trade. The coin for which it had any occasion was supplied 
 by the bank. All remittances abroad on its account were made 
 by the bills of the bank as a drawer of foreign exchange, to cover 
 which, as in ordinary affairs, merchants' bills were remitted. The 
 relation of the Government to the bank was precisely that of any 
 other customer, the bank loaning the balances, for which they had 
 no immediate use, of all its customers. Thus at the very beginning 
 of our history, and for the first time in history, a new and 
 gratifying spectacle was presented of a currency always perfect 
 in its kind, always equal in amount to the subjects of consumption, 
 specie being discharged from the ordinary operations alike of 
 
22 BANK OF THE UNITED STATES. 
 
 Government and people. The nation, consequently, at the very 
 outset entered upon a career of prosperity which, considering 
 the lack of artificial highways, and of those improvements in the 
 mechanic arts which have since changed the whole face of society, 
 ■was without a parallel. During the whole period of its existence 
 there was never a moment in which the bank was pressed for 
 metallic money, nor in which there was not an abundance of it for 
 every use to which it might be called. The result speedily disarmed 
 all constitutional objections which had been raised, Mr. Jefferson 
 himself when he came to the Presidency approving an act for the 
 establishing of a branch in New Orleans upon the acquisition of 
 Louisiana from France, as much an original act as that creating the 
 bank. 
 
 Although the bank had been the instrument for the creation of a 
 currency, perfect in its kind, by means of which capital was almost 
 •wholly discharged from the exchanges, the rates of interest being 
 thereby greatly reduced, the extension of its charter, strange as it 
 may seem, was refused. As the greater part of the currency had 
 been supplied by the State banks, it was assumed that they were 
 competent for the issue of all that was required. The fact was 
 overlooked that their currency was maintained at the par of coin 
 wholly through the control exercised over them by the National 
 Bank. The organized opposition came from these institutions 
 chafing under the supervision which the bank exercised over them. 
 Several of the Eastern States, among them Massachusetts and Penn- 
 sylvania, memorialized Congress against the extension of the charter. 
 There was still a lingering opposition to it on constitutional grounds. 
 
 Upon the winding up of the bank the Government from necessity 
 •was compelled to place itself in the same relation to the State banks 
 that it had previously occupied to that of the United States. No 
 sooner was it seen that the latter was to go into liquidation than the 
 former, subject to no adequate control, began to increase largely 
 their issues to fill the vacuum about to be made in the circulation. 
 Great numbers of new banks were created for the same purpose. 
 The object of the establishment of the Bank of the United States 
 was to provide a currency always the symbol of capital. The States 
 left to themselves were certain to create banks the issues of which 
 were to supply the place of capital instead of being the representa- 
 tives of it. No restrictions consequently were imposed as to their 
 
BANK OF THE UNITED STATES. 23 
 
 loans. Borrowers were always eager for accommodations which 
 were freely extended, as great numbers of banks, without capital, 
 had little to lose but much to gain by exchanging their issues, bearing 
 no interest, for those of borrowers bearing interest, and often at a high 
 rate. The moment therefore that the strong arm of the National 
 Bank which, for its own preservation, had always to be outstretched, 
 -was withdrawn, then a great inflation of the currency was the imme- 
 diate result. So long as distrust was not aroused there was little 
 thought of demanding coin for notes, these being far more conven- 
 ient in use. The Continental currency, worthless at the start, cir- 
 culated, as has been shown, for nearly two years, from the confidence 
 felt in it, at the par of coin. 
 
 In 181 2 came the war with Great Britain. For its prosecution 
 the Government was not only forced to increase greatly taxes of all 
 kinds, but to make large loans, all payable, and distributed, by means 
 of the issues' of the State banks. Distrust at last excited led to a 
 run upon them, and, in 1814, the greater part suspended specie pay- 
 ments. Released even from a pretence of making good their issues, 
 these were so enormously increased that, in t8i6, according to the 
 •statement of Mr. Calhoun, in a speech in advocacy of a new 
 .National Bank, they reached the enormous sum of $200,000,000, a 
 sum more than sixfold greater than the aggregate for 1 8 1 r when the 
 first National Bank went out of operation. During the whole period 
 between the first and second banks the Government had no money 
 but the issues of the State banks. At that early day it was forced 
 into the adoption of the " Pet Bank System," so notorious in later 
 times, and over which it could exercise no control. There was no 
 thought, nor was there any possibility, of carrying on its operations 
 in coin. The loans negotiated by it, and payable at a future day in 
 •coin, equalled nominally $80,000,000. The aggregate amount 
 received therefor in the notes of the banks equalled $68,000,000, 
 its securities payable in coin, commanding, in bank notes, only 85 
 per cent, of their nominal value. From the rise in prices due to 
 the inflation of the currency, the value, in coin, of the articles and 
 services which the Government had to purchase did not exceed 
 $34,000,000. The total loss suffered by it consequently, from a 
 disordered currency, equalled $48,000,000. The whole subject 
 was carefully considered in r830 by a Committee of Ways and 
 Means of the House of Representatives, of which Mr. McDuffie, of 
 
24 BANK OF THE UNITED STATES. 
 
 South Carolina, was chairman, which, in a report submitted by him, 
 said : 
 
 The Government borrowed during the short period of the war $80,000,000, 
 at an average discount of 15 per cent., giving certificates of stock, amounting to 
 $80,000,000, in exchange for $68,000,000, in such bank paper as could be 
 obtained. Upon the very face of the transaction, therefore, there was a loss of 
 $12,000,000, which would, in all probability, have been saved if the Treasury 
 had been aided by such an institution as the Bank of the United States. But the 
 sum of $68,000,000, received by the Government, was in a depreciated currency, 
 not more than half as valuable as that in which the stock given in exchange for 
 it has been and will be redeemed. Here, then, is another loss of $34,000,000, 
 resulting, incontestibly and exclusively, from the depreciation of the currency, 
 and making, with the sum lost by the discount, $46,000,000. — History of the 
 Bank, p. 734. 
 
 The banks suspended specie payment in August, 18 14. A meet- 
 ing of Congress was presently called to consider the situation. On 
 the 17th of October following the Committee of Ways and Means of 
 the House, of which Mr. J. W. Eppes, of Virginia, was chairman, 
 " having under consideration the support of public credit," addressed 
 a communication to Hon. A. J. Dallas, Secretary of the Treasury, 
 " in order to afford you an opportunity of suggesting any other, or 
 such additional provisions as may be necessary to revive and main- 
 tain unimpaired the public credit." To this communication Mr. 
 Dallas, on the 1 7th of October, replied : 
 
 The condition of the circulating medium of the country presents a copious- 
 source of mischief and embarrassment. The recent exportations of specie have 
 considerably diminished the fund of gold and silver coin ; and another con- 
 siderable portion of that fund has been drawn, by the timid and the wary, from 
 the use of the community, into the private coffers of individuals. On the other 
 hand, the multiplication of banks in the several States has so increased the 
 quantity of paper currency that it would be difficult to calculate its amount, and 
 still more difficult to ascertain its value, with reference to the capital on which it 
 has been issued. But the benefit of even this paper currency is, in a great 
 measure, lost, as the suspension of payments in specie, at most of the banks, has 
 suddenly broken the chain of accommodation that previously extended the credit 
 and the circulation of the notes which were emitted in one State into every 
 State of the Union. It may, in general, be affirmed, therefore, that there 
 exists, at this time, no adequate circulating medium common to the citizens of 
 the United States. The moneyed transactions of private life are at a stand, and 
 the fiscal operations of the Government labor with extreme inconvenience. It is 
 impossible that such a state of things should be long endured ; but, let it be 
 fairly added, that, with legislative aid, it is not necessary that the endurance 
 
BANK OF THE UNITED STATES. 25. 
 
 should be long. Under favorable circumstances, and to a limited extent, an 
 emission of treasury notes would, probably, afford relief ; but treasury notes are 
 an expensive and precarious substitute, either for coin or for bank notes, charged 
 as they are with a growing interest, productive of no countervailing profit or 
 emolument, and exposed to every breath of popular prejudice or alarm. The 
 establishment of a. national institution, operating upon credit, combined with 
 capital, and regulated by prudence and good faith, is, after all, the only efficient 
 remedy for the disordered condition of our circulating medium. While accom- 
 plishing that object, too, there will be found, under the auspices of Such an 
 institution, a safe depository for the public treasure, and a constant auxiliary to 
 the public credit. But, whether the issues of a paper currency proceed from the 
 national treasury, or from a national bank, the acceptance of paper in a course 
 of payments and receipts must be forever optional with the citizens. The ex- 
 tremity of that day cannot be anticipated when any honest and enlightened states- 
 man will again venture upon the desperate expedient of a tender law. — History 
 of the Bank, p. 481. 
 
 In 1815 a bill which passed both Houses of Congress for the 
 creation of a new bank failed to receive the signature of the Presi- 
 dent, Mr. Madison, from its inadequacy to the object sought to be 
 accomplished. 
 
 The condition of the country in 1816 had become so desperate 
 that by common consent the only escape was a new bank upon the 
 model of the old, the capital to be increased to $35,000,000 that it 
 might be better able to cope with the difficulties it was to encounter. 
 In its advocacy Mr. Calhoun, who had charge of the measure in the. 
 House, said : 
 
 That the currency of the nation was extremely depreciated, and in degrees, 
 varying according to the different sections of the country, all would assent. 
 That this state of the currency was a stain on the public and private credit and 
 injurious to the morals of the community was so clear a position as to require no 
 proof. There were, however, other considerations arising from the state of the 
 currency, not so distinctly felt nor so generally assented to. The state of our 
 circulating medium was opposed to the principles of the Federal Constitution. 
 The power was given to Congress by that instrument in express terms to regulate 
 the currency of the United States. In point of fact, that power, though given to 
 Congress, is not in their hands. The power is exercised by banking institutions 
 no longer responsible for the correctness with which they manage it. Gold and 
 silver have disappeared entirely; there is no money but paper money, and that 
 money is beyond the control of Congress. No one who referred to the Constitu- 
 tion could doubt that the money of the United States was intended to be placed 
 entirely under the control of Congress. The only object the framers of the Con- 
 stitution could have had in view in giving to Congress the power ' ' to coin money, 
 regulate the value thereof, and of foreign coin," must have been to give a steadi- 
 
•26 BANK OF THE UNITED STATES. 
 
 ness and fixed value to the currency of the United States. The state of things 
 at the time of the adoption of the Constitution afforded an argument in support 
 of such construction. There then existed a depreciated paper currency which 
 could only be regulated and made uniform by giving a power for that purpose to 
 the general government. I contend, therefore, taking into view the prohibition 
 against the States issuing bills of credit, that there was a strong presumption this 
 power was intended to be' exclusively given to Congress. There was no provision 
 in the Constitution by which States were prohibited from creating the banks 
 which now exercise this power; but banks were then but little known. There 
 was but one, the Bank of North America, with a capital of only $400,000 ; and 
 the universal opinion was that bank notes represented gold and silver, and that 
 there could be no necessity to prohibit banking institutions under this impression, 
 because their notes always represented gold and silver, and they could not be 
 multiplied beyond the demands of the country. I draw the distinction between 
 banks of deposit and banks of discount, the latter of which were then but little 
 understood — and their abuse not conceived until demonstrated by recent experi- 
 ence. No man in the convention, much talent and wisdom as it contained, 
 could possibly have foreseen the course of these institutions ; that they would 
 have multiplied from one to two hundred and sixty ; from a cap'ital of $400,000 
 to $80,000,000 ; that from being consistent with the provisions of the Constitu- 
 tion and the exclusive right of Congress to regulate the currency they would be 
 directly opposed to it; that, so far from their credit depending on their punctu- 
 ality in redeeming their bills with specie, they might go on, ad infinitum, in vio- 
 lation of their contracts, without a dollar in their vaults. There has, indeed, 
 been an extraordinary revolution in the currency of the country. By a sort of 
 under-current the power of Congress to regulate the money of the country has 
 caved in, and upon its ruin have sprung up those institutions which now exercise 
 the right of making money for and in the United States ; for gold and silver are 
 not the only money, but whatever is the medium of purchase and sale, in which 
 bank paper alone is now employed, and has, therefore, become the money of the 
 country. 
 
 A change great and wonderful has taken place, which divests you of your 
 rights and turns you back to the condition of the Revolutionary War, in which 
 every State issued " bills of credit " which were made a legal tender and were of 
 various value. 
 
 This, then, is the evil. We have, in lieu of gold and silver, a paper medium, 
 unequally but generally depreciated, which affects the trade and industry of the 
 nation, which paralyzes the national arm, which sullies the faith both public and 
 private of the United States, — a paper no longer resting on gold and silver as its 
 basis. We have, indeed, laws regulating the currency of foreign coin ; but they 
 are, under present circumstances, a. mockery of legislation, because there is no 
 coin in circulation. The right of making money — an attribute of sovereign 
 power, a sacred and important right — is exercised by two hundred and sixty 
 banks, scattered over every part of the United States, not responsible to any 
 power whatever for their issues of paper. The next and great inquiry was, How 
 -was this evil to be remedied? Restore these institutions to their original use; 
 cause them to give up their usurped power; cause them to return to their, legiti- 
 
BANK OF THE UNITED STATES. 2>] 
 
 mate office of places of discount and deposit; let them be no longer mere paper 
 machines; restore the state of things which existed anterior to 1 813, which was 
 consistent with the just policy and interests of the country ; cause them to fulfil 
 their contracts ; to respect their broken faith ; resolve that everywhere there shall 
 be an uniform value to the national currency. Your constitutional control will 
 then prevail. 
 
 In the United States, according to the best estimation, there were not, in the 
 vaults of all the banks, more than $15,000,000 of specie, with a capital amount- 
 ing to about $82,000,000; hence the cause of the depreciation of bank notes — • 
 the excess of paper in circulation beyond that of specie in their vaults. This 
 excess was visible to the eye, and almost audible to the ear; so familiar was the 
 fact, that this paper was emphatically called trash, or rags. According to esti- 
 mation, there are in circulation within the United States $200,000,000 of bank 
 notes, credits, and bank paper, in one shape or other. Supposing $30,000,000 
 of these to be in possession of the banks themselves, there were perhaps 
 $170,000,000 actually in circulation, or on which the banks drew interest. — 
 History of the Bank of the United States, p. 63 1 . 
 
 The speech of Mr. Calhoun was unsurpassed alike in statement 
 and in fervid eloquence, as he was describing scenes of disaster wit- 
 nessed on every side. The currency of the country, through the 
 neglect of the Government, had completely broken down. Under 
 the first bank it was all that could be desired. A similar institution 
 would restore the situation. The Constitution gave to Congress the 
 power to "regulate the value of money." That in us.e, and to be 
 used, was not coin, but paper. Currency of coin needed no regula- 
 tion, its value being determined by weight. But little inconvenience 
 would be felt should the United States, as it often had done, adopt 
 the coins of other countries instead of issuing its own, as the former 
 would, for all the purposes for which metallic money was used in 
 considerable sums, the discharge of balances arising between the 
 issuers of symbolic money, and in international trade, be just as con- 
 venient as the latter. The commercial value of bullion always regu- 
 lates that of the coins into which it is converted. The only function 
 of government in the matter of coinage is to affix names or titles to 
 certain weights and metals. Its great duty was not the regulation of 
 the coinage, as that would take care of itself, but of the money in 
 use. For this all that was requisite was a second bank upon the 
 model of the first. 
 
 The new bank went into operation March 3, 1816. At the 
 time there were 260 State banks, the issues of which in various 
 forms equalled $200,000,000, a large part of which was almost 
 
28 BANK OF THE UNITED STATES. 
 
 wholly valueless. The first thing for the bank was to clear the 
 field of the worthless stuff encumbering it by assisting such banks as 
 were solvent, time being given, and by driving those insolvent out of 
 existence by supplying a sound currency adequate to the wants of the 
 people who always prefer the best instruments to given ends. It 
 began its operations by assuming, by the permission of the Na- 
 tional Government, balances to the amount of #10,804,112, due 
 from the State banks to it, allowing long credits therefor. In its 
 efforts to restore the currency it made, as was inevitable, heavy losses 
 on every side, one of $1,600,000 by the mismanagement of the 
 Baltimore branch. Upon the tumultuous sea upon which the new 
 institution embarked, it barely escaped disastrous shipwreck. So- 
 excessive were its losses that for the first thirteen years of its exist- 
 ence its dividends averaged only 4.88 per cent., against nearly twice, 
 that rate by the first bank, which, when it began its operations, 
 had a clear field before it. It was not until 1820 that affairs in the 
 Northern and Eastern States were substantially restored. In the 
 Southern States a large number of banks were still unable to resume. 
 These were forced out of existence as soon as the national one was 
 able, through its branches, to supply a currency adequate in amount, 
 and of the value of coin. 
 
 In 1 8 1 1 eighty-eight State banks were in operation, having a cap- 
 ital of #42,610,605, and a note circulation of #22,700,000. The 
 deposits, not given in Mr. Gallatin's " Considerations on the Cur- 
 rency," our only source of information, did not probably exceed, 
 $7,000,000, the total of the two being about $30,000,000. In 1820- 
 the number of banks was 307, the nominal capital of which equalled 
 #102,110,611, their notes in circulation equalling $40,641,574. A 
 great number of these were subsequently wound up. The issues of 
 those that weathered the storm did not probably exceed #40,000,- 
 000, an amount only $10,000,000 greater than that of 181 1. The 
 increase of the currency from $30,000,000 in 181 1 to $200,000,000- 
 in 1816, and its reduction to $40,000,000, before order was fully 
 restored, were attended by disasters which can only be imagined, not 
 expressed. If the National Government from a disordered currency,, 
 in transactions equalling nominally $80,000,000, made a loss of 
 $46,000,000, how vast must have been those of the people, with 
 transactions a hundredfold greater ! The value in coin of the mer- 
 chandise and service received by it, #34,000,000, was a trifling sum 
 
BANK OF THE UNITED STATES. 20, 
 
 to be taken in the form of domestic products for the purchase of 
 which the notes received were used. Had the bank been in exist- 
 ence such products could have been far more easily reached by a 
 currency purely symbolic, consequently of the value of coin, than 
 by one greatly inflated, as with the former the industries of the 
 country would have remained undisturbed, while the people, from 
 the sense of patriotism which was aroused, would have promptly 
 anticipated every want of the Government. A vicious currency so 
 impaired the vigor and energy, as well as the morale, of the people, 
 that the period between the two banks was one of the most disas- 
 trous and discreditable in our history. Had there been no break 
 between them there would have been no suspension of specie pay- 
 ments, and none of the terrible disasters that followed. Such was the 
 deliberate judgment of Mr. Gallatin, Secretary of the Treasury from 
 1802 to 1814 continuously, a most competent authority. In his 
 " Considerations on the Currency " he said : 
 
 We have stated all the immediate and remote causes within our knowledge 
 which concurred in producing that event [the suspension of the specie pay- 
 ments]; and although the effects of a longer continuance of the war cannot be 
 conjectured, it is our deliberate opinion that the suspension might have been 
 prevented, at the time when it took place, had the former Bank of the United 
 States been still in existence. The exaggerated increase from 88 to 260 of 
 State banks, occasioned by the dissolution of that institution, would not have 
 occurred. That bank would, as before, have restrained within proper bounds, 
 and checked their issues; and, through the means of its offices, it would have 
 been in possession of the earliest symptoms of the approaching danger. It 
 would have put the Treasury Department on its guard ; both acting in concert 
 would certainly have been able at least to retard the event; and, as the treaty of 
 peace was ratified within less than six months after the suspension took place, 
 that catastrophe would have been altogether avoided. 
 
 We have already adverted to the unequivocal symptoms of renewed confidence 
 shown by the rising value of bank notes, which followed the peace. This would 
 have greatly facilitated an immediate resumption of specie payments, always 
 more easy, and attended with far less evils, when the suspension has been of short 
 duration. The banks did not respond to that appeal made by public opinion; 
 nor is there any evidence of any preparations, or disposition on their part, to pay 
 their notes in specie, until after the act to incorporate the" new Bank of the 
 United States had passed. 1 — Considerations on the Currency, p. 46. 
 
 1 In his " Considerations on the Currency M Mr. Gallatin pave the names of 165 banks 
 which failed, chiefly in the period that immediately followed the attempt to resume specie 
 payments. 
 
3° BANK OF THE UNITED STATES. 
 
 Order restored, the country again entered upon a period of pros- 
 perity, which rivalled that which had prevailed throughout the 
 whole period of the first bank, the currency being perfectly adapted 
 in amount and kind to the wants of the people. 
 
 In 1828 General Jackson was elected to the Presidency. In his 
 first annual message, December 8, 1829, he referred to the bank in 
 the following terms : 
 
 The constitutionality and expediency of the law creating the Bank of the United 
 States are well questioned by a large portion of our fellow-citizens, and it must 
 be admitted by all that it has failed in the great end of establishing a uniform 
 currency. 
 
 The assault of General Jackson upon the bank came upon the 
 nation like a clap of thunder from a clear sky. The language of 
 a madman, it was received with amazement rather than indignation. 
 Under the two banks the country had enjoyed the priceless boon of 
 a currency perfect in its kind, by means of which capital had been 
 almost wholly discharged from the exchanges — a currency the 
 nominal value of which always measured that of the subjects, whether - 
 domestic or foreign, of consumption, and with which no consider- 
 able balances to be paid in coin could arise either in foreign or 
 domestic trade. The sentiment everywhere in reference to the bank 
 was one of profound satisfaction and content. 
 
 Not a moment was lost in reply. On the 10th of March, so soon 
 as it could be appointed, that part of the message relating to the 
 bank was referred to the Committee of Ways and Means of the 
 House, consisting of Mr. McDuffie, of South Carolina, Chairman ; 
 Mr. Verplanck, of New York ; Mr. Dwight, of Massachusetts ; Mr. 
 Smyth, of Virginia ; Mr. Ingersoll, of Connecticut ; Mr. Gilmore, 
 of Pennsylvania, and Mr. Overton, of Louisiana. On the 10th of 
 April following, the committee submitted an elaborate and unani- 
 mous report in which it considered chiefly two questions — 1st, 
 Has Congress the power to incorporate such a Bank of the United 
 States? and, 2d, Whether it is expedient to establish and maintain 
 such an institution ? In support of the constitutionality of the bank 
 the committee, among other things, said : 
 
 If the concurrence of all the departments of the Government at different 
 periods of our history, under every administration, and during the ascendency of 
 both the great political parties into which the country was divided soon after 
 
BANK OF THE UNITED STATES. $1 
 
 the adoption of the present Constitution, shall be regarded as having the authority- 
 ascribed to such sanctions by the common consent of all well-regulated commu- 
 nities, the constitutional power of Congress to incorporate a bank may be 
 assumed as a postulate no longer open to controversy. In little more than two 
 years after the Government went into operation, and at a period when most of the 
 distinguished members of the Federal Convention were either in the executive or 
 legislative councils, the Act incorporating the first Bank of the United States 
 passed both branches of Congress by large majorities, and received the deliberate 
 sanction of President Washington, who had then recently presided over the 
 deliberations of the convention. The constitutional power of Congress to pass 
 the Act of Incorporation was thoroughly investigated, both in the executive 
 Cabinet and in Congress, under circumstances in all respects propitious to a dis- 
 passionate decision. There was at that time no organization of political parties; 
 and the question was, therefore, decided by those who, from their knowledge and 
 experience, were peculiarly qualified to decide correctly, and who were entirely 
 free from the influence of that party excitement and prejudice which would justly 
 impair, in the estimation of posterity, the authority of a legislative interpretation 
 of the constitutional charter. No persons can be more competent to give a just 
 construction to the Constitution than those who had a principal agency in framing 
 it; and no administration can claim a more perfect exemption from all those 
 influences which sometimes pervert the judgments even of the most wise and 
 patriotic, than that of the Father of his Country during the first term of his 
 service. . 
 
 In less than two years after the expiration of the charter, — the war with 
 Great Britain having taken place in the meantime, — the circulating medium 
 became so disordered, the public finances so deranged, and the public credit so 
 impaired, that the enlightened patriot, Mr. Dallas, who then presided over the 
 Treasury Department, with the sanction of Mr. Madison, and as it is believed 
 every member of the Cabinet, recommended to Congress the establishment of a 
 National Bank, as the only measure by which the public credit could be revived 
 and the fiscal resources of the government redeemed from a ruinous and other- 
 wise incurable embarrassment ; and such had been the impressive lesson taught by 
 a very brief but fatal experience, that the very institution which had been so 
 recently denounced and rejected by the Republican party, being now recom- 
 mended by a Republican administration, was carried through both branches of 
 Congress as a Republican measure by an overwhelming majority of the Republican 
 party. It is true that Mr. Madison did not approve and sign the bill which 
 passed the two Houses, because it was not such a bill as had been recommended 
 by the Secretary of the Treasury, and because the bank it proposed to create was 
 not calculated, in the opinion of the President, to relieve the necessities of the 
 country. But he premised his objections to the measure ' ' by waiving the consti- 
 tutional authority of the Legislature to establish an incorporated bank, as being 
 precluded, in his opinion, by repeated recognitions, under varied circumstances, 
 of the validity of such an institution, in Acts of the legislative, executive, and 
 judicial branches of the government, accompanied by indications, in different 
 modes, of a concurrence of the general will of the nation." Another bill was 
 immediately introduced; and would, in all probability, have become a law, had 
 
32 BANK OF THE UNITED STATES. 
 
 not the news of peace, by doing away with the pressure of the emergency, induced 
 Congress to suspend further proceedings on the subject until the ensuing session. 
 At the commencement of that session, Mr. Madison invited the attention of 
 Congress to the subject; and Mr. Dallas again urged the necessity of establishing 
 a bank, to restore the currency, and facilitate the collection and disbursement of 
 the public revenue; and so deep and solemn was the conviction upon the minds 
 of the public functionaries that such an institution was the only practicable means 
 of restoring the circulating medium to a state of soundness, that, notwithstanding 
 the decided opposition to all the State Banks and their debtors, — and, indeed, 
 the whole debtor class of the community, — the Act incorporating the present 
 Bank of the United States was passed by considerable majorities in both branches 
 of Congress, and approved by Mr. Madison. 
 
 In reference to the question of the expediency of the bank, the 
 committee said : 
 
 The question really presented for determination is not between a metallic 
 and a paper currency, but between a paper currency of uniform value, and subject 
 to the control of the only power competent to its regulation, and a paper currency 
 -of varying and fluctuating value, and subject to no common or adequate control 
 whatever. On this question, it would seem that there could hardly exist a 
 difference of opinion; and that this is substantially the question involved in con- 
 sidering the expediency of a national bank will satisfactorily appear by a compar- 
 ison of the state of the currency previous to the establishment of the present 
 bank and its condition for the last ten years. 
 
 Human wisdom has never effected, in any other country, a nearer approach to 
 mniformity of the currency than that which is made by the use of the precious 
 metals. If, therefore, it can be shown that the bills of the United States Bank 
 are of equal value with silver at all points of the Union, it would seem that the 
 proposition is clearly made out that the bank has accomplished the great end of 
 establishing a uniform and sound currency. It is not denied that the bills of the 
 mother bank, and of all its branches, are invariably and promptly redeemed in 
 specie whenever presented at the offices by which they have been respectively 
 issued, and at which, upon their face, they purport to be payable. Nor is it 
 •denied that the bills of the bank, and of all its branches, are equal to specie in 
 their respective spheres of circulation. 
 
 But it is impossible to exhibit anything like a just view of the beneficial opera- 
 tions of the bank without adverting to the great reduction it has effected, and the 
 steadiness it has superinduced in the rate of the commercial exchanges of the 
 country. ... It has been already stated that it has saved the com- 
 munity from the immense losses resulting from a high and fluctuating state of 
 the exchanges. It now remains to show its effect in equalizing the currency. 
 In this respect, it had been productive of results more salutary than were antici- 
 pated by the most sanguine advocates of the policy of establishing the bank. 
 It has actually furnished a circulating medium more uniform than specie. This 
 proposition is susceptible of the clearest demonstration. If the whole circulating 
 
BANK OF THE UNITED STATES. 
 
 33 
 
 medium were specie, a. planter of Louisiana who should desire to purchase 
 merchandise in Philadelphia would be obliged to pay one per cent, either for a 
 bill of exchange on this latter place, or for the transportation and insurance of his 
 specie. His specie at New Orleans, where he had no present use for it, would be 
 worth one per cent, less to him than it would be in Philadelphia, where he had a 
 demand for it. But, by the aid of the Bank of the United States, one-half of the 
 expense of transporting specie is now saved to him. The bank for one-half of 
 one per cent, will give him a draft upon the mother bank at Philadelphia, with 
 which he can draw either the bills of that bank, or specie, at his pleasure. In 
 like manner, the bank and its branches will give drafts from any point of the 
 Union to any other where offices exist, at a percentage greatly less than it would 
 cost to transport specie, and, in many instances, at par. If the merchant or 
 planter, however, does not choose to purchase a draft from the bank, but prefers 
 transmitting bills of the office where he resides to any distant point, for commer- 
 cial purposes, although these bills are not strictly redeemable at the point to which 
 they are transmitted, yet, as they are receivable in payment of all dues to the 
 Government, persons will be generally found willing to take them at par, and always 
 at a discount much less than would pay the expense of transporting specie. The 
 fact that the bills of the bank and its branches are indiscriminately receivable 
 at the custom houses and land offices, in payment of duties, and for the public 
 lands, has an effect in giving uniformity to the value of these bills. 
 
 For all the purposes of the revenue, it gives to the national currency that per- 
 fect uniformity, that ideal perfection, to which a currency of gold and silver, in so 
 extensive a country, could have no pretensions. A bill issued at Missouri is of 
 equal value with specie at Boston, in payment of duties, and the same is true of 
 all other places, however distant, where the bank issues bills, and the Government 
 collects its revenue. When it is, moreover, considered that the bank performs, 
 with the most scrupulous punctuality, the stipulation to transfer the funds of the 
 Government to any point where they may be wanted, free of expense, it must be 
 apparent that the committee are correct, to the very letter, in stating that the 
 bank has furnished, both to the Government and to the people, a currency of 
 absolutely uniform value in all places, for all the purposes of paying the public 
 contributions, and disbursing the public revenue. And when it is recollected that 
 the Government annually collects and disburses more than $23,000,000, those 
 who are at all familiar with the subject will at once perceive that bills, which are 
 of absolute uniform value for this vast operation, must be very nearly so for all the 
 purposes of general commerce. — History of the Bank, p. 735. 
 
 A matter upon which the committee especially dwelt was the ser- 
 vices which the bank rendered in facilitating the exchanges, in gross, 
 of the country. Commerce between different countries, and widely 
 separated districts of the same country, must, in the end, be recipro- 
 cal in amount, or value. An immense advantage consequently is 
 gained when the indebtedness contracted between two points can be 
 discharged by the credits, corresponding in amount, arising between 
 
34 BANK OF THE UNITED STATES. 
 
 the two, avoiding thereby the use of metallic money in their dis- 
 charge. Between New York and New Orleans at the time was a 
 very large reciprocal movement of merchandise represented by mer- 
 chants' bills. These, drawn in the commerce between them, were, 
 by means of the bank, offset, the one against the other, so that no 
 capital in the form of coin had to move, except in the case of excess 
 of indebtedness on one side or the other. Where the bills were 
 equal in amount the price of exchange between the two cities, was 
 nominal, as no movement of coin by the drawers on either side was 
 involved. This illustration will serve for the commerce between all 
 cities in which the bank had branches, as was the case at all points 
 of commercial importance. By the methods described the b-ink 
 constituted a clearing house for the drawers of merchants' bills 
 throughout the country, precisely as it had established a clearing 
 house for the issuers of currency for the distribution of merchandise 
 piece by piece, specie only interposing to make good balances, never 
 considerable in- amount. In the entire absence at the time of inter- 
 nal means of communication, except that of rivers never to be relied 
 on, the advantages resulting from the manner in which the exchanges 
 in gross were effected, without the use of coin, was second only to 
 those by which, by means of its issues of banks, they were effected 
 piece by piece. 
 
 On the 29th of March, 1829, the Committee on Finance of the 
 Senate, of which Mr. Smith, of Maryland, was chairman, the other 
 members being Mr. Silsbee, of Massachusetts; Mr. King, of New 
 York ; Mr. Smith, of South Carolina, and Mr. Johnson, of Louisiana, 
 to which was referred so much of the message of the President as 
 related to the bank, submitted a unanimous report, from which the 
 following extracts are given : 
 
 The currency of the United States, in its relation to the Government, consists 
 of gold and silver, and of notes equivalent to gold and silver. And the inquiry 
 which naturally presents itself is, whether this mass of currency is sound and 
 uniform for all the practical purposes of the Government, and the trade of the 
 Union. That it is so, will appear from the following facts : 
 1st, The Government receives its revenue from — 
 343 Custom Houses. 
 42 Land Offices. 
 8,004 Post Offices. 
 134 Receivers of Internal Revenue. 
 37 Marshals. 
 33 Clerks of Courts. 
 
BANK OF THE UNITED STATES. 35 
 
 These, with other receiving officers, who need not be specified, compose an 
 aggregate of more than nine thousand persons, dispersed through the whole of the 
 Union, who collect the public revenue. From these persons the Government 
 has, for the ten years preceding January 1, 1830, received $230,068,855.17. 
 This sum has been collected in every section of this widely extended country. It 
 has been disbursed at other points, many thousand miles distant from the places 
 where it was collected; and yet it has been so collected and distributed, without 
 the loss, as far as the committee can learn, of a single dollar, and without the 
 expense of a single dollar to the Government. That a currency by which the 
 Government has been thus enabled to collect and transfer such an amount of 
 revenue to pay its army and navy, and all its expenses, and the national debt, is 
 unsafe and unsound, cannot readily be believed, for there can be no surer test of 
 its sufficiency than the simple fact that every dollar, received in the form of a 
 bank note, in the remotest parts of the interior, is, without charge, converted into 
 a silver dollar, at every one of the vast number of places where the service of the 
 Government requires its disbursement. The Secretary of the Treasury, in his 
 report of the 6th of December, 1828, declares that, during the four years preced- 
 ing, the receipts of the Government had amounted to more than $97,000,000, 
 and that " all payments on account of the public debt, whether for interest or 
 principal; all on account of pensions; all for the civil list; for the army; for the 
 navy; or for whatever purpose wanted, in any part of the Union, have been 
 punctually met." The same officer states that " it is the preservation of a good 
 currency that can alone impart stability to property, and prevent those fluctuations 
 in its value, hurtful alike to individuals and to national wealth. This advantage 
 the bank has secured to the community, by confining within prudent limits, its 
 issues of paper." 
 
 It cannot be doubted that, throughout the whole country, the circulating bank 
 notes are equal to specie, and convertible into specie. There may be and prob- 
 ably are exceptions ; because among banks as among men there are some who make 
 a show of unreal strength. But it is a fact so familiar to the experience of every citi- 
 zen in the community as to be undeniable that, in all the Atlantic and commercial 
 cities, and generally speaking throughout the whole country, the notes of the 
 State banks are equal to gold and silver. The committee do not mean to say that 
 there may not be too many banks, or that insolvencies do not occasionally occur 
 among them; but as every bank which desires to maintain its character must be 
 ready to make settlements with the Bank of the United States as the agent of the 
 Government, or be immediately discredited, and must therefore keep its notes 
 equal to gold and silver, there can be little danger to the community while the 
 issue of the banks is restrained from running to excess by the salutary control of 
 the Bank of the United States, whose own circulation is extremely moderate com- 
 pared with the amount of its capital. Accordingly, the fact is, that the general 
 credit of the banks is good, and that their paper is always convertible into gold 
 and silver, and for all local purposes forms a local equivalent to gold and silver. 
 There is, however, superadded to this currency a general currency more known, 
 more trusted, and more valuable than the local currency which is employed in the 
 exchanges between different parts of the country. These are the notes of the 
 National Bank. These notes are receivable for the Government by the 9,000 
 
36 BANK OF THE UNITED STATES. 
 
 receivers scattered throughout every part of the country. They are in fact in the 
 course of business paid in gold or silver, though they are not legally, or necessa- 
 rily, so paid by the branches of the bank in every section of the Union. In all 
 commercial places they are received in all transactions without any reduction in 
 value, and never, under any circumstances, does the paper from the remotest 
 branches vary beyond a quarter of one per cent, in its actual exchange for silver. 
 Here, then, is a currency as safe as silver, more convenient and more valuable 
 than silver; which, through the whole western and southern and interior parts 
 of the Union, is eagerly sought in exchange for silver; which in those sections 
 often bears a premium paid in silver; which is, throughout the Union, equal to 
 silver in payment to the Government and payments to individuals in business; and 
 which, whenever silver is needed in any part of the country, will command it with- 
 out the charge of the slightest fraction of a percentage. By means of this currency 
 funds are transmitted at an expense less than in any other country. In no other 
 country can a merchant do what every citizen of the United States can do — 
 deposit, for instance, his silver at St. Louis or Nashville or New Orleans, and 
 receive notes which he can carry with him 1,000 or 1,500 miles to the Atlantic 
 cities, and there receive for them an equivalent amount of silver without any 
 expense whatever ; and in no possible event an expense beyond a quarter of one per 
 cenl. If, however, a citizen does not wish to incur the anxiety of carrying these 
 notes with him, or to run the hazard of the mail, he may instead of them receive 
 a draft, payable to himself or his agent alone, so as to insure the receipt of an 
 equal amount at an expense of not one-half, and often not one-fourth, of the 
 actual cost of carrying the silver. The owner of the funds, for instance, at St. 
 Louis or Nashville can transfer them to Philadelphia for one-half per cent.; from 
 New Orleans generally without any charge at all, at most one-half per cent.; 
 from Mobile from par to one-half per cent.; from Savannah at one-half per cent.; 
 and from Charleston at from par to one-quarter per cent. v 
 
 This seems to present a state of currency approaching as near to perfection as 
 could be desired; for here is a currency issued (through branches) at twenty-four 
 different parts of the Union, obtainable by any citizen who has money or credit. 
 When in his possession, it is equivalent to silver in all its dealings with the 9,000 
 agents of the Govern ment throughout the Union. In all his dealings with the 
 interior it is better than silver; in all his dealings with the commercial cities, 
 equal to silver; and if, for any purpose, he desires the silver with which he bought 
 it, it is at his disposal almost universally without any'diminution, and never more 
 than a diminution of one-quarter per cent. It is not easy to imagine, it is scarcely 
 necessary to desire, any currency better than this. 
 
 The preceding extracts should be read and reread by every one 
 who would get an adequate idea of the nature, and extent of use, in 
 the United States, of symbolic money, rendered such by a stroke 
 of the pen, — by restrictions, imposed upon a single institution, the 
 fiscal agent of the Government, of discounts to bills of exchange. 
 For the distribution of merchandise all that is required in the agent 
 is capacity and integrity, supplemented by a due provision of reserves, 
 
BANK OF THE UNITED STATES. 2)7 
 
 to be maintained by every one in affairs. The producer in the sale 
 of his wares does not demand from the merchant, the distributor of 
 them, any security other than his bills supported by a proper pro- 
 vision of reserves. When he offers them for discount he is not re- 
 quired, for their payment, to put up any security additional to their 
 constituent supported by the reserves of their maker, supplemented 
 by his own. The provision made is regarded by the bank dis- 
 counting the bills as ample for its protection. Losses may be 
 suffered, but they are incident to, and make up a part of, the charge 
 or cost of distribution. Those to whom the issues of the bank dis- 
 counting the bills are paid, as money, have not only the security 
 described, — the merchandise represented by the bills, in the dis- 
 count of which the issues they hold were made, supplemented by 
 the reserves of all the parties thereto, all alike responsible for their 
 payment, — but, in addition, the reserves, ordinarily ample, of the 
 issuers. They are entitled to the additional security, being removed 
 one step farther from, and having little knowledge of, the transac- 
 tions out of which the issues they are to receive arose. With such 
 cumulative security, the issues of banks are properly preferred by 
 all as money to gold. All provision beyond that described would be 
 a needless addition of capital to the process of distribution, the 
 burden to be borne alike by producer and consumer. 
 
 Such was the currency, alike of the Government and the people, 
 under the two banks. With it, at the end of each year, the Govern- 
 ment, with all its engagements fulfilled and all it's wants supplied 
 through the instrumentality of bank money, was precisely in the 
 position in which it would have been had metallic money been used 
 in every one of its transactions — a very great additional advantage 
 resulting from the use by it of the money of commerce, that of the 
 people, instead of one of capital involving a heavy outlay in its pro- 
 vision as well as for its transportation and safe keeping. With no 
 other currency on any considerable scale but that of the banks with 
 which all the operations of the Government as well as of the people 
 were carried on for a period of forty years, not a dollar of loss was 
 suffered by the Government, and very little by the people from the 
 failure of State banks which supplied the greater part of the cur- 
 rency. With a National Bank upon the model of the old, the Gov- 
 ernment might to-day, as in the past, with entire safety turn its back 
 wholly upon the currency, the greater part of it to be supplied by 
 
38 BANK OF THE UNITED STATES. 
 
 other banks, State or National, certain that the issues of these, to 
 gain circulation, must be up to any standard it might provide for 
 a single institution of its own, the custodian of its revenues. With 
 such an institution the issues of all other banks, State or National, 
 with no other security behind them but the constituents of the bills 
 discounted, and of the ordinary reserves of the parties thereto, and 
 of the issuers, the amount of such reserves to be left to the discre- 
 tion of those who were to provide them, might well be received in 
 the payment of all the Government revenues, and for their disburse- 
 ment. Governments, like individuals, use money as an instrument, 
 not as an end, to reach food, clothing, material, and the like ; and it 
 may well accept as money whatever represents the objects for which 
 it has use, whether it be issued by banks of the States of Montana, 
 Colorado, Massachusetts, or New York. Subject to proper restric- 
 tions the issues of all would have the same value and be as proper 
 for Government to receive in the payment of its revenues, and 
 without any further security or provision for their solvency than those 
 described, as gold. To require more would be disadvantageous 
 alike to producer, distributor and consumer, including the Govern- 
 ment. By means of them producers of cotton, rice, wheat, sugar, 
 tobacco, corn, and fabrics would, in effect, pay their debts, public and 
 private, in kind, their products being turned into money at their own 
 doors, a money proper to be accepted by every one in affairs. If 
 what one receives does not represent merchandise wanted, it can be 
 readily exchanged for the kind that does, or, in default of this, for 
 the universal equivalent in which all issues are, in terms, liable to be 
 discharged, andfor which the reserves of the issuers are provided. 
 With such a currency, should any apprehension arise, a crisis could 
 not be precipitated, as the monetary and industrial situation would 
 be perfectly sound. The only effect would be an arrest of operations 
 until the sky was clear. If no new discounts were made, one-half of 
 the currency outstanding, symbolizing articles for consumption, 
 would be automatically retired by their purchase for use within a 
 period of, say, thirty days. The pause at worst would be but 
 a momentary one, as the alarm could not be due to any disorder in 
 monetary or industrial affairs ; nor could it create a run upon the 
 banks to any considerable extent for their reserves, as their issues 
 would, in great measure, be in the hands of the makers of their 
 bills, to be presently used in their payment. 
 
BANK OF THE UNITED STATES. 39 
 
 The Government is exercised for the welfare of the people ; money 
 that is good enough for them is good enough for those charged with 
 its administration. In affairs it is a part of the people, and should 
 take its chances with the people. Governments, like individuals, 
 must, in affairs, carry on their operations through intermediaries. 
 They are liable to lose or be defrauded ; still, they must all the same 
 be employed. But no guarantee can be exacted by our Government 
 for the faithful and competent discharge of the duties of those 
 employed by it so far-reaching and effective as those exacted, 
 through the instrumentality of an institution of its own creation, from 
 banks over which it has no legislative control. The Government 
 should adopt the methods employed by the people, not only for its 
 own convenience, but to lessen the burdens of the people. It should 
 use symbolic money precisely as it uses railroads. The two con- 
 trivances have precisely the same purpose. Gold, capital, should be 
 as much discharged from its operations as from those of the people. 
 A symbolic currency, made such by the oversight of the Govern- 
 ment, would not only be the greatest boon alike to it and the 
 people, but would create a profound sense of nationality, long lost ; 
 would be evidence of a paramount and beneficent authority pres- 
 ent in almost every transaction, and affording the strongest possible 
 guarantee of domestic order, and of the integrity of the national life, 
 so frequently and often rudely assailed. Its tendency to the creation 
 of a strong and intelligent sense of nationality may prove the great 
 obstacle to its provision. A government which could establish and 
 maintain it would be regarded as possessed of power capable of 
 subjecting the discordant elements included in our system to its 
 control. The refusal to extend the charter of the second bank was 
 upon the ground that its creation transcended the power of the 
 National Government. There can be no doubt but that, at the time, 
 a considerable majority of the people of the United States were in 
 favor of subordinating the authority of the National Government to 
 that of the States. One cause of discord removed by the Civil 
 War, others of still greater magnitude may come to the front. 
 For such abundant elements still exists. While the opportunity 
 favors no time should be lost in establishing a monetary system 
 which, by its excellence, would create such a sense of its value that 
 the authority behind it would at all hazards be upheld. 
 
 The picture here drawn is not a fancy sketch, but history through 
 
4<3 BANK OF THE UNITED STATES. 
 
 a period of forty years, now as much forgotten as if the events re- 
 corded had taken place before the construction of the pyramids, so 
 completely did the irruption of barbarians into the fair field of 
 civilization efface, even from memory, the most remarkable and 
 beneficent monument of the fathers. 
 
 Among the distinguished citizens who replied to General Jack- 
 son's attack upon the bank was Mr. Albert Gallatin, who, from 1802 
 to 1 8 14, was continuously Secretary of the Treasury, serving during 
 the greater part of the terms of Mr. Jefferson and Mr. Madison, and 
 for the greater part of the War of 181 2. From his eminent ability, 
 the long period in which he presided over the Treasury, and his wide 
 experience in affairs, being subsequently president of a bank in the 
 city of New York, he was of all men best qualified to speak author- 
 itatively upon the subject of the currency, and the services rendered 
 by the bank alike to the government and the people. His reply was 
 his " Considerations on the Currency and the Banking System of 
 the United States," an elaborate monetary history of the country 
 from the formation of the Government to 1830. From that work 
 extracts have been given designed to show that, had the bank been 
 in operation, suspension of specie payments in 18 14 would have 
 been averted. Those that follow relate chiefly to the constitution- 
 ality, from its usefulness, of the bank : 
 
 The Act incorporating the bank is sanctioned exclusively by that clause which 
 gives to Congress power to make all laws which shall be "necessary and 
 proper " for carrying into execution any of the powers vested in the government 
 of the United States. . 
 
 Experience has confirmed the great utility and importance of a Bank of the 
 United States in its connection with the Treasury. The first great advantage 
 derived from it consists in the safe keeping of the public moneys, securing, in 
 the first instance, the immediate payment of those received by the principal col- 
 lectors, and affording a constant check on all their transactions; and afterwards 
 rendering a defalcation in the moneys once paid, and whilst nominally in the 
 Treasury, absolutely impossible. The next, and not less important, benefit is to 
 be found in the perfect facility with which all the public payments are made by 
 cheque or treasury drafts, payable at any place where the bank has an office ; all 
 those who have demands against government are paid in the place most conven- 
 ient to them; and the public moneys are transferred through our extensive terri- 
 tory, at a moment's warning, without any risk or expense, to the places most 
 remote from those of collection, and wherever public exigencies may require. 
 From the year 1791 to this day, the operations of the Treasury have, without 
 
BANK OF THE UNITED STATES. 41 
 
 interruption, been carried on through the medium of banks; during the years 181 1 
 to 1816, through the State banks; before and since, through the Bank of the 
 United States. Every individual who has been at the head of that department, 
 and, as we believe, every officer connected with it, has been made sensible of the 
 great difficulties that must be encountered without the assistance of those institu- 
 tions, and of the comparative ease and great additional security to the public with 
 which their public duties are performed through the means of the banks. To 
 insist that the operations of the Treasury may be carried on with equal facility and 
 safety through the aid of the State banks, without the interposition of a Bank of 
 the United States, would be contrary to fact and experience. That great assist- 
 ance was received from the State banks while there was no other has always 
 been freely and cheerfully acknowledged. But it is impossible in the nature of 
 things that the necessary concert could be made to exist between thirty different 
 institutions; and in some instances heavy pecuniary losses, well known at the 
 seat of government, have been experienced. To admit, however, that State banks 
 are necessary for that purpose is to give up the question. To admit that banks 
 are indispensable for carrying into effect the legitimate operations of government 
 is to admit that Congress has the power to establish a bank. The General Gov- 
 ernment is not made by the Constitution to depend, for carrying into effect 
 powers vested in it, on the uncertain aid of institutions created by other authori- 
 ties, and which are not at all under its control. It is expressly authorized to 
 carry those powers into effect by its own means, by passing the laws necessary and 
 proper for that purpose; and in this instance by establishing its own bank, instead 
 of being obliged to resort to those which derive their existence from another 
 source, and are under the exclusive control of the different States by which they 
 have been established. 
 
 It was not at all anticipated, at the time when the former Bank of the United 
 States was first proposed, and when constitutional objections were raised against 
 it, that bank notes issued by multiplied State banks, gradually superseding the 
 use of gold and silver, would become the general currency of the country. The 
 effect of the few banks then existing had not been felt beyond the three cities 
 where they had been established. The States were forbidden by the Constitution 
 to issue bills of credit; bank notes are bills of credit to all intents and purposes; 
 and the State could not do, through others, what it was not authorized to do 
 itself; but the bank notes, not being issued on the credit of the States, nor guar- 
 anteed by them, were not considered as being, under the Constitution, bills of 
 credit emitted by the States. Subsequent events have shown that the notes of 
 State banks, pervading the whole country, might produce the very effect which 
 the Constitution had intended to prevent, by prohibiting the emission of bills of 
 credit by any State. The injustice to individuals, the embarrassments of govern- 
 ment, the depreciation of the currency, its want of uniformity, the moral neces- 
 sity imposed on the community, either to receive that unsound currency or to 
 suspend every payment, purchase, sale, or other transaction incident to the wants 
 of society, all the evils which followed the suspension of specie payments, have 
 been as great, if not greater, than those which might have been inflicted by a 
 paper currency, issued under the authority of any State. We have already 
 adverted to the several provisions of the Constitution which gave to Congress 
 
42 BANK OF THE UNITED STATES. 
 
 the right and imposed on it the duty to provide a remedy ; but there is one which 
 deserves special consideration. 
 
 Whatever consequences may have attended the suspension of specie payments 
 in Great Britain, there still remained one currency which regulated all the others. 
 All the country bankers were compelled to pay their own riotes, if not in specie, 
 at least in notes of the Bank of England. These notes were, as a standard of 
 value, substituted for gold; and if the currency of the country was depreciated, and 
 fluctuating in value from time to time, it was at the same uniform value through- 
 out the country. There was but one currency for the whole, and every variation 
 in its value was uniform as to places, and at the same moment operated in the 
 same manner everywhere. But the currency of the United States, or, to speak 
 more correctly, of the several States, varied during the suspension of specie pay- 
 ments, not only from time to time, but at the same time from State to State, and 
 in the same State from place to place. In New England, where those payments 
 were not discontinued, the currency was equal in value to specie; it was at the 
 same time at a discount of 7 per cent, in New York and Charleston, of 15 in 
 Philadelphia, of 20 and 25 in Baltimore and Washington, with every other pos- 
 sible variation in other places and States. 
 
 The currency of the United States, in which the public and private debts were 
 paid and the public revenue collected, not only was generally depreciated, but 
 was also defective in respect to uniformity. Independent of all the other clauses in 
 the Constitution which relate to that subject, it is specially provided, 1st, that all 
 duties, imposts, and excises shall be uniform throughout the United States ; 
 2d, that representative and direct taxes shall be apportioned among the several 
 States according to their respective numbers, to be determined by the rule 
 therein specified; and that no capitation or other direct tax shall belaid, unless in 
 proportion to the enumeration. Both these provisions were violated whilst the 
 suspension of specie payments continued. It is clear that after the quota of the 
 direct tax of each State had been determined according to the rule prescribed by the 
 Constitution, it was substantially changed by being collected in currencies differ- 
 ing in value in the several States. It is not less clear that the clause which pre- 
 scribes a uniformity of duties, imposts, and excises was equally violated by 
 collecting every description of indirect duties and taxes in currencies of different 
 value. The only remedy existing at that time was the permission to pay direct 
 and indirect taxes in treasury notes. But those notes did not pervade every part 
 of the country in the same manner as bank notes; they were of too high denom- 
 ination to be used in the payment of almost any internal tax; they were liable 
 also to vary in value in the different States; and they could operate as a remedy 
 only as long as their depreciation was greater than that of the most depreciated 
 notes in circulation. 
 
 We will now ask whether, independent of every other consideration, Congress 
 was not authorized and bound to pass the laws necessary and proper for carrying 
 into effect with good faith those provisions of the Constitution, and whether that 
 could or can be done in any other manner than either by reverting to a purely 
 metallic, or by substituting a uniform paper currency to that which had proved so 
 essentially defective in that respect, and which from its not being subject to one 
 and the same control is, and forever will be, liable to that defect. The uniform- 
 
BANK OF THE UNITED STATES. 43 
 
 ily of duties and taxes of every description, whether internal or external, direct 
 or indirect, is an essential and fundamental principle of the Constitution. It is 
 self-evident that that uniformity cannot be carried into effect without a corre- 
 sponding uniformity of currency. Without laws to this effect, it is absolutely 
 impossible that the taxes and duties should be uniform, as the Constitution pre- 
 scribes; such laws are therefore necessary and proper, in the most strict sense of 
 the words. There are but two means of effecting the object, — a metallic or a 
 uniform paper currency. Congress has the option of either, and either of the 
 two which may appear the most eligible will be strictly constitutional, because 
 strictly necessary and proper for carrying into effect the object. If a currency 
 exclusively metallic is preferred, the object will be attained by laying prohibitory 
 stamp duties on bank notes of every description, and without exception. If it 
 is deemed more eligible, under existing circumstances, instead of subverting the 
 whole banking-system of the United States, and depriving the community of the 
 accommodations which bank notes afford, to resort to less harsh means; recourse 
 must be had to such as will ensure a currency sound and uniform itself, and at the 
 same time check and regulate that which will continue to constitute the greater 
 part of the currency of the country. 
 
 Those statements also show that the Bank of the United States, wherever its 
 operations have been extended, has effectually checked excessive issues on the 
 part of the State banks, if not in every instance, certainly in the aggregate. 
 They had been reduced, before the year 1820, from sixty-six to less than forty 
 millions. At that time, those of the Bank of the United States fell short of four 
 millions. The increased amount required by the increase of population and 
 wealth during the ten ensuing years has been supplied in a much greater pro- 
 portion by that bank than by those of the States. With a treble capital, they 
 have added little more than eight millions to their issues. Those of the Bank of 
 the United States were nominally twelve, in reality about eleven millions greater 
 in November, 1829, than in November, 1819. The whole amount of the paper 
 currency has, during those ten years, increased about forty-five percent., and that 
 portion which is issued by the State banks only twenty-two and a half per cent. 
 We have indeed a proof, not very acceptable perhaps to the bank, but conclusive 
 of the fact, that it has performed the office required of it in that respect. The 
 general complaints, on the part of many of the State banks, that they are checked 
 and controlled in their operations by the Bank of the United States, that, to use 
 a common expression, it operates as a screw, is the best evidence that its general 
 operation is such as had been intended. It was for that very purpose that the 
 bank was established. We are not, however, aware that a single solvent bank 
 has been injured by that of the United States, though many have undoubtedly 
 been restrained in their operations much more than was desirable to them. This 
 is certainly inconvenient to some of the banks, but in its general effect is a public 
 benefit to the community. 
 
 As respects the past, it is a matter of fact that specie payments were restored, 
 and have been maintained, through the instrumentality of that institution. It 
 gives a complete guarantee that under any circumstances its notes will preserve 
 the same uniformity that they now possess. Placed under the control of the 
 General Government, relying for its existence on the correctness, prudence and 
 
44 BANK OF THE UNITED STATES. 
 
 skill with which it shall be administered, perpetually watched and occasionally 
 checked by both the Treasury Department and rival institutions, and without a 
 monopoly, yet with a capital and resources adequate to the object for which it 
 was established, the bank also affords the strongest security which can be given 
 with respect to paper, not only for its ultimate solvency, but also for the unin- 
 terrupted solvency of its currency. The statements we have given of its pro- 
 gressive and present situation show how far those expectations have heretofore 
 been realized. 
 
 The manner in which the bank checks the issues of the State banks is equally 
 simple and obvious. It consists of receiving the notes of all those which are 
 solvent, and requiring payment from time to time, without suffering the balance 
 due by any to become too large. We think that we may say that, on this 
 operation, which required particular attention and vigilance, and must be car- 
 ried on with great firmness and due forbearance, depends almost exclusively 
 the stability of the currency of the country. 
 
 The President of the United States has expressed the opinion that the bank 
 has failed' in the great end of establishing a uniform and sound currency, and 
 has suggested the expendiency of establishing " a National Bank, founded upon 
 the credit of the Government and its revenues." He has clearly seen that the 
 uniformity of the currency was a fundamental principle derived from the Consti- 
 tution, and that this, unless the United States reverted to a purely metallic cur- 
 rency, could not be effected without the aid of a National Bank. But it appears 
 to us that the objection of want of uniformity, which may be supported in one 
 sense, though not in the constitutional sense of the word, applies generally to a 
 paper currency, and not particularly to that which is issued by the Bank of the 
 United States. And although we are clearly of opinion that the United States at 
 large are entitled to the pecuniary profit arising from the substitution of a paper 
 for a metallic currency, we are not less convinced that this object cannot be 
 attained in a more eligible way, and more free of objections, than through the 
 medium of a National Bank, constituted on the same principles as that now 
 existing. (Page 78, et seg.~) 
 
 With Mr. Gallatin the constitutionality of the bank was to be 
 inferred from its usefulness in the exercise of the powers expressly 
 enumerated. Whatever was useful and not prohibited was con- 
 stitutional. The bank was of great use as the custodian, without 
 expense to the Government, of the public moneys. It was of great 
 use in the collection of the revenues, rendering losses by collectors 
 almost impossible. It was of great use in the transfer of the public 
 moneys, without loss or expense to the Government. "From 1791 
 to this day the operations of the Treasury have been carried on 
 through the medium of banks, and every public officer has been 
 made sensible of the great difficulty that must be encountered 
 without the assistance of these institutions." The great assistance 
 
BANK OF THE UNITED STATES. 45 
 
 received from the State banks within the period between the two 
 banks was acknowledged, although heavy losses had been made by 
 employing them. As banks were necessary for carrying into effect 
 the powers vested in it, the Government was not, for carrying into 
 effect those granted, to depend, upon the uncertain aid of in- 
 stitutions created by other authorities and over which it had no 
 control. 
 
 The States were forbidden to issue "bills of credit," but the 
 notes of banks created by them were " bills of credit to all intents 
 and purposes." A State could not do indirectly, through instruments 
 created by itself, what it could not do directly. " Bills of credit " 
 were issued by the States notwithstanding, some of them providing 
 capital therefor and appointing the staff to conduct them. The 
 prohibition in the Constitution during the period between the two 
 banks was almost wholly nugatory. Within it " injustice to individ- 
 uals, the embarrassment of the Government, the depreciation of the 
 currency, the want of uniformity, the moral necessity imposed on 
 the community either to receive an unsound currency or to suspend 
 every payment, purchase, sale, or other transaction incident to the 
 wants of society ; all the evils which followed the suspension of 
 specie payments, were as great, if not greater," said Mr. Gallatin, 
 " than those which might have been inflicted by a paper currency 
 issued under the authority of any State." Fortunately, by means of 
 a National Bank, "bills of credit" issued by the State banks, from 
 the restrictions imposed upon them, were subsequently not only 
 equal in value to the issues of the national one, but proved to be of 
 the greatest advantage, State banks being established in numerous 
 places in which the National Bank had no branch, so that "bills of 
 credit " of the State banks, which seemed to be palpable infractions 
 of the Constitution, proved efficient instruments for the promotion 
 of the general welfare. 
 
 In the period between the two banks the National Government 
 was compelled to accept the notes, the value of which differed 
 greatly, of the State banks, in all its operations. The value of 
 the notes of the banks, which did not suspend specie payments, of 
 the New England States, was equal to that of specie. Those of the 
 banks of the State of New York were at a discount of 1 5 per cent. ; 
 of Philadelphia, 20 per cent.; of Baltimore, 25 per cent. Away 
 from the great centres of trade the depreciation was still greater. Still 
 
46 BANK OF THE UNITED STATES. 
 
 all revenues of the Government, wherever collected, had to be paid 
 in notes issued in the different sections of the country. The people 
 of the New England States, consequently, were far more heavily 
 taxed that those of other sections, in violation of the provision of the 
 Constitution that " all duties, imposts, and excises shall be uniform 
 throughout the United States." During the suspension of specie 
 payments in Great Britain the value, though greatly depreciated, of 
 the notes of the Bank of England in which the revenues were paid 
 was the same throughout the kingdom. " Taxes, imposts and 
 excises " everywhere were at the same standard as to value. The 
 remedy in the United States was a National Bank, the notes of 
 which were everywhere of the same value, the notes of the State 
 banks subject, in effect, to the restrictions imposed upon the 
 National Bank, being everywhere of the same value, that of specie. 
 Without such an institution it was impossible that the taxes should 
 be levied as the Constitution prescribed. " If a currency exclu- 
 sively metallic is preferred, the object will be obtained," said Mr. 
 Gallatin, "by levying prohibitory stamp duties on bank notes of 
 every description," precisely as similar duties were levied, but with a 
 very different purpose, during the War of the Rebellion. A resort 
 to a measure so harsh was greatly to be deprecated. The fact that 
 specie payments were restored and had been maintained through 
 the instrumentality of the bank " gives a complete guarantee," said 
 Mr. Gallatin, " that under any circumstances its notes will preserve 
 the same uniformity they now possess. Placed under the control of 
 the Government, relying for its existence upon the correctness, 
 prudence and skill with which it shall be maintained ; perpetually 
 watched and occasionally checked both by the Secretary and rival in- 
 stitutions ; without a monopoly, and yet with a capital and resources 
 adequate for the object for which it was established ; the bank 
 affords the strongest possible security which can be given in re- 
 spect to paper, not only for its ultimate solvency, but for the unin- 
 terrupted solvency of the currency." 
 
 The manner in which the National Bank, vested with no authority 
 over them by law, checked the issues of the State banks was very 
 obvious and simple. It consisted of receiving the issues of all in 
 good credit, such issues to be presently made good either by offset 
 or in coin, proper forbearance being extended by the national as 
 the stronger institution, but bound to protect itself, as the issues of 
 
BANK OF THE UNITED STATES. 47 
 
 the State banks were received by it equally with its own in the pay- 
 ment of the revenues. " The general complaint on the part of 
 many of the State banks that they were controlled in their operations 
 by the Bank of the United States, that, to use a common expres- 
 sion, it operates as a screw, is the best evidence that its general 
 operation is such as has been intended." For the bank to refuse to 
 receive on deposit or in the payment of its bills or of the public 
 revenues the issues of any of the State banks would be to throw 
 such discredit upon them that the public would not receive them. 
 The effect was the same as the expulsion at the present time of a 
 bank from the New York Clearing House. With such a menace 
 always over them, their issues, limited to bills of exchange, could 
 no more inflate the currency than those of the Bank of the United 
 States. 
 
 To the assertion of General Jackson that the bank had failed in 
 establishing a sound and uniform currency, Mr. Gallatin replied that 
 a sound and uniform currency could be provided only through the 
 medium of a National Bank the same in kind as that which existed. 
 
 The reply of Mr. Madison was in vindication chiefly of the con- 
 stitutionality of the bank. He had been President from 1809 to 
 181 7, for the whole period between the two banks and for that of 
 the war, and had been witness of the terrible disasters resulting from 
 the neglect to extend the charter of the first, and had earnestly 
 favored and signed the bill for the second, as the only escape there- 
 from. He left seclusion, the solace of his declining years, to com- 
 bat with all the force of his long experience, his great abilities, 
 his fervent patriotism and unsullied name, the doctrine of anarchy 
 now first proclaimed by a President of the United States. In a 
 communication addressed, under date of June 25, 1831, to Mr. 
 Charles J. Ingersoll, he said : 
 
 I have received your letter of the 1 8th instant. The few lines which answered 
 your former one of the 21st of January last were written in haste and in bad 
 health; but they expressed, though without the attention in some respects due to 
 the occasion, a dissent from the views of the President as to the Bank of the 
 United States and a substitute for it, to which I cannot but adhere. The objec- 
 tions to the latter have appeared to me to predominate greatly over the advantages 
 expected from it, and the constitutionality of the former I still regard as sustained 
 by the considerations to which I yielded in giving my assent to the existing bank. 
 Some obscurity has been thrown over the question, by confounding it with the 
 
48 BANK OF THE UNITED STATES. 
 
 respect due from one legislature to laws passed by preceding legislatures. But the 
 two cases are essentially different. A constitution being derived from a superior 
 authority is to be expounded and obeyed, not controlled or varied, by the subor- 
 dinate authority of a. legislature. A law, on the other hand, resting on no 
 higher authority than that possessed by every successive legislature, its expediency 
 as well as its meaning is within the scope of the latter. 
 
 The case in question has its true analogy in the obligation arising from judicial 
 expositions of the law on succeeding judges ; the Constitution being a law to the 
 legislator, as the law is a rule of decision to the judge. And why are judicial 
 precedents, when formed on due discussion and consideration, and deliberately 
 sanctioned by reviews and repetitions, regarded as of binding influence, or rather 
 of authoritative force, in settling the meaning of a law? It must be answered, 1st, 
 because it is a reasonable and established axiom that the good of society requires 
 that the rules of conduct of its members should be certain and known, which 
 would not be the case if any judge, disregarding the decisions of his predecessors, 
 should vary the rule of law according to his individual interpretation of it. 
 Misera est servitus ubi jus est aut vagum ant incognitum ; 2d, because an expo- 
 sition of the law publicly made and repeatedly confirmed by the constituted 
 authority carries with it by fair inference the sanction of those who, having made 
 the law, through their legislative organs, appear under such circumstances to have 
 determined its meaning through their judiciary organ. 
 
 Can it be of less consequence that the meaning of a constitution should be 
 fixed and known than that the meaning of a law should be so? Can, indeed, a 
 law be fixed in its meaning and operation, unless the Constitution be so ? On the 
 contrary, if *> particular legislature, differing in the construction of the Constitu- 
 tion from a series of preceding constructions, proceed to act on that difference, 
 they not only introduce uncertainty and instability in the Constitution, but in the 
 laws themselves; inasmuch as all laws preceding the new construction and incon- 
 sistent with it are not only annulled for the future, but virtually pronounced 
 nullities from the beginning. But it is said that the legislator, having sworn to 
 support the Constitution, must support it in his own construction of it, however 
 different from that put on it by his predecessors, or whatever be the consequences 
 of the construction. And is not the judge under the same oath to support the 
 law? Yet has it ever been supposed that he was required or at liberty to disregard 
 all precedents, however solemnly repeated and regularly observed ; and, by giving 
 effect to his own abstract and individual opinions, to disturb the established course 
 of practice in the business of the community? Has the wisest and most conscien- 
 tious judge ever scrupled to acquiesce in decisions in which he has been overruled 
 by the mature opinions of the majority of his colleagues, and subsequently to 
 conform himself thereto, as to the authoritative expositions of the law? And is it 
 not reasonable that the same view of the official oath should be taken by a legis- 
 lator acting under the Constitution, which is his guide, as is taken by a judge 
 acting under the law, which is his ? 
 
 There is in fact, and in common understanding, a. necessity of regarding a 
 course of practice, as above characterized, in the light of a legal rule of interpret- 
 ing a law; and there is a like necessity of considering it a constitutional rule of 
 interpreting a constitution. . . . 
 
BANK OF THE UNITED STATES. 49 
 
 It was in conformity with the view here taken of the respect due to deliberate 
 and reiterated precedents that the Bank of the United States, though on the 
 original question held to be unconstitutional, received my executive signature in 
 the year 1816. The Act originally establishing a bank had undergone ample dis- 
 cussions in its passage through the several branches of the Government. It had 
 been carried into execution throughout a period of twenty years, with annual 
 legislative recognitions; in one instance, indeed, with a positive ramification of it 
 into a new State; and with the entire acquiescence of all the local authorities, as 
 well as of the nation at large, to all of which may be added a decreasing prospect 
 of any change in (he public opinion adverse to the constitutionality of such an 
 institution. A veto from the Executive, under these circumstances, with an admis- 
 sion of the expediency and almost necessity of the measure, would have been 
 a defiance of the obligations derived from a course of precedents amounting to 
 the requisite evidence of the national judgment and intention. 
 
 It has been contended that the authority of precedents was in that case inval- 
 idated by the consideration that they proved only a respect for the stipulated 
 duration of the bank with a toleration of it until the law should expire, and by 
 the casting vote given in the Senate by the Vice-President, in the year 181 1, 
 against a bill for establishing a National Bank, the vote being expressly given on 
 the ground of unconstitutionality. But, if the law itself was unconstitutional, the 
 stipulation was void, and could not be constitutionally fulfilled or tolerated. 
 And as to the negative of the Senate, by the casting vote of the presiding officer, 
 it is a fact well understood at the time that it resulted not from an equality of 
 opinions in that assembly on the power of Congress to establish a bank, but from 
 a junction of those who admitted the power, but disapproved the plan, with those 
 who denied the power. On a simple question of constitutionality, there was a 
 decided majority in favor of it. 
 
 Mr. Madison inferred the constitutionality of the bank from long 
 use — from precedent, the strongest argument that could be adduced, 
 for the object of all construction is to adapt their organic law to the 
 life of a people. It may seem strange that neither Mr. Madison 
 nor Mr. Gallatin referred, in terms, to the authoritative decision in 
 1819 of the Supreme Court, affirming the constitutionality of the 
 Act creating the bank. Both took higher ground. The construction 
 given to the Constitution by long practice or habit expressed, so far, 
 the life of the people. An exposition by the Supreme Court might 
 not be in harmony with such life. It might be in violation of 
 it. An exposition at one time might be overruled by another. It 
 is the duty of a court to correct its own misconceptions, or the inad- 
 equacy of its former renderings. But a construction by the people 
 long concurred in must be in such harmony with their welfare as 
 not to be overruled. Mr. Madison and Mr. Gallatin placed them- 
 selves upon more authoritative ground — upon natural law. When 
 
5<D BANK OF THE UNITED STATES. 
 
 the construction is by the people, the law is neither " vagum" nor 
 " incognitum ; " it is a part of their daily life. The decision of a 
 supreme tribunal may, to the ordinary mind, be both " vagum" and 
 "incognitum.''' There is a life of society as well as individuals. It 
 must with both be harmonious to have its highest value, or to have 
 any value. It is the old story — the minority must submit to the 
 will of the majority. To dissenting justices the law as laid down by 
 the majority is their rule of conduct. So with all holding official 
 position. Mr. Madison, as a member of Congress, earnestly opposed 
 the charter of the first bank. His convictions, most emphatically 
 expressed, were overruled by the popular judgment. If not over- 
 ruled, it would have been his duty to approve the charter of the 
 second bank. But not only were the convictions once entertained 
 overruled, but from a sense of the value and usefulness of the first, 
 bank he earnestly recommended the creation of the second one. 
 
 On the twenty- third day of December, 1830, the House of Rep- 
 resentatives directed a special committee of that body " to inquire 
 into the expediency of providing by law that dollars of the new 
 (Spanish) American governments and five-franc pieces shall be a 
 legal tender in the payment of all debts and demands ; and, also,. 
 whether any additional regulations are necessary relative to the 
 recoinage of foreign silver coined at the mint." On the 23d of 
 February, 1831, the committee, of which Mr. Campbell P. White,. 
 of New York, was chairman, submitted a report, from which the fol- 
 lowing extracts are given : 
 
 In countries where gold and silver coin compose exclusively, or- chiefly, the 
 currency, it is a general and very convenient practice to use national coins. The 
 public seal is a satisfactory evidence of their value, and the money unit and its 
 parts, being uniformly exhibited, facilitate computation, fhis usual practice did 
 not, however, obtain when our circulation was principally metallic; and . the 
 motives of convenience, which recommend an extensive issue of standard coins, 
 cease to have influence in our present circumstances. Our currency is bank 
 notes, to the exclusion of the precious metals, except as change. The money 
 unit of the United States, or its concurrent tender, " Spanish milled dollars," is 
 rarely, if ever, seen in circulation. The currency differs from that of all other 
 nations extensively commercial, in being truly and effectively paper, secured by a 
 specie fund, held by its issuers, the banks. 
 
 Gold and silver, whether coined or not, are viewed in the commercial world 
 as bullion, and valued according to their quantity of fine metal. The stamp of 
 
REPORT OF THE COMMITTEE ON COINAGE. 5 I 
 
 the United States adds nothing to the value of the precious metals abroad; and, 
 as it is a costly impression, it should only be applied when necessary to the gen- 
 eral convenience of the community. It is not perceived in what respect the 
 public convenience is promoted by the coinage of silver, which passes temporarily 
 into the vaults of the banks, and is soon afterwards again melted by refiners in 
 foreign nations. 
 
 The director of the mint states that the American coin possessed by the Bank 
 of the United States and its branches is less than $2,000,000, or about one-sixth 
 part of its specie. Assuming a similar ratio for the State banks (which is a liberal 
 estimate, considering the advantageous position of the former institution), the 
 entire amount of American coin held by the banks does not,- likely, much exceed 
 $4,000,000. Taking the issues of one, two, and three dollar notes in the East- 
 ern States as a guide, it does not seem probable that there is a greater amount of 
 silver in general circulation, of all denominations, than $5,000,000, of which 
 perhaps $3,000,000 or $4,000,000 are American coin. 
 
 According to this estimate, the national coins do not, likely, exceed $7,000,000 
 or $8,000,000 in silver. The mint has fabricated $37,000,000, of which $9,000,- 
 000 were of gold. Considering that $20,000,000 of silver coins have been issued 
 since 1817, and about $11,000,000 within the last five years, the inutility and 
 inexpediency of extensive operations at the mint are manifest. 
 
 The silver coins of the banks should be viewed as the money of commerce, the 
 value of which is determined by its quantity of fine metal. This course is in 
 accordance with sound mercantile principles, and with former usage. 
 
 Congress has repeatedly sanctioned it, by regulating the value of British, 
 Portuguese, French, and Spanish gold, and also of five-franc pieces and crowns 
 of France, giving them currency according to their weight when tendered, at 
 rates calculated to minute fractions, varying with the standard of their respective 
 mints — a course of policy which is equitable to all in its effects, and beneficial 
 as well as accommodating to commercial operations. 
 
 If these coins were a legal tender on the principle of regulation applied to other 
 coins noted, being current by weight, at the correct value ascertained by mint 
 experiments (that of 116. 10 cents per ounce), justice would be rendered to 
 the importing merchant, a heavy annual expense would be saved to the United 
 States, and banking and commercial transactions would be greatly facilitated. 
 If our currency was metallic, public convenience might reasonably demand and 
 properly discharge the expense of coining all silver previous to its being ten- 
 dered in payments. 
 
 In conformity with these views, the committee recommend that the dollars of 
 Mexico, Central America, Peru, Chili, and also the dollars restamped in Brazil, of 
 the denomination of 960 reas, shall be a legal tender in all payments above the 
 sum of $100, at the rate of 116. 10 cents per ounce troy, provided the afore- 
 said coins shall be of the usual standard fineness of 10 ounces 15% pennyweights 
 of fine silver to the pound troy of 12 ounces; and that the five-franc pieces of 
 France, of the standard of 10 ounces 16 pennyweights fine to the pound troy, 
 shall likewise be a legal tender in all payments exceeding $100, at the rate of 
 116.40 cents per ounce troy. 
 
 If the total quantity of coins in general circulation be correctly estimated at 
 
52 BANK OF THE UNITED STATES. 
 
 $5,000,000, the wear and necessary supply for an increasing population cannot, 
 under our present system of money, create a yearly demand for more than 
 $200,000 or $300,000 of new coins, in addition to the amount in circulation. 
 
 The deposit of silver bullion for five years past appears to be increasing; and 
 its annual average being $600,000, there is no reason to doubt but the mint 
 will be abundantly supplied with silver for every useful and desirable object. 
 
 The conclusions to which the committee came were : 
 
 1 . That the operations of commerce will assuredly dispense to every country 
 its equitable and useful proportion of the gold and silver in currency, if it is not 
 repulsed by paper or subjected to legal restrictions. 
 
 2. That it cannot be of essential importance to any State whether its propor- 
 tion of the money of commerce thus distributed consists of gold or of silver, or of 
 both metals, it being the instrument of exchange, but not the commodity really 
 wanted. 
 
 3. That there are inherent and incurable defects in the system which regulates 
 the standard of value in both gold and silver : its instability as a measure of con- 
 tracts, and mutability as the practical currency of a particular nation, are serious 
 imperfections; whilst the impossibility of maintaining both metals in concurrent, 
 simultaneous, or promiscuous circulation appears to be clearly ascertained. 
 
 4. That the standard being fixed in one metal is the nearest approach to 
 invariableness, and precludes the necessity of further legislative interference. 
 
 5. That gold and silver will not circulate promiscuously and concurrently for 
 similar purposes of disbursement. Nor can coins of either metal be sustained in 
 circulation with bank notes, possessing public confidence, of the like denomi- 
 nations. 
 
 6. That, if the national interest or convenience should require the permanent 
 use of gold eagles and their parts, and also of silver dollars, the issue of bank 
 bills of one, two, three, five, and ten dollars must be prohibited. 
 
 7. That, if it should hereafter be deemed advisable to maintain both gold and 
 silver coins in steady circulation, and to preserve silver as the measure of com- 
 merce and contracts, gold must be restricted to small payments. 
 
 8. That if it is the intention to preserve silver as the principal measure of 
 exchange, permanently and securely, it will be necessary to estimate the relative 
 value of gold under [below] its present average or probable future value in gen- 
 eral commerce. 
 
 The report of the committee is important in showing, from what 
 may be called an independent standpoint, as it was not intended as 
 a reply to General Jackson's attack upon the bank, the condition or 
 state of the currency at the time, whether symbolic or metallic, and 
 of the views universally held as to the laws which regulate the value 
 and circulation of the latter. The currency, except in the form of 
 change, was wholly of paper, the amount of metallic money in the 
 
REPORT OF THE COMMITTEE ON COINAGE. 53 
 
 hands of the people not exceeding $5,000,000, or about 30 cents 
 per head. As with an adequate provision of paper money, metallic 
 money would not enter into circulation, the nation, the committee 
 declared, should not be burdened with the coinage of an amount 
 exceeding the wants of the people, that for such purpose being from 
 $200,000 to $300,000 annually, of small coins, no silver dollars hav- 
 ing been coined since 1808, of which, up to the date of the com- 
 mittee's report, only about 1,400,000 had been issued. As the value 
 of metallic money is measured by weight, the coinage of other coun- 
 tries was as good as our own and as appropriate for reserves, the 
 only use to which, on any considerable scale, it was put. At the 
 time, foreign coins were almost the only kind in use, the value of 
 those in the hands of the people and the banks, coming from our 
 mint, not exceeding $7,000,000 or $8,000,000 of a total coinage, 
 of silver, of $28,000,000. The amount of specie, all silver, in the 
 hands of the people and the banks was about $22,000,000, the 
 sum averaging about $1.70 per head of population. The recom- 
 mendation of the committee, therefore, was well made, " that the 
 silver dollars of Mexico, Peru, Chili, and Brazil, and the crowns 
 and five-franc pieces of France, all of standard value, be legal 
 tender in the United States in all contracts exceeding $100," re- 
 peating the precedent established at the foundation of the Govern- 
 ment, for the reason, to use the words of the committee, that 
 " the operations of commerce will assuredly disburse to every 
 country its equitable proportion of gold and silver in currency," and 
 without any provision of its own, — a recommendation exhaustive 
 of the whole subject under discussion. 
 
 The report of the committee is also important in. showing the 
 probable amount of metallic money that would, with a proper system, 
 interpose in the domestic exchanges at the present time. The 
 amount of the loans at bank, January 1, 1830, was $200,541,214. 
 The amount of symbolic money provided at the time equalled 
 $116,883,826, consisting of $61,323,898 of notes and $55,559,928 
 of deposits. Assuming that the bills discounted ran for sixty days, 
 the average amount daily falling due equalled $4,000,000. So small 
 was the amount of metallic money in circulation, and so scattered 
 was it, that no considerable amounts could be massed for any pur- 
 pose whatever. It is not probable that silver, the only kind of 
 money in circulation, and that in the form of subsidiary coins, inter- 
 
54 BANK OF THE UNITED STATES. 
 
 posing in the payment of bills exceeded i per cent, of their amount, 
 or 140,000 daily. Were we now on a similar basis, it is not prob- 
 able that a larger proportional amount of metallic money would be 
 required. That a much larger amount interposes is due to the 
 vicious monetary system which prevails. Under the two banks the 
 loans made were almost all time-loans. The aggregate amount of 
 issues of banks and bankers at the present time equals about 
 13,200,000,000. The exchanges at the Clearing House, showing 
 the amount daily maturing at the great centres of trade, average 
 about $200,000,000 daily, the whole amount of loans and discounts 
 at any one time outstanding running off within a period of, say, 
 sixteen days. The exchanges at the Clearing Houses make up the 
 greater part of those of the country. The balances daily arising at 
 these average about 8 per cent., or $16,000,000. Were no loans 
 made but upon bills of exchange, it is not probable that the balances 
 daily arising would exceed one-quarter their present amount, or 
 $4,000,000. Banks now exercise two functions — they are lenders 
 of capital as well as discounters of bills. The two are wholly 
 different in kind, and should never be exercised by the same institu- 
 tion unless it be composed of two independent departments. A 
 lender of capital parts with it. The capital of an issuer of currency 
 is always to remain in hand. To part with it is to weaken his power 
 of issue and contract the volume of currency in an equal degree. 
 Loans of capital at bank are ordinarily demand loans liable to be 
 called in at any moment, often requiring large sums of coin in their 
 payment, in want of other provision. Another reason for the very 
 large balances now daily arising at the Clearing Houses is that a 
 greater part .of the currency, that of the Government, does not 
 represent merchandise in process of distribution, and is not dis- 
 charged by its use. It is neither capital, nor the symbol of capital. 
 Its effect, consequently, is to excite speculative operations in which 
 large balances necessarily arise. With the retirement of such cur- 
 rency, and with proper restrictions upon the issues by banks, the 
 amount daily interposing would not exceed the amount named, a 
 much larger sum to be provided to meet demands other than those 
 arising in the ordinary operations of commerce and trade. 
 
BANK OF THE UNITED STATES. 55 
 
 The system created by Hamilton was an ideal one, as by it no 
 issues could be made, either by the National or State Banks, except 
 for the distribution of merchandise, there being no difference be- 
 tween them and the bills of exchange out of which they arose, except 
 that the former, to serve as money, were payable presently; the 
 latter being drawn for the time necessary, in theory at least, for the 
 movement of merchandise from producers to distributers for con- 
 sumption ; the purpose and effect of both kinds of instruments being 
 to discharge capital from the processes of distribution, both being 
 retired by their use, the value of each depending upon that of its 
 constituents, merchandise, and the reserves of the issuers. So long 
 as the issues, whether of the National or State Banks, were sym- 
 bolic there could be no inflation of the currency, as the amount meas- 
 ured the value of the subjects of consumption. As from their 
 representative capacity they were to their holders the equivalent of 
 •specie, they were preferred to it as money, from the greater safety 
 and convenience of their use. There could be no run upon the 
 issuers for coin, as no considerable balances to be paid in it could 
 arise either in foreign or domestic trade. Such balances arise in 
 domestic trade only when " accommodation paper," as it is termed, 
 is discounted ; and in foreign trade only when imports exceed ex- 
 ports of merchandise, in which case gold goes forward as the 
 universal equivalent for their discharge. 
 
 Although the act establishing the bank provided that, during its 
 existence, there should be no other of the kind, no monopoly of 
 issue was or could be created, as the State Banks which already ex- 
 isted, with the great number of new ones which speedily followed, 
 were capable of supplying, and did supply, by far the greater part of 
 the currency, precisely the same in kind as that issued by the 
 National one to which the public would naturally give preference, 
 unless the issues of the former were equally well based. The State 
 Banks, consequently, without any provision in their charters there- 
 for, were forced to observe the restrictions imposed upon the 
 National one ; the manner in which they were enforced having 
 been already sufficiently described. The National Bank received 
 the notes and credits of the State Banks, not only in the ordinary 
 course of business, but in the payment of the public revenues. As 
 it was responsible for these to the Government, at the value of coin, 
 it compelled all other issuers to make good daily in coin all balances 
 
56 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 arising against them. The notes and credits of the State Banks, over 
 which the National Government had no other control but that de- 
 scribed, could, consequently, no more inflate the currency, could no 
 more be in excess than those of the National Bank, all being alike 
 the same in kind. For the further protection of the public the 
 national institution was restricted to a rate of interest not exceed- 
 ing six per cent., a rate never regarded as excessive, being less than 
 that prescribed by many of the States to their own institutions. 
 From the abundance of capital it was seldom that such rate could 
 be obtained. That prescribed to the National could not be ex- 
 ceeded by the State Banks, as the former, like the Bank of England, 
 held itself, with its branches established at every considerable place 
 of trade, bound to discount all good bills that were offered. By the 
 means described a perfect currency, the greater part of it supplied 
 by the State Banks, was provided alike for the Government and 
 people, specie, except in the form of subsidiary coins, being wholly 
 discharged from ordinary use. As the bank was the custodian of the 
 public revenues the Government was relieved of all charge of their 
 keeping, transfer and distribution. If metallic money was wanted,, 
 either by the people or the Government, it was supplied by the bank, 
 remittances abroad being made by its bills as the great drawer of 
 " foreign exchange." 
 
 OVERTHROW OF THE BANK AND THE INFLATION OF THE CURRENCY. 
 
 In 1832 a bill passed both Houses of Congress for the extension 
 of the charter, to expire in 1836, of the bank. The bill was vetoed 
 by General Jackson. Among the reasons therefor, set forth in a 
 message of great .length, were the following : 
 
 To the extent of its practical effect, the bank is a bond of union among the 
 banking establishments of the nation, erecting them into an interest separate 
 from that of the people, and its necessary tendency is to unite the Bank of the 
 United States and the State banks in any measure which may be thought condu- 
 cive to their common interest. 
 
 By documents submitted to Congress at the present session, it appears that on 
 the first of January, 1832, of the $28,000,000 of private stock in the corporation, 
 $8,405,500 were held by foreigners, mostly of Great Britain. The amount of 
 stock held in the nine Western and Southwestern States is $140,200, and in the 
 four Southern States is $5,623,100, and in the Middle and Eastern States is 
 about $13,522,000. The profits of the bank in 1831, as shown in a statement to 
 Congress, were about $3,455,598 ; of this there accrued in the nine Western. 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 57 
 
 States about $1,640,048; in the four Southern States, about $352,507; and in 
 the Middle and Eastern States, about $1,463,041. As little stock is held in the 
 West, it is obvious that the debt of the people in that section to the bank is- 
 principally a debt of the Eastern and foreign stockholders; that the interest they 
 pay upon it is carried into the Eastern States and into Europe; and that it is a 
 burden upon their industry and a drain of their currency, which no country can 
 bear without inconvenience and occasional distress. To meet this burden and 
 equalize the exchange operations of the bank, the amount of specie drawn from 
 those States through its branches, within the last two years, as shown by its 
 official reports, was about $6,000,000. More than half a million of this amount 
 does not stop in the Eastern States, but passes on to Europe, to pay the dividends 
 of the foreign stockholders. In the principle of taxation recognized by this act, 
 the Western States find no adequate compensation for this perpetual burden on 
 their industry and drain of their currency. The branch bank at Mobile made, last 
 year, $95,140; yet, under the provisions of this act, the State of Alabama can 
 raise no revenue from these profitable operations, because not a share of the stock 
 is held by any of her citizens. Mississippi and Missouri are in the same condition, 
 in relation to the branches at Natchez and St. Louis ; and such, in a greater or 
 less degree, is the condition of every Western State. The tendency of the plan of 
 taxation which this act proposes will be to place the whole United States in the 
 same relation to foreign countries which the Western States now bear to the 
 Eastern. When, by a tax on resident stockholders, the stock for this bank is 
 made worth ten or fifteen per cent, more to foreigners than to residents, most of 
 it will inevitably leave the country. 
 
 In another of its bearings, this provision is fraught with danger. Of the 
 twenty-five directors of this bank, five are chosen by the government and twenty 
 by the citizen stockholders. From all voice in these elections the foreign stock- 
 holders are excluded by the charter. In proportion, therefore, as the stock is 
 transferred to foreign holders, the extent of suffrage in the choice of directors is 
 curtailed. 
 
 Already is almost a third of the stock in foreign hands, and not represented 
 in elections. It is constantly passing out of the country, and this act will accel- 
 erate its departure. The entire control of the institution would necessarily fall 
 into the hands of a few citizen stockholders; and the ease with which the object 
 would be accomplished, would be a temptation to designing men to secure that 
 control in their own hands, by monopolizing the remaining stock. There is 
 danger that a president and directors would then be able to elect themselves from 
 year to year, and, without responsibility or control, manage the whole concerns of 
 the bank during the existence of its charter. It is easy to conceive that great 
 evils to our country and its institutions might flow from such a concentration of 
 power in the hands of a few men irresponsible to the people. 
 
 Is there no danger to our liberty and independence in a bank that in its 
 nature has so little to bind it to our country ? . . . 
 
 Should the stock of the bank principally pass into the hands of the subjects 
 of a foreign country, and we should unfortunately become involved in a war with 
 that country, what would be our condition? Of the course which would be pur- 
 sued by a bank almost wholly owned by the subjects of a foreign power, and 
 
58 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 managed by those whose interests, if not affections, would run in the same 
 direction, there can be no doubt. All its operations within would be in aid of 
 the hostile fleets and armies without. Controlling our currency, receiving our 
 public moneys, and holding thousands of our citizens in dependence, it would be 
 more formidable and dangerous than the naval and military power of the enemy. 
 
 It is maintained by the advocates of the bank that its constitutionality, in all 
 its features, ought to be considered as settled by precedent, and by the decision 
 of the Supreme Court. To this conclusion I cannot assent. Mere precedent is 
 a dangerous source of authority, and should not be regarded as deciding questions 
 of constitutional power, except where the acquiescence of the people and the 
 States can be considered as well settled. 
 
 If the opinion of the Supreme Court covered the whole ground of this act, it 
 ought not to control the coordinate authorities of this government. The Con- 
 gress, the executive, and the court must each for itself be guided by its own 
 opinion of the Constitution. Each public officer who takes an oath to support 
 the Constitution swears that he will support it as he understands it, and not as it 
 is understood by others. It is as much the duty of the House of Representatives, 
 of the Senate, and of the President to decide upon the constitutionality of any 
 bill or resolution which may be presented to them for passage or approval, as it 
 is of the supreme judges when it may be brought before them for judicial decision. 
 The opinion of the judges has no more authority over Congress than the opinion 
 of Congress has over the judges; and, on that point, the President is independent 
 of both. The authority of the Supreme Court must not, therefore, be permitted 
 to control the Congress or the executive when acting in their legislative capac- 
 ities, but to have only such influence as the force of their reasoning may de- 
 serve. 
 
 This act authorizes and encourages transfers of its stock to foreigners, and 
 grants them an exemption from all State and national taxation. So far from 
 being " necessary and proper " that the bank should possess this power to make 
 it a safe and efficient agent of the government in its fiscal operations, it is calcu- 
 lated to convert the Bank of the United States into a foreign bank; to impoverish 
 our people in time of peace; to disseminate a foreign influence through every 
 section of the republic ; and, in war, to endanger our independence. 
 
 General Jackson in his veto message proceeded upon the assump- 
 tion that the issues of the bank were mere forms of credit, costing 
 nothing in themselves, but for the use of which interest was charged. 
 If its loans equalled $50,000,000, at five per cent., the profit was 
 ^2,500,000, less the trifling expense involved. A privilege so 
 valuable, if not originally obtained by corruption, was to be main- 
 tained by corruption. As an illustration of its oppressions, " hardly 
 a dollar of the share capital of the bank," he said, "was held in the 
 Southern and Western States ; yet from the former the bank in 
 1831 drew #1,640,048; from the latter, $352,507," — all pure 
 plunder. In 1830 and 1831, specie, to the amount of $6,000,000, 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 59 
 
 for which no return was received, was, he declared, drawn from the 
 South and West, the greater part of it going to pay dividends on the 
 share capital of the bank held abroad, — "a burden that no people 
 could bear." As a further illustration : the profits of the branch at 
 Mobile, Ala., in 1831, equalled $95,148, — all sheer robbery, "nota 
 share of the stock of the bank being held by citizens of that State." 
 It was the same with the States of Mississippi and Missouri. . These 
 charges and many others the same in kind, by their mere statement, 
 were held at the time to be fully proved. A mighty wave of 
 " populism " swept with resistless force over the nation. There 
 were no great commercial and manufacturing interests, so potent in 
 the contest just passed, capable of making headway against it. At 
 the time no other evidence was wanted of the robberies of the 
 issuers of paper money than that they lived in expensive abodes, 
 rode in fine carriages, and fared well ; the great mass being obliged 
 to content themselves with humble dwellings, with walking in- 
 stead of riding and with homely fare. In vain it was urged that 
 if Alabama and Mississippi had not a dollar of the share capital of 
 the bank it was for the very good reason that they had a better use 
 for their money ; that without the capital of others their products 
 could not be moved and would, consequently, be worthless ; that 
 the use of instruments of distribution, whatever the kind, always 
 carries with it an obligation to pay a proper consideration therefor ; 
 that issuers of paper money could have no motive to oppress, as 
 their welfare was in ratio to the prosperity of the people ; that, from 
 competition, their returns were no greater upon the capital that had 
 to be provided by way of reserves and for expenses necessarily 
 involved, than upon equal amounts of capital and service dedicated 
 to other modes of distribution, or to production ; that their profits 
 could not be excessive, as they were all restricted in rates to six per 
 cent. ; that they were no more a class separated from the people 
 than were producers of merchandise to be distributed by means of 
 the instruments described; that there could be no monopoly of 
 issue, as charters for State Banks (the great issuers) could be had 
 for the asking ; that capital always tends to flow in the direction that 
 promises the best return, and that those who had most to lose from 
 any great convulsion or disaster would be the most earnest and self- 
 sacrificing in averting it. But "Down with the monster!" was 
 the mighty cry that came from every quarter of the land. 
 
60 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 It is hardly necessary to refer to the absurd charge that in the 
 event of a foreign war the share capital of the bank, being in the 
 hands of the enemy, would be a source of danger greater than that 
 of a hostile army thundering at our gates. All the means of the 
 bank would be within the country, directly under the control of 
 the government, and subject to seizure and forfeiture should the 
 shareholders be in league with the enemy. 
 
 Precedent with a progressive people has the force of law, being 
 the record of their habits or life as to the matters to which it relates. 
 The purpose of all constitutional and legislative enactments is the 
 general welfare. Common law, that of precedent, precedes consti- 
 tutional and statute law, one of the great functions of judicial 
 tribunals being to declare and give it form. It constituted the great 
 part of the law inherited by the United States from England. It 
 was the source of Roman Law which, having for its groundwork the 
 sense of fitness and right, excelled all systems which preceded or 
 followed. Not to allow precedent to ripen into law is to defeat the 
 purpose, the general welfare of constitutional or positive law. Mr. 
 Jefferson earnestly opposed the proposition for the first bank on the 
 ground that its creation transcended the powers of the National 
 Government, there being no express warrant therefor. Upon the 
 acquisition of Louisiana he approved of the bill to establish a 
 branch of the bank in that territory, as much an original act as the 
 creation of the bank itself, his objections yielding to the general 
 voice. Mr. Madison, who with Mr. Jefferson opposed the first 
 bank, earnestly advocated the second, from a sense of its utility, 
 declaring that precedent had overruled the objections he once held. 
 With General Jackson the fact that the two banks had been in 
 operation for a period of thirty-six years was no evidence of the 
 assent thereto of the people. With him precedent could not bind 
 the States as, in relation to the United States, they were sovereign. 
 To deny the force of precedent in the interpretation of the Consti- 
 tution and the life of the people is to deal a fatal blow to society 
 itself, a blow which would have been delivered by General Jackson, 
 but for the appeal to the final arbiter in affairs — the sword. 
 
 It would naturally be supposed that from such an extreme and 
 revolutionary measure as the striking by General Jackson of the 
 Supreme Court from our system, the people would have recoiled 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 6l 
 
 with horror. Instead of this, they rushed to the support of the 
 President, North and South, with a wilder acclaim than that which 
 followed his assault upon the bank and credit system of the country. 
 What is the explanation of such a strange and revolutionary outburst ? 
 
 At the time of General Jackson's attack upon the bank and the 
 Supreme Court, civil liberty in the United States was on trial — to 
 be achieved rather than already established — the great struggle 
 being the War of the Rebellion, which, at the outset, was one for 
 power on the part of the North and independence on that of the 
 South. At the time the highways of the country were the old earth- 
 ways, wholly inadequate to the distribution of merchandise or to 
 intercommunication upon a large scale. The great mass of the 
 people were agriculturists living upon their own products. Although 
 the assault upon the bank, if successful, threatened the security of 
 all property, the danger with the great mass seemed too remote to 
 create alarm. Very few had ever seen a note of it, or had any rela- 
 tion with it. All that they could be made to see was its great 
 wealth, contrasted with their humble means, and they were quite 
 willing, from-envy or jealousy, to see it overthrown, no matter how 
 violent or revolutionary the process. From the slow increase of 
 their own they were very easily made to believe that its immense 
 possessions were unfairly acquired. The great mass were equally 
 indifferent to the attack upon the Supreme Court, which, if success- 
 ful, was certain to be followed by anarchy, from which the country 
 could only be rescued by the strong arm of a single despot. They 
 hardly knew any other than their own State governments which 
 enacted their laws, protected them, and maintained social order. 
 They saw no more danger in the attack upon a tribunal so 
 remote as the National Judiciary than upon the National Bank. 
 They seldom or never had the occasion to invoke the service or 
 protection of either. They could get on as well, apparently, without 
 one as the other. Having consciously little at stake and but a 
 feeble conception of the basis upon which, upon the broad scale of 
 a continent, social order must rest, they viewed with suspicion and 
 dread a tribunal to whose mysterious power there seemed to be no 
 limit or control, which had overthrown the legislation of States, and 
 which some day might be directed against themselves. Under such 
 conditions appeals of demagogues to the people, flattered as pos- 
 
62 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 sessing every manly grace and virtue, the strength of the nation, the 
 source of its wealth in peace, its defence from foreign aggression, 
 but overreached and robbed by the crafty and unscrupulous few, 
 were sure to carry the day. They will always carry the day in 
 republics where suffrage is free, until the people, the working-classes,, 
 are conscious of having their chief stake in the maintenance of 
 social order. At the time of General Jackson there was no such 
 consciousness ; hence the ease with which he swayed the masses at 
 his will. Why, in the recent crisis, did not appeals as inflamma- 
 tory as those of Jackson carry the day? 
 
 At the era of Jacksonism no internal commerce worthy the name 
 existed. Earthways were the nation's highways. The railway was 
 little other than a proposition. The telegraph, with which one may 
 converse with another a thousand miles distant, was not even a 
 proposition. From 1832, when the old methods still prevailed, t& 
 1895 a mighty change had taken place. In the latter year 179,000 
 miles of railway were in operation, the share capital and indebted- 
 ness of which equalled $1 1,000,000,000 ; every section of the country 
 was penetrated by them. They moved that year 750,000,000 tons 
 of freight, having a value of $15,000,000,000, the daily movement 
 equalling 2,500,000 tons, having a value of $50,000,000. Their 
 earnings for the year equalled $1,100,000,000, of which $750,000,000 
 were paid out in their working. For this nearly 1,000,000 of picked 
 men were employed. The merchandise moved the same year over 
 ordinary highways, and water borne, equalled 250,000,000 tons, the 
 aggregate for the country being 1,000,000,000 tons, having a value 
 of $20,000,000,000. For its distribution from merchant to con- 
 sumer, the provision of instruments, the issues of banks and 
 bankers, exceeded $3,000,000,000, this sum not including the cur- 
 rency in its various forms issued by the United States. As may 
 well be supposed the free and orderly movement of such a vast 
 mass in quality and value had come to be the matter of chiefest 
 concern. To arrest it for a single day was to arrest the movement 
 of 3,000,000 tons, having a value of $60,000,000. In view of the 
 momentous consequences at stake, the consternation created by the 
 seizure by a mob of the railways and the arrest of their traffic at the 
 great point of concentration, Chicago, can be better imagined than 
 described. To the free and orderly movement of their vast tonnage- 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 6$ 
 
 there must not only be no disturbance, but no apprehension of dis- 
 turbance at home ; or abroad, as the relations of nations are now so 
 interwoven that antagonism or collisions between any two affect to a 
 greater or less degree the industries of all. It is from the disturbances, 
 almost certain to be created, that all in affairs throughout the country 
 view, always with apprehension and often with profound alarm, the 
 ordinary meetings of Congress, as a great many of its members, 
 having little idea of their consequences, are constantly bringing for- 
 ward propositions the tendency of which is to disturb the even 
 flow of affairs, production and distribution being arrested in ratio to 
 the degree of apprehension created. Of this the experience of the last 
 four years has furnished striking examples. Without any change in 
 principle in our protective system the menace of it had the effect 
 almost of its complete overthrow. Without a foreign war, the threat 
 of it, which any member of the Government can make, has had very 
 nearly the effect of an actual outbreak. The terrible disasters that 
 have been suffered in the arrest of industries is a lesson that is not to 
 be forgotten. So far as domestic matters are concerned it has 
 taught us the necessity of a National Government of paramount 
 authority throughout the length and breadth of the land which, to 
 all in affairs, has with us come to have one purpose, and only one, 
 the protection of property wherever it may be ; its owners to have 
 citizenship wherever they may be. It is this sense, not the Consti- 
 tution, that has made us a nation. Without it, following the guid- 
 ance of General Jackson, South Carolina, with no industries worthy 
 of the name, has throughout been a free-booter in our system, as 
 untamed to-day as she was in 1832, when she passed her first act of 
 secession, the levying of protective duties being then the occasion ; 
 and in i860, when she passed her second act on losing, with her 
 associates, the control of the National Government. Now that the 
 practical rules in affairs she is to be taught her proper place in our 
 system, and that a very subordinate one. Social order is secured in 
 ratio as the theoretical is subordinated to the practical. With the 
 supremacy of the practical the widest diversities of soil, climate, 
 production and race — elements otherwise too discordant to be 
 reconciled — are compatible with the highest degree of social order. 
 With adequate means of distribution, the greater the diversity of 
 natural conditions the greater the dependence of one section upon 
 another and the stronger the tie that holds them together. General 
 
'64 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 Jackson carried the country with him, for the reason that at the 
 time the people, North and South, had so little at stake that 
 the maintenance of social order threatened to cost more than it 
 would come to. With the means of a people, colossal in amount 
 and scattered far and wide, social order must be maintained at any 
 cost. The importance of its maintenance is greatly increased by 
 the tendency, with ample means of distribution, of every section of 
 the country to devote itself to that kind of industry to which by 
 nature it is specially fitted, producing only a few articles entering 
 into general consumption ; all others to be reached in exchange for 
 those of its own. The consequence is that in case of interruption 
 of industries, carried on on a large scale workmen, trained to one 
 specialty by means of which the best results in quality and quantity 
 are secured, cannot, when thrown out of employment, readily engage 
 in any other. Interruption in the distribution of the products of their 
 industries may suddenly bring them face to face with want. It is far 
 more acutely felt in commercial and manufacturing than agricultural 
 districts, as in the latter producers may have the means of subsist- 
 ence, even if they have no market for their products. When, there- 
 fore, the revolutionary elements made their appeal to the country, 
 the conscious community between labor and capital, for the first 
 time fully demonstrated, rendered the recent Presidential election 
 the event of our history. With industrial conditions similar to those 
 which existed in 1832 the revolutionary elements of the country 
 combined at Chicago would have certainly carried the day. The 
 result showed that we had as a nation become a Timocracy, the end 
 of which is secure possession as well as freedom of action, working- 
 men being intelligently massed in its support. In republics cover- 
 ing a wide extent of territory, the function of their rulers prescribed 
 by a law higher than their own being purely administrative, the only 
 guarantee of order is a supreme and personal sense on the part of 
 the people of its value. Of such governments neither moralists nor 
 jurists are necessary to proclaim the attributes. The kind is in- 
 stinctive with any one who has anything to lose. The moral and 
 social welfare of every people is necessarily based upon their material 
 welfare. Whatever increases their material well-being increases 
 their moral well-being, and is consequently an additional guarantee 
 of social order. The inventor by whose processes the cost of steel 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 65 
 
 was reduced from #150 to $20 the ton, the productive capacity of 
 labor being increased somewhat in ratio to the degree of the fall in 
 price, the gain or advantage being largely its own, made a greater 
 contribution to good government than all the sages or jurists that 
 ever breathed. There will be no end to political theories, but the 
 wildest license may be safely tolerated so long as the people have 
 enough at stake to prefer a certain present to an uncertain future. 
 The impotence of great lawyers on the right side was strikingly 
 illustrated in the famous debate in 1830 on what were termed the 
 " Foot Resolutions." In it Mr. Webster won great fame and the 
 title of the " Defender of the Constitution," giving it, as was claimed, 
 its true scope and meaning. His speeches, eloquent and able as 
 they were, had no more influence over the great question at issue, 
 the supremacy of the Government of the United States in reference 
 to those of the States, than if they had been recitations of " Mother 
 Goose " to a band of Choctaws. His audience, the people of the 
 North, were at the time the most incongruous, distracted and un- 
 patriotic crew that ever breathed, having not the faintest conception 
 of the conditions upon which, on a large scale, Government and 
 social order must rest. A multitude of insults at last taught them 
 that one condition at least of social order was the sword. Mr. 
 Hayne, the great champion of the supremacy of the States in 
 relation to the United States, and his audience were in perfect 
 accord. He meant the destruction of the National Government 
 unless his State could have its own way. His audience applauded 
 to the echo. Under such teaching within two years the State of 
 South Carolina passed her first act of secession, the occasion being 
 the protective tariff of 1832. The North, having little compared 
 with the enormous amount now at stake, made all haste to call back 
 the recalcitrant member, by allowing her to dictate the terms of her 
 return, establishing a precedent justifying to the letter the second 
 act of secession in i860. The War of the Rebellion after an infi- 
 nite waste of life and property overthrew one of General Jackson's 
 great assumptions that every man was to be a law for himself. Time 
 unfortunately has only served to aggravate the evils resulting from 
 the second measure that distinguished his administration, — the over- 
 throw of the best monetary system ever created. After infinite waste 
 and suffering through a period of more than two generations the 
 
66 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 currency of the Fathers still remains to be restored. Fortunately, 
 the great task can now be entered upon with perfect assurance that 
 social order is at last secure. 
 
 In 1830, according to Mr. Gallatin, 330 banks, including that of 
 the United States, were in operation. Their share capital equalled 
 $145,192,268; their loans and discounts $200,451,214; their note 
 circulation $61,323,928; their deposits $55,559,928, the amount of 
 the two, notes and deposits, equalling $116,886,856. As the veto 
 was regarded as decisive of the fate of the bank the State banks 
 began to increase largely their issues to fill the vacuum about to be 
 created in the currency. Great numbers of the latter were created 
 for the same purpose. With a large increase of issues they could 
 still find means of making good any balances arising in favor of the 
 National Bank. So long as this was done no note of warning was 
 heeded. 
 
 The first returns published by Government of the operation of 
 the banks, including that of the United States, were for the year 
 ending December 31, 1833. The number at that date was5o6 ; their 
 share capital $200,005,944 ; their loans and discounts $325,1 19,499 ; 
 their note circulation $94,834,970 ; their deposits $75,666,986. The 
 aggregate of their notes and deposits was $170,501,956. 
 
 On the first day of January, 1837, 788 banks were in operation. 
 Their share capital equalled $290,772,091 ; their loans and dis- 
 counts $525,115,702; their note circulation $149,185,890; their 
 deposits $127,397,185; their notes and deposits $276,583,075, the 
 increase of the latter over the issues of 1834 being $106,071,119; 
 over 1830, $159,646,219, the rate of increase being about 140 
 per cent. At a normal rate of increase the notes and deposits in 
 the banks January 1, 1837, would have been about $160,000,- 
 000, a sum $100,000,000 less than the actual amount. The infla- 
 tion was largely in the south and south-western divisions, as shown 
 in the following statement : 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 6 7 
 
 Statement showing, by divisions, the number, share capital, loans and discounts, and the 
 notes and deposits and the aggregate of the same, for each year, of all the banks in the 
 United States, January 1, 1830 and 1837, and the totals for each year : 
 
 Divisions. 
 
 1830. 
 
 1837- 
 
 (*- in 
 
 1S30. 
 Share 
 Capital. 
 
 Share 
 Capital. 
 
 1830. 
 
 Notes in 
 
 Circulation. 
 
 1S30. 
 Deposits. 
 
 1830. 
 
 Total Notes 
 
 and 
 
 Deposits. 
 
 
 171 
 
 314 
 
 $35,297,869 
 
 $62,172,720 
 
 $9,554 ,°26 
 
 $4,99',339 
 
 $14,545,365 
 
 Middle 
 
 116 
 
 231 
 
 82,979,784 
 
 "3,454,949 
 
 3S,i27,457 
 
 4i,S6o,928 
 
 79,9SS, 3 S5 
 
 Southern .... 
 
 22 
 
 S2 
 
 18,500,129 
 
 31,444,448 
 
 io,683,S6o 
 
 5.377.So° 
 
 16,061,750 
 
 Southwestern 
 
 S 
 
 S3 
 
 6,775.9°° 
 
 62,307,111 
 
 3,738,136 
 
 2,746,860 
 
 6,484,99 s 
 
 
 13 
 
 7S 
 
 1,639,386 
 
 21,392,863 
 
 1,000,000 
 
 583,610 
 
 1,583,610 
 
 Totals 
 
 330 
 
 788 
 
 $145,192,268 
 
 $290,772,091 
 
 $61,323,898 
 
 $55,559,928 
 
 $ii6,S83,S26 
 
 
 1837- 
 
 1S30. 
 
 lS37- 
 
 Divisions. 
 
 Notes in 
 Circulation. 
 
 Deposits. 
 
 Total Notes 
 
 and 
 
 Deposits. 
 
 Loans and 
 Discounts. 
 
 Loans and 
 Discounts. 
 
 Increase of 
 Loans and 
 Discounts. 
 
 Middle 
 
 Southwestern.. 
 
 $22,513,292 
 
 56,524,339 
 28,483,170 
 24.346,667 
 17,318,422 
 
 $"5,5°S,933 
 55,342,29° 
 !5,iS2,406 
 22,137,627 
 19,228,928 
 
 $39,019,225 
 111,866,629 
 43,665,576 
 46,404,294 
 36,547,350 
 
 $40,480,651 
 
 116,836,910 
 
 24,97S,694 
 
 I0,954,S9I 
 
 l,S65,67S 
 
 $98,651,703 
 21 1,440,794 
 62,035,190 
 
 ii2.554.3ii 
 40,438,704 
 
 $51,571,086 
 95,203,S04 
 37,356,496 
 
 101 ,969,029 
 3S,573,026 
 
 
 $149,iSs,Soo 
 
 $127,397,185 
 
 $276,583,075 
 
 $200,451,214 
 
 $52S,"S,7o 2 
 
 $324,5 6 4,338 
 
 The eastern division included Maine, New Hampshire, Vermont, Massachu- 
 setts, Rhode Island, and Connecticut. 
 
 The middle included New York, Pennsylvania, New Jersey, Delaware, Mary- 
 land, and the District of Columbia. 
 
 The southern included Virginia, North Carolina, South Carolina, Georgia, and 
 Florida. 
 
 The south-western included Alabama, Louisiana, Mississippi, Arkansas, and 
 Tennessee. 
 
 The western included Kentucky, Missouri, Illinois, Indiana, Ohio, Michigan, 
 and Wisconsin. 
 
 The wild delirium of speculation and waste due to the vast 
 increase of the currency, rivalled that which followed the winding 
 
68 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 up of the first bank ; the cause, in both instances, being the same, 
 — the entire withdrawal of superintendence by the National Gov- 
 ernment. It will be readily understood by those who were wit- 
 nesses of the scenes which in the war of the Rebellion followed the 
 issue of the legal tender notes of the Government. 
 
 A striking illustration of the spirit of speculation that was 
 created was the increased purchase of the public lands. The fol- 
 lowing statement will show the number of acres sold, and the 
 amounts received therefor, each year, from 1832 to 1838 inclusive : 
 
 
 
 Amount 
 
 
 
 Amount 
 
 Years. 
 
 Acres Sold. 
 
 Received. 
 
 Years. 
 
 Acres Sold. 
 
 Received. 
 
 1832 . 
 
 2,462,342 
 
 $3."5.376 
 
 1836 . 
 
 . 20,074,870 
 
 $25,167,833 
 
 1833 • 
 
 3,856,227 
 
 4,972,284 
 
 1837 • 
 
 5,601,103 
 
 7,007,523 
 
 1834 . 
 
 4,658,218 
 
 6,099,981 
 
 1838 . 
 
 3,414,907 
 
 4.305.564 
 
 1835 ■ 
 
 ■ 12,364,478 
 
 15,999,804 
 
 
 
 
 For the years 1835 and 1836 the sum received equalled $41,167,- 
 637, the average amount for the two years being nearly seven- 
 fold greater than for 1832, a year of extraordinary activity in affairs. 
 The moneys received therefor were the notes of the State banks, 
 largely in the West. In 1836 an act was passed by Congress for 
 the deposit of $37, 267, 618, the proceeds of the sales, with the States 
 in ratio to their representation in Congress. The deposits were to 
 be made quarterly, in four equal sums, the first to be made January 
 1, 1837. The withdrawal of such a vast sum from the banks, to be 
 paid in specie or its equivalent, was one of the causes that precipi- 
 tated the suspension of specie payment. 
 
 Another striking illustration of the effect of the withdrawal of the 
 United States from all supervision of the currency was the vast in- 
 crease of banks in western and south-western States. In this the 
 State of Mississippi was conspicuous. The following statement will 
 show the number of banks, their share capital, loans and discounts, 
 note circulation and deposits, of the State, from January 1, 1834, 
 to January 1 , 1 840, inclusive : 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 69 
 
 Years. 
 
 No. of 
 Banks. 
 
 Share of 
 Capital. 
 
 Loans and 
 Discounts. 
 
 Note 
 Circulation. 
 
 Deposits. 
 
 Specie. 
 
 1S34 
 
 1 
 
 $2,666,805 
 
 $5,461,464 
 
 $1,510,426 
 
 $545,353 
 
 $113,220 
 
 1S3S 
 
 10 
 
 5,Soo,i62 
 
 io,379, 6 5i 
 
 2,418,475 
 
 i,SS8,762 
 
 359,302 
 
 1S36 
 
 13 
 
 8,764,550 
 
 ■9,124,977 
 
 4,490,521 
 
 6,401,51s 
 
 659,470 
 
 ■S37 
 
 iS 
 
 i2,S72,Sis 
 
 34,35>,4i4 
 
 5.073.425 
 
 5,345,3S4 
 
 1,369,457 
 
 1S3S 
 
 26 
 
 19,231,123 
 
 28>999>984 
 
 7,472,334 
 
 4,638,669 
 
 766,360 
 
 1S39 
 
 26 
 
 3o,379.4<>3 
 
 • 4S,333,728 
 
 i5,i7",<539 
 
 8,691,601 
 
 867,977 
 
 The following statement will show the extent of the banking opera- 
 tions in Mississippi on Jan. 1, 1840, compared with those of the States 
 of New York, Massachusetts, and Pennsylvania: 
 
 States. 
 
 Free 
 Popula- 
 tion. 
 
 
 Share 
 Capital. 
 
 I-oans and 
 Discounts. 
 
 Note 
 Circula- 
 tion. 
 
 Deposits. 
 
 Specie. 
 
 Mississippi .. ■ 
 New York . . . 
 Massachusetts. 
 Pennsylvania, 
 
 170,000 
 3,400,000 
 
 730,000 
 1,700,000 
 
 26 
 9 S 
 
 117 
 
 49 
 
 $30,379,403 
 37,101,460 
 34-47S.no 
 23.7S0,33S 
 
 $lS,333,72S 
 79,3i 3) iSS 
 56,643,172 
 44,601,930 
 
 $i5.i7 1 .639 
 24,198,000 
 10,892,249 
 '3.749.0M 
 
 $8,691,601 
 30,883,179 
 S,7S 4 ,Si6 
 12,902,250 
 
 $867,977 
 6,857,020 
 
 >»4SS. a 30 
 3.i 13.990 
 
 The amount of loans and discounts of the banks of Mississippi 
 equalled $285 per head of free population; their circulation, includ- 
 ing deposits, $140 per head. Those of the banks of the State of 
 New York equalled $30 per head ; their circulation, including deposits, 
 equalled $23 per head. 
 
 For two banks the State, by an issue of its bonds, supplied capital 
 to the amount of $7,000,000 : for the Planters, $2,000,000 ; for 
 the Union, $5,000,000. In 1840 the whole system exploded; 
 passed entirely out of existence. No trace of them thereafter 
 is to be found in the reports of the Government. Their share 
 capital, whatever the amount provided, was wholly wasted. Their 
 loans were never paid. Their notes and deposits were wholly 
 repudiated. The whole system fell a huge and rotten mass to the 
 ground. With the failure of the Planters and Union Banks the 
 interest on the bonds issued to provide the capital therefor 
 ceased. The bonds were sold abroad at their full value. Failing 
 
7<3 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 • 
 
 to receive any returns, the holders naturally became importunate. 
 They could, however, do little but remonstrate, as " Mississippi 
 was a sovereign State." The payment of the bonds issued on 
 account of the Union Bank was sought to be avoided on the ground 
 of some informality in their issue. The State, however, graciously 
 allowed the legality of the bonds to be determined by its highest 
 judicial tribunal. That tribunal decided that the bonds were 
 well issued, and were obligations binding on the State. But as 
 no process could issue against a "Sovereign State," all the bond- 
 holders took in this case was a bootless decision in their favor. 
 
 The holders of the bonds issued by the Planters Bank, the 
 regularity of the issue of which was never questioned, were, 
 equally persistent in their efforts for redress. So late as 1853 they 
 obtained from the Legislature of the State, twelve years after default 
 in payment of interest, an act referring the question of their pay- 
 ment to the people. These "rose in their majesty," to quote the 
 language which reported their great achievement, and voted that 
 the bonds should not be paid ! Having exhausted all remedies 
 open to them in the Legislature of the State, as well as in the courts 
 of conscience and law, the unlucky holders of both classes of 
 bonds, seeing nothing in store for them but continued losses and 
 insults, slowly and sullenly retired from the contest. 
 
 From the explosion in 1840 of the banking system of Mississippi 
 no trace of a bank appeared in that State for nearly twenty years. 
 The people were too poor to provide the means and too dishonest 
 to be entrusted with other people's money. In the Constitution of 
 the State, adopted January 1, 1890, a clause was inserted providing 
 that " No future Legislature shall assume, secure, or pay any indebt- 
 edness or pretended indebtedness alleged to be due by the State of 
 Mississippi to any person, association, or corporation whatever, 
 claiming the same as owner, holder or assignee of any bond or bonds 
 now generally known as the Union Bank and Planters Bank bonds," 
 — the first instance in history of a people emblazoning their infamy 
 in their organic law. 
 
 The State of Ohio afforded another pertinent illustration of what 
 was going on in nearly all the States. At the close of 1833 there 
 were in it twenty-four banks, the share capital of which equalled 
 $$, 819, 692; their circulation, $5,221,520; their deposits, $2, 090,- 
 065; their loans and discounts, $9,751,973. In 1837 the number 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. jl 
 
 of banks had increased to thirty-two; their share capital to $9,247,- 
 246; their circulation to $8,326,974 ; their deposits to $7,590,933 ; 
 their loans and discounts to $18,178,699. In 1844, the year after 
 specie payments were fully resumed, the number of banks was 
 reduced to eight; their share capital to $2,167,628; their note 
 circulation to $2,246,999; their deposits to $505,430; their loans 
 and discounts to $2,968,441. 
 
 In the want of some controlling power every western State was 
 hatching some new system of paper money. So late as 1852 an 
 act was passed by the State of Indiana providing for an issue by 
 banks upon the deposit by them of the bonds of the United States 
 or of the several States. The law did not require either the stock- 
 holders or directors of banks to reside within the State. The 
 manner in which banks were gotten up and utilized is well told by 
 the following extract from the message, in 1853, of the Governor to 
 the Legislature of the State : 
 
 The speculator comes to Indianapolis with a bundle of bank-notes in one hand 
 and the stock in the other; in twenty-four hours he is on the way to some distant 
 point of the Union, to circulate what he denominates a legal currency authorized 
 by the Legislature of Indiana. He has nominally located his bank in some 
 remote part of the State, difficult of access, where he knows no banking facilities 
 are required, and intends that his notes shall go into the hands of persons who 
 have no means of demanding their redemption. 
 
 As a matter of course the State bonds deposited had often little 
 value. In 1854, under the above Act, eighty-six banks had been 
 established. The returns from sixty-seven of these for that year 
 showed a share capital of $32,900,000; a note circulation of 
 $7,425,000. In 1856, by the failure of banks, the share capital of 
 those that remained equalled $4,045,325 ; their notes, which were 
 selling all the way from 25 to 75 cents on the dollar, were reduced 
 to $4,516,422. In a year or two following not a trace of the new 
 " Safety Fund System," as it was called, remained. The history of 
 many other States was the same in kind. 
 
 In his farewell address, of March 3, T837, the "Banks" were, 
 throughout, General Jackson's great theme : 
 
 It is one of the serious evils of our present system of banking, that it enables 
 one class of society — and that by no means a numerous one — by its control 
 
72 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 over the currency, to act injuriously upon the interests of all the others, and to 
 exercise more than its just proportion of influence in political affairs 
 
 The planter, the farmer, the mechanic, and the laborer, all know that their 
 success depends upon their own industry and economy, and that they must not 
 expect to become suddenly rich by the fruits of their toil. Yet these classes of 
 society form the great body of the people of the United States ; they are the 
 bone and sinew of the country ; men who love liberty, and desire nothing but 
 equal rights and equal laws, and who, moreover, hold the great mass of our 
 national wealth, although it is distributed in moderate amounts among the mil- 
 lions of freemen who possess it. But with overwhelming numbers and wealth on 
 their side they are in constant danger of losing their fair influence in the govern- 
 ment, and with difficulty maintain their just rights against the incessant efforts 
 daily made to encroach upon them. 
 
 The mischief springs from the power which the moneyed interest derives from 
 a paper currency which they are able to control, from the multitude of corpo- 
 rations with exclusive privileges, which they have succeeded in obtaining from 
 the different States, and which are employed altogether for their benefit ; and 
 unless you become more watchful in your States, and check this spirit of 
 monopoly and thirst for exclusive privileges, you will, in the end, find that the 
 most important powers of government have been given or bartered away, and the 
 control of your dearest interests has passed into the hands of these corporations. 
 
 The paper-money system, and its natural associates, monopoly and exclusive 
 privileges, have already struck their roots deep in the soil ; and it will require all 
 your efforts to check its further growth, and to eradicate the evil. The men who 
 profit by the abuses, and desire to perpetuate them, will continue to besiege the 
 halls of legislation in the general government as well as in the States, and will 
 seek, by every artifice, to mislead and deceive the public servants. It is to your- 
 selves that you must look for safety, and the means of guarding and perpetuating 
 your free institutions. In your hands is rightfully placed the sovereignty of the 
 country, and to you every one placed in authority is ultimately responsible. It is 
 always in your power to see that the wishes of the people are carried into faithful 
 execution, and their will, when once made known, must sooner or later be 
 obeyed. And while the people remain, as I trust they ever will, uncorrupted 
 and incorruptible, and continue watchful and jealous of their rights, the govern- 
 ment is safe, and the cause of freedom will continue to triumph over all its ene- 
 mies. 
 
 But it will require steady and persevering exertions on your part to rid your- 
 self of the iniquities and mischiefs of the paper system, and to check the spirit of 
 monopoly and other abuses which have sprung up with it, and of which it is the 
 main support. So many interests have united to resist all reform on this subject, 
 that you must not hope the conflict will be a short one, nor success easy. My 
 humble efforts have not been spared, during my administration of the govern- 
 ment, to restore the constitutional currency of gold and silver ; and something, I 
 trust, has been done toward the accomplishment of this most desirable object. But 
 enough yet remains to require all your energy and perseverance. The power, 
 however, is in your hands, and the remedy must and will be applied, if you 
 determine upon it. 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 73 
 
 The preceding extracts are given not so much to be replied to 
 as by way of illustration of the manner in which our people have 
 been swayed by demagogues, of whom General Jackson was the 
 conspicuous example. One form of currency was bills serving in the 
 place of metallic money for the transfer of merchandise, in gross. 
 To these certainly no objections could be raised. The notes. and 
 credits of banks issued in their discount served for its transfer 
 from merchant to consumer. The two forms of credit dis- 
 charging capital from the exchanges were precisely the same 
 in kind. None other will ever be used in commercial countries like 
 the United States as the ordinary instruments of exchange unless 
 it be an imposed one of government notes, but in such case the 
 issues of banks and bankers will equal in nominal amount the value 
 of the subjects of consumption, the imposed one being wholly 
 superfluous. When a bill is drawn the first step of the holder is to 
 apply to the banks, not to the government, to turn it into money. 
 Government is never present in such transactions as these. Its 
 issues are made for the acquisition of capital for consumption, not 
 primarily as instruments of distribution. There could, at the time, 
 have been no monopoly of issue, as charters for banks were always 
 to be had for the asking. That there was no monopoly was well 
 shown by the fact that from 1830 to 1837 the number of banks 
 increased from three hundred and twenty-nine to seven hundred and 
 eighty-eight; their share capital, from $145,192,268 to $290,772,- 
 091 ; their loans and discounts from $200,451,214 to $525,115,702 ; 
 their notes and deposits from $116,883,826 to $276,583,075. As 
 the veto of 1832 was conclusive of the fate of the bank its interest 
 for the maintenance of a sound currency was of course greatly 
 weakened. Up X.0 1834 the State banks were able to provide for 
 the balances fourid against them. From the removal of the deposits 
 in that year, the revenues being paid into and held by the " Pet 
 Banks," all control over the currency from any quarter was at an 
 end, all the banks vying with each other in the amount of their 
 loans and issues. 1 
 
 1 "That the reader," says Parton, "may see the movements of this gentle- 
 man (Isaac Hill) as they appeared to General Jackson, and that he may fully 
 understand the process by which the administration was brought into collision with 
 the parent bank, I will present here a brief condensation of the papers and let- 
 ters relating to the Portsmouth affair, in the order in which they were produced. 
 
74 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 The great mission, in his own words, of General Jackson was the 
 "restoration of the money, gold and silver, of the Constitution." 
 The necessary effect of every step he took in his work of restora- 
 tion was to drive gold and silver out of circulation and to substitute 
 in their place vast issues of the rottenest monetary system ever created. 
 Having accomplished the great work of his life he prayed that, 
 "broken with the cares of the State which he had so long and faith- 
 fully served, he might at last be allowed to depart in peace." 
 
 Hardly were the words of his " Farewell Address " out of his mouth 
 when, early in May, 1837, came the inevitable and terrible explosion, 
 — the suspension of specie payments by all the banks, to be followed 
 by a process of liquidation so severe that six years elapsed before 
 the country was again fairly on its feet. The process went on until 
 in 1843 the notes of the banks were reduced from $149,185,890 in 
 1837 to $58, 563, 608; their deposits from $127,397,185 to $56,116, 
 623; the aggregate of the two in 1843 being $114,680,231, a sum 
 $161,902,844 less than the aggregate for 1837, and $2,203,495 less 
 than that for 1830. At the rate of increase, forty-five per cent., 
 from 1820 to 1830 the amount of notes and credits of the banks 
 
 The correspondence began in June and ended in October. I believe myself war- 
 ranted in the positive assertion, that this correspondence relating to the desired 
 removal of Jeremiah Mason was the direct and real cause of the destruction of 
 the bank. If the bank had been complaisant enough to remove a faithful ser- 
 vant, General Jackson, I am convinced, would never have opposed the recharter- 
 ing of the institution." — Life of General Jackson, by James Parian. Vol. III., 
 page 260. 
 
 An earlier affront, undoubtedly, still rankled in General Jackson's bosom. 
 "An incident," to quote further from Parton, " occurred during the stay of Gen- 
 eral Jackson at New Orleans, which was afterwards supposed to have made a 
 lasting impression upon his mind, and to have been a remote cause of important 
 events. He came into collision with the Bank of the United States. Desiring 
 to take with him to Florida a sum of money, with which to defray the first 
 expenses of organizing his government, he sent an aide-de-camp to the branch of 
 the United States Bank at New Orleans to learn whether the bank would advance 
 ten or fifteen thousand dollars on a draft to be drawn by General Jackson upon 
 the Department of State. The messenger returned with the reply that the branch 
 bank had no authority to advance money upon drafts. The mother bank, said 
 the cashier, had expressly forbidden him to negotiate drafts. The aide-de-camp 
 remonstrated, and pointed out the' inconvenience that might result from the 
 refusal; but the cashier was immovable, as he was bound to be." — Ibid. Vol. 
 II.,p.S9(>. 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 75 
 
 in 1837 would have equalled $152,000,000, a sum $124,000,000 less 
 the amount of that year. 1 At the same rate of increase their notes 
 and credits would, in 1840, have equalled $169,443,826, and in 
 
 1 Statement showing' the Number , Amount of Share Capital, Loans and Discounts, Note 
 Circulation, and Deposits of the Baiiks and Branches of the same, and the Value of 
 Imports and Exports of the United States, from 1830 to 1845, inclusive. 
 
 a 
 < 
 
 > 
 
 Number 
 
 of 
 Banks. 
 
 1830.. 
 
 330 
 
 1833 •■ 
 
 506 
 
 1834.. 
 
 699 
 
 ■S35-- 
 
 7'3 
 
 1836.. 
 
 7SS 
 
 1837.. 
 
 S29 
 
 1S38.. 
 
 S40 
 
 1839. • 
 
 S60 
 
 1 5.(0. . 
 
 S61 
 
 1S41.. 
 
 7S4 
 
 1842.. 
 
 692 
 
 1843.. 
 
 691 
 
 1S44.. 
 
 696 
 
 1845.. 
 
 707 
 
 Share 
 Capital. 
 
 1145,192,268 
 200,005,944 
 23 ',350.337 
 2 5 ',875,292 
 290,772,091 
 3>7.63S.77S 
 327,132,512 
 363,629,227 
 313,608,959 
 260,171,797 
 228,861,948 
 210,872,056 
 206,045,969 
 196,894,309 
 
 Loans and 
 Discounts. 
 
 1200,451,214 
 
 365,163,834 
 457,506,080 
 525,115,702 
 4SS,63>.687 
 492,278,015 
 462,896,523 
 . 386,487,662 
 3 2 3.957.S69 
 254.544.937 
 264,905,814 
 28S,6i7,i3i 
 312,114,404 
 311,282,945 
 
 Note 
 Circulation. 
 
 $61,323,928 
 103,692,445 
 140,301,038 
 149,185,890 
 116,338,910 
 
 13S.170.995 
 jo6,o6S,572 
 107,290,214 
 83,734.oii 
 58,563,608 
 75,167,646 
 S9,6oS,7ii 
 105,552,427 
 105,519,766 
 
 Deposits. 
 
 $55,559,928 
 83,081,365 
 Ji5i Ia M4° 
 ■27.397, "85 
 84,691,18^ 
 90,240,146 
 75.696,857 
 64,890,101 
 62,408,870 
 56,i6S,62S 
 84.550,785 
 88,020,646 
 96,9i3>070 
 91.752.533 
 
 Imports. 
 
 $70,876,920 
 126,521,332 
 140.S97.742 
 189,080,035 
 140,989,217 
 
 "3,717.404 
 162,092,132 
 107,141,519 
 127,946,177 
 ioo,i62,oS7 
 86,338,398 
 108,435,035 
 
 1 '7.254.564 
 121,691,797 
 
 Exports. 
 
 $73.S49,S08 
 '04.336,973 
 121,693,577 
 128,663,046 
 "7.4'9.376 
 108,486,616 
 121,028,416 
 132,085,946 
 121,851,803 
 104,691,534 
 112,461,973 
 111,200,146 
 114,654,606 
 113,648,622 
 
76 OVERTHROW OF BANK AND INFLATION OK C'UHUENCY. 
 
 1843, $194,944,826, a sum $80,000,000 greater than the amount 
 then outstanding. It was not until 185 1, eighteen years after the 
 tide turned in 1843, tnat the notes and credits of the banks 
 exceeded the aggregate for 1837, the amount for 1851 being 
 $284,122,883, of which $155,165,281 were notes, and $128,- 
 957,602 were deposits. The country was in a far worse condition 
 in 1843 than in 1830. For thirteen years instead of progress there 
 was a steady retrocession, not only in its material but in its moral 
 welfare, a strange spectacle for the " Model Republic." The disas- 
 ters from the occupation and ravage of every section of the country 
 by a foreign foe could not have exceeded those which resulted from 
 Jackson's experiment for the " restoration of the money of the Con- 
 stitution." Strange to say, the author of the disasters described 
 has always remained the idol of the nation to the undoing of which, 
 as far as was possible, he was the chief instrument, for the War of 
 the Rebellion, as well as the worst currency possible, of debt instead 
 of capital, with all the terrible calamities which followed, were the 
 direct result of the overthrow by him of the authority of the Supreme 
 Court, which, instead of a loose confederacy, dissolvable upon the 
 motion of any member, had declared us to be a nation, competent 
 to deal with all matters that concerned its existence, as well as the 
 common welfare. 
 
 The preceding statements, so far as the bank is concerned, are 
 compiled from the reports of the department of the Treasury, 
 entitled "State Banks of the United States." After 1837 returns 
 appear to have been made by great numbers of banks which had 
 discontinued business, years being required to wind up their affairs. 
 The great disaster of 1837 by no means put an end, as has been 
 shown, to the creation of new banks, mostly of small capital, in the 
 rural districts. 
 
 In 1 84 1 a bill passed both houses of Congress for the creation of 
 a third National Bank. It was vetoed by Mr. Tyler, a pronounced 
 "States' rights " man, whom the Whigs, for the purpose of uniting 
 all elements in opposition to Mr. Van Buren, had nominated for the 
 vice-presidency, and who became president upon the death of 
 General Harrison. From its defeat no other proposition for any 
 National Bank was ever made. 
 
 Mr. Van Buren, who, March 4, 1837, succeeded General Jackson 
 in the presidency, pledged to walk in his footsteps, was, up to the 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 77 
 
 great explosion, as unconscious as his illustrious predecessor of 
 the volcano beneath his feet. He woke up one morning, to use 
 the language of Mr. Benton, " with large balances on its books in 
 favor of the Government, but without the means of paying a day's 
 wages to the meanest official in its service," except in the notes of 
 the broken State Banks. An issue of treasury notes to tide over the 
 immediate necessities of the government was made with all speed. 
 The next and obvious step would have been the restoration, follow- 
 ing the example of 1816, of the currency by the creation of a third 
 National Bank. That it was not taken was due to the fact that in 
 the period which had elapsed from the creation of the Second Bank 
 the South had learned a new lesson, that she was being rapidly out- 
 stripped by the North in numbers and wealth from the exercise by 
 Congress of implied powers, the most obvious example being legis- 
 lation for the encouragement of domestic industries in which, from 
 the ignorance and poverty of her people, she could not engage. The 
 North cheerfully paid protective duties, domestic markets being 
 thereby created for her products. To the South, which had no 
 industries to protect, the duties levied were taxes imposed upon one 
 section of the country for the benefit of another, and, consequently, 
 unconstitutional, there being no direct warrant therefor. By a 
 necessary inference an act, being the exercise of implicit powers, for 
 the creation of the bank was unconstitutional. Every exercise of 
 implied powers was unconstitutional, as it inured to the benefit of 
 one section at the expense of another. If a state or political body 
 was competent to declare the meaning of the Constitution it was 
 competent to enforce its meaning. Such was the objection to implied 
 powers, their exercise being unconstitutional, to be resisted by force 
 by those assumed to be injured by them. But where were the North 
 and East when a construction of the Constitution, so destructive to their 
 welfare, was established as the law of the land ? — Sold out to South 
 Carolina and her sister States, immunity for their peculiar institution 
 being the consideration on one side, and official stations and public 
 plunder to the contingent of northern mercenaries ever ready to 
 assail the Government and social order for a mess of pottage, on 
 the other. The very elements and conditions upon which a gov- 
 ernment worthy the name must rest for support were overthrown, 
 our own being reduced to a condition of complete imbecility. 
 
 Jackson taught the doctrine that each individual was to determine 
 
78 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 for himself the meaning of the Constitution. As was inevitable his 
 construction speedily became the publicly pronounced creed of the 
 party, the first regular National Democratic Convention ever held, 
 which nominated Mr. Van Buren for his second term, resolving that : 
 
 Congress has no power to charter a United States Bank; that we believe 
 such an institution one of deadly hostility to the best interests of the country, 
 dangerous to our Republican institutions and the liberties of the people, and cal- 
 culated to place the business of the country within the control of a concentrated 
 money power, and above the laws and the will of the people. 
 
 This resolution was followed by another, directed against the exer- 
 cise of implied powers : 
 
 The Federal Government is one of " limited powers " derived solely from 
 the Constitution, and the grants of power shown therein ought to be stiictly 
 construed by all the departments and agents of the Government, and that it is 
 inexpedient and dangerous to exercise doubtful constitutional powers. 
 
 Mr. Van Buren, in his reply to the communication informing him 
 of his nomination, accepted unreservedly every resolution in the 
 platform, adding that : 
 
 Thomas Jefferson has taught us, that to preserve that common sympathy 
 between the States, out of which the Union sprang, and which constitutes its 
 surest foundation, we should exercise the powers which of right belong to the 
 general government in a spirit of moderation and brotherly love, and religiously 
 abstain from such as have not been delegated by the Constitution. 
 
 The Constitution provided that " the Supreme Court of the United 
 States shall have jurisdiction in all matters of law and equity arising 
 under it.'' That august tribunal, in 1819, declared, in the celebrated 
 case of McCullough, against the State of Maryland, that the National 
 Government sprang from the people, not from the States, and that it 
 was one of unlimited powers as to everything that came within its 
 scope, the creation of a bank by the exercise of implied powers 
 being an illustration. 1 In both of these assumptions, that tribunal 
 
 1 The decision of the Supreme Court to which General Jackson referred 
 was that of McCulloch against the State of Maryland. In 1818 that State 
 passed an act for taxing the assets and operations of the Baltimore branch of 
 the bank. In a suit in her behalf in her own courts judgment was rendered 
 in her favor. The position taken was that the State, being sovereign, could levy 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 79 
 
 was overruled by a political party, by declarations repeated thereafter 
 by every national gathering down to and including the nomination 
 of Mr. Buchanan for the presidency. 
 
 taxes on all persons and property in its domain. By a writ of error taken out by 
 James W. McCulloch, cashier of the bank, the case was taken to the Supreme 
 Court of the United States, which reversed the decision of the State courts, and 
 ordered judgment therein to be entered for the bank. In his argument Chief - 
 Justice Marshall, who delivered that opinion, in which all the judiciary concurred, 
 said: 
 
 " In the case now to be determined, the defendant, a sovereign State, denies 
 the obligation of a law enacted by the Legislature of the Union, and the plaintiff, 
 on his part, contests the validity of an act which has been passed by the Legislat- 
 ure of that State. The Constitution of our country, in its most interesting and 
 vital part, is to be considered; the conflicting powers of the Government of the 
 Union and of its members, as marked by that Constitution, are to be discussed, 
 and an opinion given which may essentially influence the great operations of the 
 Government. No tribunal can approach such a question without a deep sense of 
 its importance, and of the awful responsibility involved in its decision. But it 
 must be decided peacefully, or remain a source of hostile legislation, perhaps of 
 hostility of a still more serious nature; and if it is to be so decided, by this tri- 
 bunal alone can the decision be made. On the Supreme Court of the United 
 States has the Constitution of our country devolved this important duty. 
 
 "The first question made in the cause is— Has Congress power to incorporate 
 a bank? 
 
 "It has been truly said that this can scarcely be considered as an open question, 
 entirely unprejudiced by the former proceedings of the nation respecting it. The 
 principle now contested was introduced at a very early period of our history, has 
 been recognized by many successive Legislatures, and has been acted upon by the 
 Judicial Department, in cases of peculiar delicacy, as a law of undoubted 
 obligation. 
 
 ' ' The power now contested was exercised by the first Congress elected under the 
 present Constitution. The bill for incorporating the Bank of the United States 
 did not steal upon an unsuspecting Legislature, and pass unobserved. Its 
 principle was completely understood, and was opposed with equal zeal and ability. 
 After being resisted, first in the fair and open field of debate, and afterwards in 
 the executive Cabinet, with as much persevering talent as any measure has ever 
 experienced, and being supported by arguments which convinced minds as pure 
 and as intelligent as this country can boast, it became a law. The original act 
 was permitted to expire ; but a short experience of the embarrassments to which 
 the refusal to revive it exposed the Government convinced those who were most 
 prejudiced against the measure of its necessity, and induced the passage of the 
 present law. It would require no ordinary share of intrepidity to assert that a 
 measure adopted under these circumstances was a bold and plain usurpation to 
 which the Constitution gave no countenance. . . . 
 
 " In discussing this question, the counsel for the State of Maryland have deemed 
 
80 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 The preceding resolutions were followed at subsequent conven- 
 tions by others, in order to make their meaning more explicit and 
 
 it of some importance, in the construction of the Constitution, to consider that 
 instrument not as emanating from the people, but as the act of the Sovereign ami 
 Independent States. The powers of the General Government, it has been said, 
 are delegated by the States, who alone are truly sovereign ; and must be exercised 
 in subordination to the States, who alone possess supreme dominion. 
 
 " It would be difficult to sustain this proposition. The Convention which framed 
 the Constitution was indeed elected by the State Legislatures. But the instru- 
 ment, when it came from their hands, was a mere proposal, without obligation, or 
 pretensions to it. It was reported to the then existing Congress of the United 
 States, with a request that it might ' be submitted to a Convention of delegates, 
 chosen in each State by the people thereof, under the recommendation of its 
 Legislatures, for their assent and ratification.' This mode of proceeding was 
 adopted ; and by the Convention, by Congress, and by the State Legislatures, the 
 instrument was submitted to the people. They acted upon it in the only manner 
 in which they can act safely, effectively, and wisely on such a subject — by assem- 
 bling in convention. It is true they assembled in their several States — and 
 where else could they have assembled ? No political dreamer was ever wild 
 enough to think of breaking down the lines which separate the States, and of 
 compounding the American people into one common mass. Of consequence, 
 when they act, they act in their States. But the measures they adopt do not, on 
 that account, cease to be the measures of the people themselves, or become the 
 measures of the State Governments. From these conventions the Constitution 
 derives its whole authority. The Government proceeds directly from the people ; 
 is ordained and established in the name of the people ; and is declared to be 
 ordained ' in order to form a more perfect union, establish justice, ensure 
 domestic tranquillity, and secure the blessings of liberty to themselves and their 
 posterity. ' The assent of the States in their sovereign capacity is implied in 
 calling a Convention, and thus submitting that instrument to the people. But 
 the people were at perfect liberty to accept or reject it; and their act was final. 
 It required not the affirmance, and could not be negatived by the State Govern- 
 ments. The Constitution, when thus adopted, was of complete obligation, and 
 bound the State Sovereignties." 
 
 The judgment of the Court was as follows : 
 
 This cause came on to be heard on the transcript of the record of the Court of 
 Appeals of the State of Maryland, and was argued by counsel. On consideration 
 whereof, it is the opinion of this Court that the act of the Legislature of Mary- 
 land is contrary to the Constitution of the United States, and void ; and, there- 
 fore, that the said Court of Appeals of the State of Maryland erred in affirming 
 the judgment of the Baltimore County Court, in which judgment was rendered 
 against James W. M'Culloch; but that the said Court of Appeals of Maryland 
 ought to have reversed the said judgment of the said Baltimore County Court, 
 and ought to have given judgment for the said appellant, M'Culloch. It is 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 8 1 
 
 plain. The climax was reached in 1852, when Franklin Pierce was 
 nominated for the presidency, by one which declared that : 
 
 The Democratic party will faithfully abide by and uphold the principles laid 
 down in the Kentucky and Virginia resolutions of 1798 and 1799, and in the 
 report of Mr. Madison to the Virginia Legislature in 1799, that it adopts those 
 principles as constituting one of the main foundations of its political creed, and is 
 resolved to carry them out in their obvious meaning and import. 
 
 The Virginia and Kentucky resolutions, drawn by Mr. Jefferson, 
 among other things, recited that : 
 
 The several States who formed the Constitution, being sovereign and inde- 
 pendent, have an unquestionable right to judge of the infraction; and that a 
 nullification by these sovereignties of all unauthorized acts done under color of 
 that instrument is the rightful remedy. 
 
 therefore adjudged and ordered that the said judgment of the said Court of 
 Appeals of the State of Maryland, in this case, be, and the same hereby is, 
 reversed and annulled. And this Court, proceeding to render such judgment as 
 the said Court of Appeals should have rendered, it is hereby adjudged and 
 ordered that the judgment of the Baltimore County Court be reversed and 
 annulled, and that judgment be entered in the said Baltimore County Court for 
 the said James W. M'Culloch. 
 
 Power is sublime when without lictors or bayonets it executes its 
 decrees. That displayed by the Supreme Court of the United States 
 in bidding a proud State to humbly register its commands has but 
 one example in history, that related by Montaigne in his Essay, " Of 
 the Roman Grandeur " : " Antiochus possessed all Egypt and was 
 about conquering Cyprus and other appendages of the Empire. 
 Being upon the progress of his victories, C. Popilius, almost un- 
 attended, came to him from the Senate, and at their first meeting 
 refused to take him by the hand till he had first read the letters he 
 brought him. The king having read them told him he would 
 consider of them, but Popilius made a circumference about him 
 with the wand he had in his hand, saying, ' Return me an answer, 
 that I may carry back to the Senate, before thou stirrest out of this 
 circle.' Antiochus, astonished at the roughness of so positive a 
 ■command, after a little pause replied, ' I will obey the Senate's com- 
 mand,' renouncing so great a monarchy, and such a torrent of 
 successful fortune, upon three scratches of the pen." 
 
82 OVERTHROW OF BANK AND INFLATION OF CURRENCY. 
 
 The logical sequence was the secession of the South in i860 ; an' 
 act perfectly legal and proper according to all the precedents and 
 doctrines of the Democracy. 
 
 The situation stated, Mr. Van Buren, in his message to Congress, 
 September 4, 1837, made the astounding announcement that the 
 people had long called for a separation of the fiscal operations of 
 the Government from those of the people, demanding the creation 
 of an " Independent Treasury," into which, for the use of the 
 Government, nothing but gold and silver was to enter, — the people 
 as a class lower and distinct from their officials being left to take care 
 of themselves. The suggestion came from the dilemma in which the 
 Government found itself. The National Bank was destroyed. Jack- 
 son's substitute for it, — the State Banks, — which he declared had dis- 
 charged the duties assigned to them in a manner far more satisfactory 
 than similar ones had been discharged by the national one, — had 
 proved themselves to be utterly incompetent to serve as the fiscal 
 agents of the Government. The people were wholly committed to the 
 use of paper money, good or bad, no matter which. The Government, 
 cut off from the bank which had supplied all its wants, had to draw~ 
 metallic money, — the only kind that could go into the " Independent. 
 Treasury," — directly from the people. So far as it alone was con- 
 cerned the change by it from a paper to a metallic currency did not 
 seem to work great inconvenience ; its operations being then on a scale 
 so small that a few million dollars, which could be readily provided, 
 sufficed. When from $100,000, the expenses of the Government in 
 the great rebellion rose to $2, 500,000 daily, the return by it to a 
 paper currency, from the impossibility of procuring specie, was 
 inevitable ; and as no return was to be made to a symbolic currency, 
 — that is to one of banks over which it could constitutionally exercise 
 control, one of its own notes was the only alternative. The neces- 
 sary result was that the cost of the war from the depreciation of the 
 Government notes, all its obligations being finally made payable in 
 gold, was more than doubled ; the war itself being greatly prolonged 
 from the demoralization necessarily resulting from the floods of paper 
 money which, costing nothing, was poured out almost for the asking. 
 The precedent established, we committed, in a period of profound 
 peace, the incredible folly of increasing an issue of Government 
 notes, until the amount is now much greater than that reached at any 
 time during the war; some 500,000,000 having been issued since 
 
OVERTHROW OF BANK AND INFLATION OF CURRENCY. 83 
 
 the Government, in 1878, undertook the resumption of specie pay- 
 ments. A Government may well issue notes, not legal tender, in 
 anticipation of the revenues and payable in them, the amount not to 
 exceed the demand for such purpose, such currency being symbolic, 
 the incoming dues being its constituent. Such notes, like " Ex- 
 chequer Bills," usually bearing a low rate of interest, have not 
 unfrequently been resorted to by our own Government, and are 
 very proper expedients, as a corresponding amount of specie, or the 
 money of banks, are discharged from its operations. It is probable 
 that an issue of, say, $50,000,000, the incoming revenues equalling 
 $1, 500,000 daily, would, to those indebted to the Government, have 
 a value equal, or nearly equal, to that of coin. Such notes are not 
 money in any sense, as they are not in terms, or in fact, payable in 
 the universal equivalent, the necessary attribute of all kinds of paper 
 money properly issued. Notes issued in the anticipation of the 
 revenues have no tendency to inflate the currency, as they have a 
 specific function, do not enter into general circulation, and are 
 retired by their use. No greater wrong can be committed by a 
 Government than an issue by it of its notes, forms of debt to serve 
 as money. The temptation is always great as the notes are 
 welcomed by all classes, every one seeming to be enriched in ratio 
 to their amount, no distrust at the outset being felt, as the whole 
 means of the people is assumed to be pledged therefor. As their 
 issue sets everything in motion, their retirement involves a contrac- 
 tion of all the operations of society in ratio to the amount of their 
 issue. When issued in vast amounts relative to the means of a 
 people the penalty exacted for their retirement is often too great to 
 be paid, and they are usually repudiated, or retired only with a very- 
 meagre provision for their discharge. 
 
 In 1840 the "Independent Treasury" was established, the act 
 being repealed the following year, the "Whigs" having achieved a 
 momentary triumph. It was finally established in 1846 under the 
 administration of Mr. Polk. At the time the abandonment by the 
 Government of the money of banks — of commerce, for coin, did not 
 work great inconvenience. The danger was to come when, from its 
 enormously increased expenditures, metallic money would not suffice 
 for its wants, the alternative being an issue of its own notes to reserve 
 as money, precisely that adopted in the War of the Rebellion. 
 
84 DEBASEMENT OF THE SILVER CURRENCY. 
 
 CHANGE OF STANDARDS. ACTS OF 1834 AND 1837. 
 
 By the act of June 28, 1834, the weight of the gold eagle, no 
 provision having been yet made for the coinage of the gold dollar, 
 was changed from 270 to 258 grains, its fineness from 916^3 to 
 899.225. By the Act of January 18, 1837, the fineness was changed 
 to 900. The value of the gold dollar authorized by the Act of 
 March 3, 1849, corresponded to that of the eagle. By the reduc- 
 tion in the value of the gold coins, no change being made in those 
 of silver, the coin ratio between the two metals was changed from 
 15 to 16 to 1. The purpose of the acts was the substitution of gold 
 as the standard money of the country in the place of silver which 
 had previously been the standard in use serving as the reserves of 
 banks. The change was called for by the increased transactions of 
 the country, gold, from its higher relative value, having become the 
 more convenient money. By the change gold was undervalued about 
 3 per cent. The substitution of gold for silver as the money of the 
 country was one of the most important measures of General Jack- 
 son's administration, and received his earnest support as well as that 
 of the public, not a voice being raised in opposition. It had the 
 approval which every improved method or process in affairs is 
 certain to receive. 
 
 DEBASEMENT OF THE SILVER CURRENCY. ACT OF 1853. 
 
 By the ratio established in 1837, the bullion value of silver coins 
 for a series of years exceeded their coin value, the excess at times 
 equalling 4^ per cent. In consequence silver coins of all denomi- 
 nations were taken for export to such an extent as to be a source of 
 very great inconvenience. For the purpose of remedying the evil 
 Mr. Corwin, Secretary of the Treasury, in his annual report for 1852, 
 called the attention of Congress to the matter. He said : 
 
 So soon as the state of our foreign commerce, as is now the case, requires the 
 exportation of specie, it is obvious that our silver coin must be exported so long 
 as it can be had. There seems to be but one immediate and direct remedy for 
 this evil, and that is the one that has already been adopted in Great Britain, of 
 changing the relative value of gold and silver coin by reducing the intrinsic value 
 of the latter. This could be advantageously done by making the silver dollar 
 weigh 384, in the place of 412)^ standard grains, and the smaller coins in propor- 
 tion. If such a scale of weights were adopted, the relation of silver in such 
 pieces to gold would be as 14.884 to 1. This plan, if adopted by Congress, will, 
 
DEBASEMENT OF THE SILVER CURRENCY. 85 
 
 of course, involve the necessity of making silver coin a legal tender only for debts 
 of small amounts, not, say, exceeding ten dollars, which is about the same limit,, 
 forty shillings, which has been established in England. 
 
 Pursuant to this suggestion, Congress, by an Act of February 2 1,. 
 1853, reduced the weight of silver in the half-dollar from 206.25 t0 ' 
 192 standard grains, and in the smaller coins in like ratio, such coins 
 to be legal tender in the payment of debts not exceeding five- 
 dollars. No reduction was made at the time in the weight of the- 
 silver dollar, for the reason, to use the words of Mr. Hunter of Vir- 
 ginia, Chairman of the Committee on Finance of the Senate, "that 
 the great measure of adjusting the legal tender ratio between gold' 
 and silver as legal tender in unlimited amounts cannot be safely 
 attempted until some permanent relation in the value of the two 
 metals shall be established," the discovery of gold in California a 
 few years previous having disturbed largely the commercial ratio 
 which had prevailed between the two metals. The excess in 1852 
 in value of a dollar in silver over one in gold was 2.57 per cent.; 
 in 1853, 4.26 per cent. Congress could well postpone action upon 
 the matter of the silver dollar as there was none in circulation, nor 
 had any been in circulation from the foundation of the Government. 
 The total coinage up to 1806, when it was stopped by order of the 
 President as involving a needless outlay of the public money, all 
 such coins being exported as fast as they came from the mint, 
 equalled $1,439,517. In reporting the bill to the House, Mr. Dun- 
 ham, of Indiana, a Western man, Chairman of the Committee of 
 Ways and Means, among other things, said : 
 
 An objection to this proposed change {i.e., the reduction of the weight of the 
 minor coins) is that it gives us a standard of currency of gold only. What advan- 
 tage is to be obtained by a standard of the two metals, which is not as well, if not 
 much better, attained by a single standard, I am unable to perceive. . . . 
 Wherever the experiment of a standard of a single metal has been tried, it has 
 proved eminently successful. Indeed, it is utterly impossible that you should long 
 at a time maintain a double standard. . . . Gentlemen talk about a double 
 standard of gold and silver as a thing that exists, and that we propose to change. 
 That has been, and now is, gold. We propose to let it remain so, and to adapt 
 silver to it, to regulate it by it. 
 
 Up to and including 1853 the total coinage of silver dollars 
 equalled $2,506,890; of subsiduary silver, $66,716,481; of gold, 
 
86 DEBASEMENT OF THE CURRENCY. 
 
 I 
 
 ^276,169,529. By the Act of 1853 the country was put wholly upon 
 a gold basis, the coinage of silver dollars having been practically 
 abandoned, the minor coins being too debased in value for export. 
 
 CONSEQUENCES RESULTING FROM THE ABANDONMENT BY THE 
 GOVERNMENT OF OVERSIGHT OF THE CURRENCY. 
 
 In the long period from 1829 to i860 there were but two apparent 
 breaks in the tule of the Democracy, the first made by the election 
 of General Harrison in 1841, to the presidency, which was without 
 result, as his death almost immediately followed his inauguration. 
 Mr. Tyler, of Virginia, a prominent advocate of States' rights, and 
 of a strict constructionist, became president. The Democracy was 
 defeated in 1848 in the contest for the presidency, but held both 
 branches of the national Legislature, so that its control may be said 
 to have been unbroken through a period of thirty. years. The result 
 of its rule, during this long period, was drawn in striking colors by 
 Mr. Buchanan in his annual message for 1857 : 
 
 We have possessed all the elements of material wealth in rich abundance, and 
 yet, notwithstanding all these advantages, our country, in its monetary interests, 
 is at the present moment in a deplorable condition. In the midst of unsurpassed 
 plenty in all the productions of agriculture, and in all the elements of national 
 wealth, we find our manufactures suspended, our public works retarded, our 
 private enterprises of different kinds abandoned, and thousands of useful laborers 
 thrown out of employment and reduced to want. The revenue of the Govern- 
 ment, which is chiefly derived from duties on imports from abroad, has been 
 greatly reduced, whilst the appropriations made by Congress at its last session 
 for the current fiscal year are very large in amount. 
 
 Under these circumstances a loan may be required before the close of your 
 present session; but this, although deeply to be regretted, would prove to be 
 only a slight misfortune when compared with the suffering and distress prevailing 
 among the people. With this the Government cannot fail deeply to sympathize, 
 though it may be without the power to extend relief. 
 
 It is our duty to inquire what has produced such unfortunate results, and 
 whether their recurrence can be prevented. In all former revulsions the blame 
 might have been fairly attributed to a variety of cooperating causes; but not so 
 upon the present occasion. It is apparent that our existing misfortunes have 
 proceeded solely from our extravagant and vicious system of paper currency and 
 bank credits, exciting the people to wild speculations and gambling in stocks. 
 These revulsions must continue to recur at successive intervals so long as the 
 amount of the paper currency and bank loans and discounts of the country shall 
 be left to the discretion of fourteen hundred irresponsible banking institutions, 
 which, from the very law of their nature, will consult the interest of their stock- 
 holders rather than the public welfare. 
 
DEBASEMENT OF THE CURRENCY. 87 
 
 The framers of the Constitution, when they gave to Congress the power to 
 <coin money and regulate the value thereof, and prohibited the States from coining 
 money, emitting bills of credit, or making anything but gold and silver coin a 
 tender in payment of debts, supposed they had protected the people against the 
 evils of an excessive and irredeemable paper currency. They are not responsible 
 for the existing anomaly that a government endowed with the sovereign attribute 
 of coining money and regulating the value thereof should have no power to pre- 
 vent others from driving this coin out of the country and filling up the channels of 
 circulation with paper which does not represent gold and silver 
 
 It is one of the highest and most responsible duties of government to insure to 
 the people a sound circulating medium, the amount of which ought to be adapted 
 with the utmost possible wisdom and skill to the wants of internal trade and for- 
 eign exchanges. If this be either greatly above or greatly below the proper 
 standard, the marketable value of every man's property is increased or diminished 
 in the same proportion, and injustice to individuals as well as incalculable evils 
 to the community are the consequence. 
 
 Unfortunately, under the construction of the Federal Constitution, which has 
 now prevailed too long to be changed, this important and delicate duty has been 
 dissevered from the coining power , and virtually transferred to more than fourteen 
 hundred State banks, acting independently of each other, and regulating their 
 paper issues almost exclusively by a regard to the present interest of their stock- 
 holders. Exercising the sovereign power of providing a paper currency instead of 
 coin for the country, the first duty which these banks owe to the public is to keep 
 in their vaults a sufficient amount of gold and silver to insure the convertibility of 
 their notes into coin at all times and under all circumstances. ... In a 
 recent report made by the Treasury Department, on the condition of the banks 
 throughout the different States, according to returns dated nearest to January, 
 1857, the aggregate amount of actual specie in their vaults is $58,349,838, of 
 their circulation $214,778,822, and of their deposits $230,351,352. Thus it 
 appears that these banks, in the aggregate, have considerably less than one 
 dollar in seven of gold and silver, compared with their circulation and deposits. 
 It was palpable, therefore, that the very first pressure must drive them to suspen- 
 sion, and deprive the people of a convertible currency, with all its disastrous 
 •consequences. 
 
 From this statement it is easy to account for our financial history for the last 
 forty years. It has been a history of extravagant expansions in the business of 
 the country, followed by ruinous contractions. At successive intervals the best 
 and most enterprising men have been tempted to their ruin by excessive bank 
 loans of mere paper credit, exciting them to extravagant importations of foreign 
 goods, wild speculations, and ruinous and demoralizing stock gambling. When 
 the crisis arrives, as arrive it must, the banks can extend no relief to the people. 
 In a vain struggle to redeem their liabilities in specie, they are compelled to con- 
 tract their loans and their issues; and, at last, in the hour of distress, when their 
 assistance is most needed, they and their debtors together sink into insolvency. 
 
 It is this paper system of extravagant expansion, raising the nominal price of 
 every article far beyond its real value, when compared with the cost of similar 
 .articles in countries whose circulation is wisely regulated, which has prevented 
 
88 DEBASEMENT OF THE CURRENCY. 
 
 us from competing in our own markets with foreign 'manufacturers, has produced 
 extravagant importations, and has counteracted the effect of the large incidental 
 protection afforded to our domestic manufactures by the present revenue tariff. 
 
 In the meantime, it is the duty of the Government, by all proper means within 
 its power, to aid in alleviating the sufferings of the people occasioned by the sus- 
 pension of the banks, and to provide against a recurrence of the same calamity. 
 Unfortunately , in either aspect of the case, it can do but little. . . . Long 
 experience has deeply convinced me that a strict construction of the powers 
 granted Congress is the only true, as well as only safe, theory of the Constitution. 
 
 Here is a graphic picture of the condition of the country from the 
 advent, with Jackson, of the Democracy, to its overthrow in i860. 
 It was the picture of a people wholly incapable of applying the most 
 obvious remedy to the greatest of evils — a disordered currency. " In 
 the midst of unsurpassed plenty in all the productions of agriculture 
 and all the elements of national wealth, we find," said Mr. Buchan- 
 nan, " our manufactures suspended, our public works retarded, our 
 private enterprises abandoned, thousands of useful laborers thrown 
 out of employment and reduced to want ; the revenues of the Gov- 
 ernment greatly reduced, to be made good only by a loan before the 
 close of the present session ; such loan being only a slight misfortune 
 compared with the suffering and distress prevailing among the 
 people. With this distress the Government cannot fail to sympa- 
 thize, though it may not be in its power to afford relief." 
 
 Why, in the midst of boundless elements of wealth and in a 
 period of profound peace, was it possible that such a terrible picture 
 could be drawn ? For the reason that " the currency was left to the 
 discretion of 1,400 banking institutions. . . . The framers of 
 the Constitutions are not responsible for the anomaly that a Govern- 
 ment, endowed with sovereign attributes for coining money and 
 regulating the value thereof, should have no power to prevent others 
 from driving this money out of the channels of circulation with paper 
 that does not represent gold and silver.'' Of course not. They 
 addressed themselves, like men of sense, not as the servile tools of 
 an exacting and relentless slave- holding oligarchy, to a practical 
 matter, to be determined upon its own merits, not upon abstract 
 considerations of government. From their experience of the past, 
 one of the first measures of the " framers of the Constitution," who 
 dominated wholly the first Congress, was the provision of a system 
 under which, no matter the amount, paper money, whether issued 
 by State or National Banks, could not only have no tendency to 
 
DEBASEMEMT OF THE CURRENCY. 89/ 
 
 drive silver and gold out of the country, but, on the contrary, had a 
 direct tendency to attract them from other countries to supply the 
 reserves of the issuers of paper money to be increased in ratio to 
 the increased transactions and prosperity of our people. Had a 
 picture been drawn of the condition of our country for twenty years 
 following the foundation of our Government it would have been 
 one of unsurpassed prosperity and contentment, the people turning 
 to the best account their boundless resources ; the chief instruments 
 therefor being a currency which, under the supervision of the Gov- 
 ernment, not only discharged coin from the exchanges, but which 
 was always at the value of coin. For the brief period between the 
 two banks the picture drawn by Mr. Buchanan would have been 
 true to the letter, the currency being wholly committed to a vast 
 number of banks over which the Government had no control. Of 
 the condition of the country following the creation of the second 
 bank, after the situation was restored, the picture, drawn by Gallatin, 
 and by Committees of both Houses of Congress, one of universal 
 contentment and prosperity, has been given. The moment that the 
 National Government discharged itself of one of the most important 
 duties of sovereignty the supervision of the currency all was 
 changed. "Congress was clothed," said Mr. Buchanan, "with the 
 attribute of coining money and regulating the value thereof; " but it 
 was a power which could be defeated by issuers of currency respon- 
 sible only to themselves. An attribute that cannot be enforced is 
 not sovereign. In the matter of the currency the banks alone were 
 clothed with sovereign power. 
 
 Under the rule of Mr. Buchanan, not only was Government dis- 
 charged of all power over the currency, by which the purpose of the 
 attribute of "coining money and regulating the value thereof" 
 was wholly defeated, but it was discharged of every attribute neces- 
 sary to its own existence. From the nomination of Jackson for a 
 second term, by the adoption, always repeated, by the nominating 
 conventions of the "Two-thirds rule,'' no Democrat could hope to 
 reach the presidency unless he personally pledged himself to oppose 
 no obstacle to the withdrawal of any State from the " Confederacy," 
 the term applied by the States' rights party to the National Govern- 
 ment. General Jackson declared that the meaning of the Constitu- 
 tion was a matter for every one one living under it. By the National 
 Conventions which followed his doctrines were definitely formulated.. 
 
<JO DEBASEMENT OF THE SILVER CURRENCY. 
 
 The result was that, at the close of Mr. Buchanan's administration, 
 the National Government existed by sufferance alone. To attacks 
 from within it could oppose no resistance whatever. All life, or pur- 
 pose, or power of self-defence was at an end. When near its close 
 the Southern States were seceding in a body, he declared that, while 
 they had no right to go, no force could be opposed to their going. 
 It will be always so with a party that draws its inspiration from the 
 lowest elements of which it is composed. The Democracy, under 
 General Jackson, came into possession of a vast and goodly estate, 
 which was wholly wasted at the end of thirty years. But for the new 
 life that came with the great uprising of the North, our boasted 
 Republic would have come to an end. From the experience of the 
 past no wonder the terror that seized the nation when it seemed 
 possible that at the recent election, the Democracy, in which for 
 the moment were combined all the revolutionary elements of the 
 •country, might again carry the day. 
 
 If it be objected that politics have no place in a treatise on 
 money, it may be replied that the construction of the Constitution 
 under General Jackson turned wholly upon the question whether 
 the Government of the United States was competent to exercise 
 supervision over the money of the country in ordinary use. He 
 denied that it possessed such power in the face of its exercise for 
 forty years by the establishment of two banks, sustained by the 
 authority of Jefferson and Madison, and of the Supreme Court of 
 the United States, the tribunal created by the Constitution to deter- 
 mine the validity of all matters in law and equity arising under it. 
 It was the turning point in the history of the country, leading 
 directly to the secession of the Southern States and the war of the 
 Rebellion. For nearly seventy years the currency has been the 
 great political question- of the country, and never more so than at 
 the present moment. There have since the war of Independence 
 been but two great subjects of history in the United States — the 
 Currency and the war of the Rebellion. The former is by far the 
 most important, as it shows how the war arose, the events of 
 the latter being of little consequence except in their bearing upon 
 the restoration of the surpremacy of the National Government in 
 its relation to that of the States. To regain the ground occupied 
 by the Fathers we must learn how we have wandered so far, and 
 
UNITED STATES NOTES. 91 
 
 restore the system they established by showing how foully it was 
 overthrown. 
 
 UNITED STATES NOTES. 
 
 No sooner was it seen that the war of the Rebellion was to be a 
 life and death struggle between the two sections of the country than 
 the chief care of the Government, now for the first time for thirty 
 years wholly in the hands of the North, was provision of the means for 
 its prosecution. For this purpose Mr. S. P. Chase, Secretary of the 
 Treasury, on the 9th of August, 1861, met in conference a large 
 number of citizens of New York, at the house of the Assistant Treas- 
 urer, J. J. Cisco, in that city. Of that meeting and the results that 
 followed, Mr. George S. Coe, then President of the American Ex- 
 change Bank in New York, gave the following account : 
 
 After the disastrous battle of Bull Run, and when Washington was closely 
 beleaguered, and the avenue thence to New York through Baltimore was inter- 
 cepted by the enemy, Mr. Chase, then Secretary of the Treasury, came to this 
 city via Annapolis, and immediately invited all persons in this community who 
 were supposed to possess or control capital to meet him on the evening of August 
 9th, at the house of John J. Cisco, Esq., then Assistant Treasurer of the United 
 States in New York. This invitation drew together a large number of gentlemen 
 of various occupations and circumstances. During the discussion which ensued 
 3 suggested the practicability of uniting the Banks of the North by some organ- 
 ization that would combine them into an efficient and inseparable body, for the 
 purpose of advancing the capital of the country upon government bonds in large 
 amounts ; and, through their clearing-house facilities and other well-known expe- 
 dients, to distribute them in smaller sums among the people in a manner that 
 would secure active co-operation among the members in this special work, while 
 in all other respects each Bank could pursue its independent business. This sug- 
 gestion met the hearty approbation of the assembled company, and arrested the 
 earnest attention of the Secretary. At his request, it was presented to the con- 
 sideration of the Banks, at a meeting called for that purpose at the American 
 Exchange Bank on the following day ; and was so far entertained as to secure 
 the appointment of a Committee of ten bank officers, to give it form and cohe- 
 rence. The Committee convened at the Bank of Commerce, whose officers zeal- 
 ously united in the effort, and a plan was reported unanimously. Their report 
 was cordially accepted and adopted by the Banks in New York ; those in Boston 
 and Philadelphia being represented at the meeting, and as zealously and cordially 
 united in the organization. . . . 
 
 It was at once unanimously agreed that the Associated Banks of the three 
 cities would take fifty millions of 7-3 notes at par, with the privilege of an addi- 
 tional fifty millions in sixty days, and a further amount of fifty millions in sixty 
 days more, making one hundred and fifty millions in all, and offer them for sale 
 
92 UNITED STATES NOTES. 
 
 to the people of the country at the same price, without charge. In this great un- 
 dertaking, the Banks of New York assumed more than their relative proportion. 
 To insure full co-operation and success, the expedient of issuing clearing-house 
 certificates, and of appropriating and averaging all the coin in the various Banks 
 as a common fund, which had been invented but the year before, was applied to 
 this special object with good effect. 
 
 The capitals of the Banks thus associated made an aggregate of one hundred 
 and twenty millions, — an amount greater than the Bank of England and the 
 Bank of France combined, each of which institutions had been found sufficient 
 for the gigantic struggles of those great nations, from time to time, in conflict 
 with all Europe. 
 
 The following figures also show that the financial condition of the Banks at 
 the time was one of great strength : 
 
 Liabilities. Assets in 
 
 Deposits. Circulation. Coin. 
 
 Banks in New York .$92,046,308 . . .$8,521,426 . . .$49,733,990 
 " Boston . . 18,235,061 . . . 6,366,466 . . . 6,665,929 
 " Philadelphia . 15,335,838 . . . 2,076,857 . . . 6,765,120 
 
 $125,617,207 $16,964,749 
 
 125,617,207 
 
 Total $142,581,956, against $63,165,039 
 
 coin on hand, equal to 45 per cent, of all liabilities. Surely, such conditions as- 
 these, with judicious administration, were adequate to the work which the 
 country required. A great merit of this bank combination at that critical 
 moment, when the life of the nation hung in the balance, consisted in the fact 
 that it fully committed the hitherto hesitating moneyed capital of the North and 
 East to the support of the government. The bank officers and directors who 
 thus counselled and consented were deeply sensible of the momentous responsi- 
 bility which they assumed ; but all- doubt and hesitation were instantly removed, 
 and perfect unanimity was secured by the question, " What if we do not unite ?" 
 And acting as guardians of a great trust exposed to imminent danger, they fear- 
 lessly elected the alternative best calculated to protect it. 
 
 The problem to be practically resolved by the Banks was this : How can the 
 available capital be best drawn from the people, and devoted to the support of 
 government, with the least disturbance to the country? and by what means can 
 arms, clothing, and subsistence for the army be best secured in exchange for gov- 
 ernment credit? These were simple questions of domestic exchange, and most 
 naturally suggested the use of the ordinary methods of bank-checks, deposits, 
 and transfers, that the experience of all civilized nations had found most efficient 
 for the purpose ; and that this should be accomplished by the Associated Banks, 
 in a manner best calculated to prolong their useful agency and to preserve the 
 specie standard, it was indispensable that their coin reserves remain with the least 
 possible change. Accordingly, it was at once proposed to the Secretary that he 
 should suspend the operations of the Sub-Treasury Act in respect to these trans- 
 actions, and, following the course of commercial business, that he should draw 
 checks upon some one Bank in each city representing the Association, in small 
 
UNITED STATES NOTES. 93 
 
 sums as required, in disbursing the money thus advanced. By this means his 
 checks would serve the purpose of a circulating medium, continually redeemed, 
 and the exchanges of capital and industry would be best promoted. This was 
 the more important in a period of public agitation, when the disbursement of 
 these large sums exclusively in coin rendered the reserves of the Banks all the 
 more liable to be wasted by hoarding. To the astonishment of the Committee, 
 Mr. Chase refused ; notwithstanding the Act of Congress of August 5th, which it 
 seemed to us was passed for the very object then presented. This issue was dis- 
 cussed from time to time with much zeal ; but always with the same result. It 
 was seen by the most experienced bank officers to be vital to the success of their 
 undertaking. To draw from the Banks in coin the large sums involved in these 
 loans, and to transfer them to the Treasury, thence to be widely scattered over 
 the country at a moment when war had excited fear and distrust, was to be pulling 
 out continually the foundations upon which the whole structure rested. And inas- 
 much as this money was loaned to the government, and was in no sense a trust 
 reposed in the Banks, there appeared to them no reason why it should not be 
 drawn by checks in favor of government contractors and creditors, who would 
 require to exchange them for other values in commerce and trade, through the 
 process of the clearing-house. And this consideration was greatly strengthened 
 by the fact, that these advances were made, and the money publicly disbursed, a 
 long time before the treasury notes were ready for delivery to the Banks which 
 had paid for them. In the light which has since been shed upon the Act of Con- 
 gress referred to, it is evident that undue weight was given to the views of the 
 Secretary, and that the Banks would have conferred an incalculable benefit upon 
 the country, had they adhered inflexibly to their own opinions. ... It soon 
 became manifest that, in consenting to have their hands tied and their most 
 efficient powers restricted, while engaged in these great operations, and in 
 allowing their coin reserves to be wasted by pouring them out upon the com- 
 munity in a manner so unnecessary and exceptional, the Banks deprived them- 
 selves and the government of the ability of long continuing, as they otherwise 
 could have done, to negotiate the National loans upon a specie standard. 
 
 This first great error, if it did not create a necessity for the legal-tender 
 notes, certainly precipitated the adoption of that most unhappy expedient, and 
 thereby committed the nation at an earlier day to the most expensive of all meth- 
 ods of financiering. 
 
 One other subject of discussion between the Secretary and the Associated 
 Banks at the same time arose, which led in the same direction. Congress by its 
 Act of 17th July had authorized loans to the amount of two hundred and fifty 
 millions. This could be issued either in bonds running twenty years at not over 
 seven per cent, interest — 7-3 notes running three years, or fifty millions of the 
 amount could, at the discretion of the Secretary, be made in currency notes pay- 
 able on demand without interest. As the undertaking of the Associated Banks 
 covered one hundred and fifty millions of this sum, and it was desired that they 
 continue the work thus auspiciously begun, a question of the expediency of put- 
 ting out the circulating notes was immediately raised by one of its members. A 
 very small amount had been emitted. The Treasury was empty of coin to redeem 
 them, and could only be replenished by the proceeds of the bank loans. It was 
 
94 UNITED STATES NOTES. 
 
 evident to the bank officers that they could not sustain coin payments, if the trans- 
 fers from their vaults to that of the Treasury were subject to be intercepted and- 
 absorbed by these notes of government. Nor could the Banks receive them upon 
 deposit from the public as money, while they were responding to the government 
 and to their own dealers in coin. It was an inflation of the currency in the form 
 most embarrassing to the enterprise they had commenced. Accordingly, the Secre- 
 tary was urgently solicited to refrain from exercising the discretionary powers 
 given him of creating the Treasury currency, until all other means were exhausted. 
 In response to a resolution to that effect, the Secretary assured the bank officers 
 of his acquiescence in their suggestion ; but at the same time insisted that it was 
 improper for a public officer to openly pledge himself not to exercise a power con- 
 ferred by the law. With this understanding the Banks began their work ; paying 
 into the Treasury, in coin, one hundred and fifty millions, in sums at the rate of 
 about five millions, at intervals of six days. Even with all these unfavorable cir- 
 cumstances surrounding them, it was an encouraging fact, observed by those who 
 were anxiously watching the practical operation of this great and novel experi- 
 ment, that, while the circulating notes in the country were restricted, the dis- 
 bursements of the government for the war were so rapid, and the consequent 
 internal trade movement was so intense, that the coin paid out upon each instal- 
 ment of the loan came back to the Banks, through the community, in about one 
 week ; the natural effect of this general commercial activity upon the circulating 
 medium being simply to quicken its flow. 
 
 After taking the third amount of fifty millions by the Associated Banks, those- 
 in New York, who had at that time paid in of their proportion over eighty mill- 
 ions in all, found themselves in this position : 
 
 Their aggregate coin, which on the 17th August, before the first pay- 
 ment into the Treasury, was $49i733»99o 
 
 Was on December 7th 42,318,610 
 
 A reduction of only $7>4i5>3So 
 
 and the other two cities in like proportion. 
 
 In the meantime the 7-3 notes taken by the Banks had been purchased by- 
 the people to the extent of some fifty millions, notwithstanding a prolonged and 
 vexatious delay in issuing them by the Treasury Department. The popular feel- 
 ing was all that could have been desired for continuing that method of distri- 
 bution. It may be confidently affirmed, that, had the Banks been permitted to 
 exercise their own methods of exchanging the bonds for the varied products of 
 industry required by the government, they could have continued their advances 
 in sums of fifty millions for an indefinite period, and until the available resources; 
 of the people had been all gathered in. It is to be borne in mind that these 
 resources were all existing at home, and that the increased industry which the 
 war excited was daily increasing new means for investment. . ■ . 
 
 But at this time the demand notes were paid out freely by the Treasury ■, and 
 began to appear as a cause of embarrassment among the Banks which were 
 pressed to receive them upon deposit ; and while they could not decline them 
 without diminishing public confidence in the government credit, they could not 
 
UNITED STATES NOTES. 95 
 
 give them currency without impairing their own specie strength. In fact, the 
 notes became at once a substitute for coin withdrawn from circulation, and their 
 emission expressed a purpose of resorting to government paper issues to carry on the 
 war. So soon as these notes thus appeared, the reflux of coin to the Banks at 
 once sensibly diminished. During three weeks from the 7th December, the re- 
 serves of the Banks in New York fell to $29,357,712, — -a loss of $13,000,000 
 within that short period ; and on the 28th December, after conference with the 
 Secretary, in which he still adhered to the views before expressed, it was decided 
 as expedient for the Banks to suspend specie payments. 
 
 At that moment the Associated Banks yet held over forty millions in coin, and 
 it was still possible for them to continue their advances to the government but for 
 the two obstacles thus interposed. Before entering into this last conference with 
 the Associated Banks, some of the members expressed to the Secretary the impor- 
 tance of continuing his relation to an organization which combined so much of 
 experience, capital, and financial resource, and which was yet capable of render- 
 ing the government invaluable service ; and that if an irredeemable paper cur- 
 rency was the inevitable resort, it would be more expedient and economical for 
 the government not to become involved in its dangers, but to impose the duty and 
 responsibility of issuing the notes upon the Banks, which would naturally be com- 
 pelled to keep the day of redemption continually in view. Thus, as a suspension 
 of coin payment was about to be declared, it was practicable to preserve from 
 distribution and set aside the forty millions of coin then owned by the Banks, 
 together with one hundred and fifty or sixty millions of government bonds, which 
 could be taken by them as a special security for two hundred millions of notes, 
 which could then be immediately issued by the Associated Banks, from their own 
 plates, and be verified and made National by the stamp and signature of a govern- 
 ment officer. It was claimed that such an issue, so supported by coin and bonds, 
 at once simple and expeditious, would serve the temporary purpose required, with 
 little if any deterioration below coin value ; and that it would be then practicable 
 for the Banks to continue, without further agitation, their advances. But the 
 Secretary declined to entertain this suggestion ; preferring the system of National 
 Banks, which he had already conceived. 
 
 Looking back over events that have since transpired, it must be admitted 
 that this suggestion possessed true merit. It would have preserved a coin basis 
 for the currency, prevented the destructive expansion, relieved the government 
 from its almost inextricable entanglement with the circulating notes, and compelled 
 an early restoration of coin payments. And with a proper use of the expedients 
 and machinery of Banks, by utilizing their power of effecting exchanges, which 
 was substantially applied by the Secretary in the National Banking system without 
 reserve, this amount would have been found sufficient. When we review the 
 excessive cost of the war, the vast increase of the National debt, and the public 
 and private evils which a profuse currency has entailed upon the country, it must 
 appear evident that, in failing early to use and to exhaust all those means and 
 appliances of commerce and banking that the experience of other civilized nations 
 has proved most effective, a great and irreparable mistake was made. 
 
 This forcible entry of the government into the private affairs of the people, so 
 utterly at variance with the fundamental principles of our system, so great an 
 
-96 UNITED STATES NOTES. 
 
 abridgment of personal liberty, and operating as a tax so unequal in its effects, 
 was a rigorous .measure of war, and as such was vindicated only as a temporary 
 act of dire necessity. In enforcing this unequal burden, Congress did not leave 
 the holders of the notes without some measure of relief ; but it gave to all the 
 option of converting them at pleasure into a. six per cent, gold-interest-bearing 
 bond, payable in twenty years. By this means, the notes became equal in value 
 to the bonds for which they were made exchangeable ; and while during the war, 
 the payments of gold interests continually operated to produce a curtailment of 
 the volume of the notes in circulation, the return of peace opened a market abroad 
 for the bonds, which would have insured the early and entire absorption of the 
 war currency, and thus clear the way for specie payments. ^ 
 
 But, in an evil hour for the country, other counsel obtained possession of the 
 good judgment of the Secretary ; and, yielding to it, he consented and urged 
 Congress to withdraw this privilege of converting the notes, so that thenceforth 
 all issues were made without it. All notes emitted consequently became an un- 
 mitigated burden upon commerce, of indefinite duration, from which there was no 
 escape. A new currency was created, utterly at variance with all economic laws, 
 and in conflict with all recognized rules of commerce and exchange. It did not, 
 like all sound currency, naturally spring out of industry, production, and trade ; 
 but it was an enforced result of exhaustion and necessity. It did not come and go, 
 following the beneficent courses of commerce, expanding and contracting with 
 the times and seasons that required it ; but it remained an unyielding, inflexible 
 mass, subject only to the chances and vicissitudes of war. As the war progressed 
 and the country became poorer, this currency increased, giving new instruments 
 and facilities to expend just in proportion as the means of payment were consumed. 
 With a compulsory currency thus made the measure of prices, and daily deteriorat- 
 ing yet still increasing, is it strange that all other property was eagerly sought for 
 in preference to this, and that prodigal expenditure became the law of the land? ' 
 
 Here is a picture by a most competent hand, a leading actor 
 in the scenes described, of the events which led to the suspension 
 of specie payment by the banks, and to the issue by the United 
 States of legal tender notes which still remain the great disturbing 
 element in affairs. It is to be read and re-read by every one who 
 would understand the situation at the time, and the levity or wanton- 
 ness with which all past experience was thrown aside, and the coun- 
 sel of those perfectly competent to guide spurned by the weak, vain, 
 ignorant, and perverse character holding, next to the President, the 
 most important place in the Government. For the issue at the 
 time of notes to serve as money not the slightest necessity existed, 
 as through the banks of the loyal States every dollar of the issues of 
 their people, at the value of coin, could have been reached for the 
 
 1 " Financial History of the War," by George S. Coe, President of the American Ex. 
 change Bank. See " Banker's Magazine," January, 1876. 
 
UNITED STATES NOTES. 97 
 
 prosecution of the war, and far more effectually by their issues than 
 by those of the Government. At the time the only currency in 
 ordinary use, and by all classes preferred to coin, was that of banks. 
 It would, in the spirit of patriotism that was aroused, have been 
 accepted by the people in their military as readily as in their ordinary 
 operations. It cannot be too often repeated that the people will 
 never use any other than paper money as their ordinary instrument 
 of exchange. Their currency will always be that of banks or bankers, 
 or of Government. Why were not recommendations so wise, so 
 reasonable, and so earnestly pressed upon the Secretary, heeded, 
 that in the emergency the money of commerce, representing as it 
 did at the value of coin precisely the kind of merchandise required 
 by it in all its operations ; which was of the value of coin and could 
 be had in unlimited amounts, or in amounts equal to the means of 
 the people ; means as the result showed fully adequate to the de- 
 mands to be made upon them, should be that of the Government ? 
 For the reasons set forth in the following extract from the report of 
 the Secretary, made under date December 10, 1861 : 
 
 The circulation of the banks of the United States on the 1st day of 
 January, 1861, was computed to be $202,000,767. Of this circulation, $150,- 
 000,000, in round numbers, was in the States now loyal, including Western 
 Virginia, and $50,000,000 in the rebellious States. The whole of this circulation 
 constitutes a loan without interest from the people to the banks, costing them nothing 
 except the expense of issue and redemption and the interest on the specie kept on 
 hand for the latter purpose ; and it deserves consideration whether sound policy 
 does not require that the advantages of this loan be transferred, in part at least, 
 from the banks representing only the interests of the stockholders, to the Govern- 
 ment representing the aggregate interests of the whole people. 
 
 Here is the old story inherited from Jackson that the issues of 
 banks were forms of credit costing nothing, but for the use of which 
 interest was charged ; the necessary inference on the part of the 
 Secretary, to repeat his own words, being, " that the advantages 
 of such loans should be transferred, in part at least, from the banks 
 representing the interests of the stockholders, to the Government 
 representing the aggregate interests of the whole people." To 
 escape the exactions of the banks, lenders of money of their own 
 creation, why should not the Government, when a borrower on an 
 enormous scale, create by an act of sovereignty money for itself, 
 saving thereby a sum equal to the interest on the amount created ? 
 
98 UNITED STATES NOTES. 
 
 If the currency of banks by a small provision of means circulated 
 readily at the value of coin, why should not that of the Government 
 having behind it, as was assumed, the entire means of the people? 
 The reply is as obvious as it is conclusive. The legal tender notes, 
 greenbacks, now outstanding of the Government were, at first, forms 
 of credit payable at its pleasure. For the time, in the estimation of 
 those receiving them, that was to elapse before the Government 
 would be able or disposed to redeem them in coin, interest, or its 
 equivalent in the reduced rates at which they were accepted, or in 
 the increased price of what was delivered in exchange therefor, was 
 charged. Forbearance of payment at the instance of the debtor is 
 always to be purchased in one form or another. In the darkest days 
 of the rebellion the amount charged for such forbearance was nearly 
 three times greater than the nominal value of the notes. When 
 these are payable presently they circulate at their par value so long as 
 confidence in the issue remains unimpaired. The notes of the Con- 
 tinental Congress, with nothing behind them but the credit of that 
 body, and although for their redemption no provision was made, 
 circulated for nearly two years at the par of coin. It may be laid 
 down as a rule that the public, so long as confidence is unshaken, 
 will never, from the convenience of their use, present notes to the 
 Government for payment. They will be presented only when coin 
 is wanted for the discharge of balances arising in the foreign or 
 domestic trade of the country, and then only by those against whom 
 such balances arise. The evil of Government notes results from their 
 being instruments in excess of the means of consumption, not arising 
 naturally out of the industrial operations of society, being always 
 instruments of forced loans. They are always in excess for no other 
 reason than that in countries like the United States the issues of 
 banks, whether payable presently or at a future day, always equal 
 in their nominal amount the means of consumption. They are pre- 
 cisely in the nature of issues made by banks in the discount of 
 "accommodation paper" to supply the lack of means of borrowers. 
 Every one understands that as a rule issues so made will be improvi- 
 dently expended, to be taken in consequently by the issuers by 
 paying out a corresponding amount of their reserves. No matter 
 the amount issued in the discount of merchants' bills no distrust or 
 apprehension can be created, for the reason that they measure the 
 value of the subjects of consumption. They are never in excess, for 
 
UNITED STATES NOTES. 99 
 
 the reason that they cannot be diverted from their proper function, 
 the distribution of their constituent, being retired by the process. 
 Issues made in the discount of bills not representing merchandise 
 for distribution, having no appropriate function, speedily find their 
 way into the hands of those who present them as creditors, not 
 debtors, for redemption, the issuers usually making a loss equal to 
 their amount. The disasters which overtake the issuers of currency 
 arise almost wholly from the discount of fictitious paper. The loss 
 is the same whether it falls upon the banks, or, in their inability to 
 make good their issues, upon the public. In either case the currency 
 must be contracted in ratio to the waste or loss that has been sus- 
 tained. The notes of the United States, now that it assumes to be 
 upon a specie basis, have precisely the same effect in the waste that 
 results as the notes of banks issued in the discount of " accommoda- 
 tion paper." Provision for their retirement is to be made after 
 instead of before their issue. They are wholly superfluous as instru- 
 ments of distribution, as the necessary amount of currency therefor 
 is always supplied by the banks. The effect of their retirement is 
 the same as the retirement of an equal amount of the issues of 
 banks made in the discount of " accommodation paper," a contrac- 
 tion of all the operations of society. Ordinarily the retirement of 
 currency issued by banks is not felt, as new issues take the place 
 of the old, the volume in prosperous communities always steadily 
 increasing to represent new creations of merchandise. The issues, 
 well made, of banks can create no waste, as their constituent cannot 
 be reached unless a proper equivalent is rendered in exchange. The 
 effect of the discount of "accommodation paper" is now so well 
 understood that were it believed that the amount outstanding by 
 banks equalled that of the Government notes, $830,000,060, an 
 instant rush would be made for the reserves of the issuers, to be 
 followed, from the inadequacy of means immediately at their com- 
 mand, by a suspension of specie payments. That a corresponding 
 rush is not made for the conversion of the "accommodation paper" 
 of the Government into coin, forcing it to suspend specie payments, 
 is due to the fact that so far no considerable apprehension has yet 
 been felt by the great mass as to the ability or disposition of the 
 Government to make good its issues, the means of the whole people, 
 through its taxing power, being assumed to be pledged therefor. So 
 long as this is the case the notes of the Government, from the con- 
 
IOO UNITED STATES NOTES. 
 
 venience of their use, will be preferred to coin as money. But great 
 apprehension of the solvency of Government in case of a run upon it 
 is now felt in commercial circles, and to such an extent that within 
 a comparatively short period it has been forced into the market to . 
 raise some $300,000,000 in gold for the redemption of its notes, 
 without any considerable diminution in their amount, as, in the want 
 of adequate revenues, they are presently re-issued. No matter the 
 amount of the issues of banks properly made there can be no run 
 upon them for gold, as they will as a rule be used to reach their con- 
 stituent. The distrust once confined to narrow circles is spreading 
 rapidly, arresting all the industrial operations of the country. Every 
 one is beginning to feel that something is wrong, — what, he cannot 
 distinctly see. All are limiting their expenditures to their absolute 
 wants, holding with a tight grip whatever they have, wearing out old 
 possessions before new ones are acquired. Such a state of distrust 
 cannot long continue without taking shape in some form. Unless a 
 way out is soon shown, the people will take the remedy into their 
 own hands, driving the Government out of the field as an issuer of 
 currency by demanding the immediate conversion of every dollar of 
 its issues into gold. 
 
 The manner in which the suspension of specie payments was 
 precipitated well illustrates the delicacy of the machinery of distri- 
 bution, and how easily it may be thrown out of gear. The loan 
 taken by the banks, authorized by the act of July 17, 1861, provided 
 that $50,000,000 of the $250,000,000 might be in the form of 
 notes, not legal tender, payable on demand in coin. No sooner 
 did the banks begin their payments, averaging about $1,000,000 
 daily of the great loan, than a small amount of the demand notes . 
 of the Government began to make their appearance. No sooner 
 was this seen than the Committee of the Banks immediately and 
 earnestly remonstrated against their issue, urging that if continued 
 they would be offered in payment of bills discounted, or for deposit, 
 reducing to the extent so received the return of the gold they were 
 paying out ; that if persisted in the worst consequences were to be 
 feared. "The Secretary assured the committee of his acquiescence 
 in their suggestion, but at the same time he insisted that it would 
 be improper for a public officer openly to pledge himself not to 
 exercise a power openly conferred upon him by law." Upon such 
 assurances the banks proceeded with their work. The result far 
 
UNITED STATES NOTES. IOI 
 
 exceeded their expectations. The greater part of the gold paid 
 out speedily returned to them on deposit or in the payment of their 
 bills. It would naturally return to them as its proper custodians so 
 long as confidence was undisturbed. When the banks of the city 
 of New York had paid out something over $80,000,000, their share 
 of the two first instalments of the loans, they held $42, 318, 610, 
 against $49,733,990 when they began their payments, the loss being 
 only $7,415,380. The result may seem remarkable, as the gold 
 paid out was scattered broadcast over the length and breadth of the 
 land. Time given and confidence preserved, every dollar would have 
 necessarily returned so as to be largely available for future loans. 
 When the banks entered upon the payment of the third instalment, 
 the Secretary, in violation of his express assurances, began the issue 
 on a large scale of Treasury Notes to serve as money, the amount 
 reaching in a comparatively short period the sum of $33,460,000. 
 As soon as it was seen that very large issues were being made the 
 Committee of the Banks again urged their remonstrances, remind- 
 ing the Secretary of the assurances that had been given them, to 
 all of which he now turned a deaf ear. The result of the largely 
 increased issue of Government notes was that the specie in the New 
 York banks fell from $42,318,610, December 7, 1861, to $29,357,- 
 712, December 27, the loss equalling $13,000,000 in a period of 
 about three weeks. Within another month, their payments con- 
 tinued, the banks might find themselves without a dollar of specie 
 in their vaults, leaving them no reserves for liabilities to the public 
 to the amount of $100,000,000. In view of the situation, on the 
 28th of December, they decided to suspend specie payments, to 
 be followed by the Government as well as by all the banks of the 
 country. 
 
 But even with the suspension of specie payments it was urged by 
 the representatives of the banks of the city of New York " that if 
 an irredeemable currency was the inevitable resort, it would be 
 more expedient and economical for Government not to become in- 
 volved in its danger, but to impose the duty and responsibility of 
 issuing notes upon the banks, which would naturally be compelled 
 to keep the day of redemption constantly in view," — the proposi- 
 tion being to set apart the gold still held by them, with $150,000,000 
 bonds to be issued by the Government, the whole to be made a 
 basis of the issue of $200,000,000 of notes by the banks, to be veri- 
 
102 UNITED STATKS NOTES. 
 
 fied and made national by the stamp of the Government. With 
 such provision it was held that the notes to be issued would circu- 
 late very nearly if not quite at the value of coin, their redemption 
 being thrown wholly upon the banks. But this suggestion was 
 rejected by the Secretary in order to make way for an issue of 
 Government notes. To speed their issue he addressed, on the 3d 
 of February, 1862, a communication to the Hon. E. G. Spaulding, 
 member of the Committee of Ways and Means of the House, in 
 which, among other things, he said : 
 
 It is true that I came with reluctance to the conclusion that the legal tender 
 clause is a necessity, but I came to it decidedly, and I support it earnestly. I 
 do not hesitate when I have made up my mind, however much regret I may feel 
 over the necessity of the conclusion to which I come. 
 
 Immediate action is of great importance. The Treasury is nearly empty. I 
 have been obliged to draw for the last instalment of the November loan ; so soon 
 as it is paid T fear the banks generally will refuse to receive the United Slates 
 notes. You will see the necessity of urging the bill through without more delay. 
 
 Permission given, the Government notes were poured out like 
 water until, in various forms, they reached the enormous sum of 
 $684,138,959, of which $433,160,569 were in the form of plain 
 notes, — greenbacks; $217,024,160 of compound interest legal 
 tender notes; and $33,954,203 of five per cent, notes. The 
 amount of plain notes outstanding each fiscal year from 1862 to 
 1878, inclusive, was as follows: 
 
 Statement showing the circulation of legal tender notes in the United States, from 
 1862 to 1878, inclusive. 
 
 
 Legal tender 
 
 
 Legal tender 
 
 
 Legal tender 
 
 Years. 
 
 notes. 
 
 Years. 
 
 notes. 
 
 Years. 
 
 notes. 
 
 1862 
 
 $96,620,000 
 
 1868 
 
 $356,000,000 
 
 1874 
 
 $382,000,000 
 
 1863 
 
 297.767,"4 
 
 1869 
 
 356,000,000 
 
 1875 
 
 375.77I.580 
 
 1864 
 
 431,178,670 
 
 1870 
 
 356,000,000 
 
 1876 
 
 369,772,284 
 
 1865 
 
 432,687,966 
 
 1871 
 
 356,000,000 
 
 1877 
 
 359.764.332 
 
 1866 
 
 400,619,206 
 
 1872 
 
 357,500,000 
 
 1878 
 
 346,681,016 
 
 1867 
 
 371.783.599 
 
 1873 
 
 356,000,000 
 
 
 
 The interest bearing legal tender notes never entered into 
 general circulation, and were at the close of the war speedily con- 
 verted into long bonds of the Government. 
 
 In his annual report for 1865 Mr. McCullough, who followed Mr. 
 Chase as the Secretary of the Treasury, warmly urged upon Congress 
 
UNITED STATES NOTES. IO3 
 
 that, as the issue of the notes was a " war measure,'' the first care of 
 Government, the war ended, should be their retirement. In 
 response the House of Representatives, by a vote of 144 to 6, 
 adopted a resolution " cordially approving the views of the Secretary 
 of the Treasury in relation to the necessity of contracting the cur- 
 rency with a view to the early resumption of specie payments." 
 This resolution was followed by an act of Congress of March 12, 1866, 
 authorizing cancellation of legal tender notes not exceeding the 
 amount of $10, 000,000 within six months from the passage of the 
 act, and thereafter at the rate of $4,000,000 per month. Under 
 this act the amount of the notes, December 31, 1867, was reduced 
 to $356,000,000. On the fourth of February, 1868, an act was 
 passed forbidding a further reduction of the notes. Their amount 
 was increased in the period from October 1, 1872, to January 15, 
 
 1874, to $382,979,815. By the act of June 20, 1874, the maximum 
 of the notes was fixed at $382,000,000. By the act of January 14, 
 
 1875, authorizing the increase of circulation of the notes of the 
 National Banks, the Secretary was required to retire legal tender notes 
 to an amount equalling 80 per cent, of the notes issued to them, till the 
 legal tender notes were reduced to $300,000,000. Under the 
 operation of the last preceding act notes to the amount of $35,- 
 318,984 were cancelled, the total amount being reduced to $346,- 
 610,016, the amount now outstanding. On the thirty-first of May, 
 1878, an act was passed that "when any of said notes be redeemed 
 or received into the Treasury they shall not be retired, cancelled, 
 or discharged, but they shall be reissued and paid out again and 
 kept in circulation." 
 
 Mr. Coe dwelt with almost mournful emphasis upon the with- 
 drawal by Congress of the rights of the holders of the notes to con- 
 vert them at pleasure into the bonds of the government. If the 
 right had not been withdrawn it is certain, but for restrictions im- 
 posed upon the issues of bank notes, that the whole amount of the 
 government notes would have been retired without the intervention 
 of a dollar in gold. With the end of the war, the great " war meas- 
 ure," the issue of legal tender notes, as it was termed, without any 
 further action on the part of the Government, would have silently 
 disappeared, debt of the Government bearing interest being always 
 preferable to debt bearing no interest. Of this withdrawal Mr. 
 
104 UNITED STATES NOTES. 
 
 Spaulding, in his " Financial History of the War/' gave the following 
 account : 
 
 The first legal tender notes were issued bearing date March 10, 1862, and 
 on the back of them was printed these words : 
 
 "This note is a legal tender for all debts, public and private, except duties 
 on imports and interest on the public debt, and is exchangeable for United States 
 six per cent, bonds, redeemable at the pleasure of the United States after five years ." 
 
 The right to exchange these notes at par for six per cent, bonds was dis- 
 tinctly authorized by the second section of the legal tender act, and was in the 
 nature of a contract made by the Government with the holders of the notes. It 
 was inserted as a just and equitable provision for the benefit of those persons who 
 should be compelled, by the legal tender clause, to take the notes, by giving them, 
 at any time, the privilege of converting them into a six per cent. bond. It was, 
 in effect, a forced loan, but the right of immediately returning them to the Gov- 
 ernment for gold bonds divested the forced character of the transaction of any 
 material hardship. It also had a tendency to prevent any great inflation, for the 
 reason that as soon as this currency became redundant in the hands of the people, 
 and not bearing interest, they would invest it in the six per cent, bonds to pre- 
 vent any loss of interest. 
 
 This right to exchange the notes for bonds was, at the request of Secretary 
 Chase, taken away by the third section of the above act after July I, 1863. It is 
 true that the Secretary had still the discretionary power to receive the notes at 
 par for bonds, but it never seemed to be quite right to change the law while any 
 of the legal tender notes were outstanding with the above endorsement upon 
 them. 
 
 The act forbidding the further cancellation of the United States 
 notes was undoubtedly due to the influence of Mr. Sherman, at the 
 time Secretary of the Treasury, now Secretary of State of the United 
 States. In his annual report for 1877 he considered at great 
 length the financial policy of the Government, and the various forms 
 of money in use. The occasion was one of supreme importance, as 
 the Government, by the Act of January 14, 1875, was to resume 
 specie payment on the first of January, 1879. The question of the 
 kind of money for the future was to be determined, — whether 
 greenbacks should be continued as the money of the country, or 
 whether a return should be made to the money of banks — of com- 
 merce — springing naturally out of the business operations of the 
 country. Of that discussion Mr. Sherman, in his " Forty Years in 
 the House, Senate, and Cabinet," published in 1895, gave the fol- 
 lowing synopsis : 
 
 I expressed in my report the opinion that the notes of the Government, 
 when redeemed after the 1st of January, 1879, if the amount outstanding was not 
 
UNITED STATES NOTES. I05 
 
 in excess of $300,000,000, might be reissued as the exigencies of the public ser- 
 vice required. . . . These notes were of great public convenience — they 
 circulated readily ; were of universal credit ; were a debt of the people without 
 interest ; were protected by every possible safeguard against counterfeiting ; and, 
 when redeemable in coin at the demand of the holder, formed a paper currency 
 as good as had yet been devised. . . . It was conceded, I said, that a certain 
 amount could, with the aid of an ample reserve in coin, be always maintained in 
 circulation. Should not the benefit of this circulation inure to the people, rather 
 than to corporations, either State or national? The Government had ample 
 facility for the collection, custody, and care of the coin reserves of the country. 
 . . . I said that the legal tender quality given to United States notes was 
 intended to maintain them in forced circulation at a time when their depreciation 
 was inevitable. When they were redeemable in coin this quality might either be 
 withdrawn or retained, without affecting their use as currency in ordinary times. 
 But all experience has shown that there were periods when, under any system of 
 paper money, however carefully guarded, it was impracticable to maintain actual 
 coin redemption. Usually contracts would be based upon current paper money, 
 and it was just that, during a sudden panic, or an unreasonable demand for coin, 
 the creditor should not be allowed to demand payment in other than the currency 
 upon which the debt was contracted. To meet this contingency, it would seem 
 to be right to maintain the legal tender quality of the United States notes. If 
 they were not at par with coin it was the fault of the Government and not of the 
 debtor, or, rather, it was the result of unforeseen stringency not contemplated by 
 the contracting parties. 
 
 In establishing a system of paper money, designed to be permanent, I said 
 it should be remembered that theretofore no expedient had been devised, either 
 in this or other countries, that in times of panic or adverse trade had prevented 
 the drain and exhaustion of coin reserves, however large or carefully guarded. 
 Every such system must provide for a suspension of specie payment. Laws might 
 forbid or ignore such a contingency, but it would come ; and when it came it 
 could not be resisted, but had to be acknowledged and declared, to prevent 
 unnecessary sacrifice and ruin. In our free Government the power to make this 
 declaration would not be willingly intrusted to individuals, but should be deter- 
 mined by events and conditions known to all. It would be far better to fix the 
 maximum of legal tender notes at $300,000,000, supported by a minimum reserve 
 of $100,000,000, of coin, only to be used for the redemption of notes, not to be 
 reissued until the reserve was restored. A demand for coin to exhaust such a 
 reserve might not occur, but, if events should force it, the fact would be known 
 and could be declared, and would justify a temporary suspension of specie pay- 
 ments. Some such expedient could, no doubt, be provided by Congress for an 
 exceptional emergency. In other times the general confidence in these notes 
 would maintain them at par in coin, and justify their use as reserves of banks and 
 for the redemption of bank notes. 
 
 There can be no doubt that the notes of the United States seemed 
 to be a great public convenience. All forms of money are alike 
 
106 UNITED STATES NOTES. 
 
 convenient so long as circulation is to be had for them, as to their 
 holders they have the potency of capital. That which seems at the 
 outset to be good money may in the end prove to be the worst 
 kind of money, even if finally taken in at its nominal value. No 
 money seems more convenient than the issues of banks made in the 
 discount of " accommodation paper," yet no kind is worse, as the 
 waste and loss are usually in ratio to the amount issued. A long 
 time may elapse before the kind is disclosed. So the notes of the 
 United States, instead of being as " good money as has been 
 devised," were the very worst kind, no adequate provision being 
 made previous to their issue for their redemption, there being no 
 limit to their issue but the caprice or necessity of the issuer. For 
 such money the appropriate penalty will always be exacted. It has 
 in our case been already exacted in the apprehension that has been 
 created, arresting to a greater or less extent all the operations of 
 our people. The penalty already paid exceeds fifty-fold any assumed 
 advantage of " debt without interest." After all that has been suf- 
 fered a more terrible penalty still may have to be paid, — suspension 
 of specie payments by the Government, to be followed by all issuers 
 throughout the country. 
 
 With the Secretary, money, whatever the kind, derives its value 
 from the necessity of a medium of exchange, the greater part of it 
 to remain in circulation. It is only the excess of issue that will 
 ordinarily be presented for coin. As it is the rule with banks to 
 provide reserves equalling twenty-five per cent, of their issues, our 
 Government, when it determined to remain in the field, assumed to 
 provide reserves in similar ratio to its immediate liabilities. It 
 wholly overlooked the fact that in addition to their reserves the 
 banks have the undertaking of the customers to return to them every 
 dollar of their issues without interposition on their part. While with 
 the Secretary the excess only was ordinarily to be provided for, it 
 might happen that all the issues might be suddenly presented for 
 coin. "All experience," he said, "has shown that there were 
 periods when under any system of paper money, however carefully 
 guarded, it was impossible to maintain actual coin redemption." 
 Nothing is easier than to maintain coin redemption of paper money 
 which symbolizes the subjects of consumption, as such money cannot 
 be diverted from its use to reach its constituent ; and as the makers 
 of bills discounted, into whose hands, as the holders of merchandise, 
 
UNITED STATES NOTES. lO'J 
 
 the issues of banks necessarily flow, instead of presenting them for 
 coin, will hold them for the payment of their bills. When a cur- 
 rency is symbolic the merchandise it represents will ordinarily be 
 taken for consumption within the time in which the bills have to 
 run. Consumption goes on as steadily after suspension of specie 
 payments by banks as before. To reach their constituents the 
 issues of those in suspension are as valuable as before. In the 
 event of a panic, as issuers naturally stop discounting, sixty days 
 will ordinarily suffice for the return to them of all their issues without 
 the paying out of a dollar of coin. The laws of trade speedily place 
 them in position to resume business, as the gold with which they 
 may have parted returns in the payment of their bills, or, confidence 
 restored, for deposit. Panics arise and runs are made upon issuers 
 solely from the violation of the proper rules of issue. So long as 
 these are observed, no disturbance calling for coin can arise, either 
 in the foreign or domestic trade of the country. But the issues of 
 governments will never be made in the discount of bills the pay- 
 ment of which necessarily retires the issues made in their discount. 
 Their reserves, consequently, — : the only means provided to meet 
 their immediate liabilities, — will bear only a very small ratio to the 
 amount of the latter, in order that the greatest advantage may be 
 secured from a money of "debt without interest." No other pro- 
 vision for the retirement of the notes of governments will ever be 
 made than their reserves. If full provision were to be made for the 
 redemption of their notes their issue would never suggest itself. 
 If provided by creating debt in another form, they would lose a sum 
 equal to the interest on the amount, no charge being made for their 
 issues, necessarily " debt without interest," or if the amount equal 
 to the issues were provided by taxation the public would be without 
 interest on a corresponding sum. 
 
 As panics under a Government currency will necessarily arise, the 
 only alternative is a suspension of specie payment to be proclaimed 
 as soon as it is seen that the run upon it is to be a formidable one. 
 It is here that, according to the Secretary, the value and importance 
 of the legal tender attribute comes in, in order that " the creditor may 
 not be allowed to demand payment in any other currency than that 
 in which the debt was contracted ; " and further, " as every system 
 of paper money must provide for suspension of specie payment it 
 
I08 UNITED STATES SAFETY-FUND BANKING SYSTEM. 
 
 would have to be acknowledged and declared to prevent unnecessary 
 sacrifice and ruin. ... In our free Government the power to 
 make such declaration would not be willingly intrusted to individuals,, 
 but should be determined by conditions known to all," — that is, first 
 known to the Government, which would be the first called upon for 
 coin, its notes serving as the reserves of all other issuers of currency. 
 " In. case of a suspension the fault would be that of the Government, 
 not of the debtor ; or, rather, it would be the result of an unforeseen 
 stringency not contemplated by the contracting parties." But with 
 a Government currency all contracts are entered into at the value 
 of coin. The Government notes are assumed to be the equivalents 
 of coin. If, upon suspension, they fall greatly in value, the creditor 
 must suffer in like ratio. The Continental currency, at the outset 
 legal tender, and a very " convenient form of money," circulated for 
 a considerable period at its nominal value. Those accepting it in 
 exchange for property or merchandise, and holding it, made a loss 
 equal to the nominal amount received. The history of the times is 
 full of pictures of the terrible suffering that resulted. In the war of 
 the Rebellion vast losses were suffered from the fall of value of the 
 notes, at one time to about one-third of their nominal value. For- 
 tunately, as was the case of the war of Independence, they have not 
 been repudiated, still remaining the pest and menace of the nation. 
 But where does this function or right of the Government to declare 
 suspension of specie payments leave the commercial, industrial, and 
 monetary interests of the country, — with weak, ignorant, vain, or 
 unscrupulous politicians in the Department of the Treasury, a prey 
 to their caprices or fears ; or posing as the particular champions of 
 "the people"? Is it not better to leave the currency to the 
 guidance of national laws than to such guardians as these? 
 
 UNITED STATES SAFETY-FUND BANKING SYSTEM. 
 
 The second measure that distinguished Mr. Chase's administra- 
 tion of the finances was the establishment of our present National 
 Safety Fund Banking System. The first act therefor, greatly amended 
 by that of June 3, 1864, was passed February 25, 1863. Its most 
 important feature was the provision made for the conversion of the 
 notes of issuers into coin by deposits of securities over which they 
 had no control. No more absurd and ill-timed measure could have 
 been devised. The Government derived no considerable advantage 
 
UNITED STATES SAFETY-FUND BANKING SYSTEM. IO9 
 
 therefrom, either in the sale of bonds or in the increase of the cur- 
 rency. There was never any difficulty in selling bonds, while it 
 could readily create for itself all the currency that was wanted. 
 
 No National Bank currency, said Mr. Spaulding in his " Financial History of 
 the War, ' ' was issued until about the first of January, 1 864. After t hat time it was 
 gradually issued. On the first of July, 1864, the sum of $25,825,695 had been 
 issued ; and on the 22d of April, 1865, shortly after the surrender of General 
 Lee, the whole amount of National Bank circulation issued to that time was 
 only $146,927,975. It will therefore be seen that comparatively little direct aid 
 was realized from this currency until after the close of the war. All the channels 
 of circulation were well filled up with the greenback notes, compound interest notes, 
 and certificates of indebtedness to the amount of over $700,000,000, before the 
 National Bank act got fairly into operation. This bank issue was in fact an 
 additional inflation of the currency. 
 
 It has already been sufficiently shown that the conversion of notes 
 of banks into coin can be amply secured by restrictions imposed upon 
 issuers to the discount of merchants' bills. So long as such rule is 
 observed the issues made will be employed as instruments to reach 
 their constituents, for. which they serve equally well with coin. With 
 it the notes returning for coin will never as a rule exceed the amount 
 of the reserves of the issuers. For a period of forty years under the 
 two banks, the currency, whether issued by the State or National 
 Banks, although in terms payable in coin, was almost wholly retired 
 by its use in reaching its constituents. By such use it came directly 
 into the hands of holders of merchandise, to be returned by them to 
 the issuers in the payment of their bills. During the existence of 
 the two banks the suggestion never occurred to the holder of a note, 
 whether of National or State Banks, that it was not adequately 
 secured ; that it needed any other guarantee for its payment than its 
 constituent, supplemented by the reserves of the issuers. The result 
 was secured by restrictions imposed by law upon a single institution, 
 the National Bank, which, from its commanding position as the 
 holder of the public revenues, was able to compel all other issuers 
 to make good daily all balances arising against them. As the char- 
 ters of State Banks allowed them to make loans, no matter the kind 
 of security, upon whatever promised the greatest return, no sooner 
 was the National Bank out of the way and all restrictions removed, 
 than the picture so graphically drawn by Mr. Buchanan became pos- 
 sible. As no other than paper money was to be that of the people, 
 their instinct naturally turned to the improvement of that in use. 
 
IIO UNITED STATES SAFETY-FUND BANKING SYSTEM. 
 
 One of the first measures of the kind adopted was the Suffolk Bank 
 system, by which all the banks of the New England States entered 
 into an agreement to redeem daily in Boston, their business metropo- 
 lis, at the Suffolk Bank, all balances found against them. It was a 
 Clearing House which included the banks of six States. A bank 
 which did not belong to it could obtain no circulation for its notes. 
 It was the " Suffolk " system which suggested the establishment of 
 Clearing Houses for banks of the same city, and which are now 
 to be found in every considerable place of business in the 
 United States. When Mr. Buchanan's picture was drawn the New 
 England States had a currency perfectly sound and perfectly suited 
 to the wants of the people, as had New York and other cities in 
 which Clearing Houses had been established. With such establish- 
 ments without the intervention of positive law, a perfect currency, 
 through the operation of natural laws, would have been secured to 
 every part of the country. A currency will always be relative to the 
 condition of a people. In needy communities the temptation, 
 too strong to be resisted, will lead to the issue of bank-notes with- 
 out any proper constituent. Among other remedies adopted by 
 many States following the overthrow of the Bank of the United 
 States was the establishment of Safety Fund Systems upon which 
 the present Safety Fund System was modelled, except in the kind 
 of securities to be deposited. Those accepted under the State 
 systems might be real property, or bonds, often largely depreci- 
 ated, of State or municipal bodies. The weakness of every Safety 
 Fund System is that, with provision of adequate security for their 
 notes, the issuers part with the means necessary to carry on their 
 operations. The first step in the direction of reform is the total 
 abolition of the existing system, and in the place of securities, 
 restrictions of issues to bills of exchange, by means of which a 
 perfect currency will be created, always adequate and always 
 flexible in representing the subjects of consumption. 
 
 But the burdens imposed by our present system and the obstacles 
 it presents to all remedial measures, are by no means the only wrongs 
 committed by its establishment. State Banks as the issuers of notes 
 existed at the foundation of the Government. The right was un- 
 challenged for a period of seventy-two years. For the whole period 
 of our existence as a nation the greater part of the currency has 
 been supplied by them ; for nearly seventy years the whole of it. 
 The exercise of such right unchallenged for so long a period was 
 
UNITED STATES SAFETY-FUND BANKING SYSTEM. Ill 
 
 equivalent to a provision in the Constitution in its favor. It would 
 have been such an equivalent with any other people than our own. 
 We have a dual government with a vast number of powers reserved 
 to the States. The creation of corporations was certainly a right 
 which they might exercise. The National Government may levy 
 taxes for the purpose of revenue, but it cannot, by the mode of their 
 levy, purposely destroy rights or powers reserved to the States. All 
 taxes must be uniform in their application. Now the tax of 10 per 
 cent, on the circulation of States Banks was not levied for revenue ; 
 none was expected from it. It was equivalent to a declaration that 
 the banks should not exercise one of the functions alike necessary 
 and proper to their welfare. It was levied, not for revenue, but for 
 the purpose of creating a market for bonds. If, under the pretext of 
 taxation, the National Government can destroy the banks of the 
 States, it could, under the same pretext, destroy or render valueless 
 all corporations, — insurance, manufacturing, railroad companies 
 and the like, reducing the States to the position of mere creatures 
 of its will. 
 
 In the denial to the State Banks of the right to issue notes, the 
 National Banks, from the burdens imposed, restricting themselves 
 to the minimum amount of issues, we seem to have exhausted human 
 ingenuity in the creation of the worst possible monetary system 
 that could be devised. If the State Banks had been left free we 
 should have had long ago a currency perfect in its kind from the 
 application of the methods that have been described. Left free, 
 the inevitable antagonism that would have arisen betwee.n their 
 issues and those of the National Government would have long ago 
 driven the latter out of the field. 
 
 The climax of this strange episode in our history was the elevation 
 of Mr. Chase from the office of Secretary of the Treasury to the 
 Chief Justiceship of the Supreme Court of the United States. In 
 that exalted position the question of the constitutionality of the issue, 
 of which he was the chief instrument, of the legal tender notes, came 
 up for adjudication and was declared by him to exceed the con- 
 stitutional powers of the Government. 1 
 
 1 In describing Mr. Chase, Mr. James Russell Lowell, in a letter from Washington, 
 November, 1S6S, to Leslie Stephen, said : "As for Mr. Chase, he is a weak man with an im- 
 posing presence, a most unhappy combination of which the world has not wanted exam- 
 ples from Saul and Pompey down. Such men as infallibly make mischief as they defraud 
 expectation." — Life of James Russell Lowell, Vol. II., page 7. 
 

 
 to 1 
 
 8g6 inclusive. 
 
 
 Years. 
 
 
 Years. 
 
 
 Years, 
 
 1864 
 
 $31,235,270 
 
 1875 
 
 $354,408,009 
 
 1886 
 
 1865 
 
 146,137,860 
 
 1876 
 
 33 z >998,386 
 
 1887 
 
 1866 
 
 281,479,908 
 
 1877 
 
 317,048,872 
 
 1888 
 
 1867 
 
 298,625,379 
 
 1878 
 
 324,514,284 
 
 1889 
 
 1868 
 
 290,762,855 
 
 1879 
 
 329,691,697 
 
 1890 
 
 1869 
 
 299,742,475 
 
 1880 
 
 344,505,427 
 
 1891 
 
 1870 
 
 299,766,984 
 
 l88l 
 
 355,042,675 
 
 1892 
 
 1871 
 
 318,261,241 
 
 1882 
 
 358,742,034 
 
 1893 
 
 1872 
 
 237,664,795 
 
 1883 
 
 356,073,281 
 
 1894 
 
 1873 
 
 347,267,061 
 
 1884 
 
 339.499>883 
 
 1895 
 
 1874 
 
 351,981,032 
 
 1885 
 
 318,576,711 
 
 1896 
 
 112 GOLD CERTIFICATES. 
 
 Statement showing the amount of notes issued to the National Banks from 1864 
 
 $311,694,454 
 279,217,788 
 252,368,321 
 211,378,963 
 
 185-970,775 
 167,927,974 
 172,683,850 
 178,713,872 
 203,110,023 
 213,887,630 
 233.639.357 
 
 GOLD CERTIFICATES. 
 
 On the 3d of March, 1863, an act was passed authorizing the 
 issue of certificates on deposits of gold in the Treasury to the amount 
 of $20 and upwards. For several years the amount of deposits was 
 comparatively small. On the 1st of July, 1883, they reached the 
 sum of $74,428,580. July 1, 1891, they reached the sum of $157,- 
 562,979. The Government derived no advantage whatever from 
 these transactions, while the act served as an example for two of 
 the most disastrous measures ever adopted in this country, — the 
 issue of the certificates under the act of 1878, and the issue of 
 notes under the act of 1890. 
 
 DEMONETIZATION OF THE SILVER DOLLAR. ACT OF 1 8 73. 
 
 Up to the close of the fiscal year 1869, 4,709,590 silver dollars had 
 been coined, the rate averaging about 60,000 dollars annually. Up 
 to that time $444,904,787 of gold had been coined. Not one of 
 the silver dollars remained in circulation, having been taken up for 
 export or for use in the arts as fast as they came from the mint. 
 From 1834 to 1853 they had, at the mint ratio, a value averaging 
 about 3.50 per cent, greater than that of gold. Minor coins of silver 
 had the same relative value as the silver dollar. To prevent their 
 exportation was the purpose of the act of 1853. Up to 1873, eighty- 
 one years having elapsed from the establishment of the mint, there 
 had been no revision of the coinage laws, although we had as a 
 nation become the great producer of precious metals, and had 
 established numerous local mints. In consequence, on the 1 25 th of 
 April, 1870, Mr. Boutwell, Secretary of the Treasury, transmitted 
 to Mr. Sherman, Chairman of the Committee on Finance of the 
 Senate, a bill for the revision of the coinage, and for the codification 
 
DEMONETIZATION OF SILVER. I 13 
 
 of the Uws relating thereto. The bill, prepared by Mr. J. J. Knox, 
 Deputy Comptroller of the Currency, was accompanied by a com- 
 munication from him as to the method and purpose of its prepara- 
 tion, in which he said : 
 
 The method adopted in the preparation of the bill was, first, to arrange in as 
 concise a form as possible the laws now in existence upon these subjects (mint, 
 assay offices, and coinage), with such additional sections and suggestions as 
 seemed valuable. Having accomplished this, the bill, as thus prepared, was 
 printed upon paper with wide margin, and in this form transmitted to the differ- 
 ent mints and assay offices; to the first comptroller, the treasurer, the solicitor, 
 the first auditor, and to such other gentlemen as are known to be intelligent upon 
 metallurgical and numismatical subjects, with the request that the printed bill 
 should be returned, with such notes and suggestions as experience and education 
 should dictate. In this way the views of more than thirty gentlemen who were 
 conversant with the manipulation of metals, the manufacture of coinage, the 
 execution of the present laws relative thereto, the method of keeping accounts 
 and of making returns to the department, have been obtained. Having received 
 these suggestions, the present bill has been framed, and is believed to comprise 
 within the compass of eight or ten pages of the Revised Statutes every important 
 provision contained in more than sixty different enactments upon the mint, assay 
 offices, and coinage of the United States, which are the result of nearly eighty 
 years of legislation upon these subjects. 
 
 The coinage of the silver dollar piece is discontinued in the proposed bill. It 
 is by law the dollar unit, and, assuming the value of gold to be fifteen and one- 
 half times that of silver, being about the mean ratio for the past six years, is 
 worth in gold a premium of about 3 per cent, (its value being $1.0312), and 
 intrinsically more than 7 per cent, premium in other silver coins, its value thus 
 being $1.0742. The present laws consequently authorize both a gold dollar unit 
 and a silver dollar unit, differing from each other in intrinsic value. The present 
 gold dollar piece is made the dollar unit in the proposed bill, and the silver 
 dollar piece is discontinued. If, however, such coin is authorized, it should be 
 issued only as a commercial dollar, not as a standard unit of account, and of the 
 exact value of the Mexican dollar, which is the favorite for circulation in China 
 and Japan, and other Oriental countries. (Sen. Mis. Doc. No. 132, second ses- 
 sion, 41st Congress, 11.) 
 
 The bill drawn by Mr. Knox, which suspended altogether the 
 coinage of the silver dollar as a unit of value, became the basis of 
 all action of Congress upon the subject. On the 28th of April, 
 1870, it was, with the information which had been collected, re- 
 ferred to the Committee on Finance of the Senate. On the 2d of 
 May 500 copies of the bill were ordered to be printed. On 
 the 19th of December, 1870, it was reported back to the Senate, 
 
1 H . DEMONETIZATION OF SILVER. 
 
 amended, and ordered to be printed. On the 9 th and 10th of Jan- 
 uary, 187 1, it was taken up and debated at great length, and passed 
 by a vote of 36 to 14. The section in reference to silver, identical 
 with that in the bill transmitted to the Senate by the Department of 
 the Treasury, was as follows : 
 
 That of the silver coins the weight of the half-dollar, or piece of fifty cents, 
 shall be 192 grains, and that of the quarter-dollar and dime shall be respectively 
 one-half and one-fifth of the weight of said half-dollar; that the silver coins 
 issued in conformity with the above section shall be legal tender in any one pay- 
 ment of debts for all sums not exceeding $5. 
 
 This section was followed by another providing that " No coins,, 
 either of gold or silver or minor coinage, shall hereafter be issued 
 from the mint other than those of the denominations, standards,, 
 and weights herein described." 
 
 A similar section was contained in all the different bills that were 
 reported in either House, and in the coinage act of 1873. 
 
 On the 25th of June, 1870, the bill as drawn by Mr. Knox was 
 introduced into the House and the printing of 500 copies ordered. 
 On the 10th of January, 187 1, the bill, as it had passed the Senate,, 
 came to the House. On the nth it was referred to the Committee 
 on Coinage, Weights, and Measures. On the 13th of January the 
 printing of the bill was again ordered. On the 25 th of February 
 the bill was reported to the House with a substitute, ordered to be 
 printed, and recommitted. On the 3d of March, 187 1, the Forty- 
 first Congress expired by limitation, all unfinished business inaugu- 
 rated by it falling to the ground. 
 
 On the 9th of March, 1871, the original bill was revived in the 
 House of the Forty-second Congress, and ordered to be printed. No 
 further action was taken at this session, which was a short one. On 
 the 9th of January, 1872, the bill was again reported to the House 
 by Mr. Kelley, Chairman of the Committee on Coinage, and debated 
 at great length, the debate occupying nearly two full days. In re- 
 porting the bill, with a recommendation that it pass, Mr. Kelley 
 said : . 
 
 This is a measure originated by the Treasury Department, and growing out of 
 the necessities of the case. The mint law of this country has never been re- 
 vised. It was originally framed for a. single institution at Philadelphia, and it 
 involves many crudities necessarily arising from the fact that we have established 
 
DEMONETIZATION OF SILVER. 115 
 
 several mints and quite a number of assay offices in different parts of our very 
 much more widely extended country than the law was originally intended to 
 cover. We were not then a bullion producing people, while we are to-day the 
 greatest producers of gold and silver in the world. Our mints are situated on the 
 Atlantic and Pacific coasts, and in the heart of what was but a few years ago re- 
 garded as the inaccessible desert of America. 
 
 The Secretary of the Treasury, discovering the difficulty of administering the 
 affairs of so many mints and assay offices, gave the subject his personal considera- 
 tion, and then invited to his aid some of the most experienced gentlemen of the 
 country in the matters of coinage and the management of mints, and directed one 
 of the officers of the Treasury, in connection with those gentlemen, to codify the 
 mint laws. 
 
 That was done, and the codification, with such suggestions as those commis- 
 sioners, as I may call them, made, were submitted to the two Houses of Congress. 
 The Senate took up the bill and acted upon it during the last Congress, and sent 
 it to this House. It was referred to the Committee on Coinage, Weights, and 
 Measures, and received as careful attention as I have ever known a committee to 
 bestow on any measure. The committee, before proceeding to consider it, sent 
 copies of it, not to the director of the mint alone, but to the offices of all the 
 mints and to those gentlemen who within the last fifteen or twenty years have 
 been connected with the mints, and made reputations which justified the commit- 
 tee in attaching importance to their opinions and the results of their experience; 
 and thus enlightened from sources to which the Secretary had not applied, the 
 committee proceeded with great deliberation to go over the bill, not only section 
 by section, but line by line, and word by word. 
 
 We omitted, so far as I know, no gentleman in the country who has had pro- 
 tracted official connection with the mints or assay offices, or any gentleman whose 
 scientific attainments in connection with the system of coinage or mint usages was 
 sufficient to bring him to our notice. The committee having no special views, 
 regarding themselves as charged with a very important function, that of provid- 
 ing for the integrity of the coinage and an economical administration of the mints 
 of the country, sought information from all recognized authorities, whether offi- 
 cial or unofficial, American or foreign. 
 
 I would like to follow the example of England and make a wide difference 
 between our gold and silver coins . . . and make the gold dollar uniform 
 with the French system of weights, taking the gram as the unit. (Congressional. 
 Globe, second session, 42d Congress, page 322.) 
 
 The section in the bill reported by Mr. Kelley in reference to the 
 coinage of silver was identical with that in the bill passed by the 
 Senate. 
 
 On the 9th of February, 1872, the bill was again reported to the 
 House, with amendments, one of which provided for the coinage of 
 a base dollar of 384 grains, and ordered to be printed. On the 
 1 3th. of February it was reported back to the House by Mr. Hooper, 
 
Il6 demonetization of silver. 
 
 a member of the Committee on Coinage and made the special 
 order for March 18 following. On April 9 the bill came up for 
 consideration in that body. In bringing it to the attention of 
 the House, Mr. Hooper gave abstracts of each one of the sixty- 
 nine sections of which it was composed, his remarks filling ten 
 closely printed columns of the Congressional Globe. In reference 
 to the coinage of silver, he said : 
 
 Section 16 reenacts the provisions of the existing laws defining the silver coins 
 and their weights, respectively, except in relation to the silver dollar, which is 
 reduced in weight from 412% to 384 grains, thus making it a subsidiary coin in 
 harmony with the silver coins of less denomination to secure its concurrent circu- 
 lation with them. 
 
 The silver dollar of 412% grains, by reason of its bullion or intrinsic value 
 being greater than its nominal value, long since ceased to be a coin of circulation, 
 and is melted by manufacturers of silver ware. It does not circulate now in com- 
 mercial transactions with any country, and the convenience of these manufacturers 
 in this respect can better be met by supplying small stamped bars of the same 
 standard, avoiding the useless expense of coining the dollar for that purpose. 
 (Congressional Globe, 2d session, 42d Congress, page 2304.) 
 
 Mr. Hooper was followed by Mr. Stoughton, a member of the 
 committee, who said : 
 
 The silver coins provided for are the dollar (384 grains troy), the half-dollar, 
 ■quarter-dollar, and dime, of the value and weight of one-half, one-quarter, and 
 one-tenth of the dollar, respectively ; and they are made a legal tender for all 
 sums not exceeding $5 at any one payment. The silver dollar, as now issued, is 
 worth for bullion 3*4 cents more than the gold dollar and 7*4 cents more than 
 the two half-dollars ; having a greater intrinsic than nominal value, it is certain to 
 be withdrawn from circulation whenever we return to specie payment, and to be 
 used only for manufacture and exportation as bullion. 
 
 To the leading features of the bill there was no opposition. To 
 the proposition for dropping the dollar from the coinage, except in 
 a debased form, not a word of objection was raised. The opposi- 
 tion, such as it was, was led by Mr. Potter, a member from New 
 York, who, in commenting upon the bill, said : 
 
 This is a bill of importance. When it was before the House in the early part 
 of this session, I took some objections to it, which I am now inclined to think, 
 in view of all the circumstances, were not entirely well founded ; but after further 
 reflection I am still convinced that it is a measure which it is hardly worth while 
 for us to adopt at this time. 
 
DEMONETIZATION OF SILVER. 117 
 
 This bill provides for the making of changes in the legal tender coin of the 
 country, and for substituting as legal tender coin of only one metal, instead, as 
 heretofore, of two. I think myself this would be a wise provision, and that legal 
 tender coins, except subsidiary coins, should be of gold alone ; but why should 
 we legislate on this now, when we are not using either of those metals as a circu- 
 lating medium ? The bill provides also for a change in respect to the weight and 
 value of the silver dollar, which I think is a subject which, when we come to re- 
 quire legislation about it at all, will demand at our hands very serious consider- 
 ation, and which, as we are not using such coins for circulation now, seems at this 
 time an unnecessary subject about which to legislate. 
 
 Ill reply to Mr. Potter, Mr. Kelley said : 
 
 I wish to ask the gentleman who has just spoken if he knows of any govern- 
 ment in the world which makes its subsidiary coinage of full value. The silver 
 coin of England is ten per cent, below the value of gold coin, and, acting under 
 the advice of experts of this country and of England and France, Japan has made 
 her silver coinage within the last year twelve per cent, below the value of gold 
 coin, and for the reason that it is impossible to retain the double standard. The 
 values of gold and silver continually fluctuate. You cannot determine this year 
 what will be the relative value of gold and silver next year. They were ij to 1 
 a short time ago ; they are 16 to 1 now. Hence all experience has shown that you 
 must have one standard coin which shall be a legal tender for all others, and then 
 you may promote your domestic convenience by having a subsidiary coinage of 
 silver, which shall circulate in all parts of your country as legal tender for 
 a limited amount and be redeemable at its face value by your government. 
 But, sir, I again call the attention of the House to the fact that the geiitlemen 
 who oppose this bill insist upon maintaining a silver dollar worth 3% cents 
 more than the gold dollar and worth 7 cents more than two half-dollars, and 
 that so long as those provisions remain, you cannot keep silver coin in the 
 country. 
 
 The bill now before the House, as amended, differed from that 
 prepared at the Department of the Treasury and which passed the 
 Senate in retaining the dollar as a subsidiary coin, the value of the 
 same being reduced from 412^ to 384 standard grains, it being 
 made competent for the payment of debts not exceeding $5. 
 
 On the 27th of May, 1872, the bill was again brought to the con- 
 sideration of the House by Mr. Hooper, who offered an amendment 
 in the nature of a substitute, which was read. The section in the 
 substitute in relation to silver was precisely the same as in the bill 
 that was superseded, the two differing only in matters of detail. 
 The subject at this time had ceased to attract attention, as it had for 
 more than two years been before Congress, which had been plied 
 
lib DEMONETIZATION OF SILVER. 
 
 with every suggestion and argument that ingenuity could invent, 
 and had been debated ad nauseam in both Houses. The bill 
 passed in the House by a standing vote of 106 to 16, the yeas and 
 nays not being demanded. The debate immediately previous to the 
 passage of the bill was of the nature of a colloquy rather than an 
 argument. Among the members who interposed was Mr. Holman, 
 from Indiana, who said : 
 
 Before the questiori is taken upon the question of the rules and passing the 
 bill, I hope that the gentleman from Massachusetts will explain the leading 
 changes made by this bill in the existing law, especially in reference to the coin- 
 age. It would seem that all the small coinage of the country is intended to be 
 lecoined. 
 
 Mr. Hooper. — This bill makes no changes in the existing law in that regard. 
 It does not require the coinage of the small coins. 
 
 The question related wholly to the matter of the minor coinage, 
 as did the reply. 
 
 The bill that passed the House was, on the 29th of May, 1872, 
 taken up by the Senate, ordered to be printed, and referred to the 
 Committee on Finance. On the 1 6th of December, 1872, Mr. Sher- 
 man, chairman of the committee, in reporting the bill back to the 
 Senate, said : 
 
 This bill has in substance passed both Houses. It was passed by the Senate at 
 the session of the last Congress, went to the House, and now, somewhat modi- 
 fied, has passed the House at this Congress, so that the bill has practically passed 
 both Houses of Congress. The Senate Committee on Finance propose the modi- 
 fication of only a single section for -a " trade dollar " of 420 grains. As this is 
 not the same Congress that passed the bill in the Senate, I suppose we shall have 
 to go through the form of a full reading. 
 
 The bill was thereupon ordered to be printed with the amend- 
 ments. On the 7th of January, 1873, it was again reported with the 
 amendments and printed for the information of the Senate. On the 
 17th of January, after a protracted debate, the report of which filled 
 nineteen closely printed columns of the Globe, the bill was passed 
 without division. In the course of the debate Mr. Sherman said : 
 
 This bill proposes a silver coinage exactly the same as the French and what are 
 called the associated nations of Europe, who have adopted the international 
 standard of silver coinage; that is, the dollar (two half-dollars) provided for in 
 this bill is the precise equivalent of a five-franc piece. It contains the same number 
 
DEMONETIZATION OP' SILVER. . I 19 
 
 of grams of silver, and we have adopted the international gram instead of the grain 
 "for the standard of our silver coinage. The "trade dollar" has been adopted 
 mainly for the benefit of the people of California and others engaged in trade 
 -with China. 
 
 That is the only coin measured by the grain instead of by the" gram. The in- 
 trinsic value of each is to be stamped upon the coin. The Chamber of Commerce 
 of New York recommended this change, and it has been adopted, I believe, by 
 all the learned societies who have given attention to coinage, and has been recom- 
 mended to us, I believe, as the general desire. That is embodied in these three 
 ■or four sections of amendment to make our silver coinage correspond in exact 
 form and dimensions and shape and stamp with the coinage of the associated 
 nations of Europe, who have adopted an international silver coinage. (Congres- 
 sional Globe, 3d session, 42d Congress, page 668.) 
 
 On the 2 1 st January, 1873, the Senate bill reached the House, 
 and on the motion of Mr. Hooper was printed with amendments. 
 The House adhered to its bill, and appointed a committee of con- 
 ference. The Senate insisting, a conference committee was created. 
 In the committee the House surrendered its proposition for a base 
 ■dollar of 384 grains to be legal tender in payments not exceeding 
 $5, accepting therefor the "trade dollar," and on the 12th of Feb- 
 ruary, 1873, tne report of the conference committee being accepted 
 Dy both branches, by the approval of the President, the bill became 
 a law. Section 1 5 in relation to the coinage was as follows : 
 
 That the silver coinage of the United States shall be a trade dollar, a half- 
 ■dollar or 50-cent piece, a quarter-dollar or 25-cent piece, a dime or 10-cent 
 piece; and the weight of the trade dollar shall be 420 (standard) grains troy; 
 the weight of the half-dollar shall be 12 grams (grammes) and one-half of a 
 •gram (gramme) ; the quarter-dollar and the dime shall be, respectively, one-half 
 ^nd one-fifth of the weight of said half-dollar; and said coins shall be a legal ten- 
 der at their nominal value for any amount not exceeding $5 in any one payment. 
 
 Section 17 provided that 
 
 No coins, either of gold, silver, or minor coinage, shall hereafter be issued from 
 the mint other than those denominations, standards, and weights herein set forth. 
 
 Such is the history of the famous Act of 1873. The bill for this act 
 came from the Secretary of the Treasury early in 1870 with a com- 
 munication recommending its passage. In addition it was pressed 
 -upon the attention of Congress in his annual reports for 1870, 1871, 
 and 1872. It was before Congress for five successive sessions of 
 that body and for a period of nearly three years. It was printed by 
 its order thirteen times. 
 
120 DEMONETIZATION OF SILVER. 
 
 The reports of the debates in the Senate upon the measure fill 66 
 closely printed columns of the Globe; in the House, 78. In every 
 bill reported, printed, or debated, the silver dollar, except as a 
 subsidiary coinage, was forbidden in express terms. The dollar- 
 proposed for home circulation was a base one of 384 standard grains, 
 the legal competency of which was not to exceed $5 in any one sum. 
 The " trade '' dollar for exportation to the Orient had a value at the 
 time 10 percent, greater than the gold dollar, its legal competency 
 being no greater than the proposed debased one. 
 
 During the whole period in which this matter was under con- 
 sideration the records of Congress contain no suggestion that the 
 old dollar of 412^ grains be retained. For 1870, the year in which 
 the bill was received from the Department of the Treasury, the 
 excess in value of the silver over the gold dollar was 2.67 per 
 cent.; in 1872, the measure becoming a law early in 1873, the 
 excess equalled 2.25 percent. No bill that ever passed Congress 
 received greater consideration measured by the time spent upon it 
 and in the efforts made to bring it to the notice of the public and 
 members of Congress, and no public measure was ever better 
 received. 
 
 In answer to the charge that the Act of 1873 was surreptitiously 
 passed, the following extracts from Mr. Knox's work, entitled 
 " United States Notes," are given, he having had more to do with. 
 the measure than any other person : 
 
 During the debate on the bill of 1878 the charge was repeatedly made, in and' 
 out of Congress, that the Act of 1873, discontinuing the free coinage of the 
 silver dollar, was passed surreptitiously. This statement has no foundation in 
 fact. The report of the writer, who was then deputy comptroller of the cur- 
 rency, transmitted to Congress in 187.0 by the Secretary, three times distinctly 
 stated that the bill accompanying it proposed to discontinue the issue of the 
 silver dollar piece. Various experts, to whom it had been submitted, approved 
 this feature of the bill, and their opinions were printed by order of Congress . 
 The House was informed by its members of this provision, and the bill was 
 printed thirteen times by order of Congress, and once by the commissioners 
 revising the statutes, and was considered during five successive sessions. 
 
 It is not probable that any act passed by any Congress ever received more care 
 in its preparation, or was ever submitted to the criticism of a greater number of 
 practical and scientific experts than was this coinage act of 1873. The statement 
 in reference to the surreptitious or inadvertent passage of the bill was subse- 
 quently repeated in the city of Paris by a member of the silver commission. 
 
DEMONETIZATION OF SILVER. 121 
 
 From 1853 to 1873 the coinage of silver dollars equalled 
 $5,538,948; of minor coins of silver in value $51,598,562. The 
 coinage of gold was $540,736,349. The total coinage of silver 
 dollars up to 1873 was $8,045,938; of minor silver coins 
 $137,096,046. The total coinage of gold up to 1873 was 
 $8i6,905,874. 1 
 
 1 Statement showing the number of silver dollars coined from the establishment of the 
 Mint to 1S73, inclusive : 
 
 1795 
 1796 
 
 1797 
 1798 
 
 1799 
 1800 
 1801 
 j 802 
 1S03 
 1804 
 
 1805 
 1806 
 1807 
 180S 
 1S09 
 1810 
 1S11 
 1S12 
 1S13 
 1S14 
 1S1S 
 
 1816 
 
 ISI7 
 181s 
 1819 
 IS20 
 1821 
 
 Dollars. 
 
 $204,791 
 72,920 
 7.776 
 327.536 
 423.SIS 
 220,920 
 
 54.454 
 41,650 
 66,064 
 
 19.570 
 321 
 
 Years. 
 
 1S22 , 
 
 1823 
 
 1S24 
 
 1825 . 
 
 1826 
 
 1827 
 
 1828 
 
 1829 
 
 1830 
 
 1831 
 
 ■832 
 
 1833 
 
 '834 
 
 ■835 
 
 1836 
 
 1837 
 
 1S38 
 
 1839 
 
 1S40 
 
 184 1 
 
 1842 
 
 1843 
 
 1S44 , 
 
 1845 . 
 
 1846 . 
 
 Dollars. 
 
 $1,000 
 
 300 
 61,005 
 173,000 
 184,618 
 165,100 
 20,000 
 24,500 
 169,600 
 140,750 
 15,000 
 
 1S49 
 1S50 
 1851 
 1SS2 
 1S53 
 
 1S54 
 IS55 
 1S50 
 
 'S57 
 .858 
 
 '859 
 
 i860 
 1861 
 1S63 
 1863 
 1S64 
 1S65 
 IS66 
 1867 
 
 IS69 
 1870 
 1871 
 
 IS72 
 
 >S73 
 
 Total 
 
 $62,600 
 
 47.500 
 
 1,300 
 
 1,100 
 
 46,110 
 33.HO 
 26,000 
 
 63.500 
 94,000 
 
 288,500 
 
 600,530 
 
 5S9.90O 
 
 '.750 
 
 31.400 
 
 23,170 
 
 32,900 
 
 58,550 
 
 57.000 
 
 54,800 
 
 231.350 
 
 58S.308 
 
 657.929 
 
 1,112,961 
 
 977.150 
 
 $8,045,838 
 
 Statement showing the yearly average value, in cents, of the silver dollar, compared with 
 gold, for twenty years, ending with 1S72 : 
 
 Years. 
 
 Value in 
 Cents, 
 
 Years. 
 
 Value in 
 Cents. 
 
 Years. 
 
 Value in 
 ' Cents. 
 
 1S53 
 1854 
 
 1S56 
 
 '{& 
 1858 
 
 1859 
 
 
 
 
 
 104.26 
 104.26 
 ■03-95 
 103-95 
 104.69 
 
 J03-9S 
 105.22 
 
 1S62 
 
 1S64 
 
 1S65 
 
 104.58 
 103.10 
 104.60 
 104.06 
 104.06 
 I03-52 
 103.63 
 
 1S72 
 
 102.67 
 102.57 
 102.47 
 102.67 
 10257 
 102.25 
 
 The average value of the silver dollar for the whole period was 103.63 cents. 
 
122 DEMONETIZATION OF SILVER. 
 
 From the establishment of the Mint down to and including the 
 Act of 1873, a period of eighty-three years, whenever the subject 
 of the coinage was considered it was always from a business point 
 of view, precisely as the subject of weights and measures had been 
 considered that the same standards might be provided for all, high 
 and low, rich and poor. In the matter of the standard of value 
 the changes in the metals used always suggested themselves. A 
 thousand years ago copper was good money. Sixty years ago silver 
 was good money. Silver is no longer good money except in the 
 form of subsidiary coins. It was disused precisely as have been 
 great numbers of methods, good in their day, but good for nothing 
 now. The changes that have taken place in the standards of value 
 form an interesting chapter in the progress of society. In his report 
 in 1792 upon the Mint, Mr. Hamilton assumed that of the two 
 metals gold was the more uniform in value and for this reason was 
 entitled to the preference as the standard of value. He believed, 
 however, that a ratio could be established corresponding so nearly 
 to the commercial value of the two metals as to render indifferent 
 the choice between them, each at the time being equally well fitted 
 to serve as money ; silver, perhaps from its long use, having the 
 preference. He assumed that the difference in the value of the 
 -coins of the two, not exceeding the cost of exportation estimated 
 at one-half of one per cent., would not disturb the relation between 
 them. Both metals were consequently adopted as money under the 
 idea that the amount might thereby be increased ; a very natural 
 conclusion at the time. He was mistaken ; a difference equalling 
 ■one-quarter of one per cent, being enough to disturb the equilib- 
 rium sought to be secured, either kind being equally convenient in 
 use. As by the ratio established gold was undervalued, although 
 provision was made for two kinds, silver alone remained as money. 
 But its establishment as such had no effect to bring it into use as 
 the ordinary instrument of exchange. It was the sole money of the 
 country in 183 1 when the Select Committee of the House of Rep- 
 resentatives recommended the discontinuance of its coinage, except 
 in inconsiderable sums in the form of small coins, the total amount 
 in the hands of the people at the time not exceeding Is ,000,000, or 
 30 cents per head, the population equalling 13,000,000. The trans- 
 actions of the people at the time in ratio to their numbers did not 
 equal one-tenth their present amount. The old earth roads served, 
 
REMONETIZATION OF SILVER. 1 23 
 
 •or seemed to serve, at the time very well for the movement of their 
 persons and property. In 1834 came the first change, the great 
 increase in transactions calling for a money having a higher relative 
 value than silver. But the establishment of gold as the money of 
 the country had no effect to bring it into use as the ordinary instru- 
 ment of exchange. It had the effect, however, at the ratio at which 
 it was coined, of driving silver, the undervalued metal, out of the 
 country for the discharge of balances arising in foreign trade, and to 
 such an extent as to be the source of great inconvenience, an evil 
 remedied by the Act of 1853, whereby the minor coins of silver were 
 so debased that they could be exported only at a loss. The pur- 
 pose of the Act of 1873 was to give systematic or codified form to 
 the numerous acts on the statute book, and a legal sanction to the 
 ■disuse of the silver dollar which from the foundation of the Govern- 
 'ment had, as money, existed only in name. Never was there a 
 •public measure in the history of the nation more appropriate, more 
 ■thoroughly considered, better understood, or more cordially accepted 
 at the time of its enactment, than the Act of 1873. 
 
 REMONETIZATION OF SILVER. 
 
 By the Act of February 28, 1878, provision was made for the 
 coinage of the silver dollar at the old ratio of 16 to 1, although at 
 the time the commercial ratio between the two metals was about 18 
 to 1, the fall, from its greatly increased production, in the price of 
 silver from 1873 having been about 12 per cent. The act, called 
 ,the " Bland Act," from the name of the member of the House who 
 had the measure chiefly in charge in that body, provided for the 
 purchase at its commercial value for coinage by the Secretary of the 
 Treasury of not less than 2,000,000, nor more than, 4,000,000 ounces 
 per month of silver bullion, any gain or seigniorage arising to be 
 • conveyed into the Treasury, the coins to be legal tender at their 
 nominal value for all debts, public and private. The act further pro- 
 vided that any holder of the dollars might deposit the same with the 
 Treasurer, or any Assistant Treasurer, of the United States, in sums 
 not less than ten dollars, and receive therefor " certificates " re- 
 ceivable in the payment of all public dues. The bill first introduced 
 into the House provided for the unlimited coinage of silver at the 
 ratio of 16 to 1. It passed that body November 5, 1877, by a vote 
 ■of 163 to 34. The bill was amended in the Senate, taking very 
 
124 BEMONETIZATION OF SILVER. 
 
 nearly the form in which it finally became a law, passing that body 
 by a vote of 48 to 21. As amended, it passed the House by a vote 
 of 203 to 72. The bill was vetoed by the President, Mr. Hayes, for 
 the following reasons : 
 
 If it is now proposed, for the purpose of taking advantage of the depreciation: 
 of silver in the payment of debts, to coin and make a legal tender a silver dollar 
 of less commercial value than any dollar, whether of gold or paper, which is now 
 lawful money in this country, such a measure, it will be hardly questioned, will, 
 in the judgment of mankind, be an act of bad faith as to all debts heretofore 
 contracted. The silver dollar should be made a legal tender only at its market 
 value. The standard of value should not be changed without the consent of both 
 parties to the contract. National promises should be kept with unflinching 
 fidelity. There is no power to compel a nation to pay its just debts. Its credit 
 depends on its honor. The nation owes what it has led or allowed its creditors 
 to expect. I cannot approve a bill which, in my judgment, authorizes the viola- 
 tion of sacred obligations. The obligation of the public faith transcends all 
 questions of profit or public advantage. Its unquestionable maintenance is the 
 dictate as well of the highest expediency as of the most necessary duty, and should 
 ever be carefully guarded by the Executive, by Congress, and by the people. It 
 is my firm conviction that if the country is to be benefited by a silver coinage, it 
 can be done only by the issue of silver dollars of full value which will defraud no 
 man. A currency worth less than it purports to be worth will in the end defraud 
 not only creditors, but all who are engaged in legitimate business, and none more 
 surely than those who are dependent on their daily labor for their daily bread. 
 
 The bill passed the House over the veto by a vote of 196 to 63 ; 
 and the Senate by a vote of 46 to 19. 
 
 In 1870, when proceedings for the demonetization of the silver 
 dollar were first taken, its value compared with gold was 102.67 
 cents. In 1878, when it was remonetized at the old ratio of 16 to 
 1, its value had fallen to 89 ; the fall in value equalling 13.67 cents, 
 the percentage of the fall being 15 per cent. After the fall had taken 
 place the great crime of 1873 was for the first time discovered. To 
 undo it was the purpose of the Bland Act. In the debates which 
 took place a great many pictures of the fraud were drawn, one of 
 the most graphic being that of Mr. Voorhees, then member of the 
 House, subsequently a member of the Senate from the State of 
 Indiana : 
 
 There is, he said, a numerous and powerful class in our midst who believe, as 
 Alexander Hamilton declared, that the British Government, on this as well as on 
 other points, is the best ever devised by the wisdom of man. Those enter- 
 
REMONETIZATION OF SILVER. 1 25 
 
 taining this opinion have thus far triumphed in the financial legislation of the 
 United States, and the time has now arrived when their victories must be re- 
 versed or soon this Government will cease to be republican and the people no 
 longer free. 
 
 Sir, this theme becomes humiliating to every honest American mind. It fills 
 with shame every honest patriotic heart. The naked fact confronts us at every 
 step that no pledge, however high, solemn, or binding in law and morals, has 
 been strong enough to compel the authors of our financial legislation to obey it. 
 No sense of national honor or good faith has restrained for a single moment the 
 unbridled avarice of idle interest -bearing capital whenever it has been tempted, 
 like some hungry marauding animal, to break over the barriers erected between 
 it and new fields of spoliage that lie beyond. The silver dollar came to us with 
 the birth of our Government. It was devised as a unit of value by Thomas 
 Jefferson. It stood as honored as gold through every storm that beat upon this 
 Government. It is associated with all our development, our strength, our 
 growth, and our glory. With it as a currency, more than any other, the picket 
 lines of civilization have pushed westward. The pioneer in the shadow of the 
 great forests or on the wide prairies toiled to lay it by, one by one, until the 
 coveted sum of one hundred lay before him. Then tightening the girths of his 
 saddle, he rode with speed to the distant land office, where the Government took 
 his one hundred silver dollars for eighty acres of land, which thenceforward 
 became that most blessed spot on earth, a home ; a home where trees were 
 planted, where children were born and grew to be men and women, and they 
 in turn went forth into the great world, still to the west, there to live over again 
 in labor and privation the lives of the father and mother left behind. 
 
 The silver dollar is peculiarly the laboring man's dollar, as far as he may desrie 
 specie. When specie payments were authorized before the war it was the 
 favorite currency with the people. Throughout all the financial panics that have 
 assailed this country no man has been bold enough to raise his hand to strike it 
 ■down ; no man has ever dared to whisper of a contemplated attack upon it ; and 
 when the hour of its danger and destruction drew nigh, when the 12th day of Febru- 
 ary, 1873, approached, the day of doom to the American dollar, the dollar of our 
 fathers, how silent was the work of the enemy ! Not a sound, not a word, no 
 note of warning to the American people that their favorite coin was to be destroyed 
 as money ; that the greatest financial revolution of modern times was in contem- 
 plation and about to be accomplished against their highest and dearest rights ! 
 The tax-payers of the United States were no more notified or consulted on this 
 momentous measure than the slaves on a Southern plantation before the war, 
 when their master made up his mind to increase their task or to change them 
 from a corn to a cotton field. Never since the foundation of the Government 
 has a law of such vital and tremendous import, or indeed of any importance at 
 all, crawled into our statute books so furtively and so noislessly as this. Its 
 enactment there was as completely unknown to the people, and indeed to four- 
 fifths of Congress itself, as the presence of a burglar in a house at midnight 
 is to its sleeping inmates. This was rendered possible partly because the 
 •clandestine movement was so utterly unexpected, and partly from the nature of 
 .the bill in which it occurred. 
 
126 REMONETIZATION OF SILVER. 
 
 9 
 
 Sir, in the entire catalogue of crimes against human society, not one can be 
 found so awful in all its consequences, both immediate and remote, as a Govern- 
 ment commits when it deliberately destroys the money of its own citizens. 
 Wherever in all the regions of time such measures have been accomplished the 
 horrors of history have taken place. No shrinkage in the amount of money, no 
 contraction of the currency in the hands of the people was ever enforced by law 
 to any considerable extent, except amid broken lives, ruined hopes, despair, lost 
 honor, and all the vices springing from the lowest depths of poverty and human 
 misery. The worst ingredients of war, pestilence, and famine all flow from the- 
 act of a government violently tearing from the hands of the laboring masses the 
 money they so much need. Murder, theft, robbery, prostitution, forgery, embezzle- 
 ment, and fraud of every hue and mien curse the land that is deprived of a full 
 and sufficient circulating medium on which to give employment to its toiling men 
 and women. 
 
 But what is the duty of the Government in this regard ? Is it true that the 
 people are not dependent on the policy of their Government for money on which 
 to do business ? Is it true, as often asserted, that in some way or other those 
 who are willing to work, or have something to sell, can always obtain money 
 regardless of all financial legislation ? No greater fallacy than this was ever put 
 forward in defence of wrong and injustice. Money is the creature of government 
 both as to quality and quantity. It exists merely by the assertion of law, and 
 in no other way. Article I, Section 8, of the Constitution of the United States 
 provides that " The Congress shall have power . . . to coin money, regulate 
 the value thereof, and of foreign coin, and fix the standard of weights and 
 measures," and Section io of the same article denies all such powers to the States, 
 thus making Congress the exclusive creator of money for the American people. 
 Without the action of Congress not one dollar can exist in the United States. If 
 the article called money, whether of gold, silver, or paper, is necessary at all in 
 the transactions of life, here alone is the fountain from which it emanates. How, 
 then, shall this high power be exercised ? Shall only enough lawful money be 
 created, in proportion to the labor and other commodities which it, is designed to 
 pay for, to give ten cents a day to the laborer, and ten dollars for a horse ; or 
 shall it be furnished in sufficient amount to afford a just equivalent for labor and 
 for every other thing of value ? On the- answer to this question has depended the 
 prosperity or the adversity of the American people in all the past ; on it their pres- 
 ent deplorable condition can alone be explained, and their future fate foretold. A 
 circulating medium being a recognized necessity of civilized nations, and its exist- 
 ence depending solely on national authority, that government which, for any 
 reason, fails to make a supply adequate to the business prosperity of its citizens, 
 violates that fundamental compact of duty which must prevail in every free politi- 
 cal commonwealth. 
 
 Not only, however, has this Government failed in this great duty, but the 
 manner it has adopted to furnish the people with their limited and insufficient 
 supply of currency was conceived and perfected by the owners of retired inactive 
 capital. The system of national banking now in use is the most elaborate and 
 complete scheme for making the people pay tribute to wealth, in order to obtain a 
 circulating medium, ever known in the financial history of the world. There is 
 
REMONETIZATION OF SILVER. I 27" 
 
 not a dollar to-day in the hands of the people on which they have not paid a tax 
 for the privilege of having it put in circulation by the Government. The national 
 bank is the middle man between the Government and the people, and is enor- 
 mously paid for what the Government ought directly to do itself. According to 
 the report of the Comptroller of the Currency there were two thousand and 
 eighty national banks Oct. 1, 1877, and they owned in even numbers $336,- 
 000,000 of government bonds as the basis of a bank note circulation of 
 $291,000,000. The interest paid by the people on the bonds thus used to 
 secure a currency on which to transact their business amounts to not less than 
 $16,000,000 per annum. This is the tax paid for the bank-note circulation. 
 The bondholder has been made the banker of the country, and he is banking on 
 the interest-bearing debt of the people. For every $100 of currency they pay 
 him nearly six dollars interest on the bonds which secure that hundred. His ad- 
 vantages, however, only begin with this bonus of sixteen millions. 
 
 The report of the Comptroller shows that, Oct. 1, 1877, the national banks 
 had loans outstanding to the amount of eight hundred and ninety-one millions. 
 No one will pretend that these loans are made on an average interest of less than 
 ten per cent. This makes an interest amount of eighty-nine millions per annum, 
 and this is an under rather than an over estimate. Of other bonds, stocks, debts, 
 real estate, specie, currency, clearing-house exchanges, United States certificates 
 of deposit, and all other sources, the property of the national banks, at the above 
 date, amounted to something over five hundred and fourteen millions, which, at 
 the rate of five per cent., makes an additional interest income of twenty-five 
 millions. The following statement will therefore correctly represent the facts : 
 
 Oct. 1, 1887: 
 
 National banks 2,080 
 
 Resources $1,741,000,000 
 
 Interest on resources paid by the people per annum . . 130,000,000 
 
 In return for the establishment of this stupendous money power it simply acts 
 as an agent in transmitting the currency of the United States from the Treasury 
 to the people. Will any one pretend that a cheaper and more equitable mode of 
 supplying the country with a circulating medium cannot be framed by our legis- 
 lative wisdom ? 
 
 The power of money in the midst of times like these is very great, but I am 
 much deceived in the people if they have not turned at last in defiance and bold 
 warning upon their oppressors. They demand that certain specific wrongs shall 
 be redressed. 
 
 First, those for whom I speak demand the restoration of the silver dollar 
 exactly as it stood before it was touched by the act of February, 1873. They 
 desire that it shall have unlimited coinage, not fearing that it will become too 
 plenty for their wants ; and that it be made a full legal tender, believing that it 
 is as good now with which to pay all debts, public and private, as it was during 
 eighty-one years of American history. 
 
 Second, they demand the repeal, unconditionally, of the act of Jan. 14, 1875, 
 compelling a resumption of specie payments in January, 1879, holding that the 
 
128 REMONETIZATION OF SILVER. 
 
 question of a return to a specie basis for our currency should be controlled 
 entirely by the business interests of the country. They do not believe that the 
 country should be dragged through the depths of ruin, wretchedness, and degra- 
 dation in order to reach a gold standard for the benefit alone of the income 
 classes. 
 
 Third, they demand that the national banking system be removed and a circu- 
 lating medium provided by the Government for the people, without taxing them 
 for the privilege of obtaining it. And they ask that the amount thus placed in 
 circulation shall bear a reasonable and judicious proportion to the business trans- 
 actions and the population of the United States. 
 
 Fourth, they demand that the currency circulated on the authority of the 
 Government shall be made a legal tender in payment of all debts, public and 
 private, including all dues to the Government, well knowing that it will then be 
 at par with gold, or more likely at a premium over it. 
 
 And fifth, they demand that hereafter the financial policy of the country shall 
 be framed permanently in their interest ; that they shall not be discriminated 
 against in future legislation as in the past, and that their prosperity, and not 
 mere growth of incomes to retired capitalists, shall be the primary duty of the 
 Government. (Congressional Record, 45th Congress, Vol. I., 330.) 
 
 The language of Mr. Voorhees is so direct and his meaning so 
 clearly expressed as hardly to require comment. He was a member 
 of the House for the whole period pending the demonetization of 
 the silver dollar, having been elected in 1869. From an examina- 
 tion of the Journals he appears to have been constant in his attend- 
 ance at its sittings. Upon his table were laid all the reports of the 
 committees of the House and all the bills in their various forms 
 relating to the coinage. No member of the House Outside the com- 
 mittee was probably more familiar with the progress of the measure 
 in its various stages. In the face of all this his statement that 
 there was " Not a sound, not a word of warning to the American 
 people that their favorite coin was to be destroyed ; that never from 
 the foundation of the Government did a law of such tremendous 
 import, or of any importance at all, crawl so furtively into our statute 
 books as this ; its enactment being as completely unknown to four- 
 fifths of Congress as the presence of a burglar in a house at night to 
 its sleeping inmates," was a piece of mendacity unmatched in legis- 
 lative history. The most painful part of the whole businesss is that 
 it has been accepted by the country as solemn truth. 
 
 " The silver dollar," said Mr. Voorhees, " was devised as a unit of 
 value by Thomas Jefferson, and was associated with all our develop- 
 ment, our strength, our growth and our glory. It was always the 
 
REMONETIZATION OF SILVER. 139 
 
 money of the picket line of our civilization. No sooner was the 
 coveted hundred dollars secured than the possessor rode to a distant 
 land office to exchange them for eighty acres of land to become his 
 future home." The same process, he declared, was repeated by 
 children and grandchildren till the mighty wave of civilization was 
 carried to the Pacific Ocean. Of the $8,000,000 coined up to 
 1878 not a dollar ever entered into general circulation; not a dollar 
 ever crossed the Alleghanies ! As for Jefferson he had no more to 
 do with devising the mint ratio of the silver dollar as the unit of 
 value than Adam. When in this country lying is to be done on 
 a colossal scale Jefferson and Jackson are always summoned as 
 vouchers. 
 
 " In the entire catalogue of crimes against human society not one 
 can be found so awful in its consequences as when Government 
 deliberately destroys the money of its own citizens." But not a 
 dollar of money was destroyed by the Act of 1873. By it the 
 obsolete provision for the coinage of the silver dollar, never in cir- 
 culation, was dropped from the statute book. The few that were 
 coined, having a greater commercial than coin value, were taken for 
 use in the arts, or for export, as fast as they came from the mint. 
 In a country like the United States metallic money will take care of 
 itself. It may as well consist of the coinage of other mints as of 
 4ts own. Symbolic money under free conditions will also take care 
 of itself, its nominal value equalling that of the subjects of con- 
 sumption ; so that the terrible pictures of "war, pestilence, famine, 
 murder, theft, robbery, prostitution, forgery, embezzlement, and 
 fraud of every hue " due to the want of money were of Mr. 
 Voorhees' own creation, or rather examples of lying with a cir- 
 cumstance. 
 
 And what was the remedy? The creation by Government of 
 money, the quantity and quality dependent upon its will, but enough, 
 so that instead of 10 cents a day to labor and $10 for a horse there 
 should be enough to secure ample reward for labor, and a remunera- 
 tive price for all the products of labor. " When a Government fails 
 to supply an adequate amount of money to the people, it violates,'' 
 Mr. Voorhees declared, " the fundamental compact of duties which 
 must prevail in every free commonwealth." The Government, he 
 said, had wholly neglected this great duty, leaving the supply of 
 currency to the banks, in consequence of which they realized 
 
I30 REMONETIZATION OF SILVER. 
 
 $ 1 30,000,000 annually, "simply for acting as agents in transferring 
 the currency of the United States from the Treasury to the people." 
 
 The remedy was first, the repeal of the Act of 1873 and the 
 unlimited coinage of silver; second, the repeal, unconditionally, 
 of the acts for the resumption of specie payments, " that the country 
 be no longer dragged through the depths of ruin, wretchedness and 
 degradation in order to reach a gold standard for the benefit alone 
 of the income classes ; third, that the National Banking system be 
 abolished ; fourth, that the money of the country, created and 
 issued by the Government, be legal tender in the payment of all 
 debts, public and private, including all dues to Government, "well 
 knowing that such money will be at the par of gold or more likely 
 at a premium over it; " and finally, "that the financial policy of the 
 country shall be framed permanently in the interests of the people, 
 and that their prosperity, not the mere growth of income to retired 
 capitalists, should be the primary duty of the Government." 
 
 In 1877 Mr. Voorhees was elected to the Senate, in which he 
 served for eighteen years consecutively. In that long period he 
 never omitted an opportunity to repeat the doctrines of his great 
 speech of 1878. In 1893, by regular gradation, being the oldest 
 member of his party in service in the Senate, he was advanced to 
 the chairmanship of the Committee on Finance, a place of influ- 
 ence, dignity, and honor, second only to that of the President of the 
 United States. In 1893, when chairman of that committee, he 
 made a speech in his place in which, among other thin gs, he said : 
 
 Silver is the money of the Constitution, and so specified in that great instru- 
 ment, and should be coined on the sam e terms that gold is coined, " without dis- 
 crimination against either metal, and without charge for mintage." This has 
 been the doctrine of the Democratic party from the days of Jefferson to the 
 Chicago Convention of 1892, and it is the doctrine of the laboring masses to-day, 
 irrespective of party, throughout the United States. In fact, the American 
 people, the plain working people, have been benefited in the last one hundred 
 years far more by silver money than by gold money, and the whining cant of 
 sordid avarice which we now hear, that " gold is sound money " and silver is not, 
 has the profound contempt of every man familiar with the history and the devel- 
 opments of his country. 
 
 As to the parity of the two metals when coined, even the small children of 
 finance know that the purchasing power of a dollar is not fixed by the quality or 
 the quantity of the material which composes it, but by the law which makes it a 
 legal-tender in the payment of debts. Much vapid nonsense has been spoken and 
 written in regard to what is styled "fiat money." The fiat of the government 
 
REMONETIZATION OF SILVER. I3I 
 
 simply means "thus saith the law," and there was never, in this or any gov- 
 ernment on earth, and never will be, a dollar, whether of gold, silver, or paper, 
 other than absolutely and entirely the creature of the law. When silver is coined, 
 therefore, at the ratio of 16 to 1 in gold, or any other ratio, and clothed with the 
 authority of law, it has never failed to be on a par with gold in its purchasing and 
 debt-paying power. I am ready at any auspicious time to fight for the fair and 
 honorable restoration of silver coinage to its old place alongside of gold. I care 
 but little for the attitude of foreign nations on this subject. We are not subject 
 to their dictation, and for their disapproval we may compensate ourselves with 
 the approval of our own people. 
 
 Extracts from the speeches of Mr. Voorhees are given at con- 
 siderable length, but they should be read and reread by every citi- 
 zen who would get an adequate idea of political life in America, in 
 which the highest offices are within easy reach of the most ignorant, 
 malevolent, and revolutionary characters, and of the dangers to 
 which our institutions are consequently exposed. 
 
 Among the members of the House who voted for the bill of 1878 
 was the Hon. John G. Carlisle, of Kentucky, afterwards Speaker of 
 the House of the 48th, 49th, and 50th Congresses, and Secretary of 
 the Treasury for the whole period of Mr. Cleveland's second term. 
 From his speech the following extracts are given : 
 
 I know that the world's stock of precious metals is none too large. Mankind 
 will be fortunate, indeed, if the annual production of gold and silver coin shall keep 
 pace with the annual increase of population, commerce, and industries. Accord- 
 ing to my view of the subject, the conspiracy which seems to have been formed 
 here and in Europe to destroy by legislation or otherwise from three-sevenths to 
 one-half of the metallic money of the world is the most gigantic crime of this 
 or any other age. The consummation of such a scheme [the disuse of silver] would 
 ultimately entail more misery upon the human race than all the wars, pestilences, 
 and famines that have ever occurred in the history of the world. The absolute and 
 instantaneous destruction of half the entire movable property of the world, in- 
 cluding houses, ships, railroads, and all other appliances for carrying on commerce, 
 while it would be felt more sensibly at the moment, would not produce anything 
 like the prolonged distress and disorganization of society that must inevitably 
 result from the permanent annihilation of one-half the metallic money of the 
 world. With an ample currency an industrious and frugal people will speedily 
 rebuild the works of internal improvement and repair losses of property, but no 
 amount of industry or economy on the part of the people can create money. 
 When a government creates it or authorizes it the citizen may acquire it, but 
 he can do nothing more. 
 
 I am in favor of every practical and constitutional measure that will have a 
 tendency to defeat or retard the perpetration of this great crime, and I am also in 
 
132 REMONETIZATION OF SILVER. 
 
 favor of every practical and constitutional measure that will aid us in devising a 
 just and permanent ratio of value between the two metals, so that they may 
 circulate side by side, and not alternately drive each other into exile from one 
 country to another. I desire to add only, in conclusion, that while the measure 
 in its present form is not what the country had a right to expect, it is infinitely 
 better than anything the people have been able ever to obtain at the hands of 
 Congress during the last fifteen years. It is the first victory won by the people 
 during many weary years of warfare with the consolidated -wealth of this and other 
 countries, and although it is not by any means a complete triumph, it marks the 
 beginning of a new and more popular era in national legislation ; it attests a 
 mighty revolution in public sentiment as represented at the capitol. It places 
 the great industrial and producing masses of the people in the front and the non- 
 producers in the rear. For fifteen years the people have been on the defensive, 
 and although fortified by the plainest provisions of law and the clearest principles 
 of equity, they have been completely driven from one position to another until they 
 have stood at last upon the very verge of financial ruin. Gathering up all their 
 energies for this struggle, they have advanced, not very far, it is true, but they have 
 advanced far enough to recover part of the ground lost in the previous conflict. 
 
 Our power of legislation on this subject will not be exhausted by the passage 
 of this measure, and we ought not to halt for a single moment in our efforts to 
 complete the work only inaugurated by it. The struggle now going on cannot 
 cease and ought not to cease until all the industrial interests of the country are fully 
 and finally emancipated from the heartless domination of syndicates, stock exchanges, 
 and other great combinations of vioney-grabbers in this country and in Europe. 
 (Appendix, Congressional Record, 2d Session, 45th Congress, page 41.) 
 
 Although Mr. Carlisle voted for the bill, he declared himself, in a 
 speech delivered on the occasion, to be in favor of unlimited as 
 against the free coinage of silver, in order that the Government 
 might have the benefit of the large gain or seigniorage that would 
 result, the subsidiary coinage which took the place of the fractional 
 currency issued during the war being an example. For this purpose 
 31,897,371 ounces of silver bullion were purchased at a cost of 
 #34,118,203, and converted into coins having a nominal value of 
 $39,685,618, the gain or seigniorage resulting being #5,567,415. 
 The same policy, he declared, should be pursued in the coinage of 
 the silver dollars, unlimited in amount, but on account of the Govern- 
 ment. Free coinage might be limited ; that is, a certain amount 
 authorized for any given period. He was for the unlimited coinage 
 of silver precisely on the same terms as the coinage of gold. If the 
 coinage of silver was not on account of the Government, the miners 
 of it, bankers, and the' governments of the Old World intent upon 
 getting rid of their stocks of it would reap the whole benefit of the 
 
REMONETIZATION OF SILVER. I33 
 
 coinage, as the dollars were to circulate at their nominal value. 
 With him, as with Mr. Voorhees, money was "Thus saith the law " 
 — or, to use his own words, " when a government creates money or 
 authorizes it the citizen may acquire it, but he can do nothing more." 
 But cannot the citizen create money by digging the metal out of 
 the ground ; can he not lay the foundation of symbolic money by 
 the creation of merchandise — functions which governments cannot 
 or will not exercise ? The coinage of the silver dollars proceeded 
 according to his plan. The seigniorage on the same from 1878 to 
 the close of 1895 equalled $75, 219, 137 conveyed as profit into the 
 Treasury. The trouble with Mr. Carlisle was that the coinage did 
 not proceed with sufficient rapidity. The purchase of #2,000,000 
 per month was a small affair, but it was great in being the first 
 victory won by the people in their warfare of fifteen years with the 
 " consolidated capital of this and other countries." The value of 
 the victory was the possibility of the future. But for ten of these 
 fifteen years of weary warfare the coinage of silver was wholly free. 
 When it was free no one presented it for coinage, its bullion being 
 three per cent, greater than its coin value. 
 
 " The fifteen years of weary warfare in which the people were 
 driven from one position to another until they stood on the very 
 verge of financial ruin " must therefore have had a purpose other 
 than the coinage. What was it? Who drove the people from one 
 position to another until they stood at last upon the very verge of 
 financial ruin? What was the object of this terrible crusade ? How 
 was it that the people could oppose no resistance ? In this country 
 the people are the Government and the Government the people. 
 The popular branch of the National Legislature is chosen once in 
 two years. Were its members for fifteen years regularly bribed that 
 the people might be driven to the very verge of financial ruin? For 
 capital to push them to such terrible extremes would be to destroy 
 its own value by destroying the ability of the people to use and pay 
 for it. But in place of the terrible scenes described the period of 
 fifteen years at the end of which, according to Mr. Carlisle, the peo- 
 ple stood upon the very verge of financial ruin was one full of 
 activity and hope, one of the most progressive and prosperous in our 
 history. It was the most honorable in our history, this repairing in 
 a manly way the waste and confusion of war, paying off and funding 
 the great variety of obligations that had been created, a steady ad- 
 
134 REMONETIZATION OF SILVER. 
 
 vance being made towards the resumption of specie payments by the 
 retirement of the legal tender notes. The fifteen years were the most 
 creditable period in our history. In them the genius of our people 
 showed at its best. It was an easy thing to put down the rebellion. 
 It was a work of destruction. To lay deep the foundations of social 
 order so that every man was the same before the law, to create a 
 prosperity without example, were far greater achievements. The 
 party that accomplished such results seemed too firmly entrenched 
 to be overthrown except by appeals to the passions of the people. 
 Hence the terrible pictures drawn of the " oppressions of consoli- 
 dated capital" — all pure inventions. In drawing them Mr. Car- 
 lisle was only Lucio in the play. " He spoke but according to the 
 trick." People like to be told that the reason why they have so little 
 is that they have been robbed, and who would be so likely to rob 
 them as " consolidated capital " ? What is " consolidated capital" 
 but the fruits of robbery? Possession was conclusive of the fact. 
 How could capital be consolidated except by robbery ? The changes 
 that Mr. Carlisle rung on " consolidated capital " were all the stock 
 in trade that demagogues required to sway vast masses of people to 
 their will. No man could handle these words with more dexterity 
 and effect than Mr. Carlisle. Everything was sure to go on well 
 so long as they remained mere declamation. For a long time they 
 were nothing but declamation. But it was inevitable that in time 
 invectives so constantly and fiercely uttered should become convic- 
 tions on the part of the hearers no longer to be held in control. 
 They did become convictions, and the platform of the late National 
 Democratic convention was the result. The little knot of " consoli- 
 dated capitalists," including Mr. Cleveland, who so long controlled 
 the Democracy, and capitalists, up to a certain point, are always the 
 obvious and natural leaders of it, suddenly found themselves com- 
 pletely unhorsed. Their mouths, if opened by way of remonstrance, 
 were crammed with their own utterances. Never before in the his- 
 tory of this or any other country was there such a spectacle of men 
 high in office "hoist by their own petard." When hoist they had 
 nothing whatever to oppose to the intense conviction they had created. 
 Not a single conservative influence was left to check the headlong 
 career of the rank and file of the party so long docile in their hands, 
 but which now proposed to carry out to the letter the revolutionary 
 doctrines which had been so long and so persistently taught. Fortu- 
 
REMONETIZATION OF SILVER. 135 
 
 nately for the moment, from the apprehension created, a terrible 
 catastrophe was averted. Was the escape an accident, or will the 
 foes of " consolidated capital," from the teachings of their old leaders, 
 gather up their forces and finally carry the day ? Whatever the event, 
 we have well learned that utterances like those of Mr. Carlisle, to 
 which great emphasis was given by the exalted position which he 
 subsequently held, have already exacted a terrible but appropriate 
 penalty. Whether as a people we can profit by the lesson we have 
 received remains to be seen. 
 
 Few things in history are more remarkable than the manner in 
 which the advocates of cheap money became their own dupes. 
 They demanded that Government create money, so that, to use the 
 graphic language of Mr. Voorhees, " more than 10 cents should be 
 paid for a day's labor, and more than $10 for a horse." With Mr. 
 Carlisle, as with Mr. Voorhees, money was " thus saith the law ! " 
 Now a " thousand millions " is as easily placed on the statute-book as 
 a " hundred millions." The small victory of two million ounces 
 per month became in twelve years one of transcendent importance 
 in the purchase for coinage of 291,272,018 ounces, at the cost of 
 #308,279,260, the equivalent of about 400,000,000 dollars. In 1890 
 a still greater victory was achieved in the purchase for coinage of 
 4,500,000 ounces per month. Under this act 168,674,682 ounces, 
 at the cost of $155,931,002, were purchased. Under the two acts 
 459,946,701 ounces, the equivalent of about 550,000,000 dollars, 
 were purchased, at the cost of $464,2 10,262. At the remonetization 
 of silver in 1878 Mr. Carlisle would undoubtedly have been glad to 
 compromise upon one-half such sum. From 1878 to the present 
 time the value of silver has steadily declined, so that the dollar is 
 worth only 50 cents in the place of 89 cents when the first victory 
 of the people was achieved, which with Mr. Carlisle was a matter of 
 the greatest exultation. At the close of his official career as the 
 Secretary of the Treasury he proclaimed to the world that not a 
 dollar of their rightful and proper money was to go into the hands 
 of the down-trodden people but at the value of gold ! He was at 
 last compelled to obey a law higher than his own — to join " the 
 great conspiracy of syndicates, stock-jobbers, and other great com- 
 binations of capital in this country and in Europe " for the robbery 
 and oppression of the poor ! He started as their champion to lead 
 
136 t REMONET1ZATION OF SILVER; 
 
 them into the promised land. He led them into the wilderness, 
 there to leave them a prey to their ignorance and fears, without a 
 single hint from him of any way of escape. As for the people whom 
 he long championed they are still not only without their promised 
 money, but the process by which it was to be reached, the debase- 
 ment of the currency, has created such apprehension and disturbance 
 that the employment as well as the wages of labor have been greatly 
 -reduced, so that widespread actual has taken the place of the alleged 
 suffering that led to the crusade for cheap money. This is not all. 
 But for the acts of 1878 and 1890 the vast accumulations of silver 
 now piled up, an idle mass, in the Treasury would, as capital, have 
 been made the basis of production, giving greatly increased employ- 
 ment and higher wages to labor, while the amount of money in cir- 
 culation would have been much greater than its present volume, 
 measuring the value of the increased subjects of distribution, sym- 
 bolic money being in ratio to their amount or value. Under normal 
 conditions, from the improvements coming constantly into use, the 
 increase in the productive capacity of our people has been in a ratio 
 threefold greater than that of their numbers. For a long time past, 
 from the apprehension created by our abnormal monetary system, 
 the increase of their products has hardly kept pace with that of their 
 numbers. Not only has not a single purpose of its advocates ever 
 been realized, but, left to themselves, they would never establish 
 silver as their own money. 
 
 The most pronounced instinct of the race is for good money, as it 
 constitutes its reserves, awaiting opportunity or necessity for their 
 use. When people receive money the thought uppermost in their 
 minds is not the payment of debts, but its exchangeable value in 
 the purchase of other kinds of merchandise, that money having the 
 highest relative and the greatest uniformity of value always having 
 the preference. In all history, where metallic money has been de- 
 based from wear or other causes, the most valued coins will always 
 be hoarded, the least valuable alone remaining in circulation. It is 
 not for ordinary use, but for a single purpose — for the payment of 
 debts — that the coinage of silver is demanded. That purpose 
 accomplished, debased silver money would never voluntarily be taken 
 back as money by the parties paying it out, nor by those producing 
 it, from the danger and inconvenience attending its use ; a far better 
 metallic money being provided — gold — as the standard of value, 
 
REMONETIZATION OF SILVER. 137 
 
 symbolic money being the ordinary instrument of exchange. Silver 
 can no more again become the money of any class than can earthways 
 again become with any the instruments of transportation, on a 
 large scale, of persons or property. In this matter self-interest will 
 always be the imperative rule or guide. Debts paid, gold, as standard 
 money, will be as much insisted upon by day laborers as by the com- 
 mercial classes. Its superiority as money over silver will be as much 
 understood by the former as by the latter. The aversion against 
 silver will, in fact, be much stronger with the laboring than with the 
 commercial classes, as the latter, constantly dealing in it as merchan- 
 dise, will have none of the prejudices naturally felt by those wholly 
 rejecting it as money. The laboring classes will accept or lay by, 
 as money, only that kind about which no apprehension can arise. 
 The graphic pictures drawn by the opponents of silver of the disas- 
 ters that will be inflicted by its coinage upon the laboring classes, 
 their choice left free, exist in imagination alone. In this matter the 
 laboring classes will prove as competent to take care of themselves 
 as capitalists. In contracts to be made no one will agree to pay or 
 accept silver. No law can be made to compel its use or accept- 
 ance except for debts already contracted. 
 
 It is not the final event that is the matter of chief concern. It is 
 impossible that the nation should ever voluntarily come or long re- 
 main upon a silver basis. But we have, say, $500,000,000 of silver, 
 full legal tender, the great mass lying idle in the Treasury. Sup- 
 pose the Government should find itself unable to take in the silver 
 certificates and notes in gold? Their market value would fall to 
 that of their constituent, which with such fall could be reached at 
 something like its real value, to be used in the payment of debts at 
 its nominal value. The scene that would result would beggar de- 
 scription, every institution, including the Government, and every in- 
 dividual, being involved in the common disaster, — that debts may 
 be paid at one-half the value at which they were contracted. 
 
 Mr. Sherman's part in the maintenance in circulation of the notes 
 of the United States has already been shown. In his Report for 
 1877, summarized in his " Forty Years," he also considered at great 
 length the matter of the coinage : 
 
 It had been the careful study of statesmen for many years to secure a bi-metal- 
 lic currency not subject to the changes of market value, and so adjusted that both 
 kinds could be kept in circulation together, not alternating with each other. The 
 
I38 REMONETIZATION OF SILVER. 
 
 growing tendency had been to adopt, for coins, the .principle of "redeema- 
 bility ' ' applied to different forms of paper money. By limiting tokens, silver 
 and paper money, to the amount needed for business, and promptly receiving or 
 redeeming all that might at any time be in excess, all these forms of money could 
 be kept in circulation, in large amounts, at par with gold. In this way, tokens 
 of inferior intrinsic value were readily circulated, and did not depreciate below 
 the paper money into which they were convertible. The fractional coin then in 
 circulation, though the silver of which it was composed was of less market value 
 than the paper money, passed readily among all classes of people and answered 
 all the purposes for which it was designed. And so the silver dollar, if restored 
 to our coinage, would greatly add to the convenience of the people. 
 
 I did not agree with the President in his veto of the bill, for the radical 
 changes made in its terms in the Senate had greatly changed its effect and tenor. 
 The provisions authorizing the Secretary of the Treasury to purchase not less than 
 $2,000,000 worth of silver bullion per month, at market price, and to coin it into 
 dollars, placed the silver dollars upon the same basis as the subsidiary coins, 
 except that the dollar contained a greater number of grains of silver than a dollar 
 of the subsidiary coins, and was a legal tender for all debts, without limit as to 
 amount. The provision that the gain or seigniorage arising from the coinage 
 should be accounted for and paid into the treasury, as under the existing laws 
 relative to subsidiary coinage, seemed to remove all serious objections to the 
 measure. 
 
 I believed that all the beneficial results hoped for from a liberal issue of silver 
 coin could be secured by issuing this coin, in pursuance of the general policy of 
 the act of 1853, in exchange for United States notes coined from bullion pur- 
 chased in the open market by the United States, and by maintaining it by 
 redemption, or otherwise, at par with gold coin. It could be made a legal tender 
 for such sums and on such contracts as would secure to it the most general circu- 
 lation. It could be easily redeemed in United States notes and gold coin, and 
 only reissued when demanded for public convenience. If the essential quality of 
 redeemability given to the United States notes, bank-bills, tokens, fractional 
 coins, and currency maintained them at par, how much easier it would be to 
 maintain the silver dollar, of intrinsic market value nearly equal to gold, at par 
 with gold coin, by giving to it the like quality of redeemability. ( ' ' Forty Years, ' ' 
 Vol. II., Chapters I. and II. J 
 
 Instead of its having been, as asserted by the Secretary, " the 
 careful study of statesmen for many years to secure a bi-metallic 
 currency so adjusted that both kinds could be kept in circulation 
 together," the study, if the word may be used, for many years has, 
 at least so far as this country is concerned, been in an exactly 
 opposite direction. The exchanges being effected by means of 
 symbolic money, metallic money could be well left to take care of 
 itself, the coins of other nations being as valuable as our own and 
 circulating as freely. The kind of metallic money is relative to the 
 
REMONETIZATION OF SILVER. 139 
 
 condition of the people. At one time, and within historic periods, 
 copper was good money ; at another silver ; now gold ; one by regular 
 gradation giving place to the other. At the formation of our system 
 silver was alike the money of tradition and convenience. From the 
 limited transactions taking place, it was as well fitted as gold to serve 
 as reserves of the issuers of symbolic money. It necessarily became 
 such because, by the ratio established by Hamilton, gold was under- 
 valued. His was the first and only attempt ever made in this 
 country to reconcile the value of the two metals. He assumed that 
 this was possible and, if so, desirable, that the amount of money might 
 be increased. He had little idea that both kinds were, for ordinary 
 use, to be superceded by symbolic money. So completely did silver 
 become discharged from ordinary use, gold being wholly so, that the 
 amount of the former in the hands of the people, so late as 1831, all 
 in the form of subsidiary coins, did not exceed $5, 000,000. In 
 1834, from the greatly increased transactions taking place, it was for 
 the first time seen that gold had become the more convenient metal 
 to serve as the reserves of the banks. To bring it into use an act 
 was passed whereby it was purposely overvalued to the extent of 
 about three per cent. It consequently became the reserves of the 
 issuers of symbolic money. As there was no complaint that silver, 
 when serving as reserves, was not in sufficient abundance, so there 
 was no complaint that gold was not sufficiently abundant when it 
 became the standard money of the country. It was well understood 
 that when " money was scarce " it was for the reason that merchan- 
 dise was scarce, and for no other. The second change came by the 
 act of 1853, by which the subsidiary coinage was purposely debased 
 to prevent its exportation. The purpose was a wide distinction between 
 the two metals, not their reconciliation. Nothing was further from 
 the purpose of the act of 1878. The cry then was not for good 
 money, but cheap money. Provision for the reconciliation of the 
 two would have been fatal, as it would have wholly defeated the 
 object aimed at. 
 
 The Secretary " did not agree with the President in his veto of the 
 bill" (of 1878), which provided among other things that all debts, 
 public and private, could be paid in silver, and that after, from 
 excess of production and its disuse among the continental nations, 
 it had fallen, in a comparatively short period, 13 cents in value. The 
 causes producing the fall still remained in full force ; a fall which 
 
I40 REMONETIZATION OF SILVER. 
 
 continued until a dollar has now only half the value of one of 1873. 
 He approved the act, " as the existing laws relative to the subsidiary 
 coinage seemed to remove all objections to the measure," — and for 
 the reason " that all the beneficial results that could be hoped for 
 from a liberal use of silver could be secured by issues of this coin in 
 pursuance of the general policy of 1853." That act provided that 
 " such silver coins [issued by virtue of it] shall be paid out at the 
 mint in exchange for gold coins at par." There could be no excess 
 as the coins, unless the supply was short, would not be demanded in 
 exchange for gold. Their value was supported by being accepted in 
 the payment of the revenues at the par of gold. No other provisions 
 in their support were ever made than those described. No other 
 was required. To make the two cases parallel, the silver coined under 
 the act of 1878 could not have left the mint except in exchange for 
 an equal nominal amount of gold. To make them parallel the 
 coinage under the act of 1853 should have been legal tender for 
 unlimited amounts. It was legal tender only for sums not exceed- 
 ing five dollars. To render them parallel the holders of silver coin 
 issued under the act of 1853 should have had the right to convert 
 them into the notes of the Government, payable, like those of 1878, 
 in gold. Instead of being parallel the two acts antagonized each other 
 in every particular. If under the act of 1878 silver had been coined 
 at a much lower rate, its value, could it have found adequate use, 
 such as the payment of the revenues, would have been maintained at 
 the par of gold, provided the amount did not exceed, say, ^o^oOjOOOj 
 the revenues equalling, say, $1, 2 5 0,000 daily. Use may give value 
 to silver as to exchequer bills bearing no interest, and receivable 
 only in the payment of the revenues. But silver, from the incon- 
 venience of its use, will never have any other employment than that 
 of subsidiary coin, there being an adequate supply of other and better 
 kinds of money. 
 
 " By limiting tokens, silver and paper money, to the amount 
 needed for business, and promptly receiving or redeeming all that 
 •might at times be in excess, all these forms of money could," said the 
 Secretary, " be kept in circulation in large amounts at par with gold." 
 How is the excess of such money to be determined ? With him by 
 the amount returning for redemption. But a money of Government 
 so long as confidence is maintained will be returned for conversion 
 into gold only to meet balances arising in the foreign or domestic 
 
REMONETIZATION OF SILVER. 141 
 
 trade of the country, the only purpose for which on any considerable 
 scale gold is now used. It may be laid down as an axiom that in 
 affairs in a country like the United States no other money but paper 
 will be used as the ordinary instrument of exchange. No other can 
 be afforded. Suspension of specie payments, and there have been 
 several in the United States, have not had the slightest effect to 
 bring metallic money into general use. Paper, whatever the kind, 
 still remained the money of the people, its value being measured by 
 the standard of gold. The public from their reduced means, alike 
 the cause and result of suspension of specie payment, can far less 
 afford to use metallic money after than before. They use what 
 they have, whatever the value placed upon it. The kind of money is 
 shown by the results, which, in a country like the United States, may 
 be long deferred. The degree of excess is to be inferred from its 
 quality, not quantity. There can be no excess of metallic money 
 in the form of gold. There can be no excess of paper money sym- 
 bolizing merchandise at the value of gold. These two are the only 
 kinds of money proper for use. Government money is always in 
 excess, for the reason that no adequate provision will ever be made 
 therefor. The acceptance by a people of the money of Government 
 or banks, or that it remains a long time in circulation, is no evidence 
 that it is properly issued. The old Continental money was eagerly 
 welcomed. It seemed just the kind to fill the channels of circula- 
 tion. For a time no money seemed more opportune or valuable. It 
 was so opportune and valuable that it circulated for nearly two years 
 at the par of gold. So well was it received that a provision of ten 
 times the amount issued would not have been regarded as excessive. 
 Not a dollar ever issued left the channels of circulation until, after 
 working infinite mischief, every dollar was repudiated. The accept- 
 ance of a money, or that it remains in the channels of circulation, 
 is no test whatever of its quality or value. At the outset bad may be 
 as well received as good money. 
 
 Continental money had no more right to be when it was issued 
 than when it was repudiated. Its quality should have been as pal- 
 pable when it was issued as when it was repudiated. Our money of 
 government notes is precisely the same in kind. It has produced 
 precisely the same effect as the Continental currency, but from the 
 greatly increased means of our people it has not yet been repudiated, 
 nor worked their ruin. It is in excess not only from not being a 
 
142 REMONETIZATION OF SILVER. 
 
 symbol of capital, but for the reason that the money of commerce in 
 countries like the United States measures, as it always will measure, 
 the means of the people. The addition to this of the money of 
 Government is pure inflation. The great evil of government money 
 is that it will not be presented for redemption in gold, so habituated 
 have our people become to the use of paper money, except for 
 balances arising, from its use, in the foreign or domestic trade of the 
 country, and then only by those who are connected with such trade, 
 or their representatives. As our Government is the great issuer of 
 paper money it is first called upon to supply the demand for coin, 
 and distrust naturally arises as to its ability to meet the vast amount 
 of its notes outstanding liable at any moment to be presented for 
 payment. It is this distrust that shows the nature of a currency of 
 government notes, not the circulation obtained for them. This dis- 
 trust when the amount is excessive can be allayed only by the removal 
 of the cause. In the place of Mr. Sherman's fallacious test of good 
 money, the true test is the degree of provision made previous to its 
 issue for its retirement. The test of his currency is the mischief it 
 has wrought — a mischief which should have been foreseen and 
 avoided by any one familiar with the history of the country or of the 
 attributes and laws of money. 
 
 As debased subsidiary coins, from their use, remain in circulation, 
 the Secretary inferred that debased silver dollars would enter into 
 and remain in circulation at their par value. But by no process, 
 from the inconvenience of their use, can they be brought into or 
 remain in circulation, better and more convenient kinds of money 
 being provided. 
 
 It is a sufficient reply to the Secretary to state that no provision 
 was ever made by law for the maintenance of the value of silver 
 dollars at the par of gold ; that no such order was ever given by him 
 in his official capacity, or by any successor in office, for the reason 
 that no such purpose was ever intended, and that not a cent of 
 money has ever been expended therefor. The incoherence which 
 characterized him arose from his assumption that value, either intrinsic 
 or representative, is no necessary attribute of money. It is from 
 such an assumption that all the disasters in the matter of the cur- 
 rency, and they have exceeded almost the power of language to 
 describe, have arisen. 
 
 Mr. Sherman's ideas as to coinage of silver were further illustrated 
 
REMONETIZATION OF SILVER. 143 
 
 in his conference, March 9, 1878, with the Committee on Finance of 
 the Senate. To a question proposed by Mr. Morrell, the Chairman, 
 "What effect has the silver bill [of 1878] had, or is it likely to 
 have, upon resumption of specie payments?" he replied: 
 
 I shall have to confess that I have been mistaken myself. Now, as to the 
 silver bill, I have watched its operation very closely. I think the silver bill has 
 had some adverse effects, and it has had some favorable effects, on the question 
 of resumption. It has undoubtedly stopped refunding operations. Since the 
 agitation of the silver question, I have not been able largely to sell bonds, 
 although I have made every effort to do so. Now, another adverse 
 
 effect the silver bill has had is to stop the accumulation of gold coin. Since the 
 1st of January we have accumulated no coin, except for coin certificates, and 
 except the balance of revenue over expenditure. 
 
 Another effect that the silver bill has had is to cause the return of our bonds 
 from Europe. Although the movement of our bonds in this direction has been 
 pretty steady for more than a year, yet it is latterly largely increased ; how much 
 I am not prepared to say. 
 
 On the other hand, I will give the favorable effects. In the first place, the 
 silver bill satisfied a strong public demand for bi-metallic money, and that demand 
 is, no doubt, largely sectional. No doubt there is a difference of opinion 
 between the West and South and the East on this subject, but the desire for 
 remonetization of silver was almost universal. In a government like ours it is 
 always good to obey the popular current; and that has been done, I think, by the 
 passage of the silver bill. Resumption can be maintained more easily upon a 
 double standard than upon a single standard. The bulky character of silver 
 would prevent payments in it, while gold, being more portable, would be more 
 freely demanded, and I think resumption can be maintained with a less amount of 
 silver than of gold alone. 
 
 Senator Bayard. — You are speaking of resumption upon the basis of silver ? 
 or of silver and gold ? 
 
 Secretary Sherman. — -Yes, sir ; I think it can be maintained better upon a 
 bi-metallic or alternative standard than upon a single one, and with less accumu- 
 lation of gold. In this way remonetization of silver would rather aid resumption. 
 
 Senator Bayard. — You speak of resumption upon a bi-metallic basis being 
 easier. Do you make that proposition irrespective of the readjustment of the 
 relative values of the two metals as we have declared them ? 
 
 Secretary Sherman. — I think so. Our mere right to pay in silver would 
 deter a great many people from presenting notes for redemption who would 
 readily do so if they could get the lighter and more portable coin in exchange. 
 Besides, gold coin can be exported, while silver coin could not be exported 
 because its market value is less than its coin value. 
 
 Senator Bayard. — I understand that it works practically very well. So long 
 as the silver is less in value than the paper, you will have no trouble in redeeming 
 your paper. When a paper dollar is worth 98 cents, nobody is going to take it 
 to the Treasury and get 92 cents in silver ; but what are you to do as your silver 
 
144 
 
 REMONETIZATION OF SILVER. 
 
 coin is minted ? By the 1st of July next or the 1st of January next you have 
 eighteen or twenty millions of silver dollars which are in circulation and payable 
 for duties, and how long do you suppose this short supply of silver and your con- 
 trol of it by your coinage will keep it equivalent to gold — when one is worth 
 ten cents less than the other ? 
 
 Secretary Sherman. — -Just so long as it can be used for anything that gold 
 is used for. It will be worth in this country the par of gold until it becomes so 
 abundant and bulky that people will become tired of carrying it about ; but in 
 our country that can be avoided by depositing it for coin certificates. 
 
 " Resumption of specie payments," according to the Secretary, 
 "could be maintained better upon an alternate standard than upon a 
 single one, and with less accumulation of gold," for the reason that 
 from the inconvenience of its use from its bulky character, and from 
 the fact that silver could not from its debasement be exported, the 
 holders of the obligations of the Government, knowing that they 
 could be paid in it, would not present them for payment. If an 
 impertinent fellow demanded gold, all that the Secretary had to do 
 was to hurl a junk of silver at his head, displaying a plenty of such 
 missiles in reserve. Such was the Secretary's resumption as pro- 
 vided by the act .of 1875, supplemented, according to him, by that 
 of 1878. The act of 1878 created a new form of money, legal 
 tender in the payment of all debts, public and private. It was for 
 him to execute the law. The idea that at the time there was any- 
 thing behind the silver dollar or the certificates issued there- 
 for never entered his head ; nor that there was anything wrong 
 or out of the way in paying all the obligations of the Govern- 
 ment in silver, its value having in a short period fallen 13 per 
 cent. New light came with the apprehension subsequently created 
 in view of the enormous amount of the notes of the Government 
 for which no adequate provision was made. That apprehension 
 was allayed, or sought to be allayed, by a recitation in the act 
 of 1 890 " that it is the policy of the United States to maintain the 
 two metals on a parity with each other upon the present legal ratio." 
 "Obeying the popular current," the Secretary assumed, in his dis- 
 cussion of the subject in his " Forty Years," that such was the policy 
 of the Government by the act of 1878 — that to the coinage under it 
 "the general policy of the act of 1853, maintaining silver at the par 
 of gold, by redemption or otherwise, applied." All this was an after- 
 thought to meet the change in the " popular current," now demand- 
 ing that silver be maintained at the par of gold. 
 
REMONETIZATION OF SILVER. 145 
 
 The act of 1853 made no provisions for the maintenance of the 
 ■coins issued other than those described. The recitation in that of 
 1890 of a purpose to maintain the parity of the two metals no more 
 gave the Secretary of the Treasury the power to maintain the coin- 
 age of 1878 at the par of gold than would a recitation on the part of 
 •Congress of the desirability of such a step authorize him to purchase 
 the navies of the world ! It is not easy at first sight to get at his 
 meaning. A little patience, however, will suffice. He believed 
 that money circulated from the necessity of a medium of exchange ; 
 that silver would circulate at the par of gold if not in excess ; 
 if excessive, the objection on the score of inconvenience could 
 he overcome by the ues of notes in its place. As the value of the 
 silver dollars could, by the use of certificates issued against them, be 
 maintained at the par of gold, it was no hardship to creditors to be 
 compelled to accept them at the par of gold. At any rate, in advo- 
 cating the coinage of silver he was only " obeying the popular 
 -current," an obedience that, from the era of Jackson, has been the 
 curse of American political life. We have had ample experience of 
 the disastrous consequences which have resulted from following the 
 "popular current." It was the "popular current" which main- 
 tained slavery so long in power ; the penalty paid being half a 
 million of lives, the waste of more than five thousand millions of 
 property, and the razing of one-half the country by fire and sword. 
 It was the " popular current " that overthrew the most perfect mone- 
 tary system ever established, the "popular current" declaring it to 
 he the instrument in the hands of the rich for the impoverishment 
 and enslavement of the poor ; the penalty paid, as Mr. Buchanan 
 declared, being " a succession of extravagant inflations and ruinous 
 ■contractions, so that in the midst of unsurpassed plenty in all the 
 products of agriculture, and in all the elements of national wealth, 
 we find our manufactures suspended, our public works retarded, our 
 private enterprises of different kinds abandoned, and thousands of 
 useful laborers thrown out of employment and reduced to want," — 
 a picture as true to-day as when it was drawn forty years ago, so 
 incapable are our people of correcting any great wrong when once 
 committed to it. It was the "popular current" that enacted the 
 law of 1878, one of the most infamous ever placed upon the statute- 
 book, and one which, if we ever recover our senses as a people, will 
 fix an indelible stain on those enacting or approving it ; an act to 
 
146 ACT OF 189O. 
 
 which, more than to any other, the terrible disasters that have 
 recently been suffered, and what is still worse the doubt and irreso- 
 lution which prevail, and from which there seems to be no way of 
 escape, are due. The danger of following the " popular current " is 
 that the persistent noise and bluster of a very small faction may be 
 the "popular current," and drown the mild remonstrances of the 
 well-to-do and self-respecting classes, who may make no sign except 
 in cases of supreme emergency ; a little knot or faction of tur- 
 bulent or revolutionary characters, the only " popular current " dis- 
 playing itself, carrying the day. In the close calculation of politi- 
 cal chances great concessions are made to States insignificant in 
 numbers, with industries or interests peculiar to themselves which 
 may decidedly antagonize those of the great mass of the people. 
 It is one of the infelicities of our system that a State like that of 
 Nevada, with 40,000 people, counts as much in one branch of the 
 National Legislature as that of New York, with 6,000,000. From the 
 experience of the past we may count upon one thing as certain — 
 that by following the "popular current" we shall soon witness the 
 end of our " Model Republic." 
 
 The mischief of the act of 1878 resulted from the subsequent as- 
 sumed undertaking by the Government to maintain the value of the 
 coins under it at the par of gold. Unlimited coinage at the time,, 
 legal tender for all who consented thereto, would have been most 
 opportune as an example, as the act would have remained a dead 
 letter, the coinage being rejected as it is to-day. But for the notes 
 and certificates, the legal tender clause, which would have been 
 availed of, would, from the iniquity and folly of the act, have led to- 
 a speedy repeal. 
 
 act of 1890. 
 
 The greater the amount of government money, whatever the 
 form, the greater the impoverishment of the people and louder the 
 clamor for more as the only source of relief. To meet it, the act 
 of July 14, 1890, superseding that of 1878, provided for the pur- 
 chase monthly of 4,500,000 ounces of silver by an issue of notes to 
 serve as money of the Government equal to the cost. The bill 
 was framed in committee of conference of the two Houses, the Sen- 
 ate being largely in favor of unlimited, the House insisting upon a 
 limited, coinage. Mr. Sherman, at the time in the Senate, was a 
 
ACT OF 189O. 147 
 
 member of the committee, and from his instrumentality in framing 
 it the act has since gone by his name. It recited that " upon 
 the demand of any holder of the treasury notes herein provided for, 
 the Secretary of the Treasury shall, under such regulations as he may 
 prescribe, redeem such notes in gold or silver coin at his discretion, 
 it being the established policy of the United States to maintain the two 
 metals in parity with each other upon their legal ratio, or upon such 
 ratio as may be provided by law." It is by virtue of this recitation 
 alone that the dollars coined under the act of 1878 were held to be 
 exchangeable for gold. From the power conferred upon the Secre- 
 tary he undoubtedly had the right to take in the notes issued under 
 the act of 1890 by the use of any money in the Treasury not other- 
 wise appropriated, but not by borrowing money as provided by the 
 act of 1875 for the resumption and maintenance of specie payment, 
 that act being restricted to a single purpose. An important and 
 unprecedented feature of the act of 1890 was the provision, in a 
 time of profound peace, that the notes should be legal tender in all 
 payments, public and private, and might be held by the banks as 
 their reserves. Its purpose was set forth by Mr. Sherman in a 
 speech delivered by him in the Senate, June 5, 1890, in which he 
 said : 
 
 To know what measures ought to be adopted we should have a clear con- 
 ception of what we wish to accomplish. I believe a majority of the Senate desire, 
 first, to provide an increase of money to meet the increasing wants of our rapidly 
 growing country and population, and to supply the reduction in our circulation 
 caused by the retiring of National Bank notes ; second, to increase the market 
 value of silver, not only in the United States, but in the world, in the belief that 
 this is essential to the success of any measure proposed, and in the hope that our 
 efforts will advance silver to its legal ratio with gold, and induce the great com- 
 mercial nations to join with us in maintaining the legal parity of the two metals,. 
 or in agreeing with us in a new ratio of their relative value ; and, third, to se- 
 cure a genuine bi-metallic standard, one that will not demonetize gold, or cause 
 it to be hoarded or exported, but that will establish both gold and silver as 
 standards of value, not only in the United States, but among all the civilized 
 nations of the world. 
 
 The first purpose of Mr. Sherman was " to provide an increase 
 of money to meet the increasing wants of our rapidly growing 
 country and population, and to supply the reduction in our circu- 
 lation caused by the retirement of National Bank notes." How 
 is metallic money provided ? — by mining the metal or obtaining 
 
I48 ACT OF 1S9O. 
 
 it in exchange for other kinds of merchandise from other coun- 
 tries, methods certainly not functions of Government. Another 
 kind of money are symbols of merchandise, these serving, in its 
 purchase, the office of metallic money, having a great advantage 
 over the former in the convenience of their use, an additional one 
 resulting from the discharge of capital from the exchanges. The 
 two are the only kinds of money which have any place in affairs — 
 one being capital, the other the symbol of capital. Mr. Sherman 
 proposed a third — debt of Government without interest, and 
 without any provision for its redemption in gold — alike " to meet the 
 increasing wants of an increasing population," as well as to fill the 
 vacuum created by the retirement of the notes of the banks, the 
 amount of these being reduced from $356,060,348 in 1882 to $179,- 
 449,958 in 1890. Without further evidence than what has been ad- 
 duced it is submitted that " government debt without interest," for the 
 conversion of which into coin no adequate provision is made, is not 
 the kind of money about which a government should busy itself. 
 That government money of the kind described was with Mr. Sher- 
 man to take the place of the note circulation withdrawn by the 
 banks, shows that he had no proper conception of the subject which 
 he assumed so gravely to discuss. The notes of the banks were 
 secured by the bonds of the Government, having a higher market 
 value than their nominal amount, and, in addition, by the undertak- 
 ing of the borrowers to return them to the issuers without any inter- 
 position on their part. This statement shows the radical difference 
 "between the two kinds of money, a difference which Mr. Sherman 
 seemed wholly unable to master. 
 
 The great wrong, or crime, rather, of the act of 1890 was the legal 
 tender attribute with which its notes were clothed, not an additional 
 dollar being provided for their retirement. As they had in the dis- 
 charge of contracts the potency of gold, it was a logical sequence 
 that they should constitute, as was provided, the reserves of the 
 National Banks, the liabilities of which equalled $1,900,000,000. 
 If reserves equalling 25 per cent, of their immediate liabilities 
 were to be provided, the legal tender notes of the Government, in- 
 cluding those of 1890, equalling $500,000,000, were ample therefor 
 without the provision of a dollar in gold. As by the act of 1890 
 it became- the duty of the Government to make good the dollars 
 coined under the act of 1878, as well as the certificates issued against 
 
ACT OF 1890. 149 
 
 the same, its own immediate liabilities, payable in gold, were in- 
 creased to $830,000,000. To the above sums were to be added the 
 issues, $700,000,000, of State Banks, bankers, and trust companies, 
 serving as money, the aggregate being $3,400,000,000, all resting 
 possibly upon an assumed provision of $100,000,000 in gold, the 
 reserves of the Government, such sum by drafts upon it being, at 
 one time, in 1894, reduced to the pitiful sum of $41,348,181. Such 
 was the financial structure which Mr. Sherman above all others con- 
 tributed to rear, to the support of which he seems to be fully com- 
 mitted. 
 
 Another purpose of Mr. Sherman was to increase the value of 
 silver in order, in concert with other nations, to maintain the two 
 metals at their legal parity. Why should we wish to increase the 
 value of silver in order to maintain the parity of two metals, one of 
 which is never again to be used as money ? As silver is never again 
 to be used as money, the lower the price, from reduced cost, the 
 greater the general welfare, from the wider use in the arts of so 
 valuable an article. With the same sense Mr. Sherman might call 
 for a convention of nations to restore the price of copper to the old 
 figures in order to bring it into use as money and maintain its 
 " parity with gold." 
 
 The third purpose of Mr. Sherman, which will be considered 
 further on, was the establishment of " Bi-metallism." 
 
 The effect of the large increase, due to the act of 1890, of Gov- 
 ernment notes, for the retirement of which no provision was made, 
 which largely served as the reserves of banks, and were greatly 
 instrumental in drawing gold from the treasury, was to increase the 
 apprehension which had prevailed, and which became so intense as 
 to lead to the act of Nov. 1, 1893, for the repeal of the preceding 
 act. This act failed to bring the expected relief, from the following 
 recitation it contained : 
 
 It is hereby declared to be the policy of the United States to continue the use 
 of both gold and silver as standard money, and to coin both gold and silver into 
 money of equal intrinsic and exchangeable value, such equality to be secured 
 through international agreement, or by such safeguards of legislation as will in- 
 sure the maintenance of the parity in value of the coins of the two metals and the 
 equal power of every dollar at all times in the markets and in the payment of 
 debts. And it is further declared that the efforts of the Government should be 
 
150 THE LATE ADMINISTRATION. 
 
 steadily directed to the establishment of such a safe system of bi-metallism as will 
 maintain at all times the equal power of every dollar coined or issued by the 
 United States in the markets and in the payment of debts. 
 
 "The chief merit of this law," said Mr. Sherman, "was that it suspended the 
 peremptory coinage of the silver purchased under it into silver dollars which 
 could not be circulated, but were hoarded in the Treasury at great cost and in- 
 convenience. It required the monthly purchase of a greater amount of silver than 
 before, but that could be held in the form of bullion, and could be paid for by 
 treasury notes equal in amount to the cost of the bullion, the whole of which 
 was held in the Treasury as security for the payment of the notes. If silver 
 bullion did not decline in market value it could, if necessary, be coined without 
 loss, and thus the parity of the notes with gold could be readily maintained 
 according to the declared policy of the law. 
 
 As Mr. Voorhees, Chairman of the Committee of Finance of the 
 Senate, reported the bill for the act of 1893, which was supported 
 by great numbers of members of Congress as pronounced silver men 
 as himself, the conclusion is irresistible that it was from the conviction 
 that its repeal was to be speedily followed by one for unlimited coin- 
 age of silver. 
 
 For the repeal of the act of 1890 the vote in the Senate was 43 
 to 32, and in the House 194 to 94. Mr. Sherman, then member 
 of the Senate, voted for the repeal. 
 
 THE LATE ADMINISTRATION. 
 
 The situation, already sufficiently set forth, may again be briefly 
 stated — $830,000,000 of Government notes, all payable in gold, 
 not one of which came into being as an instrument for the distribu- 
 tion of merchandise, the only reserves provided for their conversion 
 into coin being the assumed amount of $160,000,000, the amount 
 at times falling below one-half that sum. Of the whole amount some 
 $500,000,000 are legal tender in the payment of all debts, public 
 and private, and serve as the reserves of the National Banks, the 
 issues of which, with those of the State Banks, bankers, and trust 
 companies, made an aggregate of $3,400,000,000. The gravity of 
 the situation is greatly increased by the general assumption that no 
 substantial reform is required ; that all that is wanted is the main- 
 tenance of the status in quo ; that no danger is to be feared so long 
 as the amount of government money is not increased. There is 
 little recognition of the disturbing and disastrous effect in affairs of 
 the issue, on a colossal scale, of debt to serve as money. So long 
 
THE LATE ADMINISTRATION. 151 
 
 as there is none no measure of reform will ever be entered upon. 
 Such was the position of the late administration ; such that of the 
 present one. That of the former was well set forth by the late Sec- 
 retary, Mr. Carlisle, in a circular letter addressed by him to Mr. 
 J. J. Helm, of Kentucky, under date of Sept. 15, 1896 : 
 
 Your letter asking how the silver dollars, which contain a quantity of bullion 
 commercially worth only about 53 cents each, are maintained at a parity with 
 gold, notwithstanding the fact that the Government does not directly redeem 
 them, or the certificates issued upon them, in gold, is received, and as a great 
 many inquiries upon the same subject are addressed to me daily from different 
 parts t of the country, which it is impracticable to answer in detail, I will take ad- 
 vantage of your favor to answer them all at once : 
 
 All the standard silver dollars issued from the mint since the passage of 
 the act of 1878, now amounting to more than $433,000,000, have been coined 
 on public account from bullion purchased by the Government, and are legal tender 
 in payment of all debts, public and private, without regard to the amount, except 
 when otherwise expressly stipulated in the contract between the parties. 
 
 The Government has made no discrimination whatever between the coins of 
 the two metals, gold having been paid on its coin obligations when gold was de- 
 manded and silver having been paid when silver was demanded. 
 
 Under this policy the coinage has been so limited by law and the policy of 
 the Treasury Department that the amount coined has not become so great as to 
 drive the more valuable coin, gold, out of use, and thus destroy the basis of our 
 monetary system ; and so long as the two metals are of unequal commercial 
 value, at the ratio established by law, this limitation upon the coinage is, in my 
 ■opinion, absolutely essential to the maintenance of their parity in effecting 
 exchanges. 
 
 If the limitation were removed, confidence in the ability of the Government 
 to preserve equality in the exchangeable value of the coins would be destroyed, 
 and the parity would be lost, long before the amount of silver coinage had become 
 really excessive. 
 
 With free and unlimited coinage of silver on account of private individuals 
 and corporations, the Government would be under no moral obligation to maintain 
 the parity, and, moreover, it would be unable to do so, because the volume of 
 overvalued silver forced into the circulation by a legal tender provision would 
 soon expel gold from the country, or put such a premium upon it that it would be 
 impossible to procure and hold in the Treasury a sufficient amount to provide for 
 the redemption of silver on presentation. 
 
 In order to maintain the parity under such conditions, the Government 
 would be compelled from the beginning to exchange gold for silver dollars, or 
 their paper representatives, whenever demanded, just as it now exchanges gold 
 for its own notes when demanded ; and as the coinage of silver dollars would 
 "be unlimited, and therefore constantly increasing, a point would soon be reached 
 ■■where it would be impossible to continue the process of redemption. 
 
 The implied obligation of the Government to preserve the value of the 
 
152 THE LATE ADMINISTRATION. 
 
 money which it coins from its own bullion and for its own use, and which it 
 forces the citizens to receive in exchange for their property and services, has been 
 supplemented by two statutory declarations, which substantially pledge the public 
 faith to the maintenance of that policy. 
 
 The act of July 14, 1890, after providing that the Secretary of the Treasury- 
 should, under such regulations as he might prescribe, redeem the treasury notes 
 issued in the purchase of silver bullion, in gold or silver coin at his discretion, 
 declares that it is "the established policy of the United States to maintain the 
 two metals on a parity with each other upon the present legal ratio, or such ratio- 
 as may be provided by law," and the act of Nov. 1, 1893, again declares it to be 
 " the policy of the United States to continue the use of both gold and silver as 
 standard money, and to coin both gold and silver into money of equal intrinsic 
 and exchangeable value, such equality to be secured through international agree- 
 ment or by such safeguards of legislation as will insure the maintenance of the 
 parity of value of the coins of the two metals and the equal power of every dollar 
 at all times in the markets and in the payment of debts." 
 
 It is not doubted that whatever can be lawfully done to maintain equality 
 in the exchangeable value of the two metals will be done whenever it becomes 
 necessary, and although silver dollars and silver certificates have not, up to the 
 present time, been received in exchange for gold," yet, if the time shall ever comt 
 when the parity cannot be otherwise maintained, such exchanges will be made. 
 
 It is the duty of the Secretary of the Treasury, and of all other public officials,, 
 to execute in good faith the policy declared by Congress, and whenever he shall 
 be satisfied that the silver dollar cannot be kept equal in purchasing power with 
 the gold dollar except by receiving it in exchange for the gold dollar when such- 
 exchange be demanded, it will be his duty to adopt that course. 
 
 But if our present policy is adhered to, and the coinage is kept within reason- 
 able limits, the means heretofore employed for the maintenance of the parity will 
 doubtless be found sufficient in the future, and our silver dollars and silver cer- 
 tificates will continue to circulate at par with gold, thus enabling the people to 
 use both metals instead of one only, as would be the case if the parity were 
 destroyed by free coinage. 
 
 Under the acts of 1878 and 1890 more than 433,000,000 of 
 silver dollars, said the Secretary, had been coined, a large amount 
 of silver bullion purchased under the act of 1890 remaining 
 in the Treasury as bullion and represented by notes. At the 
 time of his circular letter the Government made no difference 
 whatever between the coins of the two metals. As the coinage 
 of silver had been on account of the Government, the amount 
 had been, so limited that it had not, the Secretary declared, 
 driven the more valuable metal, gold, out of circulation, thus 
 destroying the basis of our monetary system, the parity of the 
 two metals being maintained. Thrown open to the public, the 
 
THE LATE ADMINISTRATION. 153 
 
 Government would be under no obligation to, nor could it, main- 
 tain such parity. The effect would be that the least valuable would 
 drive the most valuable out of circulation, or raise its price so 
 high as to put it beyond the reach of the Government. The 
 implied duty to preserve the parity of all money issued by it was, 
 said the Secretary, supplemented by the acts of 1890 and 1893, 
 both of which have been sufficiently described. The act of 
 Jan. 14, 1875, for the resumption of specie payments, recited 
 that, "to enable the Secretary of the Treasury to prepare and 
 provide for the redemption in this act authorized or required, he 
 is authorized to use any surplus revenues, from time to time, in 
 the Treasury not otherwise appropriated, and to issue, sell, and 
 dispose of, at not less than par, in coin, either of the descriptions 
 of bonds of the United States, described in the act of Congress, 
 approved July 14, 1870, entitled "An act to authorize the refund- 
 ing of the National Debt." With the Secretary provision for the 
 maintenance of the parity of all the issues of the Government was 
 made by the above act and by no other. When he became satisfied 
 that the silver could not be kept equal in purchasing power to the 
 gold dollar except in receiving it in exchange for the gold dollar, 
 such exchange would be made, the parity of the metals being 
 thereby maintained. If his position was a correct one, then there 
 should still be a steady increase of government money of some 
 kind to meet the wants of the people increasing at the rate of 
 1,600,000 annually. Assuming that the proper amount of money 
 in actual circulation would be $25 a head, the annual increased 
 amount required would equal $40,000, 000, which might be in the 
 form of silver represented by notes, the only care being that the 
 amount should not exceed the wants of an increasing population. 
 Such ratio being preserved, there would be no difficulty in maintain- 
 ing without further provision of reserves the value of the whole mass 
 of our currency at the par of gold. Of course the fallacy arose from 
 the assumption that value, either intrinsic or representative, was no 
 necessary attribute of money. 
 
 The purpose of giving in this connection the circular letter of the 
 Secretary is to show the position of the sound-money wing of the 
 Democracy, the other, and the dominant one, being fully committed 
 to the free and unlimited coinage of silver at the old ratio. From 
 the former no help is to be expected for the reform of the currency, 
 
154 THE LATE ADMINISTRATION. 
 
 as, taking the Secretary's authority, it has no adequate conception 
 •of the situation nor of the conditions necessary for its restoration. 
 The Secretary in his Annual Reports warmly recommended the 
 retirement of the gold-bearing notes of the Government, so exces- 
 sive was the annoyance caused in providing the means for their 
 redemption. During his administration of the finances he was 
 driven into the street to raise therefor some $293,000,000. It was 
 natural that he should wish to avoid such mortifying alternatives. 
 But he must have known that a recommendation to retire the legal 
 tender notes of the Government would not for a moment be listened 
 to unless some provision was made to fill the vacuum that would be 
 created. He proposed no such measure. He did indeed recom- 
 mend in his Report for 1895 an amendment of the banking laws so 
 that the notes to be issued under it should equal the nominal value 
 of the bonds put up for their security. But such provision would 
 only add a few million dollars to the currency. A proposition for 
 ■calling in the Government notes with nothing to take their place 
 would have instantly precipitated a currency panic. Before any 
 steps are taken for the retirement of a currency, colossal in amount 
 like that of the United States, the alternative must be alike adequate 
 and palpable. He could not propose any, as he was committed to 
 the maintenance of the system of National Banks, and, of course, 
 from the traditions of his party, wholly against a National one. He 
 accepted the situation as it was, his only care being its maintenance. 
 In his Report for 1895 he was for maintaining the whole amount of 
 silver notes in circulation, of which some $433,000,000 had been 
 issued. The reason why the silver notes caused no annoyance was 
 that they were not legal tender. They were not held by banks and 
 bankers, consequently were not used for drawing gold out of the 
 Treasury. They remained almost wholly in the channels of circula- 
 tion, banks and bankers sedulously avoiding them, although, accord- 
 ing to the Secretary, they were payable in gold. But these notes, 
 apparently so harmless, were the chief cause of the embarrassments 
 and annoyances to which the Government was subject. Being 
 receivable in the payment of all the dues, they cut it off wholly from 
 all power to demand gold in their collection. But for them the 
 revenues would have been paid in gold, or in the gold notes of the 
 Government ; such employment so far as the latter were used add- 
 ing to their value. They were paid in gold, or in gold notes, until 
 
THE LATE ADMINISTRATION. 1 55 
 
 from the great increase of silver notes and the consequent distrust 
 excited, the latter wholly superseded the former mode of payment. 
 According to Mr. Carlisle, every dollar of the public revenues may 
 be payable in silver notes, the acceptance of which cannot be 
 forced upon a single creditor of the Government ! With a Treasury 
 overflowing with silver notes it might not be able to use a single 
 dollar for any purpose whatever except to draw silver coins out of 
 the Treasury. And yet this is the monetary system which Mr. Car- 
 lisle would set up as an institution for our people. 
 
 In his annual message under date of Dec. 7, 1896, Mr. Cleveland 
 said : 
 
 I believe our present tariff law, if allowed a fair opportunity, will, in the near 
 future, yield a revenue which, with reasonable economical expenditures, will 
 overcome all deficiencies. In the meantime no deficit that has occurred or may 
 -occur need excite or disturb us. To meet any such deficit we have in the 
 Treasury, in addition to a gold reserve of $100,000,000, a surplus of more than 
 $128,000,000, applicable to the payment of the expenses of the Government, and 
 which must, unless expended for that purpose, remain a useless hoard, or, if not 
 extravagantly wasted, must, in any event, be perverted from the purpose of its 
 exaction from our people. The payment, therefore, of any deficiency in the 
 revenue from this fund is nothing more than its proper and legitimate use. The 
 Government thus applying a surplus fortunately in its Treasury to the payment of 
 expenses not met by its current revenues is not at all to be likened to a man living 
 beyond his income and thus incurring debt or encroaching on his principal. 
 
 During his last administration Mr. Cleveland was incessant in his 
 demands for the retirement of the gold-bearing notes of the Govern- 
 ment, the sole cause, he declared, of the disastrous condition of 
 affairs that prevailed. For their retirement, by his direction, bonds 
 to the amount of $262,000,000, producing $293,000,000, were issued. 
 The amount of the notes taken in was equal to the proceeds of the 
 bonds. Of these $165,000,000, up to Dec. 7, 1896, had been paid 
 out for the current expenses of the Government. The notes, Mr. 
 Cleveland declared, were an endless chain for pulling money out of 
 the Treasury. The only way to break it was to render the Govern- 
 ment self-supporting from its revenues — a proposition which he 
 persistently refused to countenance. The endless chain was conse- 
 quently allowed to run with full force. If by means of it gold could 
 be pulled out of the Treasury, a bigger sum could be put in by bor- 
 rowing. The whole proceeds, $293,000,000, of the loans, or the 
 
I56 THE SOUND MONEY WING OF THE DEMOCRACY. 
 
 amount on hand at any one time, became a " surplus in the Treas- 
 ury," to be applied to the wants of the Government. Otherwise it 
 would be squandered or stolen. To what better purpose could the 
 Government put its money — " an exaction from the people " — 
 than by means of it to defray the expenses of the Government of the 
 people ! The idea of retiring the notes, if it were ever entertained,, 
 seemed wholly lost. But not a dollar could be raised by the issue 
 of bonds for the support of the Government. In his annual message 
 for 1895 Mr. Cleveland expressly declared that "the Secretary of 
 the Treasury has no authority whatever to issue bonds to increase 
 the ordinary revenues, or to pay the expenses of the Government." 
 Certainly he could not do indirectly what he could not do directly. 
 Had the Government been self-sustaining from its revenues, every 
 note taken in could have been held in the Treasury, — in effect, re- 
 tired, — no occasion arising for its reissue. In using the surplus 
 $1 28,000,000 in the Treasury, "the Government was not to be 
 likened," said Mr. Cleveland, "to a man living beyond his means 
 by incurring a debt or encroaching upon his principal." But in 
 what form was the $128,000,000, the surplus in the Treasury? In 
 that of promissory notes payable in gold on demand, for the dis- 
 charge of which debts in another form had to be contracted. Is 
 the power to create a debt a surplus in the Treasury ? It is difficult 
 from its wildness and incoherency to reply to Mr. Cleveland's state- 
 ment. In making it he was mentally widely astray. 
 
 THE SOUND MONEY WING OF THE DEMOCRACY. 
 
 The principles of the Sound Money wing of the Democracy were 
 set forth in the platform adopted at its National Convention, held 
 at Indianapolis, Sept. 3, 1896. Its first declaration was against 
 " Paternalism and all class legislation." In reference to the cur- 
 rency, it said : 
 
 The experience of mankind has shown that by reason of their natural qualities,, 
 gold is the necessary money of the large affairs of commerce and business, while 
 silver is conveniently adapted to minor transactions, and the most beneficial use 
 of both together can be insured by the adoption of the former as a standard of 
 monetary measure, and the maintenance of silver at a parity with gold by its, 
 limited coinage under suitable safeguards of law. 
 
 Thus the largest possible enjoyment of both metals is gained with a value uni- 
 versally accepted throughout the world, which constitutes the only practical 
 bi-metallic currency. 
 
THE SOUND MONEY WING OF THE DEMOCRACY. 155 
 
 The substance of this is that gold is to be the standard of value, 
 but silver money is also to be provided, its value to be maintained 
 at the standard of gold by limiting its coinage. In this way, " the 
 largest possible enjoyment of both metals is gained" — in other 
 words, practical bi-metallism will be secured. The statement begs 
 the whole question. Coinage imparts no value to that which will 
 never be used. Debased subsidiary coins are maintained at the 
 value of gold for the reason that they serve equally with gold in the 
 payment of the revenues, in the purchase of postage stamps, for ex- 
 ample. They are constantly returning to the Government to be again 
 paid out in exchange for gold, or its equivalent. But silver dollars 
 will never be used in the payment of the revenues on any consider- 
 able scale, as a more convenient kind of money will necessarily be 
 provided. They never will be used as the ordinary instrument of 
 exchange from the inconvenience of their use and uncertainty as to 
 their value. They are a wholly superfluous form of money with 
 every commercial people, who, on a large scale, will have only two 
 kinds — gold as a standard of value, and paper, the symbol of mer- 
 chandise, as the instrument of its transfer. The Sound Money wing 
 of the Democracy is still a victim to the old delusion that money 
 derives its value from the necessity of a medium of exchange — 
 that anything may serve as such if the amount be not excessive. 
 It differs from the Free Coinage wing, not in principle, but in the 
 matter of quantity. It says there may be too much of one kind of 
 money, silver; that perhaps $500,000,000 would not be too much, 
 while $1,000,000,000 would be. The reply of the other wing is 
 if $500,000,000 are good money to-day, $1,000,000,000 will be by 
 the time that that amount could be coined. Before any ordinary 
 audience — before that composed of the people of the United States 
 — the Free Coinage wing of the Democracy would carry the day, 
 the question turning wholly upon quantity, every one wishing to see 
 that increased. As it is, the Sound Money wing, instead of leading 
 the way, is the great obstacle to any adequate measure of reform. 
 Their first purpose is to discharge " Paternalism " from Government. 
 But the exercise of a great deal of "Paternalism" will be required 
 before we can be placed upon firm and solid ground. Mere nega- 
 tion will never place us there. 
 
I58 THE FREE COINAGE DEMOCRACY. 
 
 THE FREE COINAGE DEMOCRACY. 
 
 The principles of the Free Coinage wing of the Democracy — 
 the unlimited coinage of silver at the ratio of sixteen to one — are 
 too well known to require statement here. That it has an illustrious 
 ancestry is well shown by a letter addressed by its great leader, Hon. 
 William J. Bryan, late candidate of the Democracy for the Presi- 
 dency, in reply to an invitation to the banquet, Jan. 8, 1897, of 
 the " Jackson Democratic Association," of the District of Columbia. 
 In it he said : 
 
 I regret that circumstances prevent my celebrating Jackson Day with you. 
 We have reason to commemorate the virtues of the hero of New Orleans. His 
 courageous defence of the rights of the people against the assaults of consolidated 
 capital made him the idol of his party, and the remembrance of his achievements 
 should inspire the Democrats of this generation to renewed devotion to a govern- 
 ment of the people, by the people, and for the people. His final triumph in a 
 struggle similar to that in which the Democracy was engaged this year gives the 
 encouragement and hope of ultimate success. 
 
 THE ADMINISTRATION. 
 
 In his inaugural message, March 4, 1897, President McKinley 
 said: 
 
 The country is suffering from industrial disturbances from which speedy relief 
 must be had. Our financial system needs some revision ; our money is all good 
 now, but its value must not further be threatened. It should all be put upon 
 an enduring basis, not subject to easy attack, nor its stability to doubt or dispute. 
 Our currency should continue under the supervision of the Government. The 
 several forms of our paper money offer, in my judgment, & constant embarrass- 
 ment to the Government. 
 
 Therefore I believe it necessary to devise a system which, without diminishing 
 the circulating medium or offering a premium for its contraction, will present a 
 remedy for those arrangements which, temporary in their nature, might well in the 
 years of our prosperity have been displaced by wiser provisions. 
 
 With adequate revenue secured, but not until then, we can enter upon such 
 changes in our fiscal laws as will, while insuring safety and volume to our money, 
 no longer impose upon the Government the necessity of maintaining so large a 
 gold reserve, with its attendant and inevitable temptations to speculation. 
 
 Most of our financial laws are the outgrowth of experience and trial, and 
 should not be amended without investigation and demonstration of the wisdom 
 of the proposed changes. We must be both " sure we are right " and "make 
 haste slowly." 
 
 If, therefore Congress in its wisdom shall deem it expedient to create a com- 
 mission to take under early consideration the revision of our coinage, banking, 
 
THE PRESENT ADMINISTRATION. 159, 
 
 and currency laws, and give them that exhaustive, careful, and dispassionate 
 examination that their importance demands, I shall cordially concur in such 
 action. 
 
 If such power is vested in the President, it is my purpose to appoint a com- 
 mission of prominent, well-informed citizens of different parties, who will com- 
 mand public confidence, both on account of their ability and special fitness for 
 the work. Business experience and public training may thus be combined, and 
 the patriotic zeal of the friends of the country may be so directed that such a 
 report will be made as to receive the support of all parties, and our finances 
 seem to be the subject of mere partisan contention. The experiment is, at all 
 events, worth a trial, and, in my opinion, it can but prove beneficial to the entire 
 country. 
 
 The question of international bi-metallism will have early and earnest attention. 
 It will be my constant endeavor to secure it by cooperation with the other great 
 commercial powers of the world. Until that condition is realized when the 
 parity between our gold and silver money springs from and is supported by the 
 relative value of the two metals, the value of the silver already coined, and of 
 that which may hereafter be coined, must be kept constantly at par with gold by 
 every resource at our command. The credit of the Government, the integrity of 
 its currency, and the inviolability of its obligations must be preserved. This was 
 the commanding verdict of the people, and it will not be unheeded. 
 
 In asserting that our money is all good money, but that its value 
 must not be "threatened," the President begged the whole question. 
 Instead of being good money, greenbacks, silver certificates, and 
 silver notes are all bad money. None could be worse. By declar- 
 ing that the value of our money must not be further "threatened" 
 he gives away his whole case. The value of gold money cannot be 
 " threatened," for the reason that with all nations it is the highest 
 form of capital. The value of symbolic money cannot be "threat- 
 ened," as its nominal value does not exceed the value of its con- 
 stituent certain to be speedily taken for consumption that society 
 may exist. The value of silver is always "threatened" by the con- 
 stant variation in its value. As it is no longer money, the more its 
 value is " threatened " the greater the public gain from its widely 
 increased use in the arts. No advantage could be greater than, 
 from reduced cost of production, to have the price of silver fall to 
 that of steel. The notes issued against it have the same infirmity 
 as their constituent. The value of the gold-bearing notes of the 
 Government is constantly "threatened," for the reason that pre- 
 vious to their issue no adequate provision was made for their retire- 
 ment. Such provision may never be made ; or made only at a far 
 distant day. As no provision for an issue on a large scale will ever 
 
l6o THE PRESENT ADMINISTRATION. 
 
 be made, the fear that a large amount of notes will be presented fox 
 redemption is enough of itself to produce a panic. Money of our 
 banks to the amount of $200,000,000 is daily presented for redemp- 
 tion, but such presentation is no threat against it, as before its issue 
 ample means are provided for its retirement. Nor by such presen- 
 tations is the amount of bank money reduced, as new issues are 
 being constantly made to symbolize new creations of merchandise 
 to take the place of the old. If our Government were suddenly 
 called to take in, say, $10,000,000 of the $830,000,000 of its notes 
 now outstanding, it would send a cold chill throughout the country, 
 the value of the whole volume being seriously " threatened." Should 
 an equal amount be drawn for ten consecutive days, the Government 
 might be without a dollar in its vaults, with $730,000,000 of its 
 notes still to be provided for. Does not this statement show the 
 wide difference between a currency of banks and that of the 
 Government, and that comparatively the latter is a very bad one ? 
 That money may be free from " threats," Government should 
 have nothing to do with its creation. Its money will never be 
 kept within bounds, as not a dollar of it has a right to be. There 
 cannot be too much of the money of commerce. Metallic money 
 is capital. Government concerns itself merely about its weight and 
 fineness. Symbolic money is as firmly based as metallic money, 
 barring the accidents incident to all human affairs, the purpose of 
 gold as money being to reach some other kinds of merchandise. 
 The real makers of the money of the country are the producers of 
 the country. It arises from the discount of the bills issued in the 
 distribution of their products. If sales are slow no new purchases 
 will be made until the old stocks are run off. With cessation of 
 demand production ceases, or products are stored. Symbolic money 
 only measures the amount of merchandise in process of distribution. 
 
 The President would " devise a system which, without diminishing 
 the circulating medium or offering a premium for its contraction, will 
 present a remedy for those arrangements which, temporary in their 
 nature, might well in the years of prosperity have been displaced by 
 wiser provisions." This statement, with all due respect to the 
 President, requires no reply, as it has no meaning. He has to enter 
 the world of reality before he can enter upon any work of reform. 
 
 The statement that " with adequate revenue secured, but not until 
 then, we can enter upon such a change in our fiscal laws as will, 
 
THE PRESENT ADMINISTRATION. l6l 
 
 while securing safety and volume to our money, no longer impose 
 upon the Government the necessity of maintaining so large a gold 
 reserve, with its attendant and inevitable temptation to speculation," 
 is putting the cart before the horse, or sacrificing the more to the 
 less important. We may for years be without an adequate revenue 
 without affecting injuriously the business operations or credit of the 
 country. An expenditure of #100,000,000 in excess of our income 
 might be no cause of alarm, as it would be well understood that it 
 was in our power, any day, to provide an adequate revenue, fund 
 arrearages, and provide for their payment, certain that such measures 
 would be taken before any disorder resulted. But a vicious currency 
 is a poison in our system, a terrible one, and, when it has reached 
 the magnitude of our own, its removal is the first, not the second, 
 duty. In its retirement the question of the revenues need not 
 necessarily be considered. Every dollar of the #830,000,000 of 
 government notes can be discharged without the interposition of a 
 dollar of gold. The matter of great concern is, with its discharge, 
 the provision of an adequate currency to take its place. 
 
 The recommendation of a commission " to take under early consid- 
 eration the revision of the coinage, banking, and currency laws " is 
 an excellent one, although there should be no more reason for it 
 than one to determine whether for the last fifty years the sun has 
 risen and set on regulation time. Every one in affairs should be as 
 familiar with our history as with the rising and setting of the sun. 
 We send commissions to unearth the past of Egypt and Assyria. 
 Why not create one to explore our own soil and recover from it 
 monuments far more priceless than those of ancient civilization ? — 
 monuments buried as deep from the inroads of barbarians led by 
 General Jackson as are the treasures of the Old World. Such a 
 commission, well discharging its duties, would bring to light a perfect 
 currency long passed from sight and memory. Whether we have the 
 sense or manhood to restore the severe and simple style, when dis- 
 covered, of the past, is quite another question. From the time of 
 Jackson the nation has been taught that "consolidated capital " is 
 the enemy of mankind. But " consolidated capital " is to supply our 
 currency if we are to have one worthy of the name. The poison is 
 so deep and widespread that the whole world of the United States 
 seems to be entering on a grand crusade against this common enemy 
 of the race, displaying already the great vice of democracies, hatred 
 
162 
 
 B1-METALL1SM. 
 
 and jealousy of everything above the common level, and that a very 
 low one. 
 
 BI-METALLISM. 
 
 " It will be my constant endeavor," said Mr. McKinley in his inaugural 
 message, " to heartily cooperate with other great commercial powers of the 
 world for the establishment of bi-metallism." 
 
 This reference to bi-metallism is to be regretted at this critical 
 time as tending to divert public attention from the all-important 
 matter, the reform of the currency, for notwithstanding the attention 
 it is attracting, bi-metallism seems hardly worthy the serious notice 
 of a great commercial people like our own. Its claims are based 
 upon the assumption, wholly without foundation, that by means of it 
 the amount of money may be increased. Instead of this the greater 
 the amount of metallic money in circulation the less the amount of 
 other kinds, and the less the aggregate. Capital discharged from 
 the exchanges finds its proper employment in production. If mer- 
 chandise is abundant, the instruments of its distribution — money — 
 will be abundant. Such instruments or processes are now so perfect 
 that metallic money has been almost wholly discharged from use. 
 In ratio thereto production has been increased and prices reduced, 
 the advantage inuring to consumers ; the returns of capital, from its 
 abundance, being no greater with low than with high prices. The 
 advantage to capital is the enlarged field. So great have been the 
 improvements in the methods of production that a day's work to-day 
 produces fifty times the quantity of steel that it did fifty years ago. 
 Results almost equally marvellous have been accomplished in dis- 
 tribution as in production. During the past year 1,000,000,000 tons 
 of merchandise, having an estimated value of $2 0,000,000,000, were 
 distributed by means of written or printed instruments, costing 
 nothing in themselves, but serving in distribution all the uses of 
 metallic money, being at the same time far more convenient of use. 
 We can no more return to the old methods of distribution by 
 metallic money, whether silver or gold, than to the old crucible 
 process in the production of steel. But with the discharge of both 
 metals as instruments of exchange, one must be retained as the 
 standard at the value of which that of all other articles is to be 
 rated and all contracts solved ; and which, consequently, as the 
 universal equivalent, must serve as the reserves of the issuers of 
 paper money. As gold has a value thirty-two times greater than 
 
BI-METALLISM. 1 63 
 
 silver in ratio to its weight, and sixty-four times greater in ratio to 
 its bulk, it can be cared for and moved from place to place at a far 
 less cost than an equal value of silver. Its value is more uniform 
 than silver from the greater uniformity in its production and in the 
 demand therefor. As the cost of standards of value and of reserves, 
 whatever the metal used, is the same, gold, for the reasons given, 
 has necessarily the preference. There can be no deliberation as to 
 the kind to be used. Is gold in sufficient abundance for the pur- 
 poses which it has to serve? A standard of value does not ordi- 
 narily interpose in affairs like those of extension or weight. It is 
 a final arbiter seldom appealed to. If in the opinion of one 
 proposing to purchase merchandise its value is up to the price 
 demanded, he will take it ; if not, not. If the price offered is not 
 up to its value measured by its cost and a fair profit added, it will 
 not be accepted. Not in one transaction in a million does the 
 standard of value interpose. Not in one transaction in a million 
 does the idea of a standard of value ever suggest itself. Merchan- 
 dise is sold by the delivery of what may be termed the title deeds to 
 the same, the possession of which secures to the holder the right to 
 its constituent. Although every contract is in terms payable in gold, 
 not one in a million is solved by it, creditors taking their equivalent 
 in some other kind of merchandise, to reach which gold, as money, 
 would be used. In affairs gold is demanded only as the universal 
 equivalent when the paper money of commerce cannot be converted 
 into the kind of merchandise desired. Were no paper money issued 
 that did not represent an equal value of merchandise, metallic money 
 would be almost wholly discharged from affairs. The tendency is 
 steadily and necessarily in such direction, even in the United States, 
 possessed of the worst monetary system ever devised, — the National 
 Government making vast issues of notes to serve as money for the 
 retirement of which no adequate provision is made ; the notes of 
 banks being limited to 90 per cent, of the nominal value of the 
 bonds put up as security therefor, no restrictions being imposed as 
 to the subject of their loans. The want of a competent system with 
 us has been partly made good by the establishment of Clearing 
 Houses at every considerable place of trade, the members of which 
 are compelled to discharge daily in coin, or in lawful money, all 
 balances found against them. In this way the rule of the strong 
 becomes that of the weak. It is at these houses that the amount of 
 
164 BI-MKTAI.LISM. 
 
 balances arising in the domestic trade of the country is determined 
 and discharged. The amount daily arising at the present time 
 averages about $14,000,000, the exchanges daily taking place equal- 
 ling $200,000,000. The first sum measures that required in the 
 domestic trade of the country, creditors at the Clearing Houses one 
 day being debtors the next. Of course a" much larger sum would 
 under all conditions as a matter of caution be maintained. Should 
 we return to a normal system, the amounts required at the Clearing 
 Houses would be greatly reduced. With such, no considerable 
 balances to be discharged in gold could arise in the foreign trade 
 of the country, the instruments of expenditure never exceeding the 
 means of the people. Up to a comparatively recent date the average 
 amount of gold held by the Bank of England as the reserves of all 
 the issuers in the United Kingdom, their issues largely exceeding 
 those of our own institutions, was about $110,000,000, or, say, 
 ^22,000,000. This has been lately largely increased, in common 
 with the action of all the great Continental powers, in view of military 
 and political complications. With an adequate system $100,000,000 
 in gold would be ample for all the purposes which, with us, it would 
 be called upon to serve. With it we could presently discharge from 
 use some $500,000,000 of gold, assuming the amount in the country 
 to be $600,000,000 ; and an equal nominal amount of silver, the 
 whole to be applied to production and distribution. As the world's 
 stock of gold exceeds $4,000,000,000, and as the annual product, 
 rapidly increasing, exceeds $200,000,000, our own share exceeding 
 $50,000,000, and as with us gold money has but one use, to serve 
 as the reserves of the issuers of paper money, we have no more 
 reason to trouble ourselves about the adequacy of the amount than 
 about the adequacy of rainfall, or of the vital air, to meet the wants 
 of our increasing numbers ; and no more concern about the restora- 
 tion of silver as money than that of old mechanical contrivances long 
 since relegated to the scrap heap. 
 
 We have briefly summarized the laws and attributes of money as 
 illustrated by our history — a history which fortunately has solved 
 every question that can arise in reference thereto. At the outset 
 bi-metallism was attempted, to fail with the attempt. Thereafter no 
 thought of the reconciliation of the coin value of the two metals 
 was ever entertained. For forty of the first years of our existence 
 as a people silver was our proper metallic money. In 1834 gold, 
 
BI-METALL1SM. 165 
 
 by its deliberate debasement, took the place of silver. Neither 
 metal, while serving as the standard of value, was ever the instru- 
 ment, on a large scale, of exchange. In 1830, for the first time 
 from the establishment of the Government, attention was turned to 
 the subject, and on the 23d of December of that year a special 
 committee of the House, of which Campbell P. White, a member 
 from the city of New York, was chairman, was directed to inquire 
 into the expediency of adopting as our own the coins of the newly 
 established Spanish-American Governments, the people of which 
 were the great producers of the precious metals ; and also to 
 inquire whether any additional provisions were necessary in relation 
 to the coinage of foreign silver at our own mints. The committee 
 reported, February 23, 1831, that of coins having a value of $37,- 
 000,000 that had issued from our mints, of which $27,000,000 were 
 silver, only about $7,000,000 in value of the latter were in circula- 
 tion ; $4,000,000 being in the hands of the banks, the coin reserves 
 of which equalled $22,114,917 ; and about $3,000,000 in the hands 
 of the people. The total amount of metallic money in their hands 
 did not exceed $5,000,000, or 30 cents per head. Of the gold 
 coin, $9,000,000, not a dollar remained in circulation. If we could 
 not retain our own coinage, if we made no difference between it 
 and that of other nations, why not, it was asked, adopt their coins 
 as our own, saving thereby a large annual outlay? In view of a 
 suggestion so reasonable, the committee recommended that the 
 silver dollars of Mexico, Central America, Peru, Chili, and Brazil, 
 and the five-franc pieces of France, be adopted as our own, pro- 
 vided that they were of standard fineness. For such a recom- 
 mendation precedents of our use of the metallic moneys of Great 
 Britain, Portugal, France, and Spain were cited. As was proper, 
 the committee recommended that subsidiary coins should issue from 
 our own mints, the annual amount not to exceed $200,000 or 
 $300,000. The conclusions to which it came were summarized as 
 follows : 
 
 " 1. That the operations of commerce will assuredly dispense to 
 every country its useful and equitable proportion of the gold and 
 silver in currency, if it is not repulsed by paper or subjected to legal 
 restrictions. 
 
 "2. That it cannot be of essential importance to any State 
 whether its proportion of the money of commerce thus distributed 
 
l66 BI-METALLISM. 
 
 consists of gold or of silver, or of both metals, it being the instru- 
 ment of exchange, but not the commodity really wanted. 
 
 " 3. That there are inherent and incurable defects in the system 
 which regulates the standard of value in both gold and silver : its 
 instability as a measure of contracts, and mutability as the practical 
 currency of a particular nation, are serious imperfections, whilst the 
 impossibility of maintaining both metals in concurrent, simultaneous, 
 or promiscuous circulation appears to be clearly ascertained. 
 
 "4. That the standard being fixed in one metal is the nearest 
 approach to invariableness, and precludes the necessity of further 
 legislative interference. 
 
 "5. That gold and silver will not circulate promiscuously and 
 concurrently for similar purposes of disbursement. Nor can coins 
 of either metal be sustained in circulation with bank notes, possess- 
 ing public confidence, of the like denominations." * 
 
 The report of the committee was conclusive of the whole subject 
 — that the operations of commerce will assuredly dispense to every 
 country its useful and equitable proportion of the silver and gold 
 in currency (silver from the small transactions taking place being at 
 the time equally convenient in use as gold and equally uniform in 
 value) ; that, although the two metals were at the time nearly 
 uniform in value, they could not be so reconciled that they would 
 circulate side by side ; that the standard of value must be fixed in 
 one metal alone, and that from the use of paper money neither 
 metal could be maintained in circulation as the ordinary instrument 
 of exchange. The conclusions of the committee had all the force 
 of mathematical demonstration, and served implicitly as our guide 
 down to 1878, when Congress, with incredible recklessness and 
 levity, restored the coinage of silver at the old ratio, although the 
 value of the silver dollar had fallen to 89 cents in gold. The bill 
 was vetoed by the President, Mr. Hayes, as a flagrant act of improvi- 
 dence and bad faith. It was held in the debate that the coinage of 
 metals at a rate widely differing from their commercial value would 
 have the effect to reconcile their value at any ratio that might be 
 established, although all history had demonstrated that the insignia 
 of governments has no effect to increase the value of the metal on 
 which it is impressed. It was most unfortunate that precedents 
 long established, and which carried the force of demonstration, 
 
 1 See page 50. 
 
BI-METALLISM. l6j 
 
 should have been wantonly thrown aside. It was still more unfort- 
 unate that the nature of the act should have been concealed by an 
 issue of notes assumed to be promises of the Government to pay 
 gold. As the coinage was on account of the Government, it was 
 held bound to sustain all its issues at the par of gold, no matter how 
 much they might differ from it in value. It is hardly too much to 
 say that no such purpose was ever really entertained when the act 
 of 1878, or that of 1890, was passed, as otherwise some provision 
 would have been made to maintain the value of the coinage. It is 
 not too much to say that, from the absurdity of the proposition, no 
 provision will ever be made for the maintenance of the debased 
 silver coin at the par of gold. The cost of such maintenance would 
 fully equal a provision of gold, to which is to be added the cost of 
 the machinery that would be required. All this talk about the 
 maintenance of the coins of the two metals at certain ratios is with- 
 out a particle of sense or reason. We have reached a point in 
 which we can no longer afford to indulge in such idle vaporings. 
 Unless some remedial measures are speedily taken, the conscious- 
 ness, only partially denned, that our monetary system is a false one, 
 that Government may be speedily called upon for large sums of 
 gold, its inherent weakness as an issuer of paper money being thereby 
 disclosed, is certain to lead to a panic, Government and people 
 being alike involved in a common catastrophe. 
 
 Apart from the absurdity of bi-metallism as a proposition, the 
 appointment of a Commission to treat with other great powers should 
 be deprecated, unless we are prepared to meet them on equal terms. 
 While, from the force of laws which no intelligent people can long 
 resist, other powers have been busy in discharging themselves of 
 their useless loads of silver, we have been piling it up till our pur- 
 chases have reached 459,946,701 ounces, at a cost of §464,210,262. 
 Assuming the silver to be worth 66 cents the ounce, the loss on our 
 purchases already equals $160,000,000. The interest on them 
 equals, say, §140,000,000, the total loss so far being §300,000,000. 
 With such a load on our own, should we appeal to other great 
 powers for the establishment of bi-metallism, the natural inference 
 would be that our purpose was to throw a part of it upon their 
 shoulders. Should we expose ourselves to such insinuations ? As 
 evidence of our sincerity, let us meet the great powers, if we are 
 to meet them, on equal terms. 
 
r68 
 
 THE REMEDY. 
 
 If our currency was wholly symbolic, we might with safety dally 
 with the subject of bi-metallism, certain that it would never come to 
 anything but speculation and talk ; but as it is largely one of Govern- 
 ment notes, the consideration of this subject as a serious proposition 
 has the direct effect to delay the inauguration of any measures of 
 reform. If by international agreement the value of silver as money 
 can be doubled, certainly by compact among ourselves the value of 
 Government notes can be maintained at the par of gold. One 
 assumption being correct, the other by necessary consequence must 
 be. It is here that our danger lies. Years may be required to secure 
 an international compact for the use of silver as money. Till that 
 great stumbling-block is removed, it is hardly possible that any steps 
 by way of reform will be taken. 
 
 THE REMEDY. 
 
 The remedy : A return to a symbolic currency alike for the 
 Government and the people. What is the situation? — $830,000,000 
 of government notes, for $346,000,000 of which only a small pro- 
 vision is made, and, say, $484,000,000 of silver notes assumed by the 
 Government to be payable in gold, their constituent, unless converted 
 into gold, being wholly unavailable for their discharge. 
 
 The first step, to quiet alarm, is provision for funding all the 
 notes into bonds having a value in gold equal to their nominal 
 amount. The terrible tension would be instantly relieved. Every- 
 man and every industry in the country would spring to its feet. The 
 echo of the acclaim would go around the world, everywhere carry- 
 ing hope and joy, for if one great nation like our own be in distress all 
 alike share. Such a provision would be the equivalent of placing 
 $830,000,000 of gold in the Treasury. We cannot now even 
 deliberate without creating alarm. We cannot expose the situation 
 without the danger of exciting a run upon the Government that 
 would force it into a suspension of specie payment, and with it the 
 people, as the entire monetary fabric of the country rests upon that 
 of the Government. The present secure, we could proceed at 
 leisure. 
 
 The second step would be to return to the people the power of 
 creating everywhere their own money by removing the tax upon the 
 circulation of the State Banks. Its imposition was a flagrant act of 
 despotism by a gross infraction of the Constitution. The State 
 
THE REMEDY. 1 69 
 
 Banks were suppressed that a crowning wrong, the substitution of a 
 currency of the Government, of debt, for one the symbol of capital, 
 might be perpetrated. State Banks were in existence before the 
 Constitution was framed. Their right to exercise all functions 
 proper to them, among these the issue of notes, was supported by 
 precedent of seventy years. Mr. Madison, who earnestly contro- 
 verted the right of Congress to create the Bank of the United States, 
 declared that precedent of twenty years' standing, unsupported by 
 judicial decisions, settled the question of its constitutionality. Under 
 our dual system precedent should run as much against as in favor of 
 the National Government. If the latter could purposely by a tax de- 
 stroy one of the functions of a bank, it could in the same way destroy 
 every other. If it could destroy their banks, it could destroy every 
 function necessary to the existence of the States. The elevation of 
 the author of such a doctrine as this to the Chief Justiceship of the 
 Supreme Court of the United States shows how little we have 
 mastered the principles upon which stable and well-ordered govern- 
 ments must rest. Not to be controlled by precedent established 
 under conditions perfectly free is to have no anchorage whatever. 
 The common law of a people is that which best expresses and best 
 guards their life. Every one having merchandise fitted for consump- 
 tion is competent to issue instruments, of the value of gold, for its 
 distribution. All the qualification required to issue the money of 
 commerce, and good money, is the instinct that demands an equiv- 
 alent in the sale of a horse. If the people of Kansas want cheap 
 money, let them have it by the cart-load. But they would want no 
 such thing for their own use. The provision of such money would 
 always be for people other than themselves. Whatever the kind, 
 none would be created for domestic use but the best. They could 
 no more afford to have poor money than poor instruments for the 
 cultivation of their farms. The people of Mississippi might well be 
 entrusted with the creation of their money. As they no longer 
 have the power to swindle outsiders, they will be very careful not to 
 swindle themselves. The creation of their own money might well 
 be left to the people of States wholly Populistic, with the certainty 
 that they will be most scrupulous in providing a good one. It is only 
 for outsiders that base money is ever provided ; but in this matter 
 outsiders would prove quite competent to take care of themselves. 
 When it is analyzed it will be seen that one kind of money for on.e 
 
17° THE REMEDY. 
 
 class, and another for another, is a thing that defies human ingenuity, 
 for the reason that to every transaction there must be two parties, 
 each one demanding an equivalent for that with which he parts. It 
 is upon this instinct that society itself rests. The people of the 
 silver-producing States left to themselves will no more adopt silver 
 as their standard money than those of Great Britain, for the reason 
 that a better and less costly one is to be had ; no more than they 
 would adopt iron in the place of steel in their mining operations. 
 A proposition that the people of Colorado imitate the example of 
 the United States, that silver, supported by gold, be their money, 
 would be received by them with jeers of derision and contempt. 
 " We are not," would be the universal exclaim, " such shams and 
 fools as this." With a proper system the money of each State 
 would result from, and be the measure of the value of, the products 
 of each. That of Colorado would measure the value of the products 
 of her mines ; of Kansas, that of her corn and hogs ; of the 
 Dakotas, that of their wheat ; of Mississippi, that of her cotton ; of 
 Pennsylvania and Ohio, that of their coal and iron ; of the Eastern 
 States, that of the products of their manufacturing establishments — 
 all the equivalents of gold. The proper measure of the money of 
 every commercial community like the United States is the value 
 of its products, whether of gold, silver, copper, iron, cotton, or corn. 
 It makes no difference which. What more can be asked ? The 
 producers of silver say that the price of a product is measured by 
 the uses to which it can be put. Very true. The use of silver as 
 money once sustained its value. But its use has been superseded 
 by more convenient and less costly instruments of exchange. Its 
 value now rests upon the uses to which, like steel, it can be put in 
 the economy of life. Like steel it is now merchandise, not money. 
 By no possibility can it be restored as money unless inconvenient 
 and costly methods are preferred to convenient and cheap ones. 
 The value of money must be intrinsic or representative. When 
 this lesson is learned the people of the South and West, instead of 
 spending their time in railing at " consolidated capital," will seek by 
 proper methods to become "consolidated capitalists " themselves. 
 But they are in distress. They think they see the way out of it in 
 the situation in which the Government is placed in having in its 
 vaults some 400,000,000 of silver dollars, full legal tender, but 
 •worth only one-half their nominal value. If these could be had at 
 
THE REMEDY. ^'Jl 
 
 their real value, and used by them in the payment of debts at their 
 nominal value, all, they think, would be well. But in obedience to 
 an instinct which would be as strong with them the moment they 
 began to reflect and act for themselves as with the people of Mas- 
 sachusetts and New York, they would soon see that neither silver 
 nor gold was to be their ordinary money ; that the cost of the pro- 
 vision of a standard of value, whether silver or gold, would be the 
 same, the choice turning upon the relative fitness of the two. But 
 the silver dollars in the Treasury are to be had only by "bursting" 
 the Government. The people will never take any steps in such 
 direction, always preferring government notes to gold. The classes 
 that will " burst " the Government, if this is to be done, will not be 
 the people, but drawers of exchange, and great bankers, in position 
 to see how the current is running and take instant advantage of it. 
 
 The third step would, by necessary sequence, be the return to the 
 National Banks of the bonds put up by them as security for their 
 notes. As these and the State Banks began the issue of notes, the 
 holders of those of the Government would instinctively begin their 
 conversion into its bonds, the conversion going on in ratio as the 
 money of commerce was supplied to take their place. 
 
 When such a stage in the process of reform is reached the inquiry 
 would naturally suggest itself, Why, if the money of commerce is to 
 be that of the people, should it not be that of the Government, 
 issued by a bank of its own creation? The National and State 
 Banks might indeed supply an adequate amount, but Government 
 would want something more — a custodian of its revenues which 
 would be receivable in its notes and disbursed by means of cheques 
 upon it, precisely as the National Banks now serve as the custodians 
 of the money, utilized by means of cheques, of the people. A sur- 
 plus of, say, $5 0,000,000 in the Treasury would be hardly entrusted 
 to a bank in the city of New York, the great point of the collection 
 of the revenues, the share capital of none exceeding $5,000,000. 
 To distribute the amount among half a dozen of the strongest insti- 
 tutions would be a favoritism that would hardly be tolerated. To 
 deal out a portion to each in ratio to its share capital would involve 
 the opening of a great number of accounts, some with banks hardly 
 to be trusted with the public moneys. The State Banks, if eman- 
 cipated from the burdens now imposed upon them, would properly 
 come in for their share. But State Banks, the right to issue notes 
 
I7 2 THE REMEDY. 
 
 restored, would be as free from the direct control of the Govern- 
 ment as they were before the establishment of the present Safety- 
 Fund System. Institutions over which the Government has no 
 direct control should certainly not be entrusted with its funds. The 
 custodian of these should be always subject to restrictions which 
 would not only render loss impossible, but which would make the 
 issues of all other banks as good as its own. As a National Bank 
 would necessarily in the course of business receive on deposit, and 
 in the payment of the revenues, the notes of all issuers and cheques 
 upon them, it would for its own safety require the daily discharge in 
 gold of all balances found in its favor. By such means the restric- 
 tions imposed upon it would in effect be imposed upon all other 
 issuers. A perfectly safe currency would by such means be every- 
 where provided. As the National Bank would make loans based 
 upon the deposits of the Government for which the latter had no 
 immediate use, as upon those of its ordinary customers, all balances 
 that could be safely spared would be promptly returned to the channels 
 of production and trade from which they were drawn, not a dollar 
 being allowed to lie idle. With a National Bank, the Independent 
 Treasury wouid naturally be discontinued as wholly superfluous, the 
 bank assuming all its functions, the saving being a half a million 
 annually. By means of it metallic money as capital would, except 
 in the form of small coins, be wholly discharged from the operations 
 alike of Government and people. From the restrictions imposed 
 upon it, and through it upon all other issuers, no balances could 
 arise either in the foreign or domestic trade of the country requir- 
 ing any considerable provision of gold for their discharge. 
 
 The reasoning here is without a flaw ; what is better, it is sup- 
 ported by precedent of forty years. Why was it that a system so 
 beneficent in its results was overthrown ? From fear of " consolidated 
 capital," that arch enemy of the race, certain, if allowed to have its 
 way, to reduce the great mass of the people to the condition of 
 serfs and slaves ! In the second Bank capital was consolidated on 
 a vast scale. From its alleged use in oppressing the people it was 
 overthrown. From its overthrow General Jackson was hailed as the 
 savior of his country. From that time the danger of " consolidated 
 capital" was the constant theme of the great political party which 
 so long dominated the country. Mr. Van Buren, who immediately 
 succeeded General Jackson, thanked Heaven in one of his messages 
 
THE REMEDY. 1 73 
 
 that the great monster was at last under the sod. It was the con- 
 stant theme of succeeding presidents down to and including Mr. 
 Buchanan. With Mr. Voorhees the oppressions of " consolidated 
 capital" had been such that the value of a day's work was reduced 
 to ten cents and that of a horse to ten dollars ! With Mr. Carlisle, 
 after fifteen years of weary warfare with " consolidated capital," the 
 people stood on the very verge of financial ruin. But in describing 
 the oppressions of this terrible monster Mr. Cleveland bore off the 
 palm. In his annual message for 1888 he said : 
 
 Our cities are the abiding places of wealth and luxury. Our manufactures 
 yield fortunes never dreamed of by the fathers of the republic. Our business 
 men are madly striving in the race for riches, and the immense aggregations of 
 capital outreach the imagination in the magnitude of their undertakings. By a 
 more careful scrutiny we find the wealth and luxury of our cities mingled with 
 poverty and wretchedness and unremunerative toil. We discover that the fort- 
 unes realized by our manufacturers are no longer solely the. reward of sturdy 
 industry and enlightened foresight, but that they result from the discriminating 
 favor of the Government, and are largely built up by undue exactions from the 
 masses of our people. The gulf between employers and employed is constantly 
 widening, and classes are rapidly forming, one comprising the very rich and 
 powerful, while in another are found the toiling poor. As we view the achieve- 
 ments of aggregated capital we discover the existence of trusts, combinations, 
 and monopolies. While the citizen is struggling far in the rear or is trampled to 
 death under an iron heel, corporations, which should be the carefully restrained 
 creatures of law and the servants of the people, are fast becoming the people's 
 masters. 
 
 N.ever before in history was such a picture drawn, and that by a 
 president of a great republic, of avarice and brutality on one side 
 and of degradation and suffering on the other. If true, it shows a 
 republic to be the worst form of government, being wholly unable to 
 protect the people, stamped to death under the iron heel of selfish- 
 ness and greed. But is the picture true? How is "consolidated 
 capital," from the experience of its use, viewed? Suppose a charter 
 for a National Bank, providing for a capital $100,000,000, to be 
 offered to the highest bidder. Chicago would instantly step forward 
 with her millions to secure the prize which in her estimation would 
 stamp her as the imperial city of the world. The most rampant Popu- 
 list would vie with the hardest-headed man of affairs in his earnestness 
 and contributions. Not a suggestion would arise from any quarter 
 that the bank could be an instrument of oppression, or that by means 
 of it any private ends could be secured. A single common and 
 
174 THE REMEDY. 
 
 honorable impulse would be that of every citizen from the highest to 
 the lowest — the honor and greatness of Chicago ! No one not entitled 
 to the money of the bank could get a dollar of it. No one who could 
 not offer an equivalent therefor could get a dollar of it. For a bank 
 not to demand an equivalent when a loan is made is, ordinarily, to 
 make a loss equal to the amount — an offence against society, as its 
 welfare is in ratio to the amount of capital usefully employed. As 
 the demand for its money, and consequently the returns upon it, 
 would be in ratio as the people were industrious, intelligent, well- 
 to-do, and free, the bank would have every motive to promote 
 their industry, intelligence, welfare, and freedom. It would be a 
 moral institution of high value in the example set by it for all others, 
 as well as an indispensable one in affairs. 
 
 As the act for the creation of the bank would provide for numerous 
 branches, the same contest would arise for their possession as for that 
 of the parent bank. If ten branches were assigned to Illinois, fifty 
 places would be earnest competitors for one of them, well under- 
 standing the benefits that would arise therefrom in the increased 
 provision for symbolizing their products as well as from the prestige 
 and preeminence it would secure. In the struggle to secure a branch, 
 political distinctions, so pronounced in other matters, would be 
 wholly forgotten. 
 
 As on a great, so on a small scale. From the sense of the advan- 
 tages derived from them our present National Banks are eagerly 
 welcomed by every community throughout the land. In welcoming 
 these all political distinctions are also forgotten. All make contribu- 
 tions for their establishment according to their means. They imme- 
 diately become the custodians of the surplus cash of the people, 
 their issues serving as instruments for turning into potential money 
 all products prepared for market. Their management is intrusted 
 to boards of directors, to " committees of safety," composed of 
 discreet and prosperous citizens familiar with the character and 
 means of every person likely to apply for loans. The " committees 
 of safety '' are usually large owners in the share capital of the banks 
 whose operations they conduct, a guarantee for their proper manage- 
 ment. Any loss that may be made comes largely out of their own 
 pockets. With such a committee always on the alert, loans would 
 seldom be made for the payment of which adequate provision in 
 merchandise was not previously provided. Such institutions are so 
 
THE REMEDY. I 75 
 
 essential to the general welfare that the appointments of no consid- 
 erable community are complete without them. Their success is a 
 matter of satisfaction and pride to all, whether or not they have any 
 interest in them. 
 
 With a proper system, that is, with a National Bank, free issue to 
 be allowed to all others, State and National, it is not probable that 
 one-twentieth part of the currency would be supplied by the Na- 
 tional one, each section of the country creating its own. No 
 monopoly, consequently, of issue could exist. 
 
 And how about manufacturing establishments in which capital 
 must be massed on a vast scale, and remain massed in corporations 
 having a perpetual existence, being dedicated to purposes as endur- 
 ing as society itself? There is not a community in the United 
 States in which such works are not warmly welcomed by gifts in the 
 form of sites, material, money, or the remission of taxes for a series 
 of years, the degree of welcome being in ratio to the amount of 
 capital to be employed. They at once, wherever they go, set every- 
 thing in motion, add largely to the value of real property, give new 
 opportunities for the employment of labor at rates far above those 
 which had previously prevailed, and create, at largely increased 
 prices, a domestic market for products which previously had none. 
 They must be large purchasers of labor and material from those 
 under no obligation to make any return in kind. There is hardly a 
 municipality in the Northern States that is not authorized by law to 
 offer inducements of the kind described from a sense of the advan- 
 tages to be secured. In welcoming them all party distinctions are 
 forgotten. The people of Kansas, were they able, could well afford 
 to contribute $ 100,000,000 for the purpose of attracting manufact- 
 uring establishments which would supply their wants by direct 
 exchange for the products of their soil. A sense of their value is 
 rapidly travelling southward, the State of Alabama having recently 
 authorized her municipalities to offer substantial aid to secure them. 
 While the necessary effect of every establishment of the kind is to 
 advance the price of labor and of the products of the community 
 in which they are domiciled, its tendency, from an increased supply 
 and from the improved methods brought into use, is always to reduce 
 the price of its peculiar product. Take the case of steel. There 
 is no branch of industry which requires a greater massing of capital ; 
 there is none in which greater skill and training are required. Its 
 
176 THE REMEDY. 
 
 manufacture in this country since 1862 has been protected by pro- 
 hibitory duties. If monopoly or oppression were possible anywhere 
 it would be here. Yet with the most persistent efforts of manu- 
 facturers to maintain them, prices have fallen from #140 the ton in 
 gold, in 1867, to $20 in 1897. The increase of product in the same 
 period has been from 17,000 to 6,1 14,834 tons. In the same period 
 the wages of labor employed in its manufacture have been doubled 
 from the enormously increased demand therefor. From their fall in 
 price steel have taken the place of iron rails on our railroads, the gain 
 to the public being many hundred millions annually. The example, 
 a striking one, is true of every other department of production. 
 Every one seeks to get, as he should, the most out of his business. If 
 he begins with, or realizes, large profits, competition is certain speed- 
 ily to reduce them to the common level, .as capital, the supply being 
 unlimited, eagerly seeks investments that will yield five per cent. 
 One cannot enter upon any branch of production on a large scale 
 and make a success in it without reducing the price of the product, 
 being thereby a public benefactor. He is subject to a law higher 
 than his own. The more intent upon gain, the more effectually does 
 he serve others rather than himself. In the nature of things it is 
 impossible that, in a country like the United States, where the field 
 is open to all, corporations should oppress, though they may not 
 reduce prices fast enough to suit the popular idea. 
 
 As with manufacturing establishments, so with railroads entered 
 upon as an investment of capital. The advantage to those who 
 have no pecuniary interest in them is fifty-fold greater than to 
 their promoters. They create values on an enormous scale by 
 opening markets for products otherwise without them. In some 
 systems hundred of millions of dollars are massed — the greater 
 the amount, the better the service and the less the charge. Were 
 monopolies possible it would be in such lines as the New York 
 Central and Pennsylvania, but there is hardly a pound of freight 
 moved by either that is not fiercely competed for by numer- 
 ous other lines. So great have been the improvements in the 
 methods used, and so fierce the competition, that there is not a 
 railroad in the United States that has not, within a comparatively 
 short period, with an enormous increase of traffic, in some cases 
 five or ten fold, been compelled to reduce rates on merchandise to 
 one-quarter those charged twenty-five years ago ; and to such an 
 
THE REMEDY. 1 77 
 
 extent that the return on the investments in these works is far below 
 the average of those in other departments of industry or enterprise. 
 The most promising field of all at the outset is that in which capital 
 has suffered the most. The only function in a government like that 
 of the United States, where the supply of capital and raw material is 
 unlimited, is to see to it that opportunity is alike open to all. With 
 such provision society may rest assured that capital will be always 
 working for its welfare, and never for its harm ; that it is amply 
 protected by a law far higher and more exacting than any of human 
 contrivance. 
 
 It may be urged that corporations will combine to put up prices. 
 They cannot by combination put up prices so that, where the con- 
 ditions, as in the United States, are perfectly free, profits in any line 
 will exceed the average of other departments of enterprise and in- 
 dustry, as capital, the supply of which is unlimited, always flows in 
 the direction which promises the best return. It is for the interest 
 of the public that corporations, by restricting production, for exam- 
 ple, should combine so that profits in any one line may not fall below 
 the average. If from want of adequate returns any go out of opera- 
 tion, the survivors, the field remaining to them, will naturally put 
 up prices. But the moment that their profits exceed the general 
 average, competition comes in as the natural and inevitable correc- 
 tive. It is better for society that the number in operation be main- 
 tained than that any should be compelled to go out of business, their 
 places in time to be supplied by new ones, involving new outlays of 
 capital to meet the increase of consumption by a steadily increasing 
 population. Society need not be under the slightest concern that 
 all service, so far as it is rendered by capital, whatever the form, will 
 not be at the lowest cost. That side of life, without any interposi- 
 tion of Government, is wholly secure. 
 
 There is undoubtedly a great deal of ill-gotten capital that most 
 offensively flaunts itself. But for such the laws enacted by the 
 people are chiefly responsible. Capital honestly acquired and 
 honestly employed is an essential condition of human progress. 
 Vast fortunes have been made by those who control improved proc- 
 esses in production and distribution. The law here stands for twenty 
 years their friend. But where one is the measure of their gain, a 
 thousand is that of the public, of which the case of steel may 
 again be cited. Vast fortunes are made by combination by which 
 
1^8 THE REMEDY. 
 
 capital, in ratio to the result secured, is discharged from use, the bene- 
 fit inuring far more to the public than to those who exploit the new 
 methods. The laying by of a dollar a day is equivalent to a fortune 
 at the end of a long life. The beneficence of capital is shown by the 
 struggle for its possession by all engaged in production and distribu- 
 tion, more being made by its use than the charge for its use. When 
 massed in corporations pursuing legitimate industries, it is always 
 beneficent, as in ratio as it is massed is cost of production reduced, 
 the demand for labor, the only factor short in supply, and with it 
 the compensation, being greatly increased. Much discontent still 
 prevails, by those whose hours of labor have been shortened, their 
 compensation being largely increased, the price of all articles essen- 
 tial to their comfort and welfare being greatly reduced. Contrasts 
 in society still exist and will exist so long as difference in faculty or 
 desert exists. But there must be incentives to an industrious and 
 honorable life in its rewards. Without them society would sink to 
 the level from which it rose. The lesson to be learned by those who 
 have excelled in the race is to extend a helping hand to those less 
 fortunate than themselves. But this opens a chapter not here to be 
 entered upon. 
 
 To conclude : In discussing the currency we must start from the 
 premise that paper money, in some form, is always to be that of our 
 people, as it must be that of every great commercial community. 
 No other kind can be afforded. No matter how unsound it may be 
 there will be no thought of returning to metallic money, the use 
 of which would reduce transactions to one-fifth or one-tenth their 
 present volume. When paper money is most depreciated a better 
 kind will always be sought, but never a return to one of capital. 
 
 The second proposition is that the money of the people must be 
 that of the Government. There may be a good currency without 
 the interposition of law. Every person possessed of merchandise 
 is competent to issue instruments for its distribution, and would 
 issue them but for the reason that a better way is provided by 
 means of corporations dedicated to a particular purpose and not 
 subject to the risks of production and trade, their issues to be 
 measured by the nominal value of the merchant's bills held by 
 them. Good local currencies may be provided, but with all the 
 safeguards which State legislation and careful supervision would 
 
THE REMEDY. I ^g 
 
 throw round them, the National Government could not directly com- 
 mit itself to their use. It must have an institution of its own 
 creation to stand between it and all other issuers throughout the 
 country — one which would in the course of business receive the 
 notes and credits of all other issuers in the payment of the public 
 revenues, on deposit, and in the payment of its bills. The National 
 Bank would prefer to have its bills paid and revenues collected in 
 the issues of other banks rather than its own, as in ratio as the 
 former were received its own would remain in circulation. It 
 would protect itself against loss by demanding that all balances 
 arising in its favor be daily discharged. By the provisions de- 
 scribed the issues of every bank throughout the country, in good 
 standing, would, in effect, be received in the payment of the rev- 
 enues, payments being made in kind, as it were, in the symbol of 
 the particular product of the section where they were collected. A 
 currency common alike to Government and people would thus be 
 provided ; a currency never in excess ; always retired by its use ; a 
 currency which, through the value of its constituent, would wholly 
 supersede gold, metallic money, as the ordinary instrument of ex- 
 change. If gold were wanted by the Government or people it would 
 be supplied by the banks out of their reserves. With a National 
 Bank restricted in its discounts to bills of exchange, the Govern- 
 ment would have no more occasion to concern itself about the 
 solvency of the currency than about the solvency of the makers of 
 bills upon which it was based ; no more than about the solvency 
 of drawers of exchange, or of railroad or manufacturing corpora- 
 tions, as no currency that was not retired by its use, the crucial test, 
 could get into circulation. Successful issuers should no more be 
 compelled to make up the losses of the unsuccessful, than success- 
 ful merchants should make up those of the unsuccessful and incom- 
 petent ones. If the principle upon which the national banking 
 system is based be correct, then Government should in the same 
 way place itself behind every industry and enterprise in the land. 
 With a National Bank full and adequate provision for a sound cur- 
 rency would be made previous to its issue. It is easy to prevent the 
 perpetration of a great wrong. It may be impossible to repair its 
 effects. We are oppressed by a great wrong that should never 
 have been committed. Jackson did his work so well that as a peo- 
 ple we have never recovered our sense or reason, so completely was 
 
l8o THE REMEDY. 
 
 the example of the past effaced from memory. That we should have 
 dethroned Hamilton and put Jackson in his place as our oracle and 
 mentor in the matter of money shows our immeasurable folly, and 
 how incapable we are to deal with matters that most intimately con- 
 cern our highest welfare. The necessary consequence has been that 
 our history, so far as money has been concerned, from the time of 
 Jackson has been one of alternations, on a vast scale, of farce and 
 tragedy. 
 
 Why should not a return be made to a currency common alike to 
 government and people — a currency founded in the very nature of 
 things, the soundness and value of which have been demonstrated by 
 precedents of forty years, and which can only be provided by a 
 National Bank? In the way stand the history and traditions of a 
 great party, now broken into two wings, that its creation transcends 
 the power of the Government, its existence being incompatible with 
 the liberties of the people. There is no evidence that either wing 
 has receded from a position which both in common so long held. 
 With the Sound Money wing of the Democracy, the creation of a 
 National Bank would be an act of " Paternalism " by no means to be 
 permitted. With it salvation is to come, if at all, from accident, 
 from drifting, not from forecast or method. The Free Coinage wing 
 wants money that costs little, the less the better, but issued in ratio 
 to the needs of the people. The money of banks could be had 
 only at its value. Hence all of it must be issued by the Government. 
 
 The great party now in control insists, with plenty of unmeaning 
 platitudes, that the present situation be maintained ; that all the money 
 we have is good money, and that all that is wanted is a little patching 
 by which its value may be no longer " threatened. " Should not the 
 use of such an ominous word have suggested to its chief that money 
 the value of which can be threatened is not good money, and the 
 remedy for money that is not good ? With him all kinds now in circu- 
 lation, gold, silver, issues of Government and banks, have an equal 
 standing in the courts of reason and law. There is no hint of refor- 
 mation in its proper sense. So far as Congress is concerned its atten- 
 tion is engrossed by the crowning piece of tomfoolery of modern 
 times, Bimetallism, — the Senate, by unanimous vote, declaring itself 
 in its favor, and the House by a vote of 279 to 4. In the meantime 
 matters are steadily going from bad to worse. The tariff is its pan- 
 acea for all evils. It is well to have the National Government self- 
 
THE REMEDY. iSt 
 
 supporting. Had it been so for the last four years, the greater part 
 of the legal tender notes could have been safely locked up in the 
 Treasury. But the new tariff, while it will improve, will not restore 
 the situation. Without a reform of the currency, the clouds, now 
 deep on the horizon, will only grow darker and more portentous. 
 One that is neither capital nor the symbol of capital always exacts 
 a penalty, and when issued on a vast scale, an enormous one. The 
 penalty is not so much the final catastrophe as the long and linger- 
 ing illness which necessarily precedes it. 
 
 There is one bright spot on the horizon. The Secretary of the 
 Treasury is a man trained in affairs, and should know the difference 
 between palaver and " cash down." He may not be a Hamilton, 
 but if he restore the work of Hamilton he will be second only to 
 his illustrious predecessor in deserving and receiving the grateful 
 homage of an emancipated people. 
 
NOTES AND ILLUSTRATIONS. 
 
 THE SILVER RECOINAGE IN ENGLAND. 
 
 In 1696 the silver currency of England (the only one then in 
 use) had become so reduced in value, from clipping and wear, as to 
 cause the greatest inconvenience in all the operations of society. 
 The coins in use, no matter how light, could still be used in the 
 payment of debts and of the taxes due the government. The latter 
 attempted for a long time to correct the evil, by causing large 
 quantities of silver to be coined of the standard weight and fineness ; 
 but as the old coins, with one-quarter or one-fifth less of pure metal, 
 were used as currency equally with the new, the latter were imme- 
 diately taken up and melted down, or exported at their value as 
 bullion or merchandise, so that no progress whatever was made in 
 remedying an evil which had become well-nigh insupportable. 
 
 "The financiers of that age," says Macaulay, in his graphic picture of it, 
 " seem to have expected that the new money, which was excellent, would soon 
 displace the old money, which was much impaired. Yet any man of plain under- 
 standing might have known that, when the State treats perfect coin and light 
 coin as of equal value, the perfect coin will not drive the light coin out of circu- 
 lation, but will itself be driven out. A clipped crown, on English ground, 
 went as far in the payment of a tax or a debt as a milled crown. But the milled 
 crown, as soon as it had been flung into the crucible or carried across the 
 channel, became much more valuable than the clipped crown. It might there- 
 fore have been predicted, as confidently as anything can be predicted which 
 depends on the human will, that the inferior pieces would remain in the only 
 market in which they could fetch the same price as the superior pieces ; and that 
 the superior pieces would take some form or fly to some place in which some 
 advantage could be derived from their superiority. 
 
 " The politicians of that age, however, generally overlooked these very obvious 
 considerations. They marvelled exceedingly that everybody should be so per- 
 verse as to use light money in preference to good money. In other words, they 
 marvelled that nobody chose to pay twelve ounces of silver when ten ounces 
 would serve the turn. The horse at the Tower still paced his rounds. Fresh 
 wagon-loads of choice money still came forth from the mill ; and still they 
 vanished as fast as they appeared. Great masses were melted down ; great 
 masses exported ; great masses hoarded ; but scarcely one new piece was found in 
 
184 THE SILVER RECOINAGE IN ENGLAND. 
 
 the till of a shop, or in the leathern bag which the farmer carried home from the 
 cattle fair. In the receipts and payments of the Exchequer the milled money 
 did not exceed ten shillings in a hundred pounds. A writer of that age mentions • 
 the case of a merchant who, in the sum of thirty-five pounds, received only a 
 single half-crown in milled silver. . . . 
 
 "The evils produced by this state of the currency were not such as have 
 generally been thought worthy to occupy a prominent place in history. Yet it 
 may well be doubted whether all the misery which had been inflicted on the 
 English nation in a quarter of a century by bad kings, bad ministers, bad 
 parliaments, and bad judges was equal to the misery caused in a single year by 
 bad crowns and bad shillings. Those events which furnish the best themes for 
 pathetic or indignant eloquence are not always those which most affect the 
 happiness of the great body of the people. The misgovernment of Charles and 
 James, gross as it had been, had not prevented the common business of life from 
 going steadily and prosperously on. While the honor and independence of the 
 State were sold to a foreign power, while chartered rights were invaded, while 
 fundamental laws were violated, hundreds of thousands of quiet, honest, and 
 industrious families labored and traded, ate their meals and lay down to rest, in 
 comfort and security. Whether Whigs or Tories, Protestants or Jesuits were 
 uppermost, the grazier drove his beasts to market ; the grocer weighed out his 
 currants ; the draper measured out his broadcloth ; the hum of buyers and sellers 
 was as loud as ever in the towns ; the harvest-home was celebrated as joyously 
 as ever in the hamlets ; the cream overflowed the pails of Cheshire ; the apple- 
 juice foamed in the presses of Herefordshire ; the piles of crockery glowed in the 
 furnaces of the Trent ; and the barrows of coal rolled fast along the timber rail- 
 way of the Tyne. But when the great instrument of exchange became thoroughly 
 deranged, all trade, all industry, were smitten as with a palsy. . . . 
 
 " Since the Revolution the state of the currency had been repeatedly discussed 
 in Parliament. In 1689 a committee of the commons had been appointed to 
 investigate the subject, but had made no report. In 1690 another committee had 
 reported that immense quantities of silver were carried out of the country by 
 Jews, who, it was said, would do anything for profit. Schemes were formed for 
 encouraging the importation and discouraging the exportation of the precious 
 metals. One foolish bill after another was brought in and dropped. At length, 
 in the beginning of the year 1695, the question assumed so serious an aspect that 
 the Houses applied themselves to it in earnest. The only practical result of their 
 deliberations, however, was a new penal law, which it was hoped would prevent 
 the clipping of the hammered coin and the melting and exporting of the milled 
 coin. It was enacted that every person who informed against a clipper should 
 be entitled to a reward of forty pounds, that every clipper who informed against 
 two clippers should be entitled to a pardon, and that whoever should be found 
 in possession of silver filings or parings should be burned in the cheek with a red- 
 hot iron. Certain officers were employed to search for bullion. If bullion were 
 found in a house or on board of a ship, the burden of proving that it had never 
 been part of the money of the realm was thrown on the owner. If he failed in 
 making out a satisfactory account of every ingot he was liable to severe penalties. 
 This act was, as might have been expected, altogether ineffective. During the 
 
THE SILVER RECOINAGE IN ENGLAND. 1S5 
 
 following summer and autumn the coin went on dwindling, and the cry of dis- 
 tress from every county in the realm became louder and more piercing. 
 
 "But, happily for England, there were among her rulers some who clearly 
 perceived that it was not by halters and branding-irons that her decaying industry 
 and commerce could be restored to health. The state of the currency had, 
 during some time, occupied the serious attention of four eminent men closely 
 connected by public and private ties. Two of them were politicians who had 
 never in the midst of official and parliamentary business ceased to love and 
 honor philosophy ; and two were philosophers in whom habits of abstruse medi- 
 tation had not impaired the homely good sense without which even genius is 
 mischievous in politics. Never had there been an occasion which more urgently 
 required both practical and speculative abilities ; and never had the world seen 
 the highest practical and the speculative abilities united in an allegiance so close, 
 so harmonious, and so honorable as that which bound Somers and Montague to 
 Locke and Newton. . . 
 
 " In whatever way the restoration of the coin might be affected, great sacri- 
 fices must be made, either by the whole community or by a part of the commu- 
 nity, and to call for such sacrifices at a time when the nation was at war, and 
 was already paying taxes such as, ten years before, no financier would have 
 thought it possible to raise, was undoubtedly a course full of danger. Timorous 
 politicians were for delay ; but the deliberate conviction of the great Whig 
 leaders was that something must be hazarded, or that everything was lost. 
 Montague in particular is said to have expressed in strong language his deter- 
 mination to kill or cure. If, indeed, there had been any hope that the evil 
 would merely continue to be what it was, it might have been wise to defer till 
 the return of peace an experiment which must severely try the strength of the 
 body politic. But the evil was one which daily made progress almost visible to 
 the eye. There might have been a recoinage in 1694 with half the risk which 
 must be run in 1696 ; and great as would be the risk in 1696, that risk would be 
 doubled if the recoinage were postponed till 1698. 
 
 "Those politicians whose voice was for delay gave less trouble than another 
 set of politicians who were for a general and immediate recoinage, but who 
 insisted that the new shilling should be worth only ninepence or ninepence half- 
 penny. At the head of this party was William Lowndes, Secretary of the Treas- 
 ury, a most respectable and industrious public servant, but much more versed in 
 the details of his office than in the higher parts of political philosophy. He was 
 not in the least aware that a piece of metal with the king's head on it was a 
 commodity of which the price was governed by the same laws which govern the 
 price of a piece of metal fashioned into a spoon or a buckle, and that it was no 
 more in the power of Parliament to make the kingdom richer by calling a crown 
 a pound than to make the kingdom larger by calling a furlong a mile. He 
 seriously believed, incredible as it may seem, that if an ounce of silver Were 
 divided into seven shillings instead of five, foreign nations would sell us their 
 wines and their silks for a smaller number of ounces. He had a considerable 
 following, composed partly of dull men who really believed what he told them, 
 and partly of shrewd men who were perfectly willing to be authorized by law 
 to pay a hundred pounds with eighty. Had his arguments prevailed, the evils 
 
l86 THE SILVER RECOINAGE IN ENGLAND. 
 
 of a vast confiscation would have been added to the other evils which afflicted 
 the nation; public credit, still in its tender and sickly infancy, would have been 
 destroyed, and there would have been much risk of a general mutiny of the fleet 
 and army. Happily Lowndes was completely refuted by Locke in a paper drawn 
 up for the use of Somers. Somers was delighted with this little treatise, and 
 desired that it might be printed. It speedily became the text-book of all the 
 most enlightened politicians in the kingdom, and may still be read with pleasure 
 and profit." 
 
 The proposition of Lowndes was for a recoinage of the currency 
 with one-fifth less metal than the standard of the old coins ; to raise, 
 to use his own words, " the value of the silver in the coins to the 
 foot of 6s. 3d. in every crown, because the price of standard silver 
 in bullion is risen to 6s. sd. an ounce." Locke was called upon to 
 prove, and did prove most conclusively, that silver coins only 
 equalled in value similar weights of the metal in bullion ; and, con- 
 sequently, that nothing could be gained, at home or abroad, by alter- 
 ing the standard, as the coins, both at home and abroad, would pass 
 only at their value measured by weight and fineness. It would seem 
 that the conclusions to which Locke came might have been assumed 
 as axioms from which he might have commenced his argument. If 
 so, the statement of the question contained its own answer. Locke 
 was not content with this. He prepared a pamphlet of more than 
 a hundred pages in which he reenforced his argument by a wealth 
 and conclusiveness of illustration which should have put the question 
 forever at rest. He did, indeed, carry the government with him, 
 but by no means the general sense of mankind. 
 
 The plan of relief finally adopted by the English government 
 provided that the money of the kingdom should be recoined' 
 according to the old standard of weight and fineness ; that all the 
 pieces should be milled, and that the loss on the clipped pieces 
 should be borne by the public. A time was fixed after which no 
 clipped money should pass, except in payments to the government ; 
 and a later time after which it should not pass at all. To provide 
 for the loss on the clipped coins, the Bank of England undertook, 
 on the security of the window tax, to advance the government 
 ;£i, 200,000. This advance, however, afforded but a partial relief. 
 Full relief could only be had when the new silver (the metal chiefly 
 in circulation) came in in sufficient abundance to fill up the vacuum 
 made by calling in the old. 
 
THE SILVER RECOINAGE IX ENGLAND. I«7 
 
 "Saturday, the second of May," (1696), said Lord Macaulay, "had been 
 fixed as the last day on which the clipped crowns, half-crowns, and shillings 
 were to be received by tale in payment of taxes. The Exchequer was besieged 
 from dawn till midnight by an immense multitude. It was necessary to call in 
 the guards for the purpose of keeping order. On the following Monday began a 
 cruel agony of a few months, which was destined to be succeeded by many years 
 of almost unbroken prosperity. 
 
 " Most of the old silver had vanished. The new silver had scarcely made its 
 appearance. About ^4,000,000, in ingots and hammered coin, were lying in 
 the vaults of the Exchequer ; and the milled money as yet came forth very slowly 
 from the Mint. Alarmists predicted that the wealthiest and most enlightened 
 kingdom in Europe would be reduced to the state of those barbarous societies in 
 which a mat is bought with a hatchet, and a pair of moccasins with a piece of 
 venison. There were, indeed, some hammered pieces which had escaped mutila- 
 tion, and sixpences not clipped within the innermost ring were still current. This 
 old money and the new money together made up a scanty stock of silver, which, 
 with the help of gold, was to carry the nation through the summer. The manu- 
 facturers generally continued, though with extreme difficulty, to pay their work- 
 men in coin. The upper classes seem to have lived to a great extent on credit. 
 Even an opulent man seldom had the means of discharging the weekly bills of 
 his baker and butcher. A promissory note, however, subscribed by such a man, 
 was readily taken in the district where his means and character were well known. 
 The notes of the wealthy money-changers of Lombard street circulated widely. 
 The paper of the Bank of England did much service. 
 
 "The directors soon found it impossible to procure silver to meet every claim 
 which was made on them in good faith. They then bethought them of a new 
 expedient. They made a call of twenty per cent, on the proprietors, and thus 
 raised a sum which enabled them to give every applicant fifteen per cent, in 
 milled money on what was due to him. They returned him his notes after 
 making a minute upon it that part had been paid. A few notes thus marked are 
 still preserved among the archives of the Bank, as memorials of that terrible 
 year. The paper of the corporation continued to circulate ; but the value 
 fluctuated violently from day to day, and indeed from hour to hour ; for the 
 public mind was in so excitable a state that the most absurd lie which a stock- 
 jobber could invent sufficed to send the price up or down. At one time the dis- 
 count was only six per cent., at another time twenty-four per cent. A ten- 
 pound note, which had been taken in the morning as worth more than nine 
 pounds, was often worth less than eight pounds before night. 
 
 " Meanwhile, strenuous exertions were making to hasten the recoinage. 
 Since the restoration the mint had, like every other public establishment in the 
 kingdom, been a nest of idlers and jobbers. The important office of warden, 
 worth between six and seven hundred a year, had become a mere sinecure, and 
 had been filled by a succession of fine gentlemen who were well known at the 
 hazard-table at Whitehall, but who never condescended to come near the 
 Tower. This office had just become vacant, and Montague had obtained it for 
 Newton. The ability, the industry, and the strict uprightness of the great philos- 
 opher speedily produced a complete revolution throughout the department which 
 
l88 THE SILVER RECOINAGE IN ENGLAND. 
 
 was under his direction. He devoted himself to his task with an activity which 
 left him no time to spare for those pursuits in which he had surpassed Archi- 
 medes and Galileo. Till the great work was completely done, he resisted firmly, 
 and almost angrily, every attempt that was made by men of science, either here 
 or on the Continent, to draw him away from his official duties. The old officers 
 of the mint had thought it a great feat to coin silver to the amount of fifteen 
 thousand pounds a week. When Montague talked of thirty or forty thousand, 
 these men of form and precedent pronounced the thing impracticable. But the 
 energy of the young chancellor of the Exchequer and of his friend the warden 
 accomplished far greater wonders. Soon nineteen mills were going at once in 
 the Tower. As fast as men could be trained to the work in London, bands of 
 them were sent off to other parts of the kingdom. Mints were established at 
 Bristol, York, Exeter, Norwich, and Chester. This arrangement was in the 
 highest degree popular. The machinery and the workmen were welcomed to 
 the new stations with the ringing of bells and the firing of guns. The weekly 
 issue increased to sixty thousand pounds, to eighty thousand, to a hundred 
 thousand, and at length to a hundred and twenty thousand. Yet even this issue, 
 though great, not only beyond precedent, but beyond hope, was scanty when 
 compared with the demands of the nation. Nor did all the newly stamped silver 
 pass into circulation ; for during the summer and autumn those politicians who 
 were for raising the denomination of the coin were active and clamorous ; and it 
 was generally expected that, as soon as Parliament should reassemble, the 
 standard would be lowered. Of course, no person who thought it probable that 
 he should, at a day not far distant, be able to pay a debt of a pound with three 
 crown pieces instead of four, was willing to part with a crown piece till that day 
 arrived. Most of the milled pieces were, therefore, hoarded. May, June, and 
 July passed away without any perceptible increase in the quantity of good money. 
 It was not till August that the keenest observer could discern the first faint signs 
 of returning prosperity." * 
 
 The parallelism between the situation in the United States to-day 
 and that in England two hundred years ago, both countries suffering 
 from a similar cause, a vicious currency, one of the greatest calami- 
 ties that can befall a people, is very striking. Macaulay states that 
 of the receipts into the English Treasury when the currency there 
 was at its lowest value not over one-half of one per cent, was in 
 money of full weight. The receipts into the Treasury of the United 
 States are now almost wholly in the form of silver certificates, uni- 
 versally regarded as of " light weight,'' as the least valuable of the 
 various kinds of money with us in circulation. In spite of the pro- 
 testations of our Government that every kind of money issued by it is 
 equally good, the better sense of the people tells them that there is 
 a wide difference in value between them. Greenbacks, the highest 
 
 1 Macaulay's " Histoiy of England," Volume IV. 
 
THE SILVER RECOINAGE IN ENGLAND. 189 
 
 form of Government paper money, are legal tender, and are in terms 
 payable in gold, of which reserves equal to twenty-five per cent, of 
 their amount are assumed to be provided. The notes of 1890, con- 
 stituting the second form of paper money, are also legal tender, 
 which implies an obligation on the part of the Government to pay 
 them in the kind of money demanded by the holder. They are also 
 supported by a declaration of Congress that they are to be paid in 
 gold at the option of the holder. But such a declaration has not the 
 force of positive law. For these Government does not assume to 
 provide any reserves whatever. The third form are the silver notes 
 of 1878 to which it is assumed that the declaration of Congress in 
 favor of the notes of 1890 applies. They are not legal tender, and 
 it is purely optional with the Government whether it will make any 
 provision for them other than the silver which they represent, the 
 value of which somewhat exceeds fifty per cent, of their nominal 
 amount. So far as reserves are concerned the silver notes are the 
 best secured of all. Although the notes of all still circulate at the 
 nominal value of gold, banks and bankers are very careful never to 
 have any considerable amount of notes of 1878 on hand. They are 
 not available for settlements of balances at the clearing houses in the 
 leading cities, especially in the city of New York. Silver dollars, a 
 fourth kind of debased money, worth less than one-half their nominal 
 value, are scrupulously avoided by all classes for fear that any day 
 they may circulate at their real value. The result is, that instead of 
 one kind of debased money, as in England, we have four in the 
 United States : United States notes — the greenbacks, — the silver 
 certificates of 1878, the silver notes of 1890, and silver dollars, all 
 with a well-marked difference in value. By means of them almost 
 all the business operations of the country are carried on. All are infla- 
 tions of the currency for the discharge of not one of which in gold 
 any adequate provision has been or ever will be made. With so 
 many different kinds of money differing in value, is not the paralysis 
 resting upon all business affairs, extending backwards through several 
 years, readily accounted for? The condition of things in England 
 two hundred years ago, described so graphically by Macaulay, was 
 normal compared with the confusion and chaos that exist here. 
 Can the crisis here be met with the sense and courage which was 
 displayed in a similar one two hundred years ago ? Is the officer who 
 presides over the department of the Treasury of the United States, 
 
190 PAPER MONEY IN FRANCE. 
 
 like the one who presided over a similar department in England, 
 ready to declare his determination to "kill or cure "? The motives 
 that press upon him are ten-fold more urgent. In the place of 
 7,000,000 people we have here 70,000,000 groaning under the evils 
 of a vicious monetary system, all apprehensive of the crowning dis- 
 aster which may happen at any moment — suspension of specie pay- 
 ments alike by the Government and people. The operations of 
 society here resting upon a debased currency are twenty-fold greater 
 per head than they were two hundred years ago. The boon which 
 he would. confer should he succeed in the great task before him is 
 beyond estimate, and would entitle him to the highest position 
 among those who have deserved well of their country. 
 
 PAPER MONEY IN FRANCE. ■ — THE MISSISSIPPI SCHEME. 
 
 One of the most striking and instructive examples of a credit cur- 
 rency was that of France, under the leadership of the celebrated 
 John Law. He proceeded upon the assumption that " as the credit 
 of a merchant amounted to ten-fold his capital, that of a bank might 
 be still greater ; while there was no limit to that of a State or a 
 king;" that as money is that which sets everything in motion, 
 the prosperity of a people or State is in ratio to its amount ; and 
 metallic money receives its value from the insignia of Government. 
 He began his vast schemes by securing (May 7, 1716) an edict 
 for the establishment of a private institution called "La Banque 
 Genelale." As at the outset it was conducted in a business-like 
 manner, it met with great success, increasing the supply of money, 
 and thereby reducing by one-half the rates previously paid. Its 
 capital consisted of 6,000,000 livres (the equivalent of about 
 $1,200,000), divided into shares of 5,000 livres each. Its capital 
 was paid one-fourth in coin and three-fourths in Government funds. 
 On the 10th of April, 171 7, an edict was passed ordering the collectors 
 of taxes to receive in their payment the notes of the bank, thereby 
 securing for them a large circulation. From the uses they served 
 their amount was presently increased to 60,000,000 livres. 
 
 A high credit having been secured by such measures for his bank, 
 Law proceeded to the development of his grand schemes of con- 
 trolling, through the money supplied by it, the whole machinery of 
 society and state. In August, 17 17, he procured an edict for the 
 establishment of the " Compagnie des Indes-Occidentales," which 
 
PAPER MONEY IN FRANCE. I9I 
 
 secured to him the virtual sovereignty of the most fertile portions 
 of the continent of North America. This was the beginning of the 
 famous "Mississippi scheme," of which so much has been written 
 and said. The capital of the new company was 100,000,000 livres 
 ($20,000,000), divided into shares of 500 each, payment being 
 made one-fourth in coin and three-fourths in government funds. 
 On the fourth of September, 17 18, the bank became a government 
 institution, under the title of " La Banque Royale," of which Law 
 retained the management, the king guaranteeing its notes, the stock- 
 holders of the old bank being paid off in coin. To increase the 
 importance of the bank the transfer of money between the cities in 
 which it had branches was forbidden. The bank now allied itself to 
 the Mississippi Company, which became the great instrument of 
 Law in carrying out his vast schemes, its issues being increased to 
 110,000,000 livres. In 17 19 the East India and Senegal Com- 
 panies of France were united with the Mississippi Company, a union 
 which secured to the latter the greater part of the foreign trade of the 
 kingdom. From the assumed advantages that would result, the 
 stock of the Mississippi Company rose to a premium of 450 per 
 cent. In August, 17 19, the company undertook to advance to the 
 Government, at the rate of 3 per cent., the sum of 1,500,000,000 
 livres for the payment of the public debt, which had previously 
 borne interest at the rate of 5 per cent. As a part of the transaction 
 the farming of the revenues was conceded to the company in con- 
 sideration of the annual payment of 52,000,000 livres. The coin- 
 age was also conceded for a period of nine years in consideration of 
 the payment of 5,000,000 livres. 
 
 The stock of the Mississippi Company now rose to a premium of 
 1200 per cent. To aid it in its various undertakings the bank 
 increased its issues to 1,000,000,000 livres. Money became so 
 abundant that lands sold at fifty years' purchase. From November, 
 1719, to April, 1720, the market value of the stock of the company 
 rose to a premium of 2050 per cent. Law, capable of giving to the 
 most worthless substances the value of gold, became the greatest 
 figure in Europe. Its proudest aristocracy bowed in humble rever- 
 ence at his feet, while the favor and admiration of the masses was 
 won by his liberal use of his apparently boundless wealth, the crea- 
 tion of the printing-press. He was now made Controller-General of 
 the finances of the kingdom, one of its most distinguished citi- 
 
192 PAPER MONEY IN FRANCE. 
 
 zens being compelled to make way for him. As Paris was the theatre 
 of this vast creation of apparent wealth, all France literally flocked 
 to it as the place where money was to be had for the asking. Trade 
 received a mighty impulse. Everybody seemed to be getting richer 
 and richer, and no one poorer. It was the halcyon era of pure popu- 
 lism. The market value of the shares of the bank reached 10,000,000,- 
 000 livres. Upon such a sum a revenue of 500,000,000 was neces- 
 sary to pay 5 per cent. Its whole income from all sources did not 
 equal one-sixth part of that sum. As was inevitable, the more 
 reflecting classes began to exchange their shares for other kinds of 
 property. The example was contagious, and shares began to fall 
 rapidly in price. To meet the fall a series of edicts was rapidly 
 issued, one of which provided that the notes should command a 
 premium over gold, the use of which was to be greatly restricted, 
 every one being forbidden to have any considerable amount in 
 his possession. All such measures only served to accelerate the 
 decline. To arrest it the gross value of the shares was fixed at 
 9,000,000,000 livres, the company being required to purchase and 
 sell at that rate. To add to the confusion and distress metallic 
 money was not to be had, the greater part of that previously in 
 circulation having been sent out of the kingdom. Universal dis- 
 aster and distress took the place of the extravagance and waste 
 which had so recently prevailed. The money of the bank be- 
 came almost wholly valueless. The untold wealth of the Missis- 
 sippi Company was seen to be only a dream. Great masses of 
 people who had invested their all in Law's schemes were reduced to 
 abject want. The vast fabric that was reared and the terrible catas- 
 trophe that followed were rendered possible only through the issue 
 of a " credit currency " precisely similar in kind to the United States 
 notes. With the turn of the tide, Law, speedily stripped of all his 
 offices and honors, fled secretly and in disgrace from France, never 
 to return. To restore the situation in part, the government again 
 assumed the charge of the public debt, the interest on it being 
 reduced about half — to 40,000,000 in the place of 80,000,000 
 livres. The charter of the bank was abrogated, and the famous 
 Mississippi Company, divested of all its vast powers, was reduced to 
 the condition of a private and insignificant trading corporation. 
 That the issue of United States notes, a currency precisely similar 
 in kind to those of the Bank of France, has not been followed by 
 
PAPER MONEY IN FRANCE. 193 
 
 calamities similar to those which overtook Law's bank, is due to the 
 fact that it has not been made the basis of vast speculative opera- 
 tions, its orderly retirement being still within our reach. 
 
 But France, as well as England, had an illustrious citizen, Turgot, 
 capable of demonstrating, and who did demonstrate most conclu- 
 sively, the laws and nature of money, whether metallic or paper. To 
 Law's assumption that 
 
 These two metals — gold and silver — are only the signs that represent real 
 wealth, that is to say, commodities. A crown is a note conceived in these terms : 
 ' ' Any seller shall give to the bearer the article or merchandise of which he may 
 have need, to the amount of three livres, for as much of another merchandise 
 which has been delivered to me ; " and the effigy of the prince stands for the 
 signature. Now what does it signify whether the sign be of silver or of paper? 
 Is it not better to choose a material that costs nothing and which we are not 
 obliged to withdraw from commerce where it is employed as merchandise, — one, 
 in fine, that is fabricated in the kingdom and does not subject us to a necessary 
 dependence on foreigners and owners of mines, who greedily profit by the seduc- 
 tion into which, by the glamour of gold and of silver, other nations have fallen, 
 — a material which we can increase according to our needs, without fear of its 
 ever being deficient ? Paper has all these advantages which render it preferable 
 to hard money. 1 
 
 Turgot replied : 
 
 Here would be a benefit as grand as the philosopher's stone if all these 
 reasonings were just. We should have need of neither gold nor silver to buy all 
 kinds of commodities. But has it been left to Law to remain ignorant that gold 
 falls in value like everything else by becoming more plentiful ? If he had read 
 and studied Locke, who wrote twenty years before, him, he would have known 
 that all commodities of a country are balanced between themselves, and with 
 gold and silver according to the proportion of their quantity and the demand for 
 them ; he would have learned that gold has not a value which corresponds 
 always to a certain quantity of merchandise, but that when there is more gold it 
 is cheaper, and gives more of it for a determinate quantity of merchandise ; that 
 thus gold, when it circulates freely, suffices always to the need of the State, and 
 that it becomes a matter indifferent to have one hundred millions of marks, or 
 one million, if we are to buy all commodities dearer in the same proportion. It is 
 ridiculous to say that metallic money is only a sign of value, the credit of which is 
 founded on the stamp of the king. This stamp is only to certify the weight and 
 the title. Even in its relation to commodities the metal uncoined is of the same 
 price as that coined. The marked value is simply a denomination. This is what 
 Law seems to have been ignorant of in establishing his bank. 
 
 It is then as merchandise that coined money is, not the sign, but the com- 
 mon measure, of other merchandise, and that not by an arbitrary convention, 
 
 1 Stephens' " Life of Turgot," page 206. 
 
194 PAPER MONEY IN FRANCE. 
 
 founded on the glamour of that metal, but because, being fit to be employed in 
 different shapes as merchandise, and having on account of this property a salable 
 value, a little increased by the use made of it as money, and being besides suit- 
 able of reduction to a given standard and of being equally divided, we always 
 know the value of it. Gold obtains its price from its rarity, and so far from its 
 being an evil that it is employed at the same time as merchandise and as money, 
 these two employments maintain its price. 
 
 Supposing that the king could establish paper money, which, with all his 
 authority, would not be easy, let us examine what he would gain by it. First, if 
 he increased the quantity he would lower the value by the same act; and as he 
 reserves the power to increase it, it is impossible for people to consent to give 
 their commodities, at the same nominal price, for a bill, when by a stroke of the 
 pen that could be made to lose its real value. " But," says Law, " the king, to 
 preserve his credit, is interested in restricting the paper within just limits, and 
 this interest of the king is sufficient to establish public confidence." What should 
 the just limits be, and how are they to be determined? Let us follow out the 
 system into the different suppositions that may be made, and let us see in each 
 case what would be its solidity in respect to the utility it proposes. 
 
 I observe, first of all, that it is absolutely impossible for the king to substi- 
 tute the use of paper for that of gold and silver. Gold and silver themselves, 
 regarding them only as signs, are, by the fact of their circulation, actually dis- 
 tributed among the public according to the proportion of the commodities, of the 
 industry, lands, and real wealth of every kind existing. Now, this proportion 
 can never be primarily known, because it is hidden, and because it varies con- 
 tinually by a new circulation. The king will not proceed to distribute his paper 
 money to each person in the proportion that he holds gold and silver money, for- 
 bidding him at the same time to employ the metal in commerce ; it would be 
 necessary for the king to take to himself the gold and silver of his subjects, 
 giving them his paper in their place. . . . But it is a point, equally of theory 
 and of experience, that the people would never receive the paper except as repre- 
 senting real money, and consequently convertible into it. 
 
 One of the ways in which the king could draw to himself metallic money 
 in exchange, and perhaps the only way, would be for him to take back his notes, 
 conjointly with the coin, but to give out only his notes, while keeping the coin. 
 Then he would choose between these two expedients : either to melt the coin in 
 order to use it as merchandise, reducing his subjects to the use of paper, or to 
 leave the coin and to circulate conjointly with it the paper as representatives of 
 each other. I commence by examining this last supposition. 
 
 I assume, then, that the king puts into circulation a quantity of paper money 
 equal to that of coin (Law would have put ten times more). Now, as the total 
 quantity of signs (instruments of exchange) always balances itself with the total 
 of commodities, it is plain that the sign will be worth the half less, or, what is 
 the same thing, commodities will be worth as much again more. But independ- 
 ently of their function as signs of value, gold and silver possess their real value 
 as articles of merchandise, a value which also balances itself against the commod- 
 ities proportionately to the quantities of these metals, and which they do not lose 
 by their function as money, but on the contrary ; that is to say, their value will 
 
ADAM SMITH. 1 95 
 
 be balanced with more merchandise as metal than the paper can be with which it 
 was balanced as money, and, as I shall afterwards show, the king being always 
 obliged to increase the number of his notes if he would not have them rendered 
 useless, this disproportion will go on increasing to the point when specie and 
 paper will be no longer reciprocally convertible, and the paper must become dis- 
 credited from day to day, while the value of metallic money will be always sus- 
 tained.' 
 
 If more than forty years afterward (said Dupont in his " Works 
 of Turgot") the majority of the Constituent Assembly had had as 
 much enlightenment upon this question as Turgot already had 
 shown while almost a youth, France would have been saved from 
 the assignats. In the United States, after the experience of nearly 
 two hundred years, Law instead of Turgot, upon the subject of 
 money, is still our mentor and guide. 
 
 ADAM SMITH. 
 
 The theory of money which now obtains in the United States was 
 formulated by Adam Smith, who was a follower of Law in assum- 
 ing that it circulated from the necessity of a medium of exchange, 
 and that without any other support it would continue to circulate 
 and perform all the functions of metallic money provided it was 
 not in excess ; that is, provided that the amount did not exceed 
 that of the metallic money which had circulated in its place. 
 Costing nothing in itself, it was a very proper substitute for metallic 
 money, the value of which was intrinsic. In his great treatise, 
 "Wealth of Nations," he said: 
 
 The substitution of paper in the room of gold and silver money replaces a 
 very expensive instrument of commerce with one much less costly, and sometimes 
 equally convenient. Circulation comes to be carried on by a new wheel, which 
 it costs less both to erect and maintain than the old one. But in what manner 
 this operation is performed, and in what manner it tends to increase either the 
 gross or the neat revenue of the society, is not altogether so obvious, and may, 
 therefore, require some further explication. 
 
 There are several sorts of paper money, but the circulating notes of banks 
 and bankers are the species which is best known, and which seems best adapted 
 for this purpose. When the people of any particular country have such confi- 
 dence in the fortune, probity, and prudence of a particular banker as to believe 
 that he is always ready to pay upon demand such of his promissory notes as are 
 likely to be at any time presented to him, these notes come to have the same 
 
 3 Stephens' "Life of Turgot," page 206. 
 
I96 ADAM SMITH. 
 
 currency as gold and silver money, from the confidence that such money can at 
 any time be had for them. 
 
 A particular banker lends among his customers his own promissory notes, to 
 the extent, we shall suppose, of a hundred thousand pounds. As those notes 
 serve all the purposes of money, his debtors pay the same interest as if he had 
 lent them so much money. This interest is the source of his gain. Though 
 some of these notes are continually coming back upon him for payment, part of 
 them circulate for months and years together ; though he has generally in circu- 
 lation, therefore, notes to the extent of a hundred thousand pounds, twenty 
 thousand pounds in gold and silver may frequently be sufficient provision for 
 answering occasional demands. 
 
 Let us suppose, for example, that the whole circulating money of some 
 particular country amounted at a particular time to £i,ooo,oco, that sum 
 then being sufficient for circulating the whole annual produce of their land 
 and labor. Let us suppose, too, that some time thereafter different banks and 
 bankers issued promissory notes payable to the bearer, to the extent of £1,000,- 
 000, reserving in their different coffers £200,000 for answering occasional 
 demands. There would remain, therefore, in circulation, £800,000 in gold 
 and silver and £1,000,000 of bank notes, or £1,800,000 of paper and money 
 together. But the annual produce of the land and labor of the country had 
 before required only £1,000,000 to circulate and distribute it to its proper 
 consumers, and that annual produce cannot be immediately augmented by the 
 operations of banking; £1,000,000, therefore, will be sufficient to circulate it 
 after them. The goods to be bought and sold being precisely the same as 
 before, the same quantity of money will be sufficient for buying and selling 
 them. The channel of circulation, if I may be allowed such an expression, 
 will remain precisely the same as before. One million pounds we have 
 supposed sufficient to all that channel. Whatever, therefore, is poured into it 
 beyond that sum cannot run in it, but must overflow: £1,800,000 are poured 
 into it ; £800,000, therefore, must overflow, that sum being over and above 
 what can be employed in the circulation of the country. But though this sum 
 cannot be employed at home, it is too valuable to be allowed to lie idle. It will, 
 therefore, be sent abroad, in order to seek that profitable employment which it 
 cannot find at home. But the paper cannot go abroad, because at a distance 
 from the banks which issue it, and from the country in which payment of it can 
 be exacted by law, it will not be received in common payments. Gold and 
 silver, therefore, to the amount of £800,000 will be sent abroad and the channel 
 of home circulation will remain filled with £1,000,000 of paper instead of the 
 £1,000,000 of those metals which filled it before. . . . 
 
 When paper is substituted in the room of gold and silver money, the quantity 
 of the materials, tools, and maintenance which the whole circulating capital can 
 supply may be increased by the whole value of gold and silver which used to be 
 employed in circulating them. The whole value of the great wheel of circulation 
 and distribution is added to the goods which are circulated and distributed by 
 means of it. 
 
 What is the proportion which the circulating money of any country bears to 
 the whole value of the annual produce circulated by means of it, it is, perhaps, 
 
ADAM SMITH. I97 
 
 impossible to determine. It has been computed by different authors at a fifth, at 
 a tenth, at a twentieth, and at a thirtieth part of that value. But how small soever 
 the proportion which the circulating money may bear to the whole value of the 
 annual produce, as but a part, and frequently but a small part, of that produce 
 is ever destined for the maintenance of industry, it must always bear a very 
 considerable proportion to that part. 
 
 The whole paper money of every kind which can easily circulate in any 
 country can never exceed the value of the gold and silver of which it supplies the 
 place, or which (the commerce being supposed the same) would circulate there 
 if there were no paper money. If twenty-shilling notes, for example, are the 
 lowest paper money current in Scotland, the whole of that currency that could 
 easily circulate there cannot exceed the sum of gold and silver which would be 
 necessary for transacting the annual exchanges of twenty shillings' value and 
 upwards usually transacted in that country. Should the circulating paper at any 
 time exceed that sum, as the excess could neither be sent abroad nor employed in 
 the circulation of the country, it must return immediately upon the banks to be 
 exchanged for gold and silver. Many people would immediately perceive that 
 they had more of this paper than was necessary for transacting their business at 
 home ; and, as they could not send it abroad, they would immediately demand 
 payment for it at the banks. When this superfluous paper was converted into 
 gold and silver, they could easily find a use for it by sending it abroad ; but they 
 could find none while it remained in the shape of paper. There would immedi- 
 ately, therefore, be a run upon the banks to the whole extent of this superfluous 
 paper; and, if they showed any difficulty or backwardness in payment, to much 
 greater extent, the alarm which this would occasion necessarily increasing the 
 run. 
 
 What a bank can with propriety advance to a merchant or undertaker of 
 any kind is not either the whole capital with which he trades, or even any con- 
 siderable portion of that capital, but that part of it only which he would other- 
 wise be obliged to keep by him unemployed, and in ready money for answering 
 occasional demands. If the paper money which the bank advances never exceeds 
 this value, it can never exceed the value of the gold and silver which would nec- 
 essarily circulate in the country if there were no paper money. It can never 
 exceed the quantity which the circulation of the country can easily absorb and 
 empty. 
 
 When it was observed that, within moderate periods of time, the repayments 
 of a particular customer were upon most occasions fully equal to the advances 
 which a bank had made him, it might be assumed that the paper money which 
 had been advanced to him had not at any time exceeded the quantity of gold 
 and silver which he would otherwise have been obliged to keep by him for 
 answering occasional demands ; and that, consequently, the paper money which 
 had been circulated by his means had not at any time exceeded the quantity of 
 gold and silver which would have circulated in the country had there been no- 
 paper money. The frequency, regularity, and amount of his repayments would 
 sufficiently demonstrate that the amount of the advances made had at no time 
 exceeded that part of this capital which he would otherwise have been obliged 
 
198 ADAM SMITH. 
 
 to keep by him unemployed, and in ready money for answering occasional 
 demands. 
 
 The advances of the bank paper, by exceeding the quantity of gold and 
 silver, which, had there been no such advances, he would have been obliged to 
 keep by him for answering occasional demands, might soon come to exceed the 
 whole quantity of gold and silver which would have circulated in the country had 
 there been no paper money, and, consequently, to exceed the quantity which the 
 circulation of the country could easily absorb and employ ; and the excess of this 
 paper money would immediately have returned upon the bank to be exchanged 
 for gold and silver. 
 
 The increase of paper money, it has been said, by augmenting the quantity, 
 and consequently diminishing the value, of the whole currency, necessarily 
 augments the money price of commodities ; but as the quantity of gold and silver 
 which is taken from the currency is always equal to the quantity of paper which 
 is added to it, paper money does not necessarily increase the quantity of the 
 whole currency. 1 
 
 With Smith money arose from the necessity of a medium of ex- 
 change, value, either intrinsic or representative, being no necessary 
 attribute of it. Metallic money, first in use, was a very costly 
 "wheel of circulation," for which another "wheel," costing nothing, 
 paper money, was " substituted," a corresponding amount of capital 
 being thereby discharged from unproductive to be applied to pro- 
 ductive uses. To secure the acceptance of the " substitute," all 
 that was required was good credit on the part of the issuer. The 
 process was a very simple and safe one, as the amount of the " sub- 
 stitute " could never exceed that of the metallic money displaced, 
 the excess, for which there was no use in the channels of circulation, 
 returning immediately to the issuer. At the time Smith wrote there 
 was no money of the kind described. It is easy to see how his 
 mistake arose. He saw that the notes of the Bank of England were 
 uniform, or nearly so, in amount ; and that only a small provision 
 by way of reserves appeared to be made therefor. He inferred, 
 consequently, that they were accepted and maintained in circulation 
 upon the credit of the issuer ; and that the reserves were provided 
 only to meet " occasional calls " for coin, and to take in any 
 "excess." He wholly overlooked the fact that the notes of the 
 Bank were issued in the discount of bills, which in the place of coin 
 served as the instruments for the distribution of merchandise from 
 producer to distributer, the notes serving for the distribution of the 
 same merchandise directly to consumers. The notes were money 
 
 1 " Wealth of Nations," Rook II., Chapter II., *■/ seq. 
 
ADAM SMITH. 199 
 
 for the reason that, from their representative value, they performed 
 all the functions of metallic money. The term " money " might in fact 
 be well applied to bills of exchange, — instruments of distribution, — 
 these, like the notes issued in their discount, being retired by their 
 use. Such instruments of distribution, from the greater safety and 
 convenience of their use, were preferred to metallic money irre- 
 spective of the saving effected thereby. As already shown, the 
 process of issue is a mutual exchange of obligations ; of payment, 
 the mutual cancelling of the same obligations. As the bills dis- 
 counted by the Bank matured within periods of, say, sixty days, the 
 notes issued in their discount and used in their payment were 
 necessarily returned within similar periods, and without any inter- 
 position on its part, its bills, representing merchandise in demand 
 for consumption, being certain to be paid. Issues made in the dis- 
 count of fictitious paper were, from the credit of the Bank, accepted 
 by the public equally with those issued in the discount of business 
 paper. Both alike were treated as capital. But issues made in the 
 discount of the former would not, for the want of means on the part 
 of their makers, be returned by them in its payment, but by other 
 issuers into whose hands they would fall, who would demand the 
 daily discharge in coin of all balances in their favor. Against such 
 issues the Bank would have nothing by way of offset but its own 
 capital in the form of coin. For reasons well understood it would, 
 as a rule, lose an amount equal to that of fictitious paper dis- 
 counted. If it discounted none other it would, in spite of its re- 
 serves, speedily become bankrupt. 
 
 That Smith's theory of "credit money" never obtained in England 
 was due to the fact that the Bank of England was forbidden by its 
 charter to deal in anything but bills of exchange and gold and 
 silver bullion. It would never, unless imposed upon, exchange its 
 obligations based upon capital but for those equally well based. 
 If possessed of capital, no conditions, in fact, need be imposed upon 
 issuers, as their chief care will always be its preservation. The Bank 
 of England, exacting daily settlements with all other issuers (it alone 
 having the prerogative of issuing notes), virtually imposed upon all 
 the restrictions imposed by law upon itself. As the Bank of England 
 was a permanent institution, Smith's "credit money" never had a 
 foothold in that country. It never had any in the United States during 
 the existence of the two National Banks, both being based on capital, 
 
200 ADAM SMITH. 
 
 and both being restricted in their operations to bills of exchange and 
 to gold and silver bullion. As they greatly ranked, in means and 
 influence, all other institutions of the kind ; as they had branches in 
 every considerable place of business ; and as they received on deposit, 
 and in the payment of their bills, and of the public revenues of which 
 they were the custodians, the notes and credits of all similar institu- 
 tions, occupying positions in reference to the Government similar to 
 that now occupied by the Independent Treasury, but receiving 
 every kind of money, they necessarily, for their own protection, en- 
 forced daily settlements with all other issuers, in this way imposing 
 upon all the restrictions imposed by law upon themselves. During 
 their existence the currency, whoever the issuer or wherever 
 issued, was, as in England, always the equivalent of coin, being always 
 based upon capital, and in great part upon merchandise in process 
 of distribution. 
 
 The winding-up of the first Bank was the first opportunity for 
 Smith's "credit money " here. In a very short time after its charter 
 expired the issues of the State Banks, subject to no proper re- 
 straint, rose speedily from $80,000,000 to #300,000,000, chiefly by 
 the discount of fictitious paper. The second Bank, supplying every- 
 where, through its branches, good money, and enforcing daily settle- 
 ments with all other issuers, speedily drove " credit money " out of 
 existence. The second opportunity for this came with its overthrow. 
 General Jackson in his assault upon it, borrowing almost the exact 
 language of Smith, who had drawn his inspiration from Law, declared 
 that the notes issued by it were mere forms of credit, and that the 
 interest charged for their use was pure robbery. The " wild-cat 
 money " of the South and West, and for a time of the whole 
 country, Smith's " credit money," was the result. Within a short 
 period from its overthrow the currency rose from #116,000,000 to 
 $276,000,000, to speedily fall, from its inherent rottenness, to $114,- 
 000,000. Of the terrible disasters that resulted from the use of 
 " credit money " the extracts given from the annual message for 1857, 
 of President Buchanan, present a striking but by no means extrav- 
 agant picture. In the mania for it vast numbers of banks were cre- 
 ated like those described by the governor of Indiana, having no 
 offices or places of business but saddle-bags. 
 
 As the people, left to themselves, always seeking the best methods 
 to given ends, will never long tolerate a vicious currency of banks, 
 
ADAM SMITH. 201 
 
 the situation when the war of the Rebellion broke out was, through 
 the operation of what may be termed natural laws, in great measure 
 restored. The Independent Treasury, established by the Govern- 
 ment to avoid the use of Smith's " credit money," and into which 
 nothing but metallic money was to enter, unfortunately remained. 
 In the payment of the loans negotiated on a large scale with the 
 Banks for carrying on the war, the Secretary, Mr. S. P. Chase, 
 would accept nothing but metallic money. The result was, as al- 
 ready shown, the speedy suspension by them of specie payments. 
 Their suspension, accompanied by the refusal to use the money of 
 banks, necessarily led to the issue for the first time in our history of 
 Smith's " credit money " by the Government. 
 
 It was to avoid the use by the Government of " credit money " that 
 the Independent Treasury was established. Its establishment forced 
 in the end the adoption of the very kind of money sought to be 
 avoided. The remedy for a vicious currency of banks will, sooner 
 or later, always be applied, as no one will understandingly accept 
 anything in exchange but an equivalent. But a remedy so effectual 
 in correcting a vicious currency of banks cannot be so readily ap- 
 plied to the notes of a government armed as they are with the legal 
 tender attribute. When one refuses the note of a bank, for the rea- 
 son that it is not good money, he has his own immediate interest 
 only in view. He is indifferent as to the effect of his refusal in cur- 
 tailing the currency. When the same person is called upon to take 
 action to retire, as it were, the great mass of currency in circulation, 
 he naturally hesitates, from the consequences involved. He may, 
 he fears, be for a time without any medium of exchange whatever. 
 This is the reason why the retirement of a currency of Government 
 notes is so difficult a matter. This hesitation will give place to 
 action when it is seen that the reform of the currency is a matter 
 of absolute necessity, and that, with provision for funding the notes 
 of the Government, the amount of the currency remaining in cir- 
 culation will never fall below that necessary for the distribution of 
 the products of the people, than which nothing more is to be asked. 
 
 The amount of the advances in the form of credits to be made 
 by banks and bankers to merchants or undertakers was not, said 
 Smith, to equal the whole amount of the capital of the former, but 
 only an amount equal to that of the gold and silver they would be 
 obliged to keep on hand to meet occasional calls. But banks and 
 
202 ADAM SMITH. 
 
 bankers are never to advance to merchants or undertakers any 
 portion of their reserves, the chief function of the former being to 
 issue instruments of distribution. To make advances of their 
 credits to serve as the reserves of others in affairs would be to bring 
 speedy ruin upon themselves. Every one in affairs is to provide 
 his own reserves, but those of merchants and undertakers may be 
 in the form of the products in which they deal and which are to 
 have the value of an equal nominal amount of metallic money. 
 
 What, asks Smith, is the proportion which the circulating money 
 of any country is to bear to the whole value of the merchandise to 
 be circulated by it? And he replies by stating that it may equal a 
 fifth, a tenth, a twentieth, or a thirtieth of the value of such mer- 
 chandise. The inquiry and reply show his profound ignorance 
 upon the subject on which he wrote. In commercial countries, 
 like Great Britain and the United States, merchandise entering into 
 consumption is moved by the issues of banks and bankers which, 
 from the services they perform, are called money, the nominal 
 value of one equalling the actual value of the other. 
 
 As Smith's " credit money " is, from its very nature, always an in- 
 strument of fraud and waste ; as hardly a day passes that does not, in 
 this country at least, show its real character in the disasters that fol- 
 low its use (Tor it may be in the form of cheques as well as notes), 
 how is it that he is still the unquestioned authority? The reason is, 
 that as one with money is possessed of everything else, he who can 
 show how it is to be had in abundance is sure of the popular ear. 
 If one scheme fail, another is certain to take its place, as upon this 
 subject there is no end to human credulity. Smith, the greatest 
 schoolman of modern times, and one of the greatest of all times, 
 dreaming away his life in his closet, showed how money was to be 
 had for nothing. The scholasticism of the middle ages was almost 
 unhesitatingly adopted by modern universities, over which, till within 
 a recent period, men of affairs have had no control. The graduates 
 of these, armed with the lessons taught them by schoolmen, became 
 the teachers of our youth, entered into the halls of legislation, and 
 have had almost the entire direction of the popular mind. All 
 "learned men," so far as money was concerned, were naturally 
 followers of Smith. By all, " fiat money " is held to be good money. 
 Of this, one illustration will suffice. In the " Popular Science 
 Monthly" for December, 1883, Professor Taussig, who now fills 
 the chair of Political Economy in Harvard University, said : 
 
 Paper money, though of the purest fiat character, with no hope or promise for 
 its redemption in specie, may yet perform with reasonable efficiency, the functions 
 of a circulating medium. 
 
THE SECRETARY OF THE TREASURY ON 
 THE MONETARY SITUATION. 
 
 On the 29th of October, 1897, the Secretary of the Treasury 
 submitted to the Cabinet an elaborate paper upon the monetary 
 situation, in which he set forth the demand liabilities of the 
 Government in the form of money, — $346,000,000 in greenbacks, 
 $ 1 1 4,000,000 in notes issued under the Act of 1 890, and $4 70,000,000 
 in silver certificates and silver dollars issued under the Act of 1878, 
 — the several sums aggregating $930,000,000, all of which he 
 declared is, under the Act of 1893, 
 
 To have equal purchasing power with gold at all times in the markets and in 
 the payment of debts. Conformable to the spirit of this declaration the Treasury 
 Department has treated gold and silver coins, and the paper representatives of 
 both, as of equal dignity and value in all its operations. In the collection of its 
 revenues it has made discrimination against neither, while upon the other hand it 
 has held itself ready to pay to the public creditor whichever of the two he might 
 choose to receive as the more desirable to him. Even further than this, it has 
 declared itself ready, whenever necessary to the maintenance of this parity, to ex- 
 change on even terms, at the pleasure of the holder, either form of the metallic 
 money for the other. These practical operations and declarations were necessary, 
 and they have operated to keep in concurrent circulation, on terms of equality, 
 the two kinds of metallic money, notwithstanding the varying but never ceasing 
 disparity between the natural or commercial value of the one as compared with the 
 other. 
 
 For the maintenance of the "parity" of the several kinds 
 of money described the "traditional" sum of $100,000,000 
 only in gold is provided. 
 
 The recognized inadequacy of such amount, continued the Secretary, has 
 on more than one occasion brought fear and derangement to all interests, indus- 
 trial, commercial, and financial. The losses by the body politic through the 
 derangements having their origin in the state of the public Treasury exceed the 
 demand liabilities of the Treasury. As long as the Government shall operate to 
 any considerable extent in supplying the currency of the country, either by the 
 direct issue of its notes, or by maintaining, through its guarantees of "parity," so 
 
204 SECRETARY OF TREASURY ON MONETARY SITUATION. 
 
 large a volume of silver money, so long will there remain a state of deep depend- 
 ence in all our trade and industry upon the financial wisdom, foresight, and 
 courage on the part of Congress. 
 
 In his Annual Report, December 7, 1897, the Secretary outlined a 
 series of measures for the reform of the currency : That a Depart- 
 ment of Issue and Redemption, separated from the ordinary opera- 
 tions of the Treasury, be created, into which are to be transferred 
 $125,000,000 of gold, to be used wholly as a fund for redemption 
 purposes, all the silver dollars now held for the redemption of the 
 silver certificates, and the dollars and bullion held as security for the 
 notes issued under the Act of 1890, to be passed to the same fund ; 
 that greenbacks amounting to $200,000,000 be collected and depos- 
 ited in said Department, to be paid out only in exchange for 
 equal amounts of gold coin, such coin to be held as a part of the 
 redemption fund ; that the banks be allowed to deposit in the 
 Treasury, greenbacks, silver certificates and notes to the amount of 
 $200,000,000 as security for an equal amount of National Bank 
 notes ; that the Secretary be authorized to substitute for the green- 
 backs, certificates and notes so deposited, "Redemption Bonds," 
 bearing interest at the rate of 2^ per cent, j that upon such substi- 
 tution the greenbacks, certificates and notes so deposited be 
 conveyed into the Department of Issue and Redemption ; that such 
 banks as shall deposit " Redemption Bonds " equal to one-half of 
 their share capital shall be entitled to receive from the Government 
 a like amount of notes, and in addition issue notes equal to 25 per 
 cent, of the bonds so deposited, no other security being required 
 therefor than their general assets, such excess of issue to be subject 
 to an annual tax of 2 per cent, in addition to the general tax of one- 
 half of 1 per cent, imposed upon all issues of all notes, the Gov- 
 ernment assuming the payment of all notes issued ; that the banks 
 now in existence be authorized to issue notes to the full value of the 
 securities deposited therefor ; that no notes shall be issued by banks 
 of denominations of less than $10, and that banks may be created 
 in rural districts with share capitals of not less than $25,000 each. 
 
 On the 1 6th and 17th of December, 1897, the Secretary, in con- 
 ference with the Committee of the House on Banking and Currency, 1 
 
 ' The members of the Committee were : Joseph H. Walker, Massachusetts, Chairman; 
 Marriot Brosius, Pennsylvania; Henry U.Johnson, Indiana; Henry C. Van Voorhis, Ohio; 
 James T. McCleary, Minnesota; Charles N. Fowler, New Jersey; George Spalding, 
 
SECRETARY OF TREASURY ON MONETARY SITUATION. 205 
 
 submitted a draft of a bill for the reformation of the currency sub- 
 stantially as set forth in his paper submitted to the Cabinet, October 
 29, 1897, and embodied in his Annual Report. In opening the Con- 
 ference the Secretary stated the objects sought : 
 
 1 . To commit the country more thoroughly to the gold standard, and to 
 remove, so far as possible, doubts and fears on that point, and thus strengthen 
 the credit of the United States both at home and abroad. 
 
 2. To strengthen the Treasury in relation to its demand liabilities, in which 
 are included greenbacks, treasury notes, and the incidental obligation to main- 
 tain on a parity, through interchangeability with gold; so far as may be necessary, 
 the present large volume of silver certificates and silver dollars. 
 
 3. To do this in such a way as. not to contract the volume of circulation in 
 the hands of the people. 
 
 4. To take an initial step toward a system of bank-note issues without the 
 conditional deposits of public bonds as security therefor. 
 
 The Secretary then called for the reading, section by section, of 
 the draft of his bill, that each might be separately considered. 
 Before commenting upon the discussion which followed the true 
 nature of metallic money and of the various substitutes therefor will 
 be again briefly stated, agreement with this being the test to which 
 the correctness of the statements and conclusions of the Secretary 
 and the Committee will be subjected. 
 
 Money, properly to serve as such, must be merchandise in its 
 highest form, gold, the universal equivalent, or the symbol of mer- 
 chaadise, to reach which, but for its symbol, money in its highest 
 form would be used, the symbol being discharged by the acquisition of 
 its constituent and without interposition on the part of the issuer. 
 As money in the form of gold is the equivalent of the article sought, 
 such article must be the equivalent of gold, as must be the instru- 
 ment or symbol by which such article can be reached. If the desired 
 article cannot be reached by what purports to be the symbol of it, 
 or if such symbol cannot be exchanged for another by which it can 
 be reached, it is returned to the issuer for merchandise in the form of 
 the universal equivalent. Paper money is simply an instrument of 
 distribution arising from the discount of merchants' bills, both forms 
 of indebtedness having behind them the same constituent; mer- 
 
 Michigan; EbenezerJ. Hill, Connecticut; George N. Southwick, New York; George W. 
 Prince, Illinois; John Murray Mitchell, New York; Adin B. Capron, Rhode Island; 
 Nicholas N. Cox, Tennessee ; Francis G. Newlands, Nevada ; Jesse F. Stallings, Alabama ; 
 Daniel Ermentrout, Pennsylvania; John W. Maddox, Georgia. 
 
2o6 SECRETARY OF TREASURY ON MONETARY SITUATION. 
 
 chants' bills serving for its distribution in gross ; the issues of banks 
 for its distribution, piece by piece, to consumers. The process of 
 discount, or issue, at bank is a mutual exchange of obligations ; of 
 payment, the mutual cancelling of the same obligations. All instru- 
 ments of distribution are, in terms, payable in the universal equiva- 
 lent, foreign equally with domestic products being the subjects of 
 consumption, as a guarantee that that which they represent has 
 values in gold equal to their nominal amount. Under a proper sys- 
 tem, one that restricts issues to the discount of merchants' bills, the 
 guarantee is so effectual that metallic money is almost wholly dis- 
 charged from the exchanges, paper or symbolic money, from the 
 greater safety and convenience of its use, having the preference. To 
 repeat — For paper money to be good money the constituent proper 
 for its discharge, merchandise in demand for consumption, is always 
 to be provided previous to its issue. With such provision the symbol 
 is discharged by the process of reaching its constituent. Otherwise 
 it is an instrument of waste to be taken in by the issuer, of which 
 issues made in the discount of " accommodation paper " are familiar 
 examples. With it not only is gold discharged from the exchanges, 
 but no considerable balances either in the foreign or domestic trade 
 of the country calling for its interposition can arise. Governments 
 will never issue good money in the form of notes, for the reason 
 that they will never be possessed of merchandise for distribution. 
 For the want of such provision their issues are always in excess of 
 the means of expenditure, being to their whole extent instruments 
 of waste, provision for their payment to be made, if at all, at a future 
 day, such provision being always a cause of disturbance, as it has to 
 be drawn from the reserves of those in affairs. Having nothing for 
 distribution, the only function of a government in the matter of 
 paper money is to see to it that none be issued that does not rep- 
 resent merchandise adequate for its discharge by restricting issuers 
 to the discount of merchants' bills. 
 
 In the matter of coinage the only function of Government is to 
 impress upon certain pieces of metal evidence of their weight and 
 fineness, and consequently of their value, such impress adding noth- 
 ing to their intrinsic value, that of well-known individuals or firms 
 carrying the same assurance as that of a government. Gold, from 
 its nature, is necessarily the standard of value in all commercial 
 countries without any declaration on the part of their governments — 
 
SECRETARY OF TREASURY ON MONETARY SITUATION. 20>] 
 
 the universal equivalent, independent of all legislation. There can 
 be but one standard of value, from the impossibility of reconciling the 
 value of the coins of two or more metals with their commercial value. 
 Money cannot be made more plentiful by an increase in the number 
 of standards, as none, whatever the kind, will be the instrument of 
 exchange. It will be less abundant, as the provision of additional 
 standards will withdraw capital from production, the results of which 
 would have been expressed by their symbols serving as money. Gov- 
 ernment can no more create a standard of value than it can create 
 the moral sense. One is as much beyond its power as the other. 
 All that it is called upon to do is to adapt by coinage the natural 
 standard to the popular wants. When it attempts one of its own 
 creation it assumes by implication the duty of making it equal to the 
 natural one by provision for their exchange on equal terms — that 
 is, for a standard of its own of less intrinsic value than the natural 
 one it must provide an equal amount of the latter, just as it must 
 make provision for the discharge of debt or dues contracted in any 
 other way. As it will never make such provision, its own standard 
 constitutes a debt equal to its amount, payable in the natural stand- 
 ard, a debt which is a constant menace and a constant source of dis- 
 aster, causing, with the abundant issues in other forms, losses far 
 exceeding, according to the Secretary, the whole amount, #930,- 
 000,000, of the government money outstanding. 
 
 The amount of the standard of value, gold, to be maintained, all 
 other kinds of money being measured by it, will be relative to that 
 of the transactions taking place. The only function on a large scale 
 now performed by it is the discharge of balances arising in the for- 
 eign and domestic trade of a country. The necessary amount pro- 
 vided, its tendency is to flow to other countries, or to be used in the 
 arts. The coinage of gold at our mint has been nearly threefold 
 greater than the whole amount now in the country. When silver is 
 coined at a ratio above its commercial value, it can neither be 
 exported nor will it come into use at home as money. The whole 
 amount coined is so much dead capital. To be sure, the amount 
 coined is represented by certificates serving as money, but an equal 
 amount of issues of the Government, having nothing behind them 
 but its promise, would have the same credit and circulate as freely 
 as if secured by an equal nominal amount of silver. If the amount 
 of money is to be increased by the action of the Government, instead 
 
2o8 SECRETARY OF TREASURY ON MONETARY SITUATION. 
 
 of coining silver the proper and obvious way would be to issue 
 " fiat " money pure and simple. In such case the only burden as- 
 sumed would be that of taking it in in good money, a burden which 
 Government now assumes in the matter of the silver certificates. 
 
 The loss resulting from the coinage. of silver is a loss of the use of 
 capital to a like amount, but in the case of the United States such 
 loss has been greatly aggravated by its fall in price. Under the acts 
 of '1878 and 1890, 459,946,700 ounces of silver were purchased at a 
 cost of ^464,210,262. The value to-day of the silver purchased 
 under the two acts equals, say, $2 20,000,000, the loss from depre- 
 ciation being $244,210,262. The loss in interest on the cost, 
 #308,279,260, of the 291,272,018 ounces purchased under the act of 
 1878 has equalled $10,000,000 annually for a period of 14 years, 
 bringing the total loss up to $384,210,262. Should the Government 
 attempt to sell its silver a further loss of $40,000,000 would probably 
 be suffered. To the losses from depreciation and interest are to be 
 added charges of coinage, care, attempted distribution, etc., bringing 
 the total loss very nearly up to cost. 
 
 The crowning distinction between the issues, properly made, of 
 banks to serve as money and those of governments is that for the 
 redemption of the former provision is made previous to their issue ; 
 for those of the latter, after their issue, The difference in results 
 must correspond to the difference in kind. Another radical dis- 
 tinction is that banks when making issues to serve as money always 
 take the obligations or promises of the parties receiving them to 
 return them without any interposition on their part, while a govern- 
 ment making its issues takes no such obligations or promises. An- 
 other difference, perhaps the most marked of all, is that interest is 
 always charged by banks upon their issues and never by governments 
 upon theirs. The reason is that when loans are made by banks cap- 
 ital is always loaned, or assumed to be loaned ; when made by gov- 
 ernments capital is never loaned, or assumed to be loaned. Should 
 managers of banks make issues charging no interest they would soon 
 find themselves in insane asylums. Interest is to be charged upon 
 loans of capital as the necessary motive for its acquisition, and to 
 compel its proper employment by those receiving them, the interest 
 paid measuring a part, and often only a very small part, of the gain 
 by the use of the capital upon which it is paid. But for interest on 
 capital as the reward of labor and enterprise, and the duty which it 
 
SILVER MADE EQUAL TO GOLD. 209 
 
 enforces upon the borrower to provide for its return with compensa- 
 tion for its use, the race would never have risen above the savage 
 condition. 
 
 In the discussion which followed the reading of the several sections 
 of the bill the subjects were considered under what may be termed 
 running titles or heads — " Silver made Equal to Gold," " Redemption 
 of Notes," and so on. In the comments now submitted the order of 
 the Report of the Committee has been observed. The statements 
 and remarks, however, made under one head had often little rele- 
 vancy to it, while under most they were little other than repetitions, 
 for the reason that neither on the part of the Secretary nor Com- 
 mittee was there any fundamental principle or postulate. They were 
 mere matters of assumption, forming, as it were, an " endless chain" 
 of talk, the same always in kind — like the " chain " in another form 
 so annoying to the Treasury. They are now availed of at length 
 from the opportunity afforded for a full restatement of the laws of 
 money in a manner, and upon an occasion, that are likely to secure 
 for them more than ordinary attention. 
 
 Sect, i . That there be established in the Treasury Department, as a part of the 
 office of the Treasurer of the United States, a division to be designated and known 
 as the division of issue and redemption, to which shall be assigned, under such 
 regulations as the Secretary of the Treasury may approve, all records and ac- 
 counts relating to the issue, redemption, and exchange, as hereinafter provided, of 
 the several classes of United States paper money. There shall be transferred from 
 the general fund in the Treasury of the United States, and taken up on the books 
 of said division as a redemption fund, the sum of one hundred and twenty-five 
 millions of dollars in United States gold coin and bullion, and such further sums 
 of standard silver dollars and silver bullion purchased Under the act of Congress 
 approved July fourteenth, eighteen hundred and ninety, as shall equal the silver 
 certificates and treasury notes of eighteen hundred and ninety outstanding on the 
 date when this act shall take effect. And thereafter the gold and silver coins and 
 bullion transferred from the general fund in the Treasury as herein provided shall 
 be increased or diminished, as the case may be, in accordance with the provisions 
 of this act, and in no other way. 
 
 The discussion which followed the reading of this section was 
 under the head — 
 
 SILVER MADE EQUAL TO GOLD. 
 
 Mr. Brosius. — The bill contemplates, of course, that the silver shall 
 be made equal to gold ? 
 
 Secretary Gage. — Shall be kept at par with gold — yes, sir ; as far as 
 it would operate at all. 
 
3IO THE REDEMPTION OF NOTES. 
 
 Mr. Cox. — In response to the last question of Mr. Brosius, I under- 
 stand that this bullion is carried to be used in the' redemption of notes 
 that were issued in its purchase, or that those notes may be redeemed in 
 gold, at the option of the holder of the note ? 
 
 Secretary Gage. — That is correct. 
 
 Mr. Cox. — Suppose that in the process that you have suggested the 
 election to draw it out in gold should be of such character that it 
 exhausted your gold; then how would you replenish it? 
 
 Secretary Gage. — That, I think, will come a little later. Besides, I 
 should say that the treasury notes could not draw it all out, because 
 there is only a little over a hundred million dollars of it all told, and 
 there are $125,000,000 of gold. So they could not draw it all out. 
 
 The questions raised in the discussion of this section will not be 
 further considered here, as they are more fully presented further on. 
 
 Sect. 2. That all United States notes, treasury notes of eighteen hundred 
 and ninety, and silver certificates presented for redemption shall be redeemed 
 from the redemption fund herein provided, in accordance with the terms of exist- 
 ing law; but the notes and certificates so redeemed shall be held in and constitute 
 a part of said fund, and shall not be withdrawn from said fund nor disbursed, 
 except in exchange for an equivalent amount of the coin in which said notes or 
 certificates were redeemed; but to enable the Secretary of the Treasury more 
 thoroughly to carry out the provisions contained in this act, he is hereby author- 
 ized to exchange any of the funds in the division of issue and redemption for any 
 other funds which may be in the general fund of the Treasury Department : Pro- 
 vided, That nothing in this act shall be construed as repealing that provision of 
 the act approved July fourteenth, eighteen hundred and ninety, which provides 
 that there shall be outstanding at any time no more and no less of the Treasury 
 notes authorized by said act than the silver bullion and standard silver dollars 
 
 coined therefrom then held in the Treasury purchased with said notes. 
 
 « 
 
 The discussion which followed the reading of this section was 
 under the head — 
 
 THE REDEMPTION OF NOTES. 
 
 Mr. Johnson. — The words, " in accordance with the terms of exist- 
 ing law," I see in the fourth line of this section. That means, I suppose, 
 the idea that redemption is to be in such coin as the holder may desire ; 
 that the option shall be with the persons who present the money for 
 redemption, rather than with the Government? 
 
 Secretary Gage. — The existing law provides in effect — although I 
 would not like to undertake to state the exact language — that the holder 
 can have any money he pleases. It is discretionary with the Secretary 
 of the Treasury under the law now, is it not ? 
 
THE REDEMPTION OF NOTES. 211 
 
 Mr. Johnson. — But the rule has been established and followed quite 
 invariably by Secretaries of the Treasury that they will make redemption 
 in such coin as the holder may designate. 
 
 Secretary Gage. — It is in conformity with long practice that I put 
 this language in the bill. 
 
 Mr. Johnson. — I want to make myself clear upon that point. While 
 there is no such law, yet it has been a rule of construction of the law 
 adopted by the Department, and you contemplate that it is necessary, in 
 order to maintain the ' ' parity " of value of the different kinds of money, 
 that that construction shall continue? Is that it? 
 
 Secretary Gage. — Yes, sir ; that is my purpose ; and I might add, if this 
 law were enforced, and the Secretary of the Treasury were not prohibited 
 by any other law, that should anybody come with silver certificates and 
 demand gold, and, in the opinion of the Secretary it was necessary to 
 meet that demand in order to maintain the "parity" of the two metals, 
 he would pay the gold for the silver certificates. Now, how would he get 
 his gold back again? He might hold the certificates a long time before 
 the public would come in and volunteer to give him gold and take those 
 which he had redeemed in gold. But having the liberty under this sec- 
 tion to exchange any kind of money with the other, with the general fund, 
 if that fund had gold, — and it is expected that it always will have more 
 or less gold, a large working balance, — the Secretary could take these 
 certificates he had redeemed in gold and pass them over to the general 
 fund and draw gold back, and thus he would comply strictly with the re- 
 quirements of the law. He would not pay them out in this division 
 except in exchange for the same kind of money in which he redeemed 
 them, and if the other department could not do it, he would have to wait 
 until it could. 
 
 The Chairman. — What percentage of the present income of the 
 Treasury is paid in gold ? 
 
 Secretary Gage. — Perhaps one-half of one per cent ; something like 
 that. It is so small that I have not looked into the matter. 
 
 The Chairman. — It cuts no figure? 
 
 Secretary Gage. — No ; it cuts no figure whatever. 
 
 Mr. Cox. — In that connection I desire to get this point clearly in my 
 mind. We will say you put this into practical operation. I present 
 silver certificates and demand gold. The condition of the Treasury, we 
 will assume, is such that there is an abundance of silver and not an 
 abundance of gold. Is it your construction that I have a right to demand 
 the gold, and the duty of the Secretary of the Treasury to pay it out? 
 
 Secretary Gage. — I believe it is the duty of the Secretary to pay it 
 out, if, in his discretion or opinion, it is necessary to do that in order to 
 
212 THE REDEMPTION OF NOTES. 
 
 forestall an operation which might otherwise occur in the market — 
 namely, the selling of silver certificates at a discount for gold. If I 
 thought that event was going to happen, and I had the gold, I would 
 redeem in gold. If I did not have the gold, I would have to get it some- 
 where or default. 
 
 Mr. Cox. — That brings us down to the point. Suppose that I had 
 gone on the market and bought up these silver certificates for the pur- 
 pose of converting them into gold. We will assume that to be the fact. 
 Now, then, I present them to the Secretary, but he has a limited amount 
 of gold, and in his opinion he does not think the obligation exists upon 
 him to redeem them, in gold. That being the case, would not that at 
 once destroy the parity between gold and silver? 
 
 Secretary Gage. — If he had to pay them in silver, you mean? 
 
 Mr. Cox. — Yes, sir. 
 
 Secretary Gage. — Yes, sir, I think it would operate that way; but I 
 do not think the contingency you look forward to would happen. 
 
 Mr. Cox. — There is contingency, though, that such a result might 
 occur ? 
 
 Secretary Gage. — I think it so remote as hardly to be worthy of con- 
 sideration. 
 
 According to this the outstanding obligations of the Govern- 
 ment, $930,000,000, are payable in gold at the demand of their 
 holders. For the redemption of this vast sum not a dollar is pro- 
 vided except the " traditional $100,000,000 " of reserves, and, with 
 the exception of the $346,000,000 of greenbacks, not a dollar 
 can by existing law be provided in any form. More than this, 
 no order has ever been issued by the Department of the Treasury 
 for the maintenance of the " parity " between silver and gold ; nor 
 will such order, as the law now stands, ever be issued unless the 
 officer who gives it wishes to see the inside of a penitentiary. Every 
 dollar of the public revenue may be payable in silver or silver certif- 
 icates ; almost every dollar being paid in the latter. Suppose a 
 large amount of the government obligations are presented for re- 
 demption, the Secretary or Comptroller of the Currency, beside him- 
 self, frantically' seizing a batch of notes, rushes over to the "Other 
 Department," for gold. But the gold of this Department has 
 already been transferred to that of " Issue and Redemption." The 
 " Other Department " of the Treasury has not only no gold, but it 
 is incompetent to raise a dollar in gold even for the current ex- 
 penses of the Government. What in such case would the Secretary 
 
THE REDEMPTION OF NOTES. 213 
 
 or Comptroller of the Currency do for the maintenance of " parity " ? 
 Wait until the " Other Department " could get gold. But where 
 while he was waiting would be the "parity" of the two metals? 
 Where the Government? Where the commercial and industrial 
 interests of the country ? Overwhelmed in a common ruin to avert 
 which the Secretary could not raise a finger. The occasion for his 
 interposition would be " to forestall an operation which otherwise might 
 occur in the market ; namely, the selling of silver certificates at a dis- 
 count for gold. If I thought the event was going to happen, and I 
 had the gold, I would redeem in gold." If the Secretary had a thou- 
 sand millions of gold he could not exchange a dollar of it for silver. 
 His assumptions in the premises have no foundation whatever, either 
 in law or precedent. They are wholly gratuitous, his only excuse or 
 apology being that they were borrowed from his predecessor. By 
 what authority did his predecessor raise $300,000,000 to make the 
 notes of the Government, greenbacks, equal in value to gold? By 
 virtue of an act of Congress " made and provided." To what act 
 " made and provided " can the Secretary refer, authorizing him to 
 make silver dollars and silver certificates equal in' value to gold ? 
 The act of 1893 indeed declared that it was the policy of the Gov- 
 ernment to maintain all its obligations at the par of gold, but without 
 an act giving authority to provide means therefor its declaration 
 carried with it no legal authority whatever. 
 
 As the question of " parity " is thus early raised in the discussion, 
 this may be the proper place to give the genesis and progress of 
 this new-fangled doctrine now on every tongue. 
 
 The Constitution gave to Congress the power to coin money and 
 regulate the value thereof. Before the mint was established the coins 
 of several other nations were made by law the money of our own. 
 When it was established a double standard was attempted at the 
 ratio of 15 to 1. As gold (not purposely) was undervalued, it did 
 not come into use. At the time silver was the money of all com- 
 mercial nations, being equally uniform in value and equally conven- 
 ient in use. When a double standard was provided it never occurred 
 to any one that the coins of the two metals were to be maintained 
 in " parity." There was not the suggestion of a law for such purpose. 
 Two standards provided, that which best suited the habits and wants 
 
214 THE REDEMPTION OF NOTES. 
 
 of the people was adopted, the other being left to take care of 
 itself. At the time no metallic money, either foreign or domestic, 
 except silver, legal tender for sums not exceeding $5, was in use. 
 In 1834 the ratio was changed to 16 to 1, in consequence of which 
 gold, being undervalued, became the standard money of the country, 
 the exchanges being almost wholly effected by paper money, symbols 
 of merchandise. The act by which the change was effected was the 
 result of an elaborate investigation by a special committee of the 
 House, of which Mr. C. P. White, of the city of New York, was 
 Chairman. Its first report was made in 1831. At the time the total 
 amount of metallic money, wholly silver, in the hands of the people, 
 numbering, say, 13,000,000, did not exceed $5,000,000, the average, 
 per head, being only 38 cents. Up to 1831 the coinage of silver at 
 our mint had equalled $27,000,000, of which only $1,400,000 were 
 in the form of silver dollars, full legal tender. Up to that date the 
 coinage of gold equalled $9,200,000, which, having a higher value 
 as bullion than as money, never went into circulation. Of the 
 domestic coinage only $7,000,000 were in the hands of the people 
 and the vaults of the banks, that held by the latter, $20,000,000, 
 being subsidiary or foreign coins. At the time when only $5,000,000 
 of metallic money were in the hands of the people, and that in the 
 form of subsidiary coins, and when $5,000 of it could not be 
 massed for any purpose whatever, a merchant, if occasion presented, 
 had not the least hesitation in giving his bill to the amount of 
 $100,000 payable in terms in it, well knowing that, merchandise 
 being the subject of the transaction, it would be solved without the 
 intervention of a dollar of coin. This illustration is conclusive of 
 the whole question, and if heeded would be the means of speedily 
 taking us out of all our troubles. It is a full and complete reply 
 to the Bimetallists who fall into convulsions when they contemplate 
 the enormous transactions, all payable in gold, which are entered 
 into, the supply of coin of that metal not equalling one-fiftieth 
 part of their amount. Their apprehensions in view of the deadlock 
 which their imagination pictures could hardly be matched by the 
 certainty that the world was within twenty-four hours of coming to 
 an end. They wholly overlook the fact that gold is the standard 
 according to which values are rated and contracts solved, not the 
 instrument by which the exchanges are made or contracts solved ; 
 that it interposes only in the discharge of balances arising in ihe 
 
THE REDEMPTION OF NOTES. 215 
 
 foreign and domestic trade of the country, and then, as already 
 shown, as merchandise in the form of the universal equivalent 
 rather than as money. So small was the amount of metallic money 
 in use at the time that the Committee recommended that our own 
 coinage be restricted to the provision of subsidiary coins, for th6 
 reason that "the operations of commerce will assuredly dispense to 
 every country its equitable and useful proportion of gold and silver 
 in currency if not repressed by legal restrictions." As the insignia 
 of other governments as to the weight and fineness of the pieces on 
 which they were impressed were as much to be trusted as our own, 
 the Committee, following the example established at the foundation 
 of the Government and long continued, recommended that certain 
 coins of the Spanish South American governments and of France 
 and England be made our own, a great saving being thereby effected. 
 The people were free to adopt any kind provided, the most uniform 
 in value and convenient in use having the preference, the exchanges 
 being almost wholly effected by the use of symbolic money in the issue 
 of which Government had no hand. A proposition at the time, that it 
 was to maintain the "parity" of coins coming from our own or any 
 other mint, would have been received with jeers of ridicule and con- 
 tempt. Why? Because up to that time the coinage, foreign and 
 domestic, had been an honest thing. Our Government did its best 
 to reconcile the value of the two kinds of money by coining them as 
 nearly as possible at the commercial ratio of the metal which each 
 contained. That done, its function in the premises was at an end. 
 In 1878 the painstaking honesty of the Fathers had jgholly disap- 
 peared, the coinage of the two metals being purposely authorized at 
 a ratio widely differing from their commercial value. The act of 
 that year would never have been thought of had not silver fallen 
 some 10 per cent, in value since its demonetization in 1873. In 
 1873 a silver dollar was worth more than a gold dollar. The Act of 
 1878 was one in which dishonesty and folly had about an equal 
 share. Its dishonesty was well set forth by President Hayes in his 
 veto message. The Act of 1 890 was still more emphatically one of 
 dishonesty and folly, silver having fallen some 20 per cent, in 
 value. The dishonest part of the Act of 1873 would have done 
 little harm, as the dollars coined would never have entered into 
 circulation but for the permission given to issue certificates against 
 deposits of the debased coins, the certificates being held to be 
 
2l6 THE REDEMPTION OF NOTES. 
 
 promises of the Government to pay gold or silver at the option of 
 the holder. Held to be good money from the assumed promise of 
 the Government to pay them in gold, they completely concealed the 
 knavery of the act, which in fact, from the rapid increase of appar- 
 ently good money, seemed to be a beneficent rather than a harmful 
 measure. It is in the results that its real character has been dis- 
 closed. As silver continued to fall rapidly in value, and as great 
 apprehension was felt as to the final outcome, a sort of sneaking 
 consciousness at last came over the country that it was bound to 
 make silver money as good as gold by exchanging one for the other 
 at the option of the holder. The whole of it was only a pretence 
 and a sham most discreditable to our integrity and sincerity, not a 
 step being proposed or taken for the maintenance of the " parity " 
 now for the first time invented and proclaimed throughout the length 
 and breadth of the land. The term conveys not the least meaning 
 with those having it most in use. So long as it is on every tongue 
 not a step will be taken for the reformation of the currency. 
 But to proceed with the matter in hand : 
 
 Sect. 3. That the Secretary of the Treasury be, and he is hereby, authorized to 
 receive at the Treasury any of the outstanding bonds known as the five per centum 
 bonds of nineteen hundred and four and the four per centum consols of nineteen 
 hundred and seven, issued respectively under the act approved January four- 
 teenth, eighteen hundred and seventy-five, and the acts approved July fourteenth, 
 eighteen hundred and seventy, and January twentieth, eighteen hundred and 
 seventy-one, and to issue in exchange therefor coupon or registered bonds of the 
 United States, in such form as he may prescribe, in denominations of fifty dollars 
 or some multiple of that sum, bearing interest at the rate of two and one-half per 
 centum per annum, payable quarterly, and redeemable at the pleasure of the 
 United States after ten years from date of their issue ; and the bonds hereby 
 authorized shall be payable, principal and interest, in United States gold coin of 
 the present standard value, and shall be exempt from all taxation by or under 
 State, municipal, or local authority: Provided, That none of the outstanding 
 bonds shall be received at a valuation greater than their present worth to yield an 
 income of two and one-half per centum per annum, and that the bonds hereby 
 authorized shall be issued at not less than par. 
 
 This section, which provides for the refunding of the outstanding 
 bonds of the Government into those bearing a lower rate of interest 
 payable wholly in gold, need not here be considered. It is to be 
 commended so far as it tends to commit the Government to a gold 
 standard. 
 
THE REDEMPTION OF NOTES. 21 7 
 
 Sect. 4. That the bonds authorized by this act, and any other bonds of the United 
 States, may be deposited with the Treasurer of the United States as security for 
 the circulating notes of national banking associations ; and any national banking 
 association which may deposit the bonds herein authorized to be deposited as 
 security for its circulating notes shall be entitled to receive from the Comptroller 
 of the Currency and to issue such notes to an amount equal to the face value of 
 such bonds : Provided, That the aggregate amount of bonds deposited by any 
 national banking association, under any law, shall not exceed the amount of its 
 capital ; And provided further , That nothing herein contained shall be construed 
 to modify or repeal the provisions of section fifty-one hundred and sixty-seven of 
 the Revised Statutes, authorizing the Comptroller of the Currency to require addi- 
 tional deposit of bonds, or of lawful money, in case the market value of the bonds 
 held to secure the circulating notes shall fall below the par value of the circulat- 
 ing notes outstanding for which such bonds may be deposited as security. 
 
 No discussion followed the reading of the fourth section. 
 
 Sect. 5. That any national banking association whose deposit of bonds is less 
 than the amount of its capital may deposit with the Treasurer of the United States, 
 under such regulations as the Secretary of the Treasury may approve, United 
 States notes, treasury notes of eighteen hundred and ninety, and silver certifi- 
 cates, and shall be entitled to receive from the Comptroller of the Currency and 
 to issue an equal amount of its circulating notes ; but the aggregate amount of 
 bonds, United States notes, treasury notes of eighteen hundred and ninety, and 
 silver certificates deposited by any national banking association shall not exceed 
 the amount of its capital. Provided, That the total amount of United States 
 notes, treasury notes of eighteen hundred and ninety, and silver certificates depos- 
 ited with the Treasurer of the United States, under authority of this section, shall 
 not exceed the sum of two hundred millions of dollars. 
 
 Sect. 6. That the Secretary of the Treasury shall issue from time to time, in 
 his discretion, bonds of the same class and character as those authorized in the 
 third section of this act, and shall substitute the same with the Treasurer of the 
 United States for equal amounts of the United States notes, treasury notes of 
 eighteen hundred and ninety, and silver certificates deposited by national banking 
 associations; and the bonds so issued and , substituted shall be charged to the 
 respective national banking associations and be accounted for by them at such 
 prices, not less than par, as shall represent the market value of such bonds. And 
 the United States notes, treasury notes of eighteen hundred' and ninety, and silver 
 certificates released as herein provided shall become a part of the general redemp- 
 tion fund; and the Secretary of the Treasury is hereby authorized to exchange 
 any of said treasury notes of eighteen hundred and ninety and said silver certifi- 
 cates for a like amount of United States notes : Provided, That the amount of 
 bonds issued under the authority of this section shall not exceed the sum of two 
 hundred millions of dollars. 
 
2l8 AVOIDING CONTRACTION OR EXPANSION OF CURRENCY, 
 
 AVOIDING A CONTRACTION OR EXPANSION OF THE CURRENCY. 
 
 Socretary Gage. — Section 5 and section 6, I think, may be treated as 
 one. Their purpose is to take into this Issue and Redemption Division 
 $200,000,000 of the legal-tender notes of the United States, and put them 
 over there to be held until somebody wants to come and pay in gold in 
 exchange for them ; and to the extent that persons do this the gold which ■ 
 would be thus brought into the Issue and Redemption Division shall be 
 held for the redemption of these notes or any obligation incumbent upon 
 the Issue and Redemption Division. To take in $200,000,000 of the 
 present demand obligations of the Government by bonds and tie them up 
 until they were exchanged for gold would be, I think, in the general opinion 
 of most men in the United States, a contraction of the currency at this 
 time so violent that nobody could endure it, and therefore it would not 
 do. On the other hand, I regard it as very important that the Govern- 
 ment of the United States should reduce its obligations payable on 
 demand. 
 
 I want to avoid contracting or expanding the currency in this particu- 
 lar operation. I want to give the best guaranties that it will not operate 
 in either direction in carrying it out. Therefore, I provide that the pre- 
 liminary step shall be the deposit by banks of some form of demand 
 obligations of the United States, — treasury notes, greenbacks, or silver 
 certificates, — and when they do deposit them, to that extent, no less 
 and no more, we will issue their notes to them, the same as we do on 
 bonds now ; that, as these bonds can be printed and put into shape to be 
 substituted, they shall be substituted for that currency, the banks account- 
 ing for them at what they may appear to be worth in the market, not less 
 than par, so that the bonds proposed to be issued, of the same kind as 
 provided for in previous sections of the bill, 24 per cent, bonds, would be 
 deposited, and the currency recovered into the Issue and Redemption 
 Division. As it is recovered in, it would come in, perhaps, in mixed 
 form. 
 
 It would be greenbacks, it would be silver certificates, it would be 
 treasury notes ; but for the sake of uniformity, and in recognition of the 
 fact that legal-tender notes are the only pure, absolute credit obligations 
 of the United States, I think it best to get that $200,000,000 in one 
 uniform kind of money into that Issue and Redemption Division, namely, 
 legal-tender notes of the United States. For that reason I have the 
 liberty under this bill to exchange, as I may be able to, the two forms, 
 treasury notes and silver certificates, for legal tenders out of that divi- 
 sion, until I do secure the end desired, namely, the building up of the 
 $200,000,000 legal tenders in that division. 
 
AVOIDING CONTRACTION OR EXPANSION OF CURRENCY. 219 
 
 Mr. Mitchell. — Wouldn't the practical effect of that be, Mr. Secre- 
 tary, that gold would be deposited in that fund, and the greenbacks and 
 these other notes would go again into circulation? 
 
 Secretary Gage. — That is a matter of opinion. My opinion is that, 
 if the provisions set forth by me as a whole were adopted, within six 
 months the banks of the United States would bring in $100,000,000 of 
 gold, and say, "We would like some of those greenbacks; they are a 
 better form of reserve for us than the gold." 
 
 Mr. Brosius. — Under our monetary system, as well as that of most 
 countries where there is redemption money and representative money, is 
 there any way to convert one into the other except by presenting to some- 
 body at some place a demand obligation in paper to receive the coin, 
 gold? 
 
 Secretary Gage. — Well, I should say no, if I properly understand the 
 question. 
 
 Mr. Brosius. — Now here, under our system, we must either present a 
 demand obligation to a bank to get gold, or we must present it at the 
 Treasury of the United States to get gold. Is that so? 
 
 Secretary Gage. — That is, the people? 
 
 Mr. Brosius. 1 — I mean the people who want the redemption. 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Brosius. — Now, if I understand it, your plan — it is somewhat 
 comprehensive — has in view taking out of the volume of our circulation 
 the amount of these demand obligations. Is that it? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Brosius. — If they are taken from the volume of our circulation 
 and put into the vaults of the Treasury, they can no longer b presented 
 for redemption ? 
 
 Secretary Gage. — That is perfectly correct. 
 
 The purpose of the Secretary is the retirement of $200,000,000 
 of the demand obligations of the Government in order to reduce 
 the pressure to a like amount upon the Treasury. But without some 
 provision to fill the vacuum the result would, he declared, be a " con- 
 traction of the currency so violent that nobody could endure it. 
 It would not do." The general volume of the currency is not to be 
 contracted, but increased. And in what manner? Under the pro- 
 visions of the fourth section of the proposed bill banks depositing 
 government notes to the amount of, say, $200,000,000 would be 
 entitled to receive in return a like amount of notes for circulation. 
 For the Government, on the plan of the Secretary, to issue and pay 
 interest on bonds to the amount of $200,000,000 to secure the 
 
220 AVOIDING CONTRACTION OR EXPANSION OF CURRENCY. 
 
 circulation of banks would be to make an annual loss of $5,000,- 
 000, interest at the rate of 2^ per cent. For the banks to put up 
 with the Government its notes, receiving bonds (held in trust) bear- 
 ing interest at the rate of 2 per cent., the annual tax on the notes 
 received being deducted, would be to make an annual loss of $6,000,- 
 000, interest at the rate of 3 per cent., as the notes to be put up 
 could be issued in loans at the rate of 5 per cent. ; the aggregate 
 loss being $11,000,000, for which not a single compensating advan- 
 tage would result either to the Government, or to the banks, or to 
 the public, as all the currency wanted, costing nothing in itself, could 
 be supplied by those engaged in distribution, instruments of dis- 
 tribution, in common parlance, being money. The banks, their money 
 gone for government bonds, before they could issue their notes 
 would have to provide new capital adequate to all their operations, 
 the notes received being simply instruments by which debt, to be 
 speedily paid, could be contracted. That the Secretary could at the 
 very outset submit such a proposition for the reformation of the 
 currency shows, to say the least, the extreme gravity of the situation. 
 "The Government must see to it," said the Secretary, "that the 
 currency be not contracted." What has Government to do with the 
 contraction or inflation of the currency? Currency is an instru- 
 ment of distribution arising in affairs, its amount, self-supplied as 
 it were, being relative to that of the exchanges taking place, matters 
 to which the Government is not a party and of which it has cogni- 
 zance only by report. Under a proper system the issue of paper 
 money, instruments of distribution, would be free to all who had 
 merchandise for distribution, subject only to the restriction that it 
 be made only in the discount of merchants' bills, the amount being 
 wholly left to take care of itself. Government may do what it can, 
 by distributing information and the like, to encourage the produc- 
 tion of wheat, corn, and cotton. But with the instruments which 
 reflect the value of such products, and which serve for their 
 transfer from hand to hand, it has no more to do than with pro- 
 vision for their harvesting, or of horses and wagons for their trans- 
 portation. In assuming that it must see to it that the currency 
 be not contracted, the Secretary places himself upon purely Popu- 
 listic grounds. If he is to see to it that the currency be not 
 contracted, he must see to it that the amount be relative to the 
 transactions taking place, these increasing in a ratio threefold 
 
AVOIDING CONTRACTION OK EXPANSION OF CURRENCY. 221 
 
 greater than that of the numbers of our people. At least $100,000,- 
 000 a year should be added to the currency of the country. Not to 
 increase it, with the constantly enlarged transactions, is to contract 
 it. What would be thought of a bank which with means wholly 
 inadequate to make good a vast indebtedness should be always pro- 
 claiming that the volume of its issues should not be contracted, 
 resorting to every artifice to prwent their presentation for redemp- 
 tion ? A few of such declarations and tricks would suffice to put it 
 into the hands of a receiver. Yet such are the declarations and 
 tricks to which the Government is resorting to escape the payment 
 of debts assumed to be well contracted. Banks, well conducted, 
 welcome the contraction of the currency issued by themselves as 
 evidence that its bills are paid, new issues being made in the dis- 
 count of new bills to take the place of the old. The currency, mostly 
 in the form of deposits with the banks and bankers of the United 
 States, equalling $3,200,000,000, is daily taken in to the extent of 
 $ 2 00,000,000, the whole process being little other than a matter of 
 bookkeeping. For Government to take in its notes is to hand the 
 solid stuff over the counter ! It is much more than a matter of 
 bookkeeping. From the manner in which the issues of banks are 
 made, the taking in of obligations to the amount of $200,000,000 is 
 a matter of course exciting neither attention nor remark. A sudden 
 call upon the Government to take in $10,000,000 of its $930,000,- 
 000 demand obligations outstanding would send a cold chill through- 
 out the country, reducing prices at the brokers' board, the great 
 barometer of public feeling, perhaps 10 per cent., all interests suffer- 
 ing if not in so great a proportion. Would it not be well for the 
 Secretary to spend his leisure hours in finding out why the retire- 
 ment of $200,000,000 daily of the liabilities of banks is simply a 
 matter of course, while the presentation of $10,000,000 for gold of 
 the $930,000,000 of the demand obligations of the Government 
 would create a profound sensation and alarm throughout the length 
 and breadth of the land ? 
 
 The dream of the Secretary is to turn the whole amount of the 
 $200,000,000 to be deposited by the banks in the Treasury into 
 greenbacks or gold. From the notes deposited, as from those 
 received from other sources, he will cull out the greenbacks, paying 
 out, when called upon, silver, or silver certificates, until $200,000,- 
 000 in greenbacks are accumulated. When so accumulated people 
 
222 MAINTAINING THE PARITY OF OUR MONEY. 
 
 would flock to him, saying : " We would like some of those green- 
 backs ; they are a better form of money to us than gold," oifering 
 goldfor them. " In this way," said the Secretary, " $100,600,000 of 
 gold would in six months flow into the Treasury." The assumption 
 is too childish for reply, and no reply would be made were it not that 
 it seemed to be fully accepted by the Committee. Why is it that the 
 revenues are wholly paid in silver fc in silver certificates ? Because 
 it is universally felt that these are a less desirable money than green- 
 backs or gold. Why when the people are so careful not to pay a 
 dollar of the revenues in gold or greenbacks should they be so 
 eager to exchange these for silver certificates at the Treasury ? The 
 Secretary will find that human nature is far more than a match for 
 such contrivances. 
 
 MAINTAINING THE PARITY OF OUR MONEY. 
 
 Mr. Brosius. — Now, how can we redeem the pledge we are under by 
 existing law to maintain the parity of our money, unless we afford some 
 means for the people who hold paper to present those obligations for 
 redemption in gold? 
 
 Secretary Gage. — We cannot. I understand we have such a proc- 
 ess now. 
 
 Mr. Brosius. — If we take $200,000,000 of the $346,000,000 out of 
 circulation and hold it in the Treasury, that cannot be' presented? 
 
 Secretary Gage. — No, sir. 
 
 Mr. Brosius. — What kind of demand obligations will the people have 
 to present to the Treasury to get their gold ? 
 
 Secretary Gage. — They will have $146,000,000 of greenbacks. They 
 will have $100,000,000 or more of treasury notes, and they will have 
 $450,000,000 of national bank notes. They could not present them to 
 the Treasury, but they can present them to those who promise to pay. 
 
 Mr. Brosius. — I know that ; but the Government has undertaken to 
 maintain the parity of all our money. 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Brosius. — The only agency it has to redeem that pledge is to 
 have demand obligations, and to have a gold reserve with which it redeems 
 the obligations upon demand, and if all the demand obligations are taken 
 in we have no use for that gold reserve at all, and all our power to maintain 
 the parity by redeeming demand obligations in gold would be gone after 
 we relegate the whole responsibility and duty of maintaining the parity of 
 the different kinds of money upon the banks of the country. The banks 
 will have to do it. Isn't that so? 
 
MAINTAINING THE PARITY OF OUR MONEY. 223 
 
 Secretary Gage. — I do not understand it so at all ; no, sir. I do not 
 understand that the creation of demand obligations upon the part of the 
 Government is any aid to the redemption of those that are out. Coming 
 to the second proposition — the ability of the Government of the United 
 States to maintain the parity between the different forms of its money 
 outstanding depends upon its ability to control gold. So far as it can 
 reduce the obligations that are outstanding, so far it increases its strength 
 to take care of those that are out. 
 
 Mr. Brosius. — I do not dispute that, but you do not seem to catch 
 my point. Unless you have a demand obligation out to be exchanged for 
 gold, nobody can get any gold out of the Treasury? 
 
 Secretary Gage. — Nobody can recover a debt from some one who does 
 not owe him. 
 
 Mr. Brosius. — Very well. Then the duty that we have undertaken, 
 to maintain the parity of gold and silver and all our money, requires that 
 the people are afforded some means of getting gold with the other money? 
 
 Secretary Gage. — The means are open, as I look at it. 
 
 Mr. Brosius. — Are there any means left after the demand obligations 
 of the Government are taken out of circulation? 
 
 Secretary Gage. — Yes, sir; there would be if they were all out. 
 
 Mr. Brosius. — What way? 
 
 Secretary Gage. — The way would be for people to present their obli- 
 gations to the national banks. 
 
 Mr. Brosius. — That is not the Government. 
 
 Secretary Gage. — Wait a minute. They would demand the payment 
 of their obligations in the legal money of the United States. If the 
 banks refused to discharge their duty, it would be the duty of the Gov- 
 ernment, under the law as it is now, to discharge it for them, and to take 
 possession of their assets and sell them, and to recoup itself for so doing. 
 
 Mr. Brosius. — The law does not make it their duty. 
 
 Secretary Gage. — To do what? 
 
 Mr. Brosius. — To redeem in gold. 
 
 Secretary Gage. — It makes it their duty to redeem in legal money of 
 the United States. 
 
 Mr. Brosius. — But if the money is all taken in, what will they 
 redeem in but gold ? The law does not require them to redeem in gold. 
 They would comply with the law if they redeemed in silver. 
 
 Secretary Gage. — They would. Now you have struck the point. 
 You think that when the Government demand obligations are out it will 
 have no function in maintaining a parity. It will have about all the 
 function it wants to perform in keeping $560,000,000 in silver money of 
 the United States, and keeping that on a parity. 
 
224 MAINTAINING THE PARITY OF OUR MONEY. 
 
 Mr. Brosius. — How? 
 
 Secretary Gage. — By exchanging gold for it. 
 
 Mr. Brosius. — A gold reserve would have to be provided for that 
 purpose ? 
 
 Secretary Gage. — I think so. 
 
 Mr. Brosius. — Yes. Then, all the paper obligations being issued by 
 the banks, the redemption of that would be left entirely to the banks? 
 
 Secretary Gage. — I think so. 
 
 Mr. Brosius. — If they failed to redeem, wouldn't the whole system 
 break down and gold go to a premium at once? 
 
 Secretary Gage. — Not if the Government would maintain its obliga- 
 tion to maintain the parity. 
 
 Mr. Brosius. — But the Government has no obligations outstanding 
 except in silver. 
 
 Secretary Gage. — Then it would have nothing to maintain. 
 
 Mr. Brosius. — And then, if the banks refused to redeem in gold, or 
 were unable to redeem in gold, the whole system would collapse, and 
 we would go to a silver basis? 
 
 Secretary Gage. — I cannot quite follow you. I thought you asserted 
 a minute ago — 
 
 The Chairman. — I think I can put a question right there that will 
 perhaps clear this. The object of retiring this $200,000,000 is to put it 
 out of the power of any one to use the $200,000,000 to ask for gold 
 redemption. 
 
 Secretary Gage. — That is correct. 
 
 The Chairman. — It leaves out in circulation all the silver certificates 
 and the treasury notes. Now, what Mr. Brosius wants to get at is, 
 how the Government gets gold if it proposes to redeem all those treas- 
 ury notes and certificates in gold. 
 
 Secretary Gage. — Well, that is another question. It makes little 
 difference how they do it. I provide how they can do it a great deal 
 easier than now. 
 
 The Chairman. — How? 
 
 Secretary Gage. — There would be $200,000,000 less to take care of. 
 
 The Chairman. — Out of the $700,000,000? 
 
 Secretary Gage. — Out of the $930,000,000. 
 
 Mr. Brosius. — If you would take it all out, then you would have 
 nothing to redeem. You would then be relieved entirely? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Brosius. — If there is advantage in cutting down the demand 
 obligations of the Government $200,000,000, there would be still greater 
 advantage in wiping them out altogether? 
 
MAINTAINING THE PARITY OF OUR MONEY. 225 
 
 Secretary Gage. — Looked at from one point of view, yes ; but a man 
 or a corporation or a government may carry a certain amount of liabil- 
 ities without great inconvenience or risk, but if you increase those lia- 
 bilities from 20 to 25 per cent, you may involve all the elements of risk 
 and discredit. 
 
 The extracts under this head are given at length to show what 
 went on under it in the conference, as illustrative of what went 
 on under all others. Mr. Brosius wanted to know how (to 
 abridge the colloquy a little), if the demand obligations of the 
 Government were all to be retired, were the people to get the gold 
 locked up in the Treasury wherewith to maintain the parity of our 
 money; and whether in such case would not the whole duty of 
 maintaining parity be relegated to the banks of the country? 
 The Secretary. — " I do not understand that the creation of demand 
 obligations on the part of the Government is any aid to the re- 
 demption of those that are out." Mr. Brosius. — "I do not dispute 
 that. But you do not seem to catch my point. Unless you have 
 demand obligations out to be exchanged for gold, nobody can get 
 gold out of the Treasury." " Nobody can recover a debt from 
 some one who does not owe it." Mr. Brosius, still searching for 
 light. — " Are there any means left to get gold after the demand 
 obligations of the Government are all taken out of circulation?" 
 — "Yes, sir; of the banks," was the prompt reply; "the people 
 would demand of the banks payment of their obligations in the 
 legal money of the United States." — "But," returned Mr. Bro- 
 sius, " if the outstanding notes are all taken in, what then? " The 
 Secretary, eagerly. — " Now you have struck the point. You think 
 that when the various demand obligations of the Government are out 
 it will have no function in maintaining parity. It will have all the 
 function it wants to perform in keeping $560,000,000 in silver 
 money of the United States at a parity." Mr. Brosius. — "Then, 
 all the paper obligations being issued by the banks, the redemption 
 of that would be entirely left to the banks ? " — "I think so," was the 
 reply. Mr. Brosius. — " If they failed to redeem, would not the 
 whole system break down and gold go to a premium at once ? " — 
 " Not if the Government," said the Secretary, " would maintain its 
 obligation to maintain the parity." Mr. Brosius. — " But the Gov- 
 ernment has no obligations outstanding except in silver." — " Then," 
 replied the Secretary, " it could have nothing to maintain." Mr. 
 
226 MAINTAINING THE PARITY OF OUR MONEY. 
 
 Brosius. — " And then, if the banks refuse to redeem in gold, or 
 were unable to redeem in gold, the whole system would collapse 
 and we should go on a silver basis? " The Secretary.- — "I cannot 
 quite follow you." At this critical point the Chairman came gal- 
 lantly to the rescue, with what pertinency or success the reader 
 must judge. Recovering himself, Mr. Brosius asked if the retire- 
 ment of #200,000,000 of the #930,000,000 demand obligations of 
 the Government would relieve it, would not the retirement of the 
 whole relieve it still more. The Secretary. — " Looked at from 
 one point of view, it would ; but a man or a corporation or a gov- 
 ernment may carry a certain amount of liabilities without great 
 inconvenience or risk. But if you increase those liabilities from 20 
 to 25 per cent, you may involve all the elements of risk and dis- 
 credit." But is there not a wide difference between the indebted- 
 ness of Government and of a corporation in affairs ? A corporation 
 buys on credit raw material for such time as will serve for its con- 
 version into fabrics, for putting these on the market, and collecting 
 the proceeds wherewith to pay the obligations incurred. If all goes 
 on well, and in such affairs all usually goes on well, the fabric pays 
 for the raw material and cost of manufacture and distribution, leav- 
 ing satisfactory profits to the parties engaged therein. The greater 
 part of the operations of society are now carried on in the manner 
 described. All are based on solid capital, entrusted on credit to 
 those engaged in production and distribution. Behind every obli- 
 gation or instrument that arises out of the several processes capital' 
 competent to its discharge is provided previous to its issue. To 
 the extent that credits in the manner described can be availed of 
 capital is discharged from the several processes, the advantage 
 gained being shared alike by producer and consumer. But while 
 the sales of products ordinarily pay the debts incurred in produc- 
 tion and distribution, all parties to them must maintain reserves 
 bearing a certain proportion to their liabilities, as a certain per- 
 centage of the fabrics may not be seasonably sold or paid for. 
 With manufacturers of skill and experience, reserves equalling 25 
 per cent, of their liabilities are regarded as ample. Much smaller 
 amounts are ordinarily provided. Without a cent in the form of 
 reserves a corporation or individual may be able to carry enor- 
 mous liabilities, discharging every dollar of them, a large surplus 
 being left. Now a government has nothing behind its liabilities but 
 
PROVIDING GOLD FOR REDEMPTION PURPOSES. 22j 
 
 its reserves, often, like those of the United States, bearing a very 
 small ratio to their amount. The Secretary seems unable to com- 
 prehend the obvious distinction, a radical one, here shown. He 
 may say that the taxing or borrowing power of the Government 
 can provide all the means required by it. He has told us that 
 with such power, from the apprehension that it would not, or 
 could not, be exercised, losses resulted to the country exceeding 
 the whole amount of its demand liabilities, $930,000,000, now out- 
 standing. 
 
 PROVIDING GOLD FOR REDEMPTION PURPOSES. 
 
 Mr. Brosius. — The point or the motive of my inquiry, Mr. Secretary, 
 illustrates the difficulty! have always encountered in reference to our re- 
 demption on the plan you are now illustrating, that when we need money 
 for purposes of export we must get the gold somewhere or our obliga- 
 tions will go to protest — or the country will go to a silver basis. Inas- 
 much as the Government has undertaken to maintain the parity between 
 its different kinds of money, it must provide gold under that system, and 
 that is what that pledge was made for. If it deprives itself of the means 
 of supplying that gold, then the banks alone must supply it, and if that 
 duty and responsibility is relegated wholly to the banks my apprehension 
 is that the banks, in an extremity, would be unable to obtain it, and in 
 that case we would go to a silver basis. I wanted to state that so that 
 the Secretary would understand the motive in making these inquiries. I 
 understand in the bill there is a provision requiring the banks to redeem 
 their paper in gold. 
 
 Secretary Gage. — Not in this bill ; no, sir. 
 
 Mr. Prince. — Now, as I understand it, there are $930,000,000 of 
 demand notes of one kind and another which may be presented to- 
 you as Secretary of the Treasury for redemption. The holder, we will 
 say, demands the gold instead of silver. Do you hold that the $930,- 
 000,000 can be paid in gold at the direction of the holder of this paper? 
 
 Secretary Gage. — I hold that your question is theoretical. Yes, theo- 
 retically they might all be presented. Practically, it is a physical im- 
 possibility. 
 
 Mr. Prince. — I agree with you on that. 
 
 Secretary Gage. — It is as much of a physical impossibility as it is for 
 a man to breathe twice the capacity of his lungs. He cannot do it. 
 
 Mr. Prince. — How many million dollars will the bank circulation 
 reach at the same time? 
 
 Secretary Gage. — I think it will be something like $500,000,000. 
 
 Mr. Prince. — That, added to the $730,000,000, makes $1,230,000,- 
 
228 PROVIDING GOLD FOR REDEMPTION PURPOSES. 
 
 ooo. So, if the banks have to redeem the gold, there are demand notes 
 and in cirqulation, either against the Government or the banks, for which 
 gold can be demanded, to the extent of $1,230,000,000? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Prince. — Now, you say that if the banks cannot meet this and 
 it is thrown back on the Government, the Government will take posses- 
 sion of the banks, their assets and property, and to do its duty it would 
 redeem this $1,230,000,000 in gold? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Prince. — How much gold have we in this country? 
 
 Secretary Gage. — Between $500,000,000 and $600,000,000. 
 
 Mr. Prince. — Where would they get the rest of it? 
 
 Secretary Gage. — We would not need it ; we can use the same over 
 and over again. 
 
 Mr. Mitchell. — Mr. Secretary, the practical effect, as I understand 
 it, of tying up this $200,000,000 of treasury notes and greenbacks 
 would be as follows : Demands would be made upon the banks by the 
 people who deal with the banks for greenbacks or treasury notes or 
 some form of paper money to do their business with, and they do not 
 want gold Is not that a fact ? I ask you as a banker. 
 
 Secretary Gage. — It is a current fact ; yes, sir. 
 
 Mr. Prince. — Therefore, $200,000,000 of paper money having been 
 locked up in this Issue and Redemption Department, the banks having 
 gold in their vaults would have to send their gold to the Government, 
 to deliver it at the Sub-Treasury, and ask to have their gold exchanged for 
 these greenbacks and treasury notes, which were locked up in this Issue 
 and Redemption Division. Isn't that the case? 
 
 Secretary Gage. — I think that would operate to the extent of at least 
 one-half of the fund. 
 
 Mr. Prince. — So, in a short time, this $200,000,000 of paper money, 
 which has been locked up in the Treasury Department, would be con- 
 verted, by a natural process of banking business, to a large degree, into gold 
 coin instead of paper money, and the paper money would again be out in 
 circulation ? 
 
 Secretary Gage. — In a large measure that would be true. 
 
 Mr. Hill. — Mr. Prince speaks of the $200,000,000 of notes which 
 will be refunded and become an interest-bearing obligation in place of 
 one without interest. And I infer from his statement, although perhaps I 
 am wrong, that he thereby thinks it would be a benefit to the banks. 
 Isn't it true that further on, in this bill you practically offset that by taking 
 away from the banks the privilege of issuing small notes and giving that 
 privilege to the Government? Would not that be an equivalent, and 
 
PROVIDING GOLD FOR REDEMPTION PURPOSES. 229 
 
 would not that also make it practically impossible for those small notes to 
 be presented for redemption ? 
 
 Secretary Gage. — I think, perhaps, I had better make a more general 
 statement as to the scope of my idea. We have $930,000,000 of liabili- 
 ties in the form of demand obligations, counting silver certificates as 
 obligations. 
 
 Mr. Cox. — And the silver. 
 
 Secretary Gage (continuing). — $930,000,000. Now let us see where 
 the liabilities are. We have a working balance in the Treasury of 
 $50,000,000. That cannot hurt us. 
 
 The Chairman. — $50,000,000 of what? 
 
 Secretary Gage Cash — greenbacks, legal-tender notes, and treas- 
 ury notes — which is all the time in our hands. 
 
 The Chairman. — That is in the Treasury proper? 
 
 Secretary Gage Yes, sir; we hold about $10,000,000 locked up, 
 
 that being a 5 per cent, reserve of the national banks. 
 
 The Chairman. — What is that in ? 
 
 Secretary Gage. — Greenbacks. Then there is a total of destroyed 
 notes variously estimated from $10,000,000 to $30,000,000. I estimate 
 it at $10,000,000. That is practically $70,000,000 we can deduct from 
 the $930,000,000 to show what is liable to trouble us. That leaves 
 $860,000,000. Now, I propose to take out $200,000,000 of that $860,- 
 000,000 and put it where it won't trouble us. If we do that, we will 
 have $660,000,000 that will trouble us instead of $860,000,000. I pro- 
 pose to make these national banks, instead of putting up $10,000,000, 
 which is 5 per cent, on $200,000,000, put 10 per cent, on about $500,000,- 
 000, which I estimate would be $50,000,000. That would reduce our 
 liabilities that we are in trouble about to $610,000,000. Now I propose 
 to monopolize, for the use of the Government, all the issues under the 
 ten-dollar denomination in order that we may keep in such active use in 
 all the small channels of circulation where money is required our obliga- 
 tions exclusively, and not give the banks the benefit of that market. 
 
 The Chairman. — Requiring everybody to carry nine silver dollars in 
 his pocket? 
 
 Secretary Gage. — It doesn't make any difference in my calculation 
 here whether it is silver, or silver dollars, or what. I treat them all as 
 one. There are outstanding $346,000,000 of notes under ten dollars in 
 denomination and $52,000,000 of silver dollars. In other words, there 
 are, say, $400,000,000 actively engaged in the United States in perform- 
 ing the functions of actual trade and exchange. Now, I assume that 
 $250,000,000 of that is so firmly tied up in active circulation that nobody 
 can get it away — banks, trust companies, or anybody else. 
 
23O PROVIDING GOLD FOR REDEMPTION PURPOSES. 
 
 The Chairman. — Tied up in the pockets of the people ? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Hill It has to stay there in the case of a panic. 
 
 Secretary Gage. — It would stay there unless everybody were thrown 
 out of employment, and then the people would have to take this money 
 and spend it, and after spending it they would starve. Take that $250,- 
 000,000 from $610,000,000. There is left $360,000,000, which is the- 
 oretically free to the country, and which may come to the Treasury for 
 redemption. Now, where is that money? It lies in ten thousand banks, 
 scattered over the United States (by banks I mean trust companies, 
 savings banks, and national banks), to say nothing of private hoards of 
 greenbacks and other forms of paper money that are tied up in rags in 
 corners, in handkerchiefs and stockings, and stuffed away in cracks and 
 crannies. There is that whole range of institutions required by law to 
 carry reserves in legal-tender money, and under the national banking law 
 silver certificates are classified as good in reserves as silver dollars. To 
 protect, then, this $360,000,000 we would have $125,000,000 in gold 
 with which to meet it. How much of it can get loose? 
 
 The Chairman. — That $125,000,000 is to be locked up in the 
 Treasury ? 
 
 Secretary Gage. — Yes, sir; to be locked up in the Treasury to meet 
 that liability. Now, I look at it from a practical point of view as a 
 banker; and from my experience and my ability to guess how human 
 nature will act in its operations, and from the fact that the pressure that 
 will draw these legal-tender notes of the United States out of these 
 reserves will never operate at the same time, with the same force, in ten 
 thousand banks over the whole of the United States, I am sure that there 
 is no danger of that $360,000,000 coming to the door of the United 
 States Treasury and knocking for redemption. 
 
 The Chairman At the same time, you mean ? 
 
 Secretary Gage. — Yes, sir ; at the same time or in any reasonable 
 space of time. 
 
 Mr. Johnson. — You are basing that upon your experience in bank- 
 ing — that is, in accordance with facts you have observed? 
 
 Secretary Gage. — Yes, sir; from my observation. 
 
 Mr. Johnson. — Your theory of banking is that all claims will not be 
 presented at once ; otherwise there could not be any successful banking? 
 
 Secretary Gage. — Yes, sir. 
 
 The first part of the discussion under this head is a long story, 
 but it is important that it be told, as it is the story of those wielding, 
 so far as their functions go, the destinies of the nation. Mr. Brosius 
 
PROVIDING GOLD FOR REDEMPTION PURPOSES. 23I 
 
 again wanted to find out how, when we need gold for export, we 
 could get it, the Government notes being all taken in. He again 
 could see no alternative but that the country should go upon a silver 
 basis. If the Government deprives itself of the means of supplying 
 gold by taking in its liabilities the banks must supply it, these, 
 from the difficulty of obtaining it, being obliged to resort to silver. 
 " I understand," he said, " that there is a provision in the bill requir- 
 ing the banks to redeem their paper in gold." — " Not in this bill," 
 was the reply of the Secretary, who again proceeded to state the 
 whole amount, $930,000,000, of the government money now out- 
 standing. Mr. Prince. — " The holder, we will say, demands gold 
 instead of silver. Do you hold that the $930,000,000 can be paid in 
 gold at the direction of the holder?" — "The presentation of such 
 an amount," replied the Secretary, " is a physical impossibility — 
 as much a physical impossibility as it would be for a man to breathe 
 twice the capacity of his lungs. He could not do it." It would 
 indeed be a job to present $930,000,000 all at once for conversion 
 into coin. But suppose $10,000,000 were presented daily for pay- 
 ment on ten consecutive days, the result would be a panic inflicting 
 losses twice greater than were suffered from the presentation of a few 
 hundred thousand daily, covering a period of three years ending 
 July 1, 1896. By the time that $100,000,000 of notes were presented 
 the holders of the $830,000,000 remaining would have little motive 
 to rush to the Treasury already wholly cleaned out. The Secretary 
 need not gaze on distant mountains that are to overwhelm him. It 
 will be mole hills that will prove his ruin. 
 
 A constant theme in the discussion was the possibility that we 
 might come upon a " silver basis." There is no more possibility 
 that we should declare for a silver basis than that we should declare 
 that the moon instead of the sun be henceforth the centre of our 
 system. When a dollar of the paper money of the Government com- 
 manded only 36 cents we were as firmly upon a gold basis as before 
 a note was issued. Government declared that its notes, whatever 
 their value, should be money, but they were money only at their 
 assumed value. They had indeed the capacity to pay debts, such 
 capacity being an element of their value. The danger of the situa- 
 tion is that silver may be reached at its real value. In such case 
 those owing debts could pay them at the rate of 44 cents, or less, to 
 the dollar, creditors being swindled in ratio to the degree of depre- 
 
232 PROVIDING GOLD FOR REDEMPTION PURPOSES. 
 
 ciation. The moment it was seen that the only use of silver money 
 was to enable debtors to swindle creditors it would cease to be money 
 by the almost unanimous voice of the nation. We are a people that 
 like to indulge in a little tomfoolery, but our instinct for gain to be 
 secured always by the use of the best instruments to given ends 
 would be so strong that we should not long put up with any other. 
 The fall of silver money to its actual value would create a profound 
 shock and produce for a time the wildest confusion, but the sooner 
 it comes from natural causes, if we are to content ourselves with 
 drifting as we are now doing, the better. As it is, no event is more 
 to be desired than that the value of silver as money should agree 
 with its commercial value. No act of the Government could be 
 more beneficent than a declaration to that effect. 
 
 With the assumed withdrawal of $2 00,000,000 of government notes, 
 and an increase of bank notes of, say, $350,000,000, the amount of 
 the currency outstanding to be paid in gold would be $1,230,000,000. 
 Mr. Prince wanted to know whether, if the notes of the bank were 
 thrown back upon the Government, it would have to take possession 
 of their assets and property, as to do this would be to redeem the 
 whole $1,230,000,000 in gold. The Secretary. — " Yes, sir." Mr. 
 Mitchell. — " The practical effect, as I understand it, of tying up 
 $200,000,000 of greenbacks and treasury notes would be as follows : 
 Demand would be made upon the banks, by the people who deal 
 with banks, for greenbacks or treasury notes, or some form of paper 
 money to do their business with, and they do not want gold. Isn't 
 that a fact? I ask as a banker." The Secretary. — "Yes, sir." Such 
 notes as are necessary " to do business with " are taken upon the 
 assumption that they are convertible into gold, or into merchandise 
 equivalent in. value to gold. The moment it is understood that they 
 are not so convertible, their use as money would instantly cease, or, if 
 it were continued, they would circulate only at their estimated value. 
 So great, as was assumed by Mr. Prince, would be the demand for 
 greenbacks and government notes "to do business with," and so 
 great would be the preference for them over gold, that they would 
 be taken from the Treasury to be exchanged therefor, at least, accord- 
 ing to the Secretary, to one-half the amount of $200,000,000 of 
 government notes deposited as above stated. Mr. Hill suggested 
 that,, as notes of banks under $10 were to be prohibited, it would 
 make it practically impossible that the small notes of the Govern- 
 ment should be presented for redemption. 
 
PROVIDING GOLD FOR REDEMPTION PURPOSES. 233 
 
 But to come to the climax, the unfolding by the Secretary of his 
 grand scheme for the reformation of the currency. By a happy 
 alchemy always at command he reduces the amount of demand obli- 
 gations of the Government from $930,000,000 to $6 10,000,000, by 
 deducting, — 1st, $50,000,000 necessary to carry on the daily opera- 
 tions of the Treasury; 2d, $10,000,000 of notes lost or destroyed; 
 3d, $10,000,000 of notes locked up as part of the redemption fund 
 of the banks; 4th, $50,000,000 to be locked up in the same fund, 
 upon the assumption that the bank note currency is to be increased 
 to $500,000,000, subject to a deposit of 10 per cent. ; and, 5th, 
 $200,000,000 notes of the Government to be turned, as already 
 shown, into the Treasury by the banks for an equal amount of their 
 own. The absurdity of the last assumption has already been exposed. 
 Banks are not going to make a permanent investment at the rate of 
 2 per cent, in government bonds when, with the same capital in 
 hand, without any notes of their own, they could make 5. The sum 
 of $200,000,000, for which the Treasury is liable, must remain. As 
 the issues of banks are not to be increased upon the plan of the Secre- 
 tary the $50,000,000 of the government notes, which were to be 
 deposited as part of the redemption fund, are also to remain. Cor- 
 recting the Secretary's estimate, therefore, the amount of obligations 
 to be provided for equals $860,000,000 in place of $6 1 0,000,000. But 
 how does he propose to provide for the $610,000,000 of government 
 notes which, according to his own plan, are to remain? The Govern- 
 ment is to have the " monopoly " of all notes under $10. The notes 
 in circulation of denominations of $5 or less equal $346,000,000. 
 The 52,000,000 of silver dollars in circulation added, the total amount 
 of currency of small denominations is, say, $400,000,000. Of these 
 at least $250,000,000 are so firmly tied up in active circulation that 
 nobody can get them away. " The remaining $360,000,000 are in 
 10,000 banks scattered over the United States, to say nothing of 
 private hoards tied up in rags and corners, in handkerchiefs and 
 stockings, and stuffed away in cracks and crannies " never to be 
 heard from. " I am sure," said the Secretary, " that there is no 
 danger of that $360,000,000 coming to the door of the United States 
 Treasury and knocking for redemption." 
 
 The Secretary is mistaken. Money is, or is assumed to be, the 
 equivalent of the article sought in exchange. Paper money is the 
 equivalent of the article sought through the value of its constituent 
 
234 PROVIDING GOLD FOR REDEMPTION PURPOSES. 
 
 by which it can be reached. If distrust is felt for it, it immediately 
 returns to the issuer for an equal amount of gold. Government 
 money, when first issued, obeys the same law as that issued 
 by banks. It circulates, so far as the public is concerned, until 
 apprehension arises that adequate provision has not been made 
 therefor. Large amounts of it will always be held by merchants 
 and bankers who, with railways and telegraph lines at their com- 
 mand, have every opportunity for its immediate presentation for 
 gold. In this, as in every country, the humbler classes, as they are 
 called, whose money is deposited in savings banks or in their pri- 
 vate hoards, are the first to take fright, for the reason that it is often 
 their only means. Having little experience in affairs, they always 
 anticipate the worst when any alarm is created. Savings banks, as 
 well as those of discount, wholly solvent, may be unable to meet 
 upon the instant any considerable run upon them, their issues being 
 payable presently, their bills or loans at a future day. Those 
 familiar with the mode in which their affairs are conducted, deposi- 
 tors, for example, seldom join the crowd in the run upon them. 
 From their experience in affairs they wait, assuming that all will be 
 found right in the end, before they show themselves. The result 
 usually justifies their forbearance. When the credit of Government 
 is shaken there is no such presumption that everything will come 
 out well, as it is seen by every one that it has nothing behind its 
 issues but its reserves bearing only a small ratio to their amount. 
 It alone is responsible for its obligations, for which no provision 
 may ever be made. The class from which the Secretary anticipates 
 the least constitutes his greatest danger. Should any well-grounded 
 apprehension arise, vast masses of government money will be always 
 in the possession of merchants and bankers into whose hands it 
 is constantly flowing, and who can present them for payment, often 
 by walking across the street. The whole mass of the $860,000,000, 
 consequently, which the Secretary reduces to $6 1 0,000,000 so quietly 
 stowed away that not a dollar of it will ever appear to trouble him, 
 is always a seething volcano beneath his feet. 
 
 But why should the Government monopolize the circulation of all 
 notes to be in the form of silver certificates under $10 by assuming 
 functions wholly foreign to its nature or purpose? It is a police, 
 not a producer or distributor of merchandise. A currency, the 
 instrument of distribution, is best supplied when self supplied. A 
 
PROVIDING GOLD FOR REDEMPTION PURPOSES. 235 
 
 manufacturer on selling a thousand pieces of cloth or a thousand 
 cases of shoes takes in payment the bill of the purchaser, such bill 
 serving as the instrument for the transfer in gross of the merchandise 
 it represents, such bill performing all the functions of metallic 
 money. The instruments for the distribution of merchandise piece 
 by piece are supplied by banks, subject to no other charge than the 
 compensation of the staff employed, office rent, and the reserves to 
 be maintained. Why in the distribution of merchandise should 
 not the parties thereto be allowed the exercise of a function inci- 
 dent or necessary to their calling, and in which there can be not 
 only no monopoly, but by the exercise of which distribution is 
 effected at the lowest possible cost? Why should Government 
 assume functions which ■ it can never properly exercise, and which 
 can never be exercised except at an enormous cost ? Why should 
 it increase excessively the cost of distribution by requiring for the 
 issues of banks security in the form of government bonds, the sub- 
 jects of distribution supported by the reserves of the makers of these 
 bills, of their endorsers and of the issuers discounting them being 
 full and adequate provision therefor? At what cost has Govern- 
 ment interposed in the provision of money? Take the case of sil- 
 ver. Under the acts of 1878 and 1890 Government purchased 
 459,946,707 ounces of silver, at the cost of $464,210,262. The 
 silver so purchased is to-day worth, say, $220,000,000, the loss from 
 its fall in value alone being $244,210,262. The cost of the 
 291,272,018 ounces purchased under the act of 1878 was 
 $308,279,260. The interest on such cost at the rate of 3^ per 
 cent, (the rate that the government bonds issued in its purchase 
 bore) amounts to, say, $140,000,000, bringing the total loss up to 
 $389,210,262. To the direct loss resulting from the coinage of 
 silver may be well added half of $930,000,000, due, according to 
 the Secretary, to the disturbance created by our present monetary 
 system, the total reaching the vast sum of $854,000,000, a sum 
 nearly twice greater than the cost of the purchase. Such is the 
 penalty already paid. The Secretary proposes that a money that 
 has resulted in such terrible disasters become a permanent and 
 very important part of our system, involving possible disasters far 
 exceeding in intensity those already suffered. A heavy penalty is 
 still daily exacted in the interest still paid on the purchases under 
 the act of 1878. Why not avoid it by selling the silver coinage for 
 
236 AUTHORIZING SHORT TIME LOANS. 
 
 what it will bring, say, $200,000,000, discharging with the proceeds 
 a like amount of interest-bearing debt ? The result of the terrible 
 blunder, crime almost, when fully disclosed ought to teach us a 
 lesson in showing our presumption and folly in assuming to over- 
 ride natural laws. But unfortunately we are a people who can learn 
 nothing but through penalties which our presumption and folly are 
 certain to impose. 
 
 AUTHORIZING SHORT TIME LOANS. 
 
 Secretary Gage. — Yes, sir. Now, I have asked a gentleman in New 
 York, who bears a very close relation to the Treasury, who has been 
 Treasurer of the United States, and who has been Assistant Treasurer in 
 New York for many years, — Mr. Conrad N. Jordan, — about this. He is 
 in a position where he watches pretty closely the movements of foreign 
 exchange. He has become quite an expert in it, and he reads with a 
 great deal of accuracy the movements of gold for two or three weeks ahead. 
 He has the benefit of a great deal of observation and experience. He 
 says it is the last $200,000,000 which has put us to the blush all the time, 
 that has been our trouble. If we get rid of $200,000,000, and get a suffi- 
 cient gold reserve, we will not be troubled, and the country will not fear 
 that we are going to break. 
 
 Now, we would want something else. I have not provided for it in this 
 bill because it will come in separately hereafter. The President recom- 
 mends it. It is that the Secretary of the Treasury be empowered, when 
 so directed by the President of the United States, to borrow on short 
 time, for any of the purposes of the Government, a sum not greater than 
 $100,000,000 and for a period not over one year. That power will never 
 be exercised except in a very moderate degree, but with the knowledge in 
 the market that that power could be exercised, with that $360,000,000 
 liability and that $125,000,000 with which to meet it, I would just as lief 
 run the Government as run any bank with which I ever was connected, and 
 I will say that I have been troubled during all the years I have been 
 connected with a bank, in view of the weighty responsibility and the small 
 percentage of cash reserve it carried with reference to its liabilities. 
 
 Mr. Hill. — Mr. Secretary, I would like to ask why, in these two sec- 
 tions, you make a distinction between United States notes and other 
 paper issues, if, as you before stated, all are alike redeemable in gold and 
 are to be treated alike in their relations to the redemption fund? 
 
 Secretary Gage. — If I understand you, you inquire why I want to con- 
 solidate the greenbacks exclusively in this fund ? 
 
 Mr. Hill. — Yes, sir. 
 
AUTHORIZING SHORT TIME LOANS. 237 
 
 Secretary Gage. — That is owing to the infirmity of human nature. 
 
 Mr. Hill. — And for no other reason ? 
 
 Secretary Gage. — No other reason. 
 
 Mr. Johnson. — Please state, pointedly and succinctly, just the pur- 
 pose and object of Section 5 and Section 6, so it may appear in the record 
 in a few words. 
 
 Secretary Gage. — That is what I tried to go over just now. 
 
 Mr. Johnson. — What I mean is, to put that in a few words. You 
 have done it in detail very clearly ; now I wish you would state it in a few 
 terse sentences if you can. 
 
 Secretary Gage. — The object of the two sections is to recover into 
 the Issue and Redemption Division $200,000,000 of the demand obliga- 
 tions of the United States, whence they will not go except in exchange 
 for gold ; and to do this without contracting the circulating medium in 
 the form of paper money. 
 
 Mr. Johnson. — That is very happily expressed ; just as I wanted to 
 get it. 
 
 Mr. Jordan from his long training and experience is presumably 
 well entitled to be summoned as an expert. New York, where he is 
 an Assistant Treasurer, the commercial centre of the country, is first 
 and chiefly called upon for gold for the discharge of balances arising 
 in the domestic or foreign trade of the country. Its banks and 
 bankers hold on the average about $100,000,000 of government 
 notes, almost wholly greenbacks. As these are the ones that appear 
 to chiefly annoy the Treasury, Mr. Jordan thinks if they could be 
 got out of the way all trouble would be at an end. Could he better 
 employ his spare moments than in putting his private mark upon 
 the notes that have the audacity to present themselves, those guilty 
 of a second offence of lese majeste against the Great Republic 
 being summarily committed to the flames? Upon his representa- 
 tion to Congress that he is familiar with the $200,000,000 that have 
 put us to the blush, adequate power in the premises would un- 
 doubtedly be conferred upon him, the summary execution of the 
 offenders not only relieving the Treasury but serving as a warning 
 to other equally evilly disposed but more cautious notes. 
 
 With the provision of $125,000,000 in gold and the right to 
 issue bonds to the amount of $100,000,000, "I would just as 
 lief run the Government," said the Secretary, "as I would run any 
 bank with which I was ever connected." The Secretary is again 
 
238 AUTHORIZING SHORT TIME LOANS. 
 
 mistaken. A happy turn in affairs restoring confidence in the Gov- 
 ernment placed him at the head of the Treasury. Everything is 
 now going so smoothly that his duties are little other than the ordi- 
 nary official routine. The Government for the moment is massing 
 rather than losing gold. His experience and consequently his con- 
 clusions would have been very different had he been Secretary of the 
 Treasury from 1893 to 1896 when the officer filling his place was 
 only too happy to find when the day closed that he had been able to 
 meet the calls upon him for gold. At one time the amount of gold 
 in the Treasury was reduced below #50,000,000, to a sum equal- 
 ling only 5 per cent, of its immediate liabilities. In the crisis which 
 threatened the gravest consequences some #300,000,000 had to be 
 provided by borrowing, the notes taken in being speedily paid out to 
 meet the ordinary expenses of the Government. Had the issues of 
 Government been like those of a well-conducted bank, it would 
 never have been called upon to provide a dollar therefor, its lia- 
 bilities, no matter the amount, being all returned to it without any 
 interposition on its part. 
 
 The Secretary under this head strikes a keynote which if under- 
 stood would soon have led him out of all the difficulties which beset 
 him. When asked by Mr. Hill, " Why do you make a distinction 
 between United States notes and other paper issues, all alike redeem- 
 able in gold?" the reply was : "That is owing to the infirmity of 
 human nature." " And for no other reason ? " "No other.'' Has 
 he alone in humanity the prerogative of preferring the best to the 
 worst ? He thinks, as has been shown, that by some trick or sleight 
 of hand he can get #200,000,000 greenbacks into the Treasury by 
 carefully sorting out and handing back to the people the less val- 
 uable kinds of money. Should he attempt such a thing he would 
 find that he was dealing with those whose " human nature " was 
 more than a match for his own, they having something and he hav- 
 ing nothing to lose. Why cannot he learn a lesson from experience ? 
 He declares over and over again that the public revenues are wholly 
 paid in the lowest kind of money afloat, the people carefully holding 
 on to the higher kind. The fact illustrates a law which he can ho 
 more reverse than he can compel the sun and moon to change 
 places. 
 
CIRCULATING NOTES ISSUED BY BANKS. 239 
 
 CIRCULATING NOTES ISSUED BY BANKS. 
 
 Mr. Newlands. — You rely, then, on self-interest to prevent contrac- 
 tion of the currency, which otherwise would result from the withdrawal of 
 $200,000,000 of money. 
 
 Secretary Gage. — I rely upon a principle of human nature to actuate 
 them in taking out circulation, turning in money of ours. But we do not 
 take in any money of ours unless they do respond to the temptation which 
 we give them ; and to the degree they respond, to that degree I do take 
 in the money, and no more. 
 
 Mr. Brosius. — If the banks chose to redeem them in 50-cent silver 
 dollars the holders of those dollars would take them to the Treasury as they 
 now take greenbacks, and demand gold, and the 50-cent dollars would 
 all be redeemed at 1 00 cents by the Government. 
 
 Secretary Gage. — That would be the course then, as it is and to the 
 extent it is now — no more and no less. This does not affect the ques- 
 tion in any manner. Now, a national bank has the right to pay out 50- 
 cent dollars, as you call them, and the man to whom they pay these silver 
 dollars has a right to go to the Treasury and demand gold. What the 
 Treasury will do is in the discretion of the Secretary, according to law. 
 
 Mr. Cox. — Under Section 5 I desire to call your attention to the pro- 
 vision of bringing in this money. It is very easy to understand why 
 those notes are desired to be brought in. It is to protect that reserve. 
 That is plain, but I desire to call your attention to this point, that a 
 bank starting its organization can bring into the Treasury what we call 
 greenbacks, or it can bring silver certificates to the Treasury, and there- 
 upon you issue to the bank bank notes? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Cox. — Up to that time it amounts simply to an exchange of money 
 of the bank for bank notes. If the banker can bring $100,000 —say 
 that is the capital stock — in silver certificates, he is entitled to $100,000 
 of bank notes on that ? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Cox. — With the silver certificates out and the greenbacks recog- 
 nized as a gold obligation, do you not think there is great danger that 
 instead of presenting to you any portion of the greenbacks to obtain bank 
 notes silver certificates will be presented ? 
 
 Secretary Gage. — No, I do not think there is such a danger as that. 
 We might get the general proportion that they bear to the other forms of 
 money, but I hardly think we would get so much, because the banks have 
 a larger proportion of greenbacks and Treasury notes in their vaults all the 
 time than they do of silver certificates. The silver certificates are in the 
 hands of the people now. They are in the hands of the people west of 
 
24O CIRCULATING NOTES ISSUED BY BANKS. 
 
 the Allegheny Mountains, and the banks manage, because of doubts and 
 fears, to keep them in the hands of the people. 
 
 The discussion under this head is chiefly important in showing 
 that the Secretary can hardly speak without bearing emphatic testi- 
 mony against the very system which he seeks to uphold. When 
 asked by Mr. Cox whether there was not great dange.r that silver 
 certificates would, be deposited instead of greenbacks which the 
 Secretary is so anxious to mass in the Treasury, he replied that 
 he did not think there was any such danger, for the reason that the 
 banks held in their vaults a large proportion of the latter, the certifi- 
 cates being " in the hands of the people west of the Alleghenies, 
 banks, because of their doubts and fears, keeping them in the hands 
 of the people." Why should the banks have " doubts and fears " 
 towards silver certificates not felt towards other kinds of money? 
 They have no "doubts and fears" as to the value of gold. They 
 have no " doubts and fears " as to the value of deposits amounting 
 to $3,000,000,000 with banks and bankers in the United States, such 
 deposits resting almost wholly upon merchandise which never comes 
 into the possession of their issuers or owners. Money in this form 
 is accepted without the slightest hesitation at the par of gold for the 
 reason that it rests upon merchandise of the value of gold. Why do 
 banks and bankers shove off silver certificates upon the people, never 
 allowing a dollar of them to remain over night in their tills ? Because 
 the provision of merchandise behind them does not equal one-half 
 their nominal value. They have the same "doubts and fears" of 
 issues of banks when the fact is known that these have not behind them 
 merchandise adequate to their discharge. A money that can excite 
 "doubts and fears " has no right to be. Silver certificates circulate 
 as they are assumed to be promises of the Government to pay gold. 
 But the Secretary declares that the performance of such promise is 
 wholly optional, to be exercised or not at his discretion. Men of 
 sagacity and experience in affairs are not to be taken in by " options," 
 to be exercised perhaps by a wild Populist filling his place. As sil- 
 ver certificates are held to be promises of the Government to pay 
 gold they are accepted for the moment, great care being always 
 taken by those who understand their real character never to allow 
 them to accumulate on their hands, so that when the catastrophe 
 comes they will be found to be almost wholly in the hands of those 
 
GOVERNMENT SHOULD GUARD ITS OWN INTERESTS. 24I 
 
 least able to bear the loss. To protect the " people west of the 
 Allegheny Mountains " the Secretary should lead off in the attack 
 upon a money so fraudulently conceived and so potent of mischief, 
 instead of bolstering it up by futile and far-fetched expedients. 
 
 THE GOVERNMENT SHOULD GUARD ITS OWN INTERESTS. 
 
 Mr. Cox. — Now, then, at the same time you are paying that bank the 
 interest upon that bond. Of course, we do that now, as I understand it. 
 Do you think it proper and right that you should issue a par-value bond 
 and a bank should have circulation at a profit and at the same time the 
 Government shall pay 1% per cent, or any interest upon that money — 
 that money to be raised by taxation ? 
 
 Secretary Gage. — I think, Mr. Cox, that all depends on what it is for 
 the interest of the Government to do. I do not think the Government is 
 under any obligation of any nature, form, or kind to help banks as banks. 
 It is our interest to look after our own finances, to protect our own Treas- 
 ury, to maintain our own credit, to keep ourselves in every way respect- 
 able in the eyes of the world, and to do all necessary things to accomplish 
 that end. If the substitution of bank notes in order to secure the immu- 
 nity from the contraction of currency which would result from decreasing 
 our liabilities, and if the reduction of our liabilities be in the interest of 
 the Government and the people, then the step about which you inquire — 
 the payment of interest to secure that end — is wise and legitimate, as 
 much so as it is for a man to buy insurance or purchase immunity from 
 his obligations, duties, undertakings, and responsibilities in any other 
 walk of life. 
 
 Mr. Cox. — With that theory and that idea, does it not, in substance, 
 amount to this : That in order to give a bank circulation in the country 
 you pay the amount of interest as an inducement to the banks to take 
 out a circulation? 
 
 Secretary Gage. — The banks would be very glad to take out circula- 
 tion without putting up bonds at all. The putting up of the bonds is a 
 requirement, an exaction, and a restriction upon the banks in the exercise 
 of what formerly was a natural privilege and prerogative. 
 
 Mr. Cox. — One more thing on that line, because that is a question 
 which is being raised all through the country. You know it, and I know 
 it, too. To sum it up, the bank, under this system, will get the full face 
 value of its bonds in circulation. So far the tax on circulation has not 
 been touched upon at all. It gets the full face value of its bonds to make 
 a profit on. The complaint now is that while the banks get the full face 
 value in money — for it answers the purpose of money to bankers — the 
 Government by taxation pays interest at the rate of 2 or 3, 4 or 5 per 
 
242 GOVERNMENT SHOULD GUARD ITS OWN INTERESTS. 
 
 cent. Of course one of the inducements under the old law was to get 
 investments in United States bonds when they were first issued. Now, 
 when the bonds are bringing from 120 to 130 premium, should not that 
 cease ? 
 
 Secretary Gage. — The primary object is for the Government to recover 
 8200,000,000 of its demand liabilities and put it under more perfect con- 
 trol. If you can find anyway of doing that for nothing, getting anybody 
 to give it to you, I would like to find it. I do not think you can find it. 
 If you could issue bonds to the general public and draw in this $200,- 
 000,000 and not make them a security for note circulation at all, I would . 
 be satisfied ; but the people could not stand it unless there were some 
 form of substitution. The contraction of the currency would be more 
 ruinous in two years than the interest on the bonds in forty years. 
 Therefore, we must avoid that. How? The law provides that national 
 banks may issue notes upon deposits of government bonds as security, 
 and that has been the law for thirty years. And, as you have opened the 
 subject, let me remark that it was a law never conceived in the mind of 
 any banker on earth. It was a law conceived in the interest of the Gov- 
 ernment, by which the Government, seeing the necessity of the banks 
 and necessity of bank-note circulation, made it obligatory upon every 
 bank that was organized to put some part or all of its capital in United 
 States bonds as a condition for doing business. 
 
 The question of Mr. Cox expresses the almost universal assump- 
 tion that banks under our present system have a double advantage, 
 as they are to have under the one proposed, in receiving interest 
 on the bonds put up for their notes and interest on the notes 
 received. The present system, as the Secretary constantly declared, 
 is a most onerous one for the banks. The proposed one, if ever 
 adopted, would be still more onerous. By it a bank, before it 
 could put a single note in circulation, would have to make a 
 permanent investment equal to its amount at the rate of 2 per 
 cent. When received the notes will be only instruments by which 
 debt could be created, it being in its power to create debts similar 
 in kind and to an unlimited amount without involving the outlay 
 of a dollar. With the notes in hand the bank would be pre- 
 cisely in the same condition that a manufacturing corporation would 
 be in were it required to put up at the rate of 2 per cent, capital 
 equal to that involved in its undertaking before it could proceed 
 with it, that it should be well and honestly conducted. The ques- 
 tion arose from the assumption that value, either intrinsic or rep- 
 
GOVERNMENT SHOULD GUARD ITS OWN INTERESTS. 243 
 
 resentative, is no necessary attribute of money, an assumption well- 
 nigh universal. Such is the assumption of the Secretary. Until it 
 is corrected, until he learns that money must be capital in its highest 
 form, or the symbol of merchandise in demand for consump- 
 tion, being the instrument by which such merchandise is reached, 
 such instrument being cancelled by its use, the first step toward 
 reform, so far as he is concerned, will never be taken. 
 
 The Secretary holds that interest to be paid by his bill on the 
 bonds deposited as security of the notes of the banks may be well 
 paid to avert a great evil, the contraction of the currency, the r lesser 
 evil averting the greater. Suppose a secured currency to be issued 
 to the extent of $500,000,000, the sum annually to be paid by Gov- 
 ernment to the banks would equal $12,500,000. To this sum is to 
 be added $2,500,000 interest, at the rate of, say, 5 per cent., on the 
 $50,000,000 to be deposited by the banks for the benefit of the 
 redemption fund, the money deposited being worth that rate to 
 them, the two sums equalling $15,000,000, to be annually paid to 
 avert a contraction of the currency ! And for whose benefit ? Not 
 of the banks that are to receive the interest on the bonds to be 
 deposited, as nothing would suit them so well as to be relieved of 
 such duty, foregoing wholly the right to issue notes, as with the 
 capital in hand equal to the amount of such bonds they could make 
 by its use 5 instead of 2j£ per cent.; or 1.80, the annual tax and 
 the contribution to the redemption fund deducted. The public 
 would suffer corresponding loss in having capital locked up beyond 
 its reach to the amount of $500,000,000, at 1.80 per cent., when 
 they could well use it at 5. The banks would have still greater 
 reason for wishing to avoid the deposit of notes to the amount of 
 $50,000,000 to the redemption fund, as from this source no return 
 whatever would be received. In other words, the banks and, what 
 is the same thing, the people, by the proposed measure of the Sec- 
 retary would suffer the loss of $15,000,000 yearly as the penalty for 
 maintaining the most costly, dangerous and absurd monetary system 
 yet devised, in place of one which could be made fully adequate to 
 the wants of the country, one costing nothing in itself but the 
 paper and printing, the constituent by which it was retired being 
 always provided previous to its issue. The Secretary could well 
 have proposed that we should pay $15,000,000 annually as the 
 price for a return to a currency costing nothing, being founded as. 
 it were in the very nature of things. 
 
244 GOVERNMENT SHOULD GUARD ITS OWN' INTERESTS. 
 
 What has the United States to do with money, with its amount or 
 kind, except by impressing its insignia upon pieces of metal and 
 restricting all issues of paper money to the discount of merchants' 
 bills? Left to itself the amount, whether of metal or paper, will 
 always take care of itself; and if of paper without any other cost 
 but that of printing. As well might Government see to it that the 
 amount of merchants' bills, as of money, be not contracted, and 
 pay annually a large sum to keep the requisite amount afloat. 
 The interest paid on the bonds to prevent the contraction of the 
 currency is not only wholly wasted, but another great evil results by 
 the tying up of sums equal to the amount of the bonds desposited, 
 sums which otherwise might be made the basis of production, return- 
 ing an income of 5 or 6 per cent. If Government is to see to it 
 that the currency is not to be contracted it will soon have plenty 
 to do. If it undertakes the job it will soon give place to an adminis- 
 tration that will do the business in a wholesale way, and not by the 
 half and half methods now proposed. Money will then be had for 
 the asking, not as the equivalent for services rendered or of capital 
 parted with. 
 
 " The present law would never," said the Secretary, " have been 
 conceived in the mind of any banker on earth. It was a law con- 
 ceived in the interest of the Government, by which the Government, 
 seeing the necessity of the banks and the necessity of bank note 
 circulation, made it obligatory on every bank that was organized to 
 put some part or all of its capital in United States bonds as a con- 
 dition for doing business." The reason given by the Secretary for 
 the present system is a pure and very bungling invention. At the 
 time of its enactment the bank note circulation was wholly sound 
 and fully adequate to the wants of the country. Such currency even 
 without the intervention of Government will in time always be self- 
 supplied, for the same reason that methods, the best of their kind, 
 will always be provided, men carrying on the various operations of 
 society never resting until the best are secured. The country at the 
 time had almost wholly recovered from the chaos which resulted from 
 the overthrow of the Bank of the United States. Clearing houses, 
 the great instruments for providing a sound currency, had been 
 established in all the leading cities. Upon the breaking out of the 
 war of the Rebellion the Secretary of the Treasury, in casting about 
 to provide means for its prosecution, declared, in imitation of 
 
BI-METALLISM. THE ST. LOUIS CONVENTION. 245 
 
 General Jackson, that the banks were fleecing the people by charg- 
 ing interest upon issues which cost them nothing but ink and paper, 
 and that such advantage, debt without interest, should be enjoyed 
 by the Government representing the whole people, instead of by the 
 banks representing but a few and those well to do. The alleged 
 object for the change in the system then existing was to create a 
 market for government bonds, but the real object was to open the 
 way for the issue of government notes to take the place of those of 
 the banks. The change was effected through the instrumentality of 
 the Secretary of the Treasury, Mr. Chase, who from his incom- 
 petency for the place which he filled was transferred to the Supreme 
 Bench of the United States. In his new and exalted position of 
 Chief Justice, the matter being properly brought before him, he 
 declared that the notes in the issue of which he was a great instru- 
 ment were unconstitutional. A striking and it is to be hoped an 
 extreme illustration of political life in the Great Republic ! 
 
 BI-METALLISM. THE ST. LOUIS CONVENTION. 
 
 At this stage of the proceedings Mr. Hill asked the Secretary 
 whether his purpose to put the country on a gold basis did not 
 conflict with the principles announced at the National Republican 
 Convention at St. Louis affirming the principle of bi-metallism. 
 
 The Secretary. — A bi-metallic "standard" does not exist any- 
 where on earth. A bi-metallic currency, as I understand bi-metallism, 
 does exist in the United States now. The firm establishment of our 
 system upon the gold standard, and the recognition of silver by the 
 Government in the way of such interchangeability as may be necessary to 
 keep it equal to gold, will better maintain bi-metallism, on the general 
 principle I have just outlined. This has, in a manner, been going on for 
 eighteen or nineteen years. There is nothing at all in the proposition 
 to more firmly establish the gold standard to prevent us from doing all 
 reasonable things to accomplish such an increase in the value of silver 
 money as will bring it to a natural parity with gold, and thus relieve the 
 Government from the expense of artificial maintenance and the embarrass- 
 ment which has prevailed for many years, and which will perhaps prevail 
 for many years to come in our financial system. 
 
 Mr. Mitchell. — This bill which you propose would, in your opinion, 
 relieve the Government from most of that artificial strain to which it has 
 been subjected in the past? 
 
 Secretary Gage. — 1 think it would operate to give such confidence in 
 
246 WHAT THE BILL WOULD DO. 
 
 the Government's ability to do what may be necessary to maintain the 
 parity of its different kinds of money that the discrimination against silver 
 would largely cease. 
 
 The Secretary here states that our standard is gold and that our 
 system is to be firmly established upon it with "the recognition of 
 silver by the Government in the way of such interchangeability as 
 may be necessary to keep it equal with gold." Why burden the 
 premise with such a wretched and impossible condition? Gold is 
 the standard of value by a law higher than our own. It is not the 
 instrument of exchange, from its cost and the inconvenience of its 
 use. Silver, from the great and constant variations in its value, 
 cannot be the standard by which values are to be measured and 
 contracts solved. It cannot be used as an instrument of exchange 
 for the reason that it is capital, and from the inconvenience of its 
 use. Why does not the Secretary draw his illustrations from life 
 instead of from his fancy bewildered by the teachings of the political 
 economists and the clamors of the needy crowd ? There is no more 
 reason why the Government should maintain at the par of gold silver 
 now discharged from use as money than that it should maintain the 
 value of any other kind of merchandise at the relation it bore to gold 
 forty years ago. How can iron and steel, merchandise, be main- 
 tained at the par of gold ? Silver is merchandise, not money, except, 
 like copper and nickel, in the form of subsidiary coins. The dis- 
 charge of silver and gold from the exchanges to be applied to pro- 
 duction is among the greatest achievements of the race. The fall 
 of silver from its disuse as money, allowing one of the most beautiful 
 and useful metals to be brought into common use, is a beneficence 
 the same in kind as that resulting from the fall of steel from $150 to 
 $15 the ton. The price of gold, were it the chief instrument of 
 exchange, would be far greater than it now is, restricting enor- 
 mously its use in the arts. 
 
 WHAT THE BILL WOULD DO. 
 
 Mr. Mitchell. — This bill which you propose would in your opinion 
 relieve the Government from most of that artificial strain to which it has 
 been subjected in the past? 
 
 Secretary Gage. — I think it would operate to give such confidence in 
 the Government's ability to do what may be necessary to maintain the 
 
SAFETY FUND PROVISION. 247 
 
 parity of its different kinds of money that the discrimination against 
 silver would largely cease. 
 
 If the effect of the bill would be to maintain the parity of the 
 different kinds of money of the Government the sooner it is killed, 
 root and branch, the better. Government has higher duties than the 
 reconciliation of things differing radically in kind. 
 
 Sect. 7. When any national bank now existing or hereafter organized shall 
 have deposited such United States bonds, United States notes, treasury notes of 
 eighteen hundred and ninety, or silver certificates to an amount of not less than 
 fifty per centum of its capital, it shall be entitled to receive from the Comptroller 
 of the Currency and to issue national bank notes, in addition to the fifty per cen- 
 tum thus provided, to the amount of twenty-five per centum of such deposits ; 
 but the circulation issued by any national banking association shall never be in 
 excess of its paid-up capital stock, and the additional notes so issued shall not be 
 secured by said deposit, but shall constitute a. first lien upon all the remaining 
 assets of the association issuing such notes. Upon the failure of any association 
 to redeem its circulating notes above provided, whether the same are issued 
 against deposited security or against general assets, the same shall be promptly 
 redeemed by the Treasurer of the United States. To secure the United States 
 against any loss arising from its guaranty to pay and redeem such additional 
 circulating notes it shall be the duty of the Comptroller of the Currency to levy 
 upon and collect from every national banking association issuing such unse- 
 cured circulation a tax at the rate of two per centum per annum on such unse- 
 cured circulation, which said tax of two per centum per annum shall be paid to 
 the Treasurer of the United States in equal semi-annual payments in January and 
 July of each year ; and when so collected it shall constitute a safety fund, out of 
 which the United States shall be reimbursed for any redemption of said unsecured 
 circulation it may make as herein provided. The safety fund thus created shall 
 be invested by the Secretary of the Treasury in such Government bonds as he 
 may cbnsider advisable. Said tax of two per centum per annum shall be in addi- 
 tion to the tax of one-half of one per centum per annum on circulating notes 
 hereinafter authorized. 
 
 SAFETY FUND PROVISION. 
 
 Mr. Johnson. — Under the existing system the Government indemni- 
 fies itself in case of loss out of the bonds that are deposited as collateral 
 security for the circulation, leaving to the depositors unimpaired the 
 assets of the bank for their safety. 
 
 Secretary Gage. — That is correct. 
 
 Mr. Johnson. — It seems to me that that is very, likely to be urged by 
 depositors as an objection to this scheme — that it robs Peter to pay 
 Paul ; that while it secures the note holder, and also secures the Govern- 
 ment, yet it leaves the depositors exposed to loss, and deprives them of 
 the security which under- the present system they enjoy. It has been 
 
24S SAFETY FUND PROVISION. 
 
 repeatedly urged upon me as an objection when I have advocated some T 
 thing like the Baltimore plan. 
 
 Secretary Gage. — Your consideration, I think, is a very timely one. 
 It has occurred to me, and that is why I think a step in that direction 
 ought to be a very careful one, and why I limit it to 25 per cent, instead 
 of a larger per cent. In former times, before the national banking 
 system was established, it was a common practice for banks to issue their 
 circulating notes, and they were alien up to 100 per cent, on their capital. 
 National banks have become accustomed now to another system, and all 
 note holders are accustomed to it, — a system by which the circulating 
 notes are secured by bonds in the hands of outside trustees. It has the 
 advantage of security, but it has disadvantages of all kinds. I cannot 
 go into it very deeply now. 
 
 A change from that method to another method of circulating notes 
 upon the assets of a bank must be made in such a way as not to work 
 disaster. It must be tried. If it should appear that in ten years this 2. 
 per cent, tax upon the circulating notes of banks furnishes a fund amply 
 sufficient to provide for all circulating notes of failed banks without any 
 lien upon their assets, that feature of the law could be stricken out. 
 When everybody is satisfied that it is so, it may be modified so that this 
 safety fund, so far as it had been gathered from the banks, should be 
 applied first to the redemption of their notes, and the Government's liens 
 upon their assets exercised only for the balance. I think the important 
 thing is not to make this law so menacing to the depositors and general 
 creditors of a bank as to frighten them, and I do not think 25 per cent, 
 will. 
 
 Mr. Johnson. — I heartily agree with you in your view of the subject. 
 I think the advantages gained by your system appear very great over the 
 existing system. At the same time there is really no menace to deposi- 
 tors, because your bill is so carefully graded as to the amounts. But I 
 wanted to draw you out a little on this, so it would be plain to those 
 who read this record. 
 
 Secretary Gage. — I might add, for general information, as we are 
 making a record here, that I went carefully over the Comptroller's books 
 to see what the result of such a system would have been in the past. The 
 past is never an absolute guide for the future, but it is an approximate 
 guide. Out of all the national banks that have been organized since the 
 beginning of the system 330 have failed. Of these all paid in liquidation 
 a sum much more than was necessary to redeem this 25 per cent, of cir- 
 culation, had they had it outstanding, except 18 banks. 
 
 These 18 were such examples of mismanagement or wickedness that 
 they did not pay enough, the assets did not liquidate enough, to have 
 
SAFETY FUND PROVISION. 
 
 2 49 
 
 taken care of the 25 per cent, of their circulating notes if they had had 
 them out, and the depositors would not have received a cent in that case, 
 and the Government's guaranty would have been called upon. To make 
 its guaranty good it would have been necessary for the Government to 
 have taken out of the safety fund to supplement the assets of the 1 8 banks 
 the sum of $194,000. That would have redeemed all these notes, but I 
 found that if these 330 failed banks, to say nothing about the banks that 
 had not failed, had taken out their 25 per cent., as we contemplate here, 
 and had kept it out during the average period of their existence, which 
 was about eight years, they would have paid into this guaranty fund the 
 sum of $2,600,000, which would have been ample from which to draw 
 $194,000. So, from the Government's standpoint, it would have been a 
 safe proposition. 
 
 Mr. Johnson. — These facts are set out in your annual report, are they 
 not? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Johnson. — Under your bill the ultimate liability for failed banks 
 would fall under this safety fund provided by the banks generally that 
 contributed to this safety fund? 
 
 Secretary Gage. — Yes, sir ; it would during the existence of that fund. 
 
 Mr. Johnson. — Do you not think that would be regarded by the banks 
 as an insuperable barrier to entering into this arrangement ? 
 
 Secretary Gage. — No, I think not; because they would know how 
 much they would have to pay. They have to pay so much on their cir- 
 culation, and they take no risk for anybody else. They only pay on their 
 own circulation. 
 
 Mr. Johnson. — The fact that the tax on their circulation is reduced 
 would all the more enable them to make a contribution to the safety fund? 
 
 Secretary Gage. — Yes, sir. A bank is responsible for no circulation 
 but its own. The banks are willing to stand responsible for their own, 
 and pay taxes, but they would not be willing, I believe, under any sys- 
 tem, to issue circulation and then be assessed from time to time addi- 
 tional amounts to make good the debts of others. 
 
 Here is the Secretary's great scheme, an " emergency currency," 
 that is to take him out of all the troubles that beset him. As the 
 issue of notes by banks under the present system is very uniform in 
 amount, as it would be under the proposed one, an alternative is 
 needed to meet any sudden or unprecedented demand for money. 
 Such banks, therefore, as shall make deposits of bonds equalling 
 one-half of their share capital, after receiving a like amount of 
 notes, are to be allowed to issue additional ones equalling 25 per 
 
250 SAFETY FUND PROVISION. 
 
 cent, of such deposits, no security being required therefor other than 
 their general assets. It may be replied that but for the issue of 
 notes by the Government to serve as money the " emergency cur- 
 rency " of the Secretary would never have been thought of. So 
 long as the Government assumes to provide money, whether of its 
 own or banks, it must see to it that the supply be sufficient. It 
 has no other test of determining the amount required than the 
 clamors of those demanding it. It can have no other. The Sec- 
 retary should say to those clamorous for more money, or who insist 
 that there should be no contraction of it, " What you want is some- 
 thing beyond the power of the Government to supply. Provide 
 yourselves with means and you will have money enough — all you 
 deserve, if not all you want." But suppose the " emergency plan " 
 to become a law. For a bank with a capital of, say, #1,000,000 
 to avail itself of it would be to make a loan of $5 00,000, or half of 
 its share capital, at 1.80 instead of 5 per cent., and an additional 
 deposit equalling 10 per cent, of the notes received would have to 
 be made to the redemption fund. But the notes received could 
 not be loaned, as in nine hundred and ninety-nine cases in a 
 thousand borrowers at bank would insist that their loans be made by 
 writing credits on its books. If the bank insisted in forcing its 
 notes upon borrowers, they would instantly be handed back to it to 
 take the form of deposits. What could a borrower do with a bundle 
 of $50,000 bank notes handed out to him ? The great purpose at 
 the present time is to get rid of money in the form of notes, which 
 from the great abundance of those of the Government are an unmit- 
 igated nuisance to those largely in affairs. From the difficulty of 
 making loans in the form of notes, three months would not elapse 
 after they were received under the plan proposed before the banks, 
 availing themselves of it, would return them to the Government, 
 recalling their bonds, loaning the proceeds of their sale, receiving 5 
 per cent, therefor, instead of 1 .80, the rate yielded by the bonds. 
 With the return of the notes, the bonds being reclaimed, the right 
 to issue the " emergency notes " would cease. In no event would 
 it be exercised, as the banks could make all the loans they were 
 entitled to make without the use of a dollar in the form of notes, 
 the tax of 2 per cent, on the same being thereby avoided, the pub- 
 lic greatly preferring to receive the proceeds of their loans in form 
 of deposits rather than in that of notes. 
 
CREDIT NOTE SYSTEM. 25 1 
 
 Mr. Johnson objected that the provision for rendering the note 
 holders and the Government secure left the depositors exposed to 
 loss. This concern for depositors is not shared by them, as they well 
 know how their deposits arise, being issued in the discount of mer- 
 chants' bills and representing means abundant for their discharge. 
 Through the same provision, and the instrumentality of Clearing 
 Houses, notes of banks are abundantly secured, additional provision 
 therefor being wholly superfluous. They would be as readily ac- 
 cepted and would circulate as freely without as with security in 
 addition to the ordinary assets of the issuers. It is well understood 
 by depositors that in the marshalling of assets note holders should 
 have preference, there being no privity between them and the banks ; 
 while the depositors intelligently select the banks as the proper and 
 safe custodians of their funds, well knowing that, although subordi- 
 nated in the matter of security to the note holders, there is a plenty 
 for all. 
 
 The Secretary pays a compliment to the present system by show- 
 ing how inconsiderable have been the losses that have been suffered 
 under it. Of the whole number of banks organized only 330 have 
 failed. Of these there were only 18 the assets of which would not 
 have sufficed to take care of the 25 per cent, of " emergency notes " 
 to be issued under his bill. If under one which puts no restraint 
 whatever upon issues, but allows them to be made upon cats and 
 dogs, the losses were so insignificant, there would have been none at 
 all under one which restricted issues to the discount of merchants' 
 bills. The interposition of the Government in the matter of the 
 currency, except to provide that the capital of banks shall be fully 
 paid, and that no issues shall be made but in the discount of mer- 
 chants' bills,, is always far more productive of evil than of good. 
 When it assumes, as in our own case, to cover the whole ground the 
 evil is almost beyond computation. 
 
 CREDIT NOTE SYSTEM. 
 
 Mr. Hill. — Do you think the large reserve banks of the country 
 would avail themselves of this credit note system? 
 
 Secretary Gage. — No, sir. 
 
 Mr. Hill. — Do you think, in your experience as a banker, not as 
 Secretary of the Treasury, that as a matter of fact the large reserve banks 
 of the country do frequently have to carry the smaller banks ? 
 
252 CREDIT NOTE SYSTEM. 
 
 Secretary Gage. — They do to a considerable extent. 
 
 Mr. Hill. — Do you think, then, they would object to this credit 
 note system, as giving to the country banks a first lien upon all their 
 assets for these reserve notes and thus imperiling their claims against the 
 country banks? 
 
 Secretary Gage. — I do not think they would object on that ground at 
 all, because they always make sure they themselves have a good lien on 
 assets before they take care of the country banks. 
 
 Mr. Hill. — I have here the Treasury statement of Dec. 1, 1897, of 
 the outstanding paper money issued, and I find that if the $200,000,000 
 had been drawn into the reserve fund the situation would then have been 
 an increase of paper issues all told of $136,000,000. 
 
 Secretary Gage. — That is about correct, if all the banks had issued 
 the 25 per cent, credit notes contemplated. 
 
 Mr. Hill. — I want to ask you if that whole increase will not press 
 directly upon the $125,000,000 of gold in your redemption fund? 
 
 Secretary Gage. — It cannot press any harder than they can find the 
 government bills to press with. That is one thing. Another answer 
 would be that it is by no means certain they could keep out $134,000,000 
 if they tried. The bill contemplates, a little further along, several 
 places for the redemption of national bank notes. Now, all the national 
 bank notes come to Washington. It is an awkward place to have them 
 come, anyway. The Government hires clerks who sort these notes, and 
 it is all done under one roof here in Washington. My bill contemplates 
 that all these notes may be presented at the sub-treasury in New York, if 
 they accumulate there, without being sent to Washington, and at any 
 other sub-treasury which the Comptroller, with the consent of the Sec- 
 retary of the Treasury, may name. 
 
 That other sub-treasury would be a natural central point for that par- 
 ticular district of country where a group of banks may be located, so that 
 the work of redemption, sorting, and all that sort of thing, instead of 
 being carried on under one roof here, would be carried on in as many 
 places as there are sub-treasuries, and the tendency would be — as national 
 bank notes are to be of the denomination of $10 and upward — to return 
 them home for redemption. The tendency would be that way. And as 
 they would pay 2 per cent, tax, there would be no use in paying that tax 
 unless they could be kept out, and the volume would soon find an equi- 
 librium. The country will take about so much, as a sponge will take 
 about so much, and no more. The surplus will run somewhere. The 
 gold will run across the Atlantic or the notes will run back to the issuer. 
 
 Mr. Hill. — I do not know but that answers my question, but I 
 would like to get it a little clearer. You propose to take $200,000,000 of 
 
CREDIT NOTE SYSTEM. 253 
 
 government notes and put them in the Issue and Redemption Bureau. 
 Now, for those will be substituted $200,000,000 of national bank notes? 
 
 Secretary Gage. — That is even, so far. 
 
 Mr. Hill. — Yes. You have made the redemption of national bank 
 notes more easy by multiplying the redemption points and more liable by 
 increasing the size of the notes ? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Hill. — How have you released the Government of any liability of 
 redemption in that exchange of the $200,000,000? It seems to me you 
 have made it still more easy to drain the Treasury of gold. For instance, 
 if a company of men wish to get $200,000,000 of gold from the Govern- 
 ment, instead of getting gold for greenbacks, why wouldn't they take 
 bank notes and redeem them in lawful money, and then call for the gold 
 with their lawful money ? 
 
 Secretary Gage. — In the first place they would have to get the lawful 
 money. They have to find that lawful money. As fast as these notes 
 are presented for redemption, the difficulty of finding the lawful money 
 will increase. They must provide the lawful money. If they do find it, 
 there is no way for the Government to escape payment of its lawful 
 obligations. 
 
 Mr. Hill. — They will get notes or silver, will they not ? 
 
 Secretary Gage. — From whom ? 
 
 Mr. Hill. — From the banks ; or else the bank fails. 
 
 Secretary Gage. — Yes, sir ; and if the bank cannot provide legal- 
 tender notes, treasury notes, or silver, it will have to provide gold. It 
 will provide that which is easiest, of course, as anybody else will do. 
 But I contemplate that under my bill I will diminish the lawful money 
 $200,000,000. I will make it relatively scarcer than it is now. It is a 
 more convenient form of money than gold for banks and everybody to 
 use. I will make lawful money so relatively scarce — it will not be abso- 
 lutely scarce, but relatively scarce compared to what it is now — that 
 the banker, having both gold and paper money, fearing that if he parts 
 with his lawful money he may have trouble in getting it back, will part 
 with the gold in preference, and not discriminate in the other direction, 
 as he has always done before. 
 
 Mr. Mitchell. — Will he not part with the gold to the Issue and 
 Redemption Bureau in order to get his greenbacks? 
 
 Secretary Gage. — That is a matter of judgment. I think he will. 
 
 Mr. Mitchell. — So the Issue and Redemption Division will have its 
 gold reserve increased by the very actions of these national banks ? 
 
 Secretary Gage. — I think so. 
 
 Mr. Hill. — The same state of facts would exist also in regard to the 
 
254 CREDIT NOTE SYSTEM. 
 
 $250,000,000 of small notes which would be exchanged for larger notes 
 of national banks. There would be larger notes of national banks 
 which would put aside the smaller notes of the Government, taking their 
 place in the pockets of the people. That also would make a larger 
 demand for lawful money? 
 
 Secretary Gage. — - Yes, sir. 
 
 Mr. Hill. — And then this credit-note issue of $130,000,000 would 
 still further make a demand for lawful money? 
 
 Secretary Gage. — I think so. 
 
 Mr. Hill. — And your idea, as I understand it, is that it would be 
 easier to get gold than the lawful money, and consequently would bring 
 banks to a gold redemption of their own notes without calling upon the 
 Government ? 
 
 Secretary Gage. — That is correct. That is the direction in which it 
 will operate. 
 
 The Secretary admits that the large reserve banks would not avail 
 themselves of the "credit note system." Why? What with them, 
 with ample means supplied by depositors, would be a slight burden, 
 would with country banks, which have no means but of their own 
 providing, be an intolerable one. There is not a "reserve bank" 
 in the United States that would issue a dollar of notes were it not 
 compelled to carry a certain amount of government bonds. There 
 is not a country bank that would. 
 
 The Secretary estimates that by the provisions of hisbill the total 
 amount of currency in circulation would be increased by #136,000,- 
 000. "Would not such increase," asked Mr. Hill, "press directly 
 upon the $125,000,000 in your redemption fund ? " The Secretary. 
 — " No ; it cannot press any harder than they can find the govern- 
 ment bills [notes] to press with," the government money being so 
 stowed away that it could not be reached. Besides, this " emer- 
 gency currency " business might not be much of a shower after all. 
 The Secretary is to avoid the pressure of bank notes by seeing to it 
 that they are speedily returned to the issuers by the Government 
 for the reason that it is responsible for them. For such purpose 
 numerous places of redemption are to be provided, New York being 
 the chief point. By such means the volume of the currency wouH 
 soon, the Secretary declared, " find an equilibrium. The country 
 will take about so much, as a sponge will take about so much, and 
 no more. The surplus will run somewhere. The gold will run 
 
CREDIT NOTE SYSTEM. 255 
 
 across the Atlantic or the notes will run back to the issuer." The 
 meaning of this is that paper money, instead of being the equivalent, 
 is only the instrument of exchange, value being no necessary attribute 
 of it, the excess only returning to the issuers. The establishment of 
 numerous places of redemption of the notes of banks is only one of 
 the many absurd propositions of the Secretary. All that is wanted 
 to secure their return by the public within a period of sixty days is to 
 restrict issuers to the discount of merchants' bills. To repeat : Issues 
 so made arise from a mutual exchange of obligations to be retired 
 by a mutual cancellation of the same obligations. The holders of 
 issues of banks to serve as money should never be compelled to go 
 elsewhere for their equivalent. To compel them to do this is to 
 enact a great wrong. As by the plan of the Secretary the banks 
 cannot be compelled to discharge their notes in the universal equiva- 
 lent, the Government, on which the duty may be thrown, brings into 
 play its absurd and costly " Circumlocution Office." The country, 
 instead of being a sponge that will take up so much and no more, 
 will, the credit of the money maintained, take all it can get, no 
 matter the kind. It will not knowingly absorb a dollar except upon 
 the assumption that it is the equivalent, at a price, of gold. If it be 
 the equivalent of gold the country will absorb $1,000,000,000 as 
 readily as $100,000,000, th,e amount measuring the extent of its 
 wealth or consuming power. To say that the country, like a sponge, 
 will absorb only so much money and no more, is to say that it is 
 capable of absorbing only a given amount of merchants' bills, these 
 measuring the amount of merchandise moving from producers to 
 consumers. As for gold, it necessarily tends to flow as the universal 
 equivalent toward the creditor nation. We do not require a large 
 amount, as we do not have to maintain a military chest of vast pro- 
 portions. The tendency in the United States as the great producer 
 of .the metal, as of cotton and corn, is for its steady outflow. The 
 greater the outflow of all our products, including gold, the more 
 prosperous our people. Were we on a sound basis the outflow of 
 gold would be no more an occasion for remark or concern than the 
 export of cotton or corn, as it would be only the excess beyond 
 our wants that would be exported. To the. question of Mr. Hill 
 whether, " If a company of men wish to get $200,000,000 of gold 
 from the Government instead of getting gold for greenbacks, why 
 would they not take bank notes and redeem them in lawful money, 
 
256 GOLD AND LAWFUL MONEY. 
 
 and then call for gold with their lawful money?" the reply was: 
 " I will make lawful money so scarce that the banker, having both 
 gold and paper money, fearing that if he part with his lawful money 
 he may have trouble in getting it back, will part with the gold in 
 preference, and not discriminate in the other direction, as he has 
 always done before." That is, he will part with the gold to the 
 Issue and Redemption Department in order to get greenbacks, and 
 in this way the Treasury will be filled to overflowing with gold ! 
 What a puerile assumption is this ! Banks and bankers with plenty 
 of gold and greenbacks do not use either in their ordinary opera- 
 tions, these being carried on wholly by means of cheques drawn 
 against deposits, the gold being held for the purpose of discharging 
 balances as they arise ; greenbacks received by way of deposits, often 
 held in large amounts, being instruments by which gold, if wanted, 
 can be reached. 
 
 GOLD AND LAWFUL MONEY. 
 
 Mr. Prince. — I want to get clearly in my mind what you mean by 
 the expression "gold and lawful money." 
 
 Secretary Gage. — Of course you know what gold is. Lawful money 
 is any money clothed by the law with the power to pay debts. 
 
 Mr. Prince. — Then do I understand you correctly when I say that 
 legal-tender notes, treasury notes, and silver would go under the defini- 
 tion of lawful money? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Prince. — Gold defines itself ? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Prince. — You make a distinction between gold and lawful 
 money? 
 
 Secretary Gage. — Yes ; merely for the sake of distinguishing it in 
 our talk here. 
 
 The Chairman. — And that distinction is necessary from the fact that 
 what you call lawful money is redeemable in gold ? 
 
 Secretary Gage. — Perhaps so. But of course gold is also lawful 
 money. 
 
 The Chairman. — But there are two kinds of money, and you have to 
 make that distinction, because gold is the money of ultimate redemption? 
 
 Secretary Gage. — We have used these terms to keep in our minds 
 the two kinds of money. 
 
 The Chairman. — As you have used the terms, there is that distinc- 
 tion between gold and lawful money, in that other kinds of lawful money 
 are redeemable in gold. 
 
PROBABLE CIRCULATION UNDER THE PROPOSED BILL. 257 
 
 Mr. Prince. — Then do I understand you, in answer to the Chairman, 
 to say that lawful money, as distinguished from gold, is all redeemable 
 in gold ultimately? 
 
 Secretary Gage Not by its express terms. Silver is not. 
 
 Mr. Prince Is it by practice? 
 
 Secretary Gage. — It is by practice, sufficiently to keep it on a parity 
 with gold. 
 
 Mr. Newlands. — Mr. Secretary, I understood you to say that lawful 
 money is the money clothed with the power to pay debts. Would you , 
 regard the circulating notes then as lawful money? 
 
 Secretary Gage. — You mean national bank notes? 
 
 Mr. Newlands. — Yes. 
 
 Secretary Gage I regard them as lawful money, and I want to 
 
 amend my definition to say that any money is lawful money that is 
 issued in conformity with law. National bank notes are lawful money 
 because they are issued in conformity with express statutes. They are 
 lawful money in the other sense because they are legal tender to all banks 
 in payment of all debts. So it is a quasi-legal tender, not to the public, 
 but to the banks in payment of debts. 
 
 Mr. Newlands. — If I should loan you, then, $1,000 in these circu- 
 lating notes, national bank notes, and should take your note for the 
 amount, could you subsequently compel me to accept those circulating 
 notes in payment of that note? 
 
 Secretary Gage. — No, sir. 
 
 Mr. Newlands. — Circulating notes, then, have not the debt-paying 
 function as between individuals? 
 
 Secretary Gage. — They have not. 
 
 It may be well here to give at length the discussion under this 
 head. Though of little importance, it is significant in containing 
 the declaration of the Secretary that there is no law for the main- 
 tenance of " parity " between the several kinds of the money of 
 the Government. Silver is redeemable in gold to an extent necessary 
 to keep it on a "parity " with gold. The notes of banks are lawful 
 money, Government being behind them and assuming their ultimate 
 payment. 
 
 PROBABLE CIRCULATION 1 '' UNDER THE PROPOSED BILL. 
 
 A long discussion followed under this head, the questions and 
 answers being largely repetitions of those made under preceding 
 ones. They were of little importance until Mr. Stallings asked : 
 
258 PROBABLE CIRCULATION UNDER THE PROPOSED BILL. 
 
 Does your bill provide that the national banks shall redeem their notes 
 in gold? 
 
 Secretary Gage. — It does not. 
 
 Mr. Stallings. — Do you think it ought to? 
 
 Secretary Gage. — After consideration I think it is indifferent whether 
 it does or not. The reason I did not put it in was that I do not believe 
 the Government, as an issuer of notes, ought to recognize any money on 
 earth as better than its obligations, or discriminate against itself or its 
 obligations. If they say that greenbacks or any of the Government's 
 obligations are not good enough for something, but gold is, they thereby 
 cast, a reflection upon their own notes. Besides, I think it would be 
 purely immaterial. If you make the banks redeem in gold, then the 
 banks must get the gold to redeem with. If they have the obligations of 
 the Government, you may make it necessary for them to present the notes 
 to the Government with which tp get the gold* to redeem their notes, 
 whereas if the law is silent in that respect they may redeem their notes in 
 gold ; they may redeem them in greenbacks or in treasury notes. The 
 party to whom they pay the greenbacks or the treasury notes may want 
 gold, and if he does he will go to the person who issued the note. 
 
 In this case the Government issued the note, and so he would go to 
 the Government and get it, or he may not. And therefore it does seem 
 to me expedient from all points of view, practically and theoretically, 
 not to put that in the law. The banks, if they find difficulty in main- 
 taining other forms of legal money that will discharge debts, will have 
 to carry gold. They have now in their possession in the country some 
 $240,000,000 of that kind of metal, which is a pretty fair supply to start 
 with. 
 
 Here is strange doctrine for a Secretary of the Treasury of the 
 United States ! It is chaos itself. Fortunately he cannot overturn 
 natural laws, otherwise we would soon cease to exist as a people. His 
 doctrines are dangerous chiefly in deferring the proper work of reform. 
 Gold is and always will remain the standard at which contracts will 
 be entered into and solved, as much so with the wildest Populist as 
 with the most solid man of affairs. The one as much as the other 
 must on entering into an undertaking be assured as to the standard 
 of value in which it is to be solved ; otherwise he is wholly afloat. 
 Silver as a standard gives no such assurance. Whatever the stand- 
 ard that Government establishes, all contracts will be entered into 
 and solved only at the standard of gold. In the war of the Re- 
 bellion, and for a long time after, Government itself knew no money 
 
METHOD OF REDEMPTION. 259 
 
 higher than of its own creation, greenbacks. The difference in its 
 value from one day to another was frequently 20 per cent. Had 
 Government money been the standard of value all transactions, 
 except in the form of barter, would have been at an end. But the 
 people knew a money far higher in kind than that of the Government, 
 subjecting all transactions to the standard of their own. The effect of 
 the proposed measure of the Secretary might put it wholly beyond 
 the power of the people to get their own money. Suppose the 
 holder of the notes of a bank to present them for payment, silver 
 dollars worth 44 cents' each might be handed out to him. To pre- 
 sent these for gold to the Treasurer, or to some Assistant Treasurer 
 of the United States, he might have to travel 1,000 miles. He would 
 be graciously received, but blandly informed that as everything was 
 going on well, no distrust being felt in any quarter as to the main- 
 tenance of the " parity " of the two metals, there was no occasion 
 for paying gold for his silver in this particular instance. The only 
 alternative for the unlucky holder of the bank notes which had taken 
 the form of silver would be to make his return trip of 1,000 miles, 
 his only consolation being that his bag of money was far more easily 
 handled at the end than when he started on his long outing. By 
 the plan of the Secretary by no possibility could the holder of bank 
 notes get a dollar in exchange therefor except by the courtesy of the 
 issuer, or of the Government, both having the same right to pay silver 
 as gold. Why should not banks be held to make good their prom- 
 ises in the universal equivalent? They always demand in exchange 
 for their issues values measured by such equivalent. Gold as a 
 standard is the conscience and guide in affairs, as much so as is the 
 moral sense in the personal relations of life. To attempt to depose 
 one is as subversive of the welfare of a people as it is to attempt to 
 depose the other. Gold is often the more efficient conscience or 
 rule of the two, being always an inexorable one in enforcing the 
 complete and thorough discharge of all undertakings in the spirit in 
 which they were contracted. When so discharged society has reached 
 its highest plane. 
 
 METHOD OF REDEMPTION. 
 
 Mr. Cox. — To summarize this, and put it in a plain shape for every- 
 body, as to the process of redemption, etc., we will assume that a bank 
 note is out in circulation and the holder of it desires to have it redeemed- 
 
260 METHOD OF REDEMPTION. 
 
 He presents it to the bank that issued it, but he has no authority to 
 demand the gold from the bank, as I understand it. 
 
 Secretary Gage. — He has not, under the law. 
 
 Mr. Cox. — Would he have under this bill, if it becomes a law? 
 
 Secretary Gage. — He would not. 
 
 Mr. Cox. — The result of that is, then, if he presented his bank note 
 he could not obtain the gold from the bank, but if he presented the 
 greenback note to the Government he could obtain the gold? 
 
 Secretary Gage. — That is correct. 
 
 Mr. Cox. — When the bank note follows its process along until it 
 reaches its redemption in the Treasury of the United States, does your 
 bill propose to redeem that bank note in gold or other money at the 
 option of the holder of that note? 
 
 Secretary Gage. — In the case you suppose the note is redeemed at 
 the counter. 
 
 Mr. Cox. — No ; they refused to redeem it. 
 
 Secretary Gage. — You supposed he redeemed it in a greenback, and 
 he took the greenback arid went to the Government. 
 
 Mr. Cox. — He takes the note, or a bundle of notes, to the bank, and 
 the bank refuses to redeem them in gold. He still holds those notes. 
 Now, under your bill, is not the process incorporated into this, that a 
 man can have those bank bills redeemed by the Government ? 
 
 Secretary Gage. — Yes ; he could send to the Government and get 
 those notes redeemed. 
 
 Mr. Cox. — I so understood it all the way through. Now, he could 
 take the bank notes, the bank refusing to redeem them in gold, to the 
 Government — take the same notes to the Government — and the Gov- 
 ernment would be bound to redeem them in gold if he demanded it ? 
 
 Secretary Gage. — It would be bound to redeem them in greenbacks 
 or gold ; yes. He could take the greenbacks and turn around and draw 
 the gold, so it would be practically a redemption in gold. 
 
 Mr. Cox. — In other words, he could take the notes of the bank and 
 go to the Treasury of the United States, and the Government, under this 
 bill, would be obliged to redeem those notes in gold? 
 
 Secretary Gage. — Substantially, yes. 
 
 Mr. Cox. — Suppose he goes to the bank with these notes, and the 
 bank offers to redeem the same batch of notes with silver, and the holder 
 of the notes declines to take silver, and then he presents them to the 
 Government of the United States for redemption ; doesn't the same 
 process follow, that the Government would have to redeem them in gold? 
 
 Secretary Gage. — Substantially, I think. But, mind you, the Govern- 
 ment is not redeeming those notes on its own account. The Govern- 
 ment is redeeming them on account of the bank. 
 
METHOD OF REDEMPTION. 261 
 
 Mr. Cox. — Then the Government in the first step of redemption 
 redeemed the kind of notes I have spoken of in gold, and its obligation 
 is such that you think it necessary to maintain the parity to redeem them 
 in gold if the holder desires gold, but when the bank which has got from 
 the Government the benefit of banking comes to pay the Government the 
 bank can pay the Government off in any kind of money ? 
 
 Secretary Gage. — Whose fault is that? That is the situation the 
 Government is in, and going deeper does not get it out. 
 
 Mr. Cox. — I would redeem those notes in greenbacks or silver or gold, 
 as the Government pleased. 
 
 Mr. Johnson (to Secretary Gage) . — You have possibly fallen in the 
 mire there. 
 
 Secretary Gage. — Possibly so. I am a little suspicious of my inter- 
 pretation of that. 
 
 Mr. Johnson. — What law is there to require the Government of 
 the United States to redeem national bank notes in gold? 
 
 Secretary Gage. — There is no law ; but we have to redeem them in 
 lawful money. We have to redeem them in something, and if it were so 
 that a holder of these notes could go to another window and secure gold, 
 it would be substantially as Mr. Cox says. 
 
 Mr. Johnson. — Then they would raid the Treasury of the United 
 States with national bank notes instead of greenbacks. 
 
 Secretary Gage. — They could raid it only 10 per cent, or, in fact, 
 when they raided it 2 per cent, the Government would be after the bank 
 to recoup it for what it had done on its account, and the bank would 
 have to give the Government something in recoupment. Now, the ques- 
 tion is raised, could not the bank recoup the Government by giving it its 
 own obligations ? I say yes, it could if it could get its notes. If it could 
 not find enough of the Government's obligations, including silver, for the 
 sake of argument, then it would have to provide gold, and I want to put 
 it in a position where logically it will have to furnish the larger part of it 
 in gold. 
 
 Under this head the methods of the " Circumlocution Office " are 
 again brought into play. The holder of bank notes has no right to 
 demand gold of the issuers. He could, however, as suggested by 
 Mr. Cox, the banks refusing, demand of the Government lawful 
 money at one counter and gold at the other. The Secretary. — 
 " Substantially, yes." To the repetition of the question the Secre- 
 tary again replied: "Substantially, yes." Mr. Cox. — "When a 
 bank which has got from the Government the benefit of banking 
 comes to pay the Government, it can pay the Government off in 
 
262 METHOD OF REDEMPTION. 
 
 any kind of money/' in silver or in silver certificates if it will. 
 " Whose fault is that ? " replied the Secretary. " That is the situa- 
 tion the Government is in. Going deeper does not get it out." But 
 why go in deeper and deeper every step ? To the suggestion of Mr. 
 Johnson in making his reply, that " You [the Secretary] have possibly 
 fallen in the mire there," " Possibly so," was the prompt and ingen- 
 uous reply. " There is no law," said the Secretary, " compelling 
 the Government to redeem bank notes in gold. But we have to 
 redeem them in something." "Then," replied Mr. Johnson, "they 
 would raid the Treasury of the United States with national bank 
 notes instead of greenbacks." The Secretary. — " They could raid 
 it only 10 per cent. ; in fact, when they had raided it 2 per cent, 
 the Government would be after the bank to recoup it for what it 
 had done on its account, and the bank would have to give the 
 Government something in recoupment. Now, the question is raised, 
 could not the bank recoup the Government by giving it its own 
 obligations? I say yes, if it could get its notes. If it could not 
 find enough of the Government's obligations, including silver, then 
 it would have to provide gold. I want to put it in a position where 
 logically it will have to provide the larger part of the gold." Are 
 such strange methods as these becoming the Secretary of the Treasury 
 of the Great Republic ? What would become of the people, with all 
 their vast interests, should the banks adopt the tricks and subterfuges 
 resorted to by him? Why should not the Government like indi- 
 viduals and banks be held to the instant solution, if demanded, of 
 every undertaking in gold ? For the reason that it has undertaken 
 more than it can well perform, and is too mean and cowardly to 
 admit the fact, preferring trick and evasion to fair and honest deal- 
 ing. If the methods resorted to by the Government are persisted 
 in, the Populists, who demand in a manly and square fashion free 
 silver at the rate of 16 to 1, will be sure to win. The Secretary 
 declares for $5 00,000,000 silver at the rate of 16 to 1 and no more. 
 Why such a limit, the wants of the people for money increasing at 
 the rate of $ 100,000,000 yearly ? The difference between him and 
 the Populists is only a matter of quantity. It carries no force for him 
 to say that $500,000,000 of silver is all that we can handle. If we 
 can handle $500,000,000 in silver this year, we can, with the increas- 
 ing means of the country, handle $600,000,000 the next, and so on. 
 
THE RESERVE FUND. 263 
 
 THE RESERVE FUND. 
 
 Mr. Fowler. — Under your plan, as I understand it, the banks of the 
 country could deposit your reserve fund in. either greenbacks, treasury 
 notes, or silver certificates, could they not? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Fowler. — Would there not be, under the pressure now felt in 
 this country, a tendency on their part to get rid of the poorest of those 
 three kinds of money and instinctively deposit silver certificates ? Would 
 not that be the tendency? 
 
 Secretary Gage. — That would be the tendency unless their faith in 
 those notes is strengthened. I think this would be apt to strengthen 
 their faith in that direction. Consequently, the proposition which I 
 make, and with which I think the other gentlemen are acquainted, 
 involves the issuing of these silver certificates in denominations of less 
 than $10, which would tie up in the absolutely necessary circulation of 
 the country in the hands of the people the larger part of the silver 
 money, and take away the power of the banks to do the thing you 
 contemplate. 
 
 Mr. Fowler. — Let us assume, however, in going through this, that 
 the banks would tend to pay into your reserve any legal-tender money, 
 say in silver certificates. The result, then, is that there would be out- 
 standing, mathematically, $346,000,000 of greenbacks, $115,000,000 of, 
 treasury notes, approximately; and you have left $136,000,000 of silver 
 certificates in the place of the $200,000,000 of silver certificates which 
 have been deposited by the banks and are not a legal tender, and can- 
 not draw gold ; and in place of that you would have $200,000,000 of 
 national bank notes, would you not? 
 
 Secretary Gage. — Outstanding? On your hypothesis, yes, sir. 
 
 Mr. Fowler. — Very well, then. Now, is it not true, as has been 
 ■demonstrated by the inquiries of Mr. Cox, that whenever a man went to 
 the United States Treasury for his redemption, he would get either gold 
 or a substitute for gold? That is true, is it not? 
 
 Secretary Gage. — Yes, sir; that is a fair statement. 
 
 Mr. Fowler. — Then, is it not time that, instead of having as now 
 $346,000,000 in greenbacks and $115,000,000 of treasury notes, which 
 are the abstractors of gold, you would add to $346,000,000 and that 
 $115,000,000 and the $230,000,000 of present national bank notes 
 $200,000,000 more of successful abstractors of gold from the United 
 States Treasury? 
 
 Secretary Gage. — I think not ; and I will tell you why. If you will 
 examine the amount of silver and silver certificates that the banks of the 
 United States have on hand — I have not the figures here, but they are 
 
264 THE RESERVE FUND. 
 
 somewhere in the Comptroller's reports — you will find they have not 
 over $50,000,000. If they deposit this currency and it comes into the 
 Redemption Division, under the provisions of this act the Secretary has 
 the right to exchange any of the notes in this Issue and Redemption 
 Division with the funds of the other department, and, assuming now that 
 $50,000,000 or $100,000,000 of silver certificates came originally into 
 the Issue and Redemption Division, as you were talking about, by so much 
 that kind of money would become scarce in the community. The current 
 revenue receipts of the Government are going on at the rate of a million 
 and a quarter dollars a day in some money, and so much less would the 
 receipts be in silver certificates. They would be in some other form of 
 money, and the Secretary of the Treasury would make exchanges. He 
 would go over into the other department and take back the kind of money 
 we contemplate getting, the current expenses would be paid out in that 
 form of money, thus transferred to the general fund, and we would again 
 put that money into circulation. 
 
 It is easy to conjure up difficulties and get confused with details, and 
 it is very hard to meet every hypothetical suggestion about some details, 
 whether it is about travelling or making bread or something else. 
 
 To the question of Mr. Fowler whether the $200,000,000 of bank 
 notes payable in gold received in exchange for a like amount of 
 notes payable in silver would not be " abstractors of gold from the 
 Treasury" to a like amount? "No," replied the Secretary, who 
 entered upon a long explanation which did not explain. He had 
 become too confused to return an intelligible answer. To say that 
 the amount of money would not be increased by an exchange of 
 certificates for bank notes did not meet the question, which related 
 to a difference in kind, one being payable in gold and the other in 
 silver. He admits to a confusion of mind, as well he may, for a dis- 
 cussion continued through two days without a single fundamental 
 postulate or principle to which to refer and upon which occasionally 
 to rest is enough to bewilder the toughest brain. 
 
 " It is easy," said the Secretary, " to conjure up difficulties and 
 get confused with details, and it is very hard to meet every hypo- 
 thetical suggestion about some details." No conjuror is wanted, 
 nor can any get confused with details, when the subject is the money 
 of commerce. The confusion only arises when the impossible thing 
 is attempted — when it is sought to make two and two equal ten. 
 There is no mystery or confusion when a bill is given for merchan- 
 dise for distribution. The maker well knows that as a rule he can. 
 
POSSIBILITIES OF PROPOSED LEGISLATION IN A CRISIS. 265 
 
 with his purchases seasonably provide for its payment. A producer 
 as readily sells on time, interest added, as for cash, well knowing 
 that within the time for which credit is given the proceeds of sales 
 for consumption will be forthcoming. The issuers of paper money 
 have no hesitation in discounting merchants' bills, breaking these 
 up, as it were, into denominations suited to the wants and means of 
 consumers, well knowing that the proceeds of the merchandise they 
 represent will provide for their discharge, being retired by the pro- 
 cess of reaching their constituents. Upon processes like these the 
 industrial operations of society rest. It cannot rest in peace upon 
 any that are not as obvious and simple as that two and two make 
 four. That disturbance and confusion arise in the matter of money 
 is evidence that the methods or processes employed are false or 
 are not well matured. In the premises the role of the Government 
 is that of a " confidence man " running into debt wherever oppor- 
 tunity offers, trusting to his wit or the obstacles he can interpose to 
 escape payment. No wonder that in enacting such a role the Secre- 
 tary should become confused. But something worse than confusion 
 is the result. Where money is improperly or fraudulently issued it 
 is inevitable that the taint should effect to a greater or less degree 
 the whole body of the people — the clamor for recoinage at the 
 ratio of 16 to i, the commercial ratio being 36 to 1, affording a 
 striking and significant illustration. Where money is purposely 
 issued to supply wants that should be provided for by honest 
 industry the morality of the people is, so far, at an end. 
 
 POSSIBILITIES OF THE PROPOSED LEGISLATION IN A CRISIS. 
 
 . Mr. Fowler. — I am not dealing with hypothetical questions, but a 
 sad experience which we have had in the last three years. Let us go a 
 step further. If it is true that you have added to the abstractors $200,- 
 000,000 of that money, which to-day makes drafts upon the Government 
 for gold, what defence has the Government against that draft? You 
 have stated that whenever the Government attempts to recoup for that 
 gold which it has paid out, the bank to which it sends its notes can then 
 pay the Government in lawful money? 
 
 Secretary Gage. — If it has it. 
 
 Mr. Fowler. — Would it not be the most natural thing in the world 
 for the banker — and I am asking you as a banker — to send in silver, 
 treasury notes, or certificates rather than to send in gold? 
 
 Secretary Gage. — It would depend, as I have said, upon two consid- 
 
266 POSSIBILITIES OF PROPOSED LEGISLATION IN A CRISIS. 
 
 erations — what relative supply he had of each and what respect he had 
 for them ; that is, his confidence in them. If he thought the gold was 
 safer and better for him to have he would send the other if he had it. 
 
 Mr. Fowler. — That is the point exactly. Now, is it not a fact that 
 we are drafting a bill, not to cover normal conditions, but to cover crises, 
 and is it not true that whenever a crisis is on, such a crisis as we had in 
 1893, practically no money at all passes between people; and if it were 
 thought that there is a chance of the Government not being able to 
 redeem its obligations, would not everybody press the Treasury for gold ; 
 and if it is true, is it not true also that every bank would reserve its gold 
 and pay out the paper money? 
 
 Secretary Gage. — In such condition of distrust of the standard, yes, 
 sir. 
 
 Mr. Fowler. — Then there is no way in this system whereby the Gov- 
 ernment in a crisis can recoup one dollar of gold for all the gold paid out, 
 is there? 
 
 Secretary Gage. — I do not see why there is not. They have to take 
 the reimbursement in their own debt or gold — one or the other. 
 
 Mr. Fowler. — But the outstanding debts might amount to $500,000,- 
 000. So the time they could actually get gold would be after they had 
 impounded $500,000,000 of their own money into the United States 
 Treasury, and then we would do just what Mr. Cleveland did — continue 
 to impound, drawing it froth the surplus of trade so as to prevent any- 
 body getting it, and of course it might not reach $500,000,000, but it 
 might reach $250,000,000 or $300,000,000 if the panic was acute enough. 
 
 Secretary Gage. — I do not know how to avoid the risk of the Govern- 
 ment's responsibility except to cancel its debts and not owe anything. 
 Then there would not be any trouble of the kind you suggest. 
 
 Mr. Fowler still insisted that under the proposed measure the power 
 of the banks for mischief would be increased. Assuming, he said, 
 that $200,000,000 of silver certificates not, in terms, payable in gold 
 were deposited as provided by section 5 of the proposed bill, the 
 successful " abstractors " of the treasury reserves, bank notes ulti- 
 mately payable in gold, would be increased by the amount of 
 $200,000,000 — " No," replied the Secretary, " the banks will 
 have to take their reimbursement in their own debt or in gold — one 
 or the other." Mr. Fowler. — " After the public had impounded 
 $500,000,000 of their money into the United States Treasury, then 
 we would do just what Mr. Cleveland did, continue to impound, by 
 drawing it from the surplus of trade so as to prevent anybody getting 
 
TEN PER CENT. REDEMPTION FUND. 267 
 
 it, and of course it might reach $250,000,000 or $300,000,000, if 
 the panic was acute enough." The Secretary virtually confessed 
 himself worsted, as well he might, in this "impounding" business. 
 "I do not know," he replied, "how to avoid the risks of Govern- 
 ment's responsibility except to cancel its debts and owe nothing. 
 Then there would not be any trouble of the kind you suggest." 
 Why does not the Secretary cancel his debts and owe nothing, 
 leaving it to the banks of the country to supply all the money 
 wanted, and leaving it to the public to look after the banks? So 
 left we should have all the money we were entitled to have, always 
 of the kind wanted, always the best in kind, the advantages thereby 
 secured being almost beyond computation. The difficulty with the 
 Secretary is that his methods must reflect the character of his 
 assumptions. If the latter be false the former must necessarily be 
 so. When false the further he proceeds the more involved does he 
 become. 
 
 TEN PER CENT. REDEMPTION FUND. 
 
 Sect. 8. That each national banking association shall deposit and main- 
 tain in the Treasury of the United States a sum of lawful money equal to ten per 
 centum of its aggregate circulation, said sum to be in lieu of the five per centum 
 redemption fund now required by section three of the act approved June twen- 
 tieth, eighteen hundred and seventy-four, to be maintained, and to be subject to 
 " all the provisions of existing law respecting said redemption fund not inconsistent 
 . with the provisions of this act ; and in consideration of the deposits of bonds, 
 United States notes, treasury notes of eighteen hundred and ninety, and silver 
 certificates, and the tax of two per centum on the unsecured circulating notes of 
 national banking associations, and of the deposit of lawful money provided in 
 this section, the faith of the United States is hereby pledged to the redemption in 
 lawful money of the United States of all the circulating notes of said national 
 banking associations. 
 
 Secretary Gage. — The only question would be as to whether the per- 
 centage should be 10 or 5 per cent. 
 
 Mr. Hill. — That is the question I wanted to ask. Why do you make 
 it 10 per cent, instead of 5 per cent., as now? 
 
 Secretary Gage. — We find that 5 per cent, is not quite adequate. 
 We find that practically we do not have 5 per cent, on hand all the time ; 
 that owing to some of it being in transit back to the banks, the average 
 is perhaps only 3% P er cent, instead of 5 per cent, actually in the hands 
 of the Government. Ten per cent, is a stronger and better protection. 
 That is one reason. Then, another reason' is that it would by so much 
 absorb into the hands of the Government its own obligations. It in- 
 
2'6S TEN PER CENT. REDEMPTION FUND. 
 
 creases that sum from the present fund of $10,000,000 to the sum of 
 $50,000,000, if it were possible to take out $500,000,000 of circulation, 
 as we have theorized might be the case. 
 
 Mr. Hill. — Under the extreme conditions of the bill four-fifths of 
 that circulation would be secured by bonds? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Hill. — The Government would hold that secured. It is not 
 needed to have 10 per cent, security as a matter of security of Govern- 
 ment, is it? 
 
 Secretary Gage. — It might be. 
 
 Mr. Hill. — Under what conditions could it possibly be that the Gov- 
 ernment would require an additional 10 per cent, over the full face value 
 of their bonds ? 
 
 Secretary Gage. — The bonds might decline in value. The additional 
 10 per cent, might be largely in transit. 
 
 Mr. Hill. — If you take 10 of the 15 per cent., you lock it up from 
 the banks and take away from the security the depositors have. Does 
 not that weaken the banks just so much? 
 
 Secretary Gage. — In the figures of the bank, yes ; but as all the 
 assets of the bank are liable for the redemption of this 25 per cent., this 
 10 per cent, in the hands of the Government would be available; by so 
 much, in the other aspect, it would release the Government. So it is as 
 broad as it is long. 
 
 Mr. Hill. — That is a feature I am personally objecting to. In the- 
 first place, the Government is secured by the bonds on four-fifths of the 
 notes. It seems to me that if the 5 per cent, reserve was left, as it is 
 now, against the secured notes and the 10 per cent, held against the 
 credit notes it would be so much the better. 
 
 Secretary Gage. — I thought of that proposition, but it is a little hard 
 to keep books on that subject, and after thinking about it I thought the 
 banks could afford to put up 10 per cent. The conditions are easier to 
 them now than they have been, both in the matter of tax and in the 
 matter of margin. Now, when a bank takes circulation, we tie up for it 
 14 per cent, premium and 10 per cent, margin on bonds, which makes 
 24 per cent. ; 5 per cent, redemption fund, 29 per cent. We propose to 
 allow them under this provision to issue circulation to par of the bonds, 
 which does, away with the 10 per cent, margin now required. We give 
 them a class of bonds that will not go to a very large premium, — they 
 will probably go to a premium of not more than 3, or 4, or 5 per cent., — 
 and they can better afford to put up the 10 per cent, under such condi- 
 tions than 5 per cent, under the present conditions. After looking it 
 over and thinking about it I came to the opinion — although I will yield 
 
TEN PER CENT. REDEMPTION FUND. 269 
 
 to the judgment of others — that we had better hold them up to 10 per 
 cent. We can make it easier later if it be desired. 
 
 Mr. Hill. — I think this would antagonize the bill in the minds of a 
 good many people. Take banks outside the reserve cities which are 
 required' to put up 15 per cent. Two-fifths of that reserve is kept with 
 the reserve banks as a rule, because they draw interest on it. Three- 
 fifths is supposed to be kept in the banks ; but against the three-fifths this 
 10 per cent, is counted a part and held by the United States Govern- 
 ment. So it takes out from the actual strength of the banks just so 
 much as you increase the old reserve of 5 per cent. Is not that true? 
 
 Secretary Gage. — Yes, sir; and because it is true I would be in 
 favor of excluding them from counting in this 10 per cent. 
 
 Mr. Hill. — It would seem to me that that would weaken it. 
 
 Secretary Gage. — It would weaken the actual cash on hand, yes, sir. 
 
 Mr. Hill. — Do you think it would be wise not to have this counted 
 as a reserve against deposits ? 
 
 Secretary Gage. — I think it would be an improvement. 
 
 Mr. Hill. — Leaving the question of reserve against deposits out of 
 consideration, would it not be better to have the 10 per cent, only against 
 the credit notes? As a matter of fact, does it make any difference to the 
 Government at all on the secured notes whether they have any reserve or 
 not, except as a question of interest? 
 
 Secretary Gage. — I think that suggestion is well worth considering. 
 1 would like to give it a little more thought, rather than answer now. 
 
 Mr. Hill. — I wish you would, because I think that is the serious 
 objection in the minds of a great many people. 
 
 Mr. Cox. — From the question suggested a moment ago, under the 
 process proposed by you, how much would be deposited and held back 
 by the banks at different places as reserves, taxes, and safety fund ; what 
 would be the amount of that fund? 
 
 Secretary Gage. — The fund the Government would have on hand? 
 
 Mr. Cox. — The whole of the expense attached to the circulation of 
 the banks taken out under your law. There is 10 per cent., and then 
 there is the tax on circulation — 
 
 Secretary Gage. — Of 2 per cent. 
 
 Mr. Cox. — Yes, sir. Please aggregate that. I want to get a state- 
 ment of what is the actual cost, the rate per cent, of cost to the bank, 
 on circulation. In other words, how many cents on the dollar, deducting 
 these expenses in circulation, would the bank get for its own use ? 
 
 Secretary Gage. — If I understand your question, Mr. Cox, they would 
 get back 90 per cent, in their own notes — the privilege of using 90 per 
 cent, of their own notes. The 2 per cent, tax they would probably pay 
 
2^0 TEN PER CENT. REDEMPTION FUND. 
 
 out of money that those notes would earn, or else they would not use 
 them. So, if I understand your question, the banks would realize go 
 per cent. 
 
 Mr. Cox. — On that there would be the 2 per cent, tax, according to 
 the amount of average circulation they took out. They have then the 90 
 cents on the dollar, we will call it, for the present, for bank purposes, and 
 the bond is reduced in its value by reducing premium? 
 
 Secretary Gage. — Yes, sir. 
 
 To the objection that the deposit required by the eighth section of 
 the proposed bill to the redemption fund would reduce to an equal 
 extent the loaning power of the banks and impair the security of the 
 depositors, the reply was that the proposed /measure would be far 
 less oppressive than the present one under which the banks have to 
 sacrifice 29 per cent, of their capital before they can issue a dollar in 
 the form of notes — 14 per cent, premium on their bonds, the 10 per- 
 cent, margin, and the 5 per cent, contribution to the redemption fund. 
 Under the proposed bill notes are to be issued at the par value of the 
 bonds, the price of these if purchased in open market not exceeding 
 their nominal value. The deposit of 10 per cent, to the redemption 
 fund would consequently be all the sacrifice that the banks under the 
 • proposed measure would be called upon to make, leaving them 90 
 per cent, of their capitals as the basis of their loans. The tax of 2 
 per cent, on the emergency notes would be earned by their use. The 
 question naturally arises here, why not remove altogether all burdens 
 on the circulation and let the banks issue it subject to no other condi- 
 tions than a paid-up capital, and restrictions of discounts to merchants' 
 bills, the constituents of these, with the reserves of the parties thereto 
 and of the banks, being all the security required or needed, the 
 public demanding no other ? Such inquiry has been already many 
 times made, and in the state of the public mind may be well asked 
 many times in the future. The objection raised by Mr. Hill to the 
 deposit of 10 per cent, was well put, but very inadequately supported. 
 He could have shown that the issue of notes would not be viewed by 
 the holders of deposits with alarm, for the reason that it would be 
 well understood that they were properly secured by the constituents 
 of the bills discounted and the reserves of the parties thereto. Such 
 a suggestion as this might have let in a ray of light which in time 
 would have so illuminated the whole subject that the right path out 
 
PROVIDING A USE FOR SILVER. 2>Jl 
 
 of our troubles could be readily taken. That he did not propose a 
 proper alternative to the plan of the Secretary shows how completely 
 effaced from memory is the past, how utterly the experience of the 
 present is overlooked, and that we are floating on a boundless sea of 
 conjecture without compass or chart, the sun and stars being wholly 
 effaced from view. 
 
 PROFIT ON CIRCULATION. 
 
 Mr. Johnson. — The question in my mind is whether or not under the 
 provisions of your bill as it is now drawn there is sufficient profit in cir- 
 culation to induce banks to take out circulation. You reduce the tax on 
 circulation and allow them to issue the par value of bonds. That gives 
 them advantage over the present system ; and then, it seems to me, you 
 counteract that, for you require a contribution to the safety fund, and you 
 also increase the amount of deposit in the redemption funds. Have 
 you made any calculation. to ascertain what the effect of that would be? 
 
 Secretary Gage. — No, sir ; I have not, Mr. Johnson ; but do not for- 
 get this — that if it does not work up to $200,000,000 we do not take in 
 $200,000,000 in notes. If it only operates to the extent of $100,000,000, 
 we only take in $100,000,000. We go as far over this road as the banks 
 will go. My opinion is that they will go the full $200,000,000. 
 
 Mr. Johnson. — Then, do you think the profit in circulation will be 
 sufficient ? 
 
 Secretary Gage. — Yes, sir. 
 
 Mr. Johnson. — Do you think the profit in circulation is increased in 
 your bill over what it is in existing law? 
 
 Secretary Gage. — Very much. The profit is not very great under my 
 bill, but it is next to nothing at present. 
 
 It is a sufficient reply to the above that as the banks have all the 
 notes they need, those of the Government, they are not going to tie 
 up their capital in a permanent loan yielding only 1.80 per cent, when 
 the same capital can be made to yield 5 and 6 per cent. 
 
 PROVIDING A USE FOR SILVER. 
 
 Sect. 9. That the Comptroller of the Currency shall not issue to any national 
 banking association, on and after the date when this act shall take effect, any of 
 the circulating notes of such association of less denomination than ten dollars ; 
 and whenever any circulating notes of less denomination than ten dollars shall 
 be redeemed or received into the Treasury of the United States, they shall be 
 cancelled and destroyed and other notes of lawful denominations shall be issued 
 in their place. 
 
272 PROVIDING A USE FOR SILVER. 
 
 Mr. Cox The object of that ten-dollar clause, or one of the main 
 
 objects, is to make a place for the use of silver. That is admitted as a 
 fact. Now, then, when the ones, twos, and fives come in, would it not 
 be better to supply their place with silver instead of supplying their place 
 with ten-dollar notes? 
 
 Secretary Gage. — I would agree with you except for two reasons. 
 One is the perversity of human nature. We are spending $70,000 a year 
 now to induce people to take silver dollars. We are paying express 
 charges in sending these silver dollars all over the United States. I 
 quite agree with you, but you must have in mind the other person whom 
 you desire should take these silver dollars. Then, there is another 
 trouble. I believe we are going to be exposed to the counterfeiting of 
 silver by illicit coinage. That will be a menace. 
 
 Mr. Cox. — There is no necessity of substituting new ones in place of 
 them. They answer every purpose that your new notes would answer. 
 
 Secretary Gage But I propose to monopolize for the Government 
 
 the advantage of the circulating medium that comes in the way of notes 
 under ten dollars. 
 
 Mr. Cox (reading) " And whenever any circulating notes of less 
 
 denomination than ten dollars shall be redeemed or received in the Treas- 
 ury of the United States, they shall be cancelled and destroyed, and other 
 notes of lawful denomination shall be issued in their places." 
 
 Secretary Gage. — That relates purely to national bank notes. When 
 national bank notes come in for redemption, we do redeem them, and if 
 they make it good we give them back their notes. We send them new 
 notes. But this clause provides that all notes under ten dollars shall be 
 destroyed, and larger ones than fives substituted in their place. 
 
 What does the Secretary here propose ? The substitution of silver 
 certificates which have nothing behind them but silver worth forty- 
 four cents to the dollar, or less, in the place of bank notes which have 
 behind them merchandise the value of which equals their nominal 
 value, and in addition government bonds having a value far exceed- 
 ing their nominal value. A currency doubly secured is to set aside 
 for one not half secured. Strange proposition this ! As the banks 
 have now to put up more than two dollars for one, in addition to 
 their reserves which relatively far exceed those of the Government 
 which constitute the only provision made for its issues, why should 
 they not have their share in supplying notes of small denominations 
 in the place of a currency for which there is not only no possible 
 need, but which has already inflicted untold losses upon the country? 
 
REDEMPTION AT SUBTREASURIES. 2JT, 
 
 The Secretary does not see that the restriction of bank notes to ten 
 dollars and upwards is wholly fatal to his plan for retiring govern- 
 ment notes, for with it what bank would deposit government notes in 
 exchange for its own, making thereby a permanent loan equal to 
 their amount at the rate of i .80 per cent., the option being wholly 
 with it, the public preferring to receive all the issues it was entitled 
 to in the form of deposits rather than in that of notes ? 
 
 REDEMPTION AT SUB-TREASURIES. 
 
 The Chairman. — Section 10 of the bill is as follows : 
 
 Sect. 10. That on and after the date when this act shall take effect the circu- 
 lating notes of the national banking associations shall be redeemed at the office of 
 the United States Assistant Treasurer in the city of New York, and at such other 
 sub-treasury offices as may be designated by the Comptroller of the Currency, 
 with the approval of the Secretary of the Treasury ; and the circulating notes of 
 each national banking association so redeemed shall be charged to the ten per 
 centum redemption fund of such association, under such regulations as may be 
 prescribed by the Comptroller of the Currency, with the approval of the Secretary 
 of the Treasury. 
 
 Mr. Cox. — I want to say one word on this section. I read the words 
 from the bill, "shall be redeemed at the office of the United States 
 Assistant Treasurer in the city of New York, and at such other sub- 
 treasury offices as may be designated by the Comptroller of the Currency, 
 with the approval of the Secretary of the Treasury." 
 
 Under the questions propounded heretofore and the answers, we arrived 
 at the conclusion that the holder of these notes could demand the gold 
 for their redemption. Now, why not say that we should amend this so 
 that they shall be redeemed in any lawful money of the United States, at 
 the option of the Government ? 
 
 Secretary Gage. — In answer to your proposition, I said "substan- 
 tially." Technically, you are not right. They could not demand the 
 gold of the Government. They could demand lawful money, and with 
 the lawful money they could demand gold. 
 
 Mr. Cox. — Well, we passed over that, you know. 
 
 Secretary Gage. — I think the less discretionary power you give in 
 the law to executive officers the better, because sometimes they may be 
 indiscreet and do foolish things. 
 
 Mr. Cox. — Your answer, I understand, to my question, "Why not 
 amend this section of the bill and put the discretion in the Government 
 to use any of its lawful money in redeemed bank notes ? " — I speak of 
 nothing else — is that that discretionary power might be abused by the 
 officer? 
 
274 TAX ON CIRCULATION. 
 
 Secretary Gage. — He has that discretion now, Mr. Cox. I said a 
 moment ago that you could not oblige him to redeem in gold. He has 
 the discretion to redeem in greenbacks, treasury notes, or silver. He 
 has that discretion now. 
 
 Mr. Cox. — Is it abused? 
 
 Secretary Gage. — No. 
 
 Mr. Cox. — Then the other answer, that it might be abused, is not the 
 proper one? 
 
 Secretary Gage. — Perhaps not. 
 
 Mr. Mitchell. — Because it has not been abused in the past is no 
 reason why it will not be abused in the future ? 
 
 Secretary Gage. — It might not be, but I would not emphasize that 
 last answer of mine as of much value. 
 
 The matter raised under this head has already been in part, and 
 perhaps sufficiently, considered. It is chiefly noteworthy from the 
 fact that the maintenance of the " parity " of the various moneys of 
 the United States now left to the discretion of one individual, who 
 might be a very foolish one, is to be committed to twenty or thirty 
 perhaps still more indiscreet and foolish. Where would all this leave 
 us? The discretion of the redeeming agent in New York might be 
 scouted by the redeeming agent in New Orleans. We might have 
 as many " discretions " as there were agents. 
 
 Sect. ii. That in lieu of all existing taxes every national banking associa- 
 tion issuing notes shall pay to the Treasurer of the United States, in the months 
 of January and July of each year, a tax of one-fourth of one per centum for each 
 half year upon the average amount of its notes in circulation : Provided, however, 
 that during all the period of time intervening between the deposit of United 
 States notes, treasury notes, and silver certificates and the substitution of bonds 
 by the Secretary of the treasury, as in this act provided, the circulating notes 
 specifically issued therefor and secured by said United States notes, treasury 
 notes, or silver certificates shall be exempt from taxation under the provisions of 
 this act. 
 
 No discussion of any moment followed the reading of this section 
 of the. bill. 
 
 TAX ON CIRCULATION. 
 
 Mr. Hill What is the purpose of a tax, Mr. Secretary? 
 
 Secretary Gage. — To get money. 
 
 Mr. Hill. — To raise revenue for the Government? 
 
 Secretary Gage. — Yes, sir. 
 
TAX ON CIRCULATION. 2^5 
 
 Mr. Hill. — Not to pay the expenses of maintaining a system? 
 
 Secretary Gage. — Perhaps both. 
 
 Mr. Hill. — Is it fair that the banks which do not take out circulation 
 should have to pay their share of the expenses of taking out circulation? 
 
 Secretary Gage. — They do not have the benefit of it, and I do not 
 see why they should pay. 
 
 Mr. Hill. — They have the benefit of the national bank law, do they 
 not? 
 
 Secretary Gage. — Whether all national banks, in view of privileges 
 they enjoy, should pay some tax is a debatable question. I am inclined 
 to think they should, but that they should pay a tax on circulation when 
 they do not avail themselves of the privilege of circulation I do not think 
 is right. 
 
 Mr. Hill. — I do not, either. The point is, it was unjust to the 
 country banks and the banks in agricultural communities and smaller 
 cities when the tax was taken off deposits and left on circulation, and in 
 making a new revision of the banking system/would it not be wise to pro- 
 vide that the cost of the maintenance of the system and the revenue to 
 the Government should be equitably distributed on capital and surplus 
 rather than on circulation alone, when the country banks that I have 
 spoken of do not avail themselves of this circulation privilege? 
 
 Secretary Gage. — I think they who use and enjoy the privilege should 
 pay for it. • 
 
 Mr. Hill. — But under the present circumstances the large banks are 
 paying nothing for the privileges they enjoy. 
 
 Secretary Gage. — Then fix a tax on them for the privilege they do 
 enjoy. 
 
 Mr. Hill. — That is what I think should be done. 
 
 Secretary Gage. — I think the banks would all be willing to pay a 
 reasonable tax. 
 
 " The object of the tax on circulation," said the Secretary, " is to 
 get money." He admitted that no tax should be levied where no 
 benefits were received. To the suggestion of Mr. Hill that " in mak- 
 ing a new revision of the banking system the cost of its maintenance, 
 and the revenues resulting therefrom, should be equally distributed 
 on capital and surplus rather than on circulation alone," the Secretary 
 assented that those who use and enjoy privileges should pay for 
 them. But why incur the cost of maintaining a banking system which 
 in itself is one of the crowning absurdities in modern civilization ? 
 No cost is involved in the issue of merchants' bills, instruments of 
 distribution as much as the issues of banks. Results, not processes, 
 
276 ORGANIZING BANKS IN SMALL TOWNS. 
 
 are the proper subjects of taxation. It is a privilege for those who 
 propose to engage in manufacturing to be able to combine their 
 means through the instrumentality of a corporation. For such privi- 
 lege no tax should be imposed. Upon the processes employed no 
 tax should be imposed. Capital invested is a proper subject of tax- 
 ation, as are any additions thereto, however arising. The issue of 
 currency is a process which should be the right or privilege of every 
 one possessed of the subjects of distribution. The tax imposed by 
 the present system is the enactment of a wrong to support a wrong, 
 the greater part of the tax expended in superintendence being 
 wholly wasted, as abundant supplies of money far better than that 
 issued by the Government would, as it were, be self-supplied, being 
 retired by their use. 
 
 ORGANIZING BANKS IN SMALL TOWNS. 
 The Chairman. — Section 12 of the bill is as follows : 
 
 Sect. 12. That section fifty-one hundred and thirty-eight of the Revised 
 Statutes shall be amended to read as follows: 
 
 " No association shall be organized with a less capital than one hundred thou- 
 sand dollars, except that banks with a capital of not less than fifty thousand 
 dollars may, with the approval of the Secretary of the Treasury, be organized in 
 any place the population of which does not exceed six thousand inhabitants ; and 
 except that banks with a capital of not less than twenty-five thousand dollars may, 
 with the approval of the Secretary of the Treasury, be organized in any place the 
 population of which does not exceed two thousand inhabitants. No association 
 shall be organized in a city the population of which exceeds fifty thousand persons, 
 with a less capital than two hundred thousand dollars." 
 
 Mr. Hill. — What is the purpose of section 12, providing for small 
 banks ? 
 
 Secretary Gage. — It gives the communities now destitute of the facil- 
 ities of exchange and banking a chance to enjoy the benefits which arise 
 from those agencies. 
 
 Mr. Hill. — Is there any general character that can be assigned to 
 such communities? To what kind of communities do you refer? 
 
 Secretary Gage. — I refer to communities that are so small as not to 
 possess the capital necessary to organize a national bank with the present 
 minimum requirements, $50,000, and not attractive enough to bring in 
 outsiders with the necessary capital. 
 
 Mr. Hill You refer to business communities or agricultural com- 
 munities? 
 
ORGANIZING BANKS IN SMALL TOWNS. 2^7 
 
 Secretary Gage. — More particularly to agricultural communities. 
 There is always a small business centre somewhere in every sort of com- 
 munity. 
 
 Mr. Hill. — Generally speaking, you now refer to agricultural com- 
 munities, in which there would largely be agricultural loans ? 
 
 Secretary Gage. — Very largely. 
 
 Mr. Hill. — Do you believe it is possible for a national bank or any 
 bank to be made a bank of issue with the facilities for prompt redemption 
 which you have provided here, making agricultural loans against notes 
 issued on demand? 
 
 Secretary Gage. — I think agricultural loans, properly made, are among 
 the best loans in the world. 
 
 Mr. Hill. — I know it, but can they be made as against demand issues 
 of bank notes ? 
 
 Secretary Gage. — They can, within reasonable range ; yes, sir. 
 
 Mr. Hill. — How is it possible for a bank, say, of $25,000, situated 
 in an agricultural community, to exchange its circulating notes for long- 
 time agricultural notes and maintain redemption of its own notes ? 
 
 Secretary Gage. — By "long-time agricultural notes "do you mean 
 four or five year loans ? 
 
 Mr. Hill. — I mean six months, as against their own notes outstand- 
 ing. 
 
 Secretary Gage I think they could. • 
 
 Mr. Hill. — In what way would they be able to do it? 
 
 Secretary Gage. — Because the community we are supposing is a com- 
 munity where the circulating capital is small, and as long as crops were in 
 process of being gathered and brought to market, and the expenses con- 
 nected with them being paid off, there would be a local use for any circu- 
 lating medium which this bank would supply, and it would stay there until 
 crops (which ought to be more or less varied in every community, and are 
 more or less varied) would begin to go forward to market ; and that gen- 
 erally happens four or five months before the following crop is sown and 
 the expense incidental to raising that crop inaugurated. When the crop 
 goes to market the fund would be found to redeem the notes. The notes 
 would find their way to the redemption centres if the community owed 
 more than the crops paid. Then the notes, like any other form of money, 
 would go forward to settle the difference, and they would be redeemed. 
 
 Mr. Hill. — Will the privilege which is accorded here give additional 
 banking facilities where the wealth does not already exist ? 
 
 Secretary Gage. — It will give better facilities than now exist toward 
 organizing banks ; that is what we are talking about. It is now an im- 
 poverishment of a community to start a national bank. Take a little 
 
27S ORGANIZING BANKS IN SMALL TOWNS. 
 
 community that can scarcely raise $50,000 capital. What does the 
 Government require of it ? It requires, in the first place, $25,000 of that 
 to be sent to Wall street to buy bonds, and then it may, and as it may it 
 must, because it is too poor not to do it, put those bonds up with the 
 Treasurer of the United States, and for the $25,000 of bonds, which have 
 cost over $30,000, it may get $22,500 of its own notes — not govern- 
 ment notes, but its own notes — which it may have the privilege of 
 loaning to the community. That is an impoverishment to the community, 
 substantially, of 30 per cent, on capital it had before it started the bank. 
 On the contrary, this measure proposes that the capital the community had 
 shall be tied up in these bonds (say, at par) only to the amount of the 10 
 per cent, reserve, but it does have the privilege, you know, of issuing 25 
 per cent, of'free circulation without the pledge of bonds. This is the chief 
 value of these little communities. 
 
 Mr. Hill. — But in an agricultural community, where the notes are of 
 a single character, — that is, agricultural notes, — how is it possible for a 
 bank of issue to maintain its redemption with its notes on demand? 
 
 Secretary Gage. — If it cannot do it in any other way, it must get a 
 temporary loan of an Eastern bank. That is what they have to do now. 
 
 Mr. Hill. — Then as a matter of fact, they would have no further facil- 
 ities than now, except so far as they rely on their reserve institutions? 
 
 Secretary Gage. — They would have the use of the notes to the extent 
 of their circulation. 
 
 The proposition of the Secretary for the establishment of banks 
 with capitals of $25,000 in places " not attractive enough to bring in 
 outsiders with the necessary capital, the notes of the banks staying 
 there until the crops go to market, . . . and that generally hap- 
 pens four or five months before the following crop is sown and the 
 expenses incidental to raising that crop inaugurated," is more cred- 
 itable to his good-nature than to his judgment as a man of affairs. 
 He thinks that such banks could well make six months' loans to par- 
 ties who would immediately expend the proceeds to purchase sup- 
 plies of various kinds, the notes issued going at once into the hands 
 of the merchants of the more important places who would daily 
 deposit them in banks which would immediately call upon the issuers, 
 " rural banks," to take them in, there being not a place in the United 
 States in which such banks would be established that would not have 
 its railway and telegraphic communications by which it could be 
 daily reached. Within a period of sixty days the " rural banks " 
 would be called upon to take in every note issued. Issues, wherever 
 
ORGANIZING BANKS IN SMALL TOWNS. 279 
 
 or however made, of banks are all subject to a universal law by which 
 all are presently returned to them, a law to which those of the rural 
 districts would be as much subject as those of the great reserve 
 cities. When a " rural bank " was called upon to take in its notes, 
 where would be its means ? Locked up in permanent loan, bearing 
 interest at the rate of i .80 per cent. Not three months would elapse 
 before every bank conducting business upon the plan of the Secretary 
 would be in the hands of a receiver. To the question of Mr. Hill, 
 — " How is it possible for a bank of issue to maintain its redemp- 
 tion with its notes on demand?" — " If," replied the Secretary, "it 
 could do it in no other way it must get a temporary loan from an 
 Eastern bank." But what would the bank in the rural districts have 
 to offer, its capital locked up in Washington ? If it had bills made 
 in the purchase of merchandise to offer it might well borrow from 
 Eastern banks, as such bills would represent produce moving East, 
 its sale providing for their payment. But Eastern banks would 
 hardly take promises having six months to run of planters and farm- 
 ers, their payment resting upon the production of a crop not yet 
 sown, and which if sown might prove a complete failure, — the 
 advances made perhaps never being used even to plant a crop. The 
 success of the Secretary as a banker shows that he has had nothing 
 to do with such loans as these ! No doubt the rural districts are 
 hard up for money. They always are. Almost every one is. But 
 if it is to be had by the rural districts by borrowing it must be from 
 those who have capital to lend and who can personally look after 
 their investments. Banks have no capital of their own to lend. 
 They are issuers of instruments of distribution, the purpose of their 
 capital being to take in such of their issues, exceeding perhaps ten- 
 fold the amount of their capital, as are not returned to them by the 
 makers of their bills. In ratio as they make loans of capital they 
 cease to be banks in the proper sense of the word. For the move- 
 ment of the crops of the rural districts, South and West, local banks 
 are not wanted. If they existed they could not afford to make loans 
 for their movement at one-half the rate that loans could be negotiated 
 elsewhere. The deposits, all loanable money, exceeding $ 700,000,- 
 000, their share capital equalling only $59,000,000, of the banks in 
 the city of New York are as available for moving cotton from 
 Arkansas and wheat from the Dakotas to the seaboard as for moving 
 the same products from North to East river, and at one-half the rate 
 
2So 
 
 THE ENDLESS CHAIN. 
 
 at which loans could be had at the country banks. What is wanted is 
 not more banks under the present system, or under that proposed by 
 the Secretary, but that everywhere the right be conceded to establish 
 them subject to no other restriction but that their actual equals their 
 nominal capital, and that their issues be made only in the discount 
 of merchants' bills. We should then have a currency perfect in its 
 kind and ample in amount, involving no other cost in itself than that 
 of issue and superintendence. But with the right conceded to the 
 establishment everywhere of banks, .their issues subject to no other 
 restrictions than those described, the crops of the country would, as 
 they now are, be still moved by capital supplied from the reserves of 
 the great cities and at one-half the rates at which it could elsewhere 
 be provided. 
 
 THE ENDLESS CHAIN. 
 
 Mr. Johnson. — One provision in this bill is not clear to me. An 
 answer was made by the Secretary in regard to it that I did not exactly 
 comprehend. It seems to me that, in endeavoring to avoid an endless 
 chain on the Treasury in the form of United States notes, owing to the 
 construction which the Secretary has placed upon his own bill it opens the 
 Treasury to an " endless chain " In the shape of these national bank notes. 
 Now, the explanation that the Secretary gave did not seem to me to 
 answer entirely that objection. 
 
 Secretary Gage. — I think we are liable to become confused on that 
 point. I see very clearly that it looks like confusion, but I think if we 
 keep in mind this one principle — that the Government of the United 
 States is not going to redeem the debts of any merchant, national bank, 
 corporation, or person, nor any debts except its own, and that the less 
 the Government owes the less it will have to pay, we will not become very 
 much confused! A merchant in paying his debts may give a person legal- 
 tender notes in payment. It is a legitimate and proper thing for the debtor 
 to do. That this may cause a drain on the Treasury is a situation that 
 exists, and the only way to prevent it- is to get the government notes out 
 of the way so it cannot be done. If in redeeming national bank notes the 
 national banks have to provide the money to redeem the notes the Gov- 
 ernment does not have to provide it, and if it is the convenience of the 
 national banks, and they have the facilities to provide the obligations of 
 the Government wholly or in part, or gold wholly or in part, it is quite 
 within their prerogative to do it — quite legitimate, proper, and right. 
 And it does not interfere at all with the principle I have just laid down, 
 that the less the Government owes the less it has to pay; and by so 
 
THE ENDLESS CHAIN. 281 
 
 much as you reduce the liabilities, so much you reduce the ability of banks 
 or private individuals to control those agencies that will draw gold from 
 the Treasury. 
 
 Mr. Johnson. — Yes ; but the Secretary stated that if a bank should 
 fail to redeem these national bank notes, in case they were presented to 
 the United States it would be the duty of the United States to redeem 
 them. Does the Secretary think that the instance of a bank failing to 
 redeem these notes when presented would be rare, and is that his reason 
 for believing they could not be used to raid the Treasury? 
 
 Secretary Gage. — I think the reason the national bank notes could 
 not be used to raid the Treasury is that the national banks have to provide 
 the money with which to redeem their notes. 
 
 Mr. Johnson. — And they would do it under this bill? 
 
 Secretary Gage. — They would provide the money or they would be 
 closed by the receiver and their assets sold and the money realized out of 
 the sale or from their bonds ; and if some of the fruits of their assets were 
 government notes, who ought to find fault? It is a part of the current 
 money of the country that the Government itself has provided. Why 
 disavow and put it off and try to dodge it? 
 
 The Chairman. — Assuming that there will be a recurrence of the 
 distress of 1893, is it possible in such a situation and under such condi- 
 tions to avoid an endless chain, as long as we have any obligations we 
 redeem in gold? 
 
 Secretary Gage. — No, sir. You may sometimes make a strong endless 
 chain and sometimes a feeble one. As long as there is a dollar of obliga- 
 tion of the Government out, that dollar can be presented to the Govern- 
 ment. If it is redeemed and paid out it can be presented again, and can 
 be presented as many times as it is paid out. That can be done with 
 only one dollar. 
 
 The Secretary well states that " the less the Government owes 
 the less it has to pay. And by so much as you reduce the liabilities, 
 so much you reduce the ability of banks or private individuals to 
 control those agencies that draw gold from the Treasury." But why 
 not put it beyond the power of banks or individuals to draw gold 
 from the Treasury? So long as the demand liabilities exceed its 
 means so long will the " endless chain " be at work. It is always at 
 work with the banks, but its operations are always welcome by them, 
 as it brings back what it took away, interest added. So long as the 
 Secretary owes a dollar for which no means are provided the " end- 
 less chain " will and should be always in operation. The greater 
 the annoyance to him the more useful its work. 
 
282 PROPOSED LAW WOULD GIVE HELP IN A CRISIS. 
 
 PROPOSED LAW WOULD GIVE HELP IN A CRISIS. 
 
 The Chairman. — Assuming that there will be a recurrence of the 
 conditions existing in 1893, — that there will be such impairment of public 
 confidence at home and abroad in our ability to redeem our pledges and 
 to maintain the parity of our different kinds of moneys that there will 
 be raised a doubt as to the kind of money we will redeem our obligations 
 in, — will this change in our system which you propose afford any material 
 assistance in overcoming such a difficulty? 
 
 Secretary Gage. — I think it will be an immense help. I illustrated 
 this yesterday. The result of my figures, without going over them again, 
 shows that this act, if crystallized into law, will leave the Government 
 exposed to $370, 000,000 of its liabilities, which practically, within a 
 reasonable period of time, might come against it for gold redemption, 
 counting every kind of money — silver, silver certificates, and all. I 
 showed that $125,000,000 in gold would rest as a reserve against that 
 practical demand. I expressed the opinion that the ability of the Secre- 
 tary of the Treasury, with the authorization of the President, to borrow 
 $100,000,000 in the market would make the Government so strong that 
 it could not be broken in any kind of a crisis, and that is what we are 
 bound to look out for as defenders of the Government credit. As it is 
 now, we would be in the same position, except we have $570,000,000 of 
 practical liabilities that may come instead of $370,000,000 of liabilities. 
 Yes; we now have $600,000,000. So our strength comes as strength 
 comes from a liability diminished from $600,000,000 to $370,000,000. 
 That is practically the way I look at it. It is a great question. 
 
 The Chairman You would simply increase the difficulty of obtain- 
 ing the gold. 
 
 Secretary Gage. — Excuse me, of obtaining the gold where? 
 
 The Chairman. — At the Treasury. 
 
 Secretary Gage. — Yes, sir. 
 
 The Chairman Remember that there are $2,000,000,000 or $3,000, - 
 
 000,000 of our obligations held abroad. Should there be a recurrence 
 of the conditions and lack of faith and confidence existing three or four 
 years ago, and should those securities be returned upon us, does the 
 Secretary think that the additional strength given by his proposed meas- 
 ure to the situation would save us from falling to a silver basis ? 
 
 Secretary Gage. — I think so. 
 
 Mr. McCleary. — Am I to understand that you believe that the pro- 
 visions of your bill would alleviate the pressure? 
 
 Secretary Gage. — Very much. 
 
 Mr. McCleary. — And help to prevent the return of such conditions? 
 
 Secretary Gage. — Yes, sir. 
 
POSSIBILITY OF GOING TO A SILVER BASIS. 283 
 
 The above is given not so much to be replied to as to show the 
 peril of the situation, admitted by the Secretary to be most grave, 
 a crisis with him to be averted only by the adoption of his proposed 
 measure, which is to become a law only when those who have money 
 are prepared to lend it at i .80 instead of 5 per cent. The situation, 
 so far as the Secretary is concerned, is to continue. He is to escape 
 only by throwing obstacles in the way of the holders of the obliga- 
 tions of Government seeking to draw gold from the Treasury. 
 Should banks and bankers resort to the expedients proposed by him 
 they would soon, and very properly, be put out of the 'way of doing 
 harm. The banks of the city of New York, having deposits over 
 #700,000,000 all payable on.demand in gold, ask no favors from 
 any quarter. They defy their creditors. Why can they put on such 
 airs? Because their creditors, the owners of the money deposited 
 with them, are their debtors to a much larger amount, their debts, 
 like those of the banks, being payable in gold. For the discharge 
 of the indebtedness on either side merchandise on its way to the 
 consumer, not gold, is the great solvent. Were the issues of Gov- 
 ernment made like those of bankers in the discount of merchants' 
 bills, it could, like them, put on all the airs it chose. It now goes 
 to the wall at the first touch, for the reason that it is owing gold to 
 everybody, while it cannot get a dollar of it except by creating debt 
 to a like amount. 
 
 POSSIBILITY OF GOING TO A SILVER BASIS. 
 
 Mr. Fowler. — I would like to ask a hypothetical question. Suppose 
 that the next Congress elected should be a free-silver Congress, and pass 
 a free-silver measure, and it went to the Senate and passed that body, 
 do you not imagine that in two years, from 1898 to 1900, we would break 
 down under the proposed bill and go to a silver basis? 
 
 Secretary Gage. — Do you want an answer? 
 
 Mr. Fowler. — Yes, sir. Whether or not, during the two years be- 
 tween 1898 and the time of the election in 1900, the Presidential election, 
 which I assume would be in favor of sound money, — during these two 
 years pending, does the Secretary feel confident that the bill proposed 
 would save the Government from going to a silver basis? 
 
 Secretary Gage. — I think, with the absolute assurance of the veto of 
 the President of any free-silver measure and this arrangement, we would 
 get through all right. 
 
284 POSSIBILITY OF GOING TO A SILVER BASIS. 
 
 The Senate is in favor of free silver. Should the next House of 
 Representatives be for it, the only obstacle to a measure for its un- 
 limited coinage would be the veto of the President ! In two years 
 more a new President is to be elected. If the advocates of free 
 silver can carry the coming House their success in the next Presi- 
 dential election is certain. The veto of the President would avert 
 the catastrophe only by a single year, or at most by two years. Can 
 we allow the destinies of the country to hang on such a slender 
 thread as this? If the position of the Secretary that the Govern- 
 ment may supply the greater part of the currency be sound, then the 
 logic of the situation is wholly with the advocates of free silver. 
 All kinds of currency, those of the. Government included, when 
 issued are treated as capital. That of silver is demanded, that vast 
 numbers now without money can have a plenty of it without ren- 
 dering any adequate equivalent. If the Government may properly 
 issue #930,000,000 in notes that do not arise as instruments of dis- 
 tribution, it may speedily issue #1,860,000,000, the same in kind. 
 There would soon be no limit to the amount claimed to be necessary 
 to relieve the distresses of the people. The assumptions of the Sec- 
 retary lead to exactly such a conclusion. In place of his long and 
 unmeaning talk suppose he had said, " Gold stands for itself. It is 
 the universal equivalent and standard from its high relative value and 
 from its great uniformity in value, having the same significance with 
 all commercial nations. But the standard of value is not the instru- 
 ment of exchange. These are to be furnished by those engaged in 
 distribution, the nominal value of the instrument measuring that of 
 the subjects of exchange. The only way to make this plenty is to 
 increase the amount or value of the subjects of exchange." Such 
 language as this, coming from a Secretary of the Treasury, would 
 have been received with acclamation by nine-tenths of the American 
 people who hold on to our present system for the reason that they 
 can see no way out of it. The moment they can be made to see 
 that money, either in itself or through its representative, must be 
 always the equivalent in value of the article sought, and that all 
 other kinds must be instruments of confusion and loss, they will 
 demand the proper kind with the same alacrity and steadiness with 
 which they demand correct and uniform measures of extension or 
 weight, money itself being a provision for measuring the value of the 
 subjects of extension and weight. 
 
THE INTERESTS OF BANK DEPOSITORS. 285 
 
 THE INTERESTS OF BANK DEPOSITORS. 
 
 Mr. Spalding. — In looking after the Government's protection against 
 a raid on the Treasury, have we not lost sight of the depositors in these 
 banks? I understand the deposits reach somewhere in the neighborhood 
 of $1 ,800,000,000. What method is there by which a depositor could be 
 paid if the credit notes under this scheme of the bill are not legal tenders 
 for debts and would not liquidate the indebtedness of the depositor? 
 There would be no method, as I understand it, by which we could get 
 legal tenders, because they would be in the Treasury. 
 
 Secretary Gage. — To some extent you would get them. 
 
 Mr. Spalding. — A depositor could claim legal-tender money for 
 every deposit deposited in the bank ? 
 
 Secretary Gage. — Yes, sir ; he could. 
 
 Mr. Spalding. — Would not that limit the banks, in your judgment 
 as a banker, and prevent them from paying their depositors in case of a 
 raid on them, besides the credit notes that they were out? 
 
 Secretary Gage. — The banks got along very well when there was no 
 such provision of legal-tender notes. 
 
 Mr. Spalding. — Wasn't there a great demand on the First National 
 Bank of Chicago, at one time in 1893, for legal tenders? 
 
 Secretary Gage There was ; and it reduced its liabilities 30 per cent. 
 
 and still had its legal reserves on hand. 
 
 Mr. Spalding. — But they would not have the same reserves under 
 this bill? 
 
 Secretary Gage. — I do not know why it would not. 
 
 Mr. Spalding. — In what? 
 
 Secretary Gage. — In legal money of some kind. It would have it in 
 gold, if not in something else. 
 
 Mr. Spalding. — But do you not shorten that up in order to protect 
 the Government from raids upon the Treasury, so you will push the raid 
 upon the bank? 
 
 Secretary Gage. — I do not think so. 
 
 Mr. Spalding. — It makes less legal-tender money in existence in the 
 United States, does it not? 
 
 Secretary Gage. — It does make less legal-tender money in the United 
 States; but there is altogether too much now; that is, too much of cir- 
 culating notes — too much of legal-tender notes for the Government's 
 credit. 
 
 At this point the discussion closed. 
 
 The Secretary under the preceding and last subject of discussion 
 lost a great opportunity, as he indeed is always losing them. 
 
a86 
 
 THE INTERESTS OF BANK DEPOSITORS. 
 
 " How," asked Mr. Spalding, " are the depositors to be paid, the 
 legal-tender notes of the Government being all in the Treasury, the 
 notes of the banks not being legal tender? " All that the Secretary 
 could reply was, " The banks got along very well before there were any 
 legal-tender notes." He could get no further. Suppose he had been 
 able to go further — suppose he had been able to ask Mr. Spalding 
 in return, " How is it that the deposits amounting to #700,000,000 
 in the banks of the city of New York are retired, paid off, at the 
 rate of $100,000,000 daily, the amount of lawful money interposing 
 in their discharge at the Clearing House where the balances arising 
 are ascertained and paid not exceeding #5,000,000?" Mr. Spald- 
 ing in his turn silenced, the Secretary could have proceeded to show 
 that such deposits representing merchandise were simply the instru- 
 ments for its transfer, disappearing when the transfer was completed, 
 their place to be filled by new deposits representing new provisions 
 of merchandise. Metallic money, he could have gone on to state, 
 is the equivalent in exchange, but if the desired article could be 
 reached by the use of its symbol as well as by money in the form of 
 capital the symbol would always have the preference ; that the 
 methods by which the exchanges in New York are effected without 
 the interposition of lawful money, of capital, are applicable to the 
 retail as to the wholesale trade of the country ; that the only function 
 of Government in the premises is to see to it that money for dis- 
 tribution to consumers represents merchandise in demand for con- 
 sumption, the merchant engaged in its distribution being the person 
 competent to determine the fact ; and that any bill that he was will- 
 ing to give in its purchase was the proper basis for the issue of 
 instruments by banks for its distribution directly to consumers ; that 
 such merchandise supported by the reserves ordinarily maintained 
 Dy all in affairs, the amount to be determined by them, was all the 
 basis required for instruments of distribution, whatever the kind ; 
 that as a necessary inference Government is incompetent to issue a 
 currency, as it will never provide the proper basis therefor ; that an 
 "emergency currency" is simply the creation of a distorted fancy 
 to supply wants that should be supplied by industry and thrift — 
 a currency having no place whatever in affairs, as the proper amount 
 or value of one to be issued should always measure that of the sub- 
 jects of consumption. The soundness of every one of these propo- 
 sitions could be demonstrated by abundant examples from the past. 
 
THE INTERESTS OF BANK DEPOSITORS. 287 
 
 The Report of the Conference between the Secretary of the 
 Treasury and the Committee on Banking and Currency is given at 
 much length for the purpose of showing where in the matter of the 
 currency the nation stands, as its position is largely to be inferred 
 from that of its chief Financial Officer and that of the Committee 
 of Congress which has this matter chiefly in hand ; and for the 
 opportunity afforded of restating in reply the laws and attributes of 
 money, of which neither the Secretary nor the members of the Com- 
 mittee seem to have any adequate comprehension. Instead of lead- 
 ing to any proper solution of the great question which of all others of 
 a domestic nature is most urgent, the proceedings of the Conference 
 only serve to render the subject the more involved. While in the 
 present state of the popular mind a naked statement of the laws and 
 attributes of money might attract little attention, restatements of 
 them in reply to the various propositions of the Secretary and the 
 members of the Committee, with illustrations drawn alike from 
 reason and history by which they can be supported, may have better 
 chance of success. 
 
THE INDIANAPOLIS CONVENTION 
 
 AND THE 
 
 REPORT OF THE MONETARY COMMISSION. 
 
 On the first of December, 1896, upon the invitation of the Board 
 of Trade of Indianapolis, a Convention was held in that city of rep- 
 resentatives of the commercial organizations, chiefly in the West* to 
 consider the all-engrossing subject of the currency. After full 
 deliberation it was decided that a second Convention be held Jan. 
 12, 1897, at the same place, of representatives of the trade and com- 
 mercial organizations throughout the country. The conclusions of 
 the second Convention, very largely attended, were — 
 
 That the present gold standard should be maintained ; that steps should be 
 taken to insure the ultimate retirement of all classes of United States notes by a 
 gradual and steady process, and so as to avoid injurious contraction of the cur- 
 rency or disturbance of the business interests of the country, and that until such 
 retirement provision should be made for a separation of the revenue and note 
 issue departments of the Treasury ; that a Banking System be provided, which 
 should furnish credit facilities to every portion of the country, and a safe and 
 elastic circulation, and especially with a view of securing such a distribution of 
 the loanable capital of the country as will tend to equalize the rates of interest in 
 all parts thereof. 
 
 The recommendations of the Convention that the present gold 
 standard be maintained and that all classes of the notes of the Gov- 
 ernment be retired, though well intended, carried little force, not 
 being accompanied by any adequate plan of reform, the one sub- 
 mitted, of supplying through the agency of banks " credit facilities, 
 and such a distribution of loanable capital as will tend to equalize 
 the rates of interest throughout the country," only serving to involve 
 still more deeply, instead of clearing up the situation. The func- 
 tions of Government in distribution, as in production, are those of a 
 police ; of banks not to " furnish credit, or distribute capital so as to 
 equalize the rates of interest throughout the country," but to sup- 
 ply instruments of distribution, the nominal amount of these to 
 
REPORT OF THE MONETARY COMMISSION. 389 
 
 measure the value of the subjects of distribution. Their operations 
 are to be wholly based upon previous provisions of merchandise, the 
 only credit involved being the intrusting of it to distributors with- 
 out previous payment, of which abundant illustrations have been 
 given. In commercial countries, wherever there is merchandise, 
 instruments for its distribution, money, spring automatically, as it 
 were, into existence. While every one possessed of merchandise is 
 competent and has the natural right to issue instruments for its dis- 
 tribution, their issue, by common consent, is committed to corpora- 
 tions dedicated to one purpose, the means of which are not imperilled 
 by a variety of undertakings. Capital, merchandise, the basis of 
 currency, is not to be created by " glittering generalities," but by 
 hard work. When properly issued the symbol is as difficult of 
 access as its constituent. It is painful to tell a community without 
 money that it is its own fault ; that there is no remedy but to create 
 that which will bring it. To supply credit is to supply capital. But 
 this is no more the function of banks than of governments. As 
 deposits in banks are capital, that is, as they represent accumula- 
 tions of it, they are the proper subjects of investments by their 
 owners — the building of houses and the like. But loans by banks 
 based upon them must always be made in the discount of merchants' 
 bills, that they may be prepared to meet all calls liable to be made 
 upon them. In proposing through the instrumentality of banks, the 
 creations of governments, " to furnish credit and the distribution of 
 loanable capital so as to equalize the rates of interest throughout 
 the country," the Convention placed itself on purely socialistic 
 grounds. It proceeded upon the idea that value is no necessary 
 attribute of money, which, without such attribute, will perform all the 
 functions of capital. That no member of it would undertake, by 
 means of his own, to carry out the proposition " to furnish credit 
 and loanable capital so as to equalize the rates of interest through- 
 out the country," is a sufficient reply. Capital is distributed and 
 rates of interest controlled by laws that transcend any of human con- 
 trivance. It is impossible that the amount of capital and the rates 
 of interest should be uniform throughout every portion of the coun- 
 try, unless, as they never can be, conditions are everywhere the 
 same. Rates of interest will always be higher in the rural districts 
 than in the great centres of production and trade, as in the former 
 every one possessed of capital can presently and profitably use it 
 
290 
 
 REPORT OF THE MONETARY COMMISSION. 
 
 in his own operations, while in the latter vast sums, represented by 
 their symbols, awaiting opportunity for employment, can always be 
 had at low rates until occasions arise for their use, their places, 
 when withdrawn, being made good by new provisions of merchan- 
 dise to be represented by their appropriate symbols. In the rural 
 districts the amount of loanable capital will always be small without 
 any inference of poverty or distress, the greater part of their prod- 
 ucts being consumed on the spot. For the movement of any 
 surplus in them the instruments can always be readily supplied from 
 the great centres of trade at one-half the rates that would be 
 demanded by those possessed of means in the community in which 
 the surplus existed. Wherever there is merchandise there is money. 
 If a farmer in the distant Dakotas has 1,000 bushels of wheat fitted 
 for the market, money, instruments of distribution, instantly presents 
 itself. But no good Samaritan or churlish man of affairs will offer 
 $1,000 for 1,000 bushels of wheat that exists in imagination alone. 
 The proposition of the Convention for the reform of the currency, if 
 adopted, would only tend to aggravate instead of curing the evils 
 sought to be remedied. Perhaps the only way out of them is to 
 exhaust every hypothesis but the right one, that being at last finally 
 adopted because no other is left, this being the way in which in 
 affairs nations stumble along without finally perishing. 
 
 The Convention concluded its proceedings by appointing as 
 Executive Committee 
 
 H. H. Hanna, Chairman, Indianapolis, Ind. H. H. Kohlsaat, Illinois. 
 
 William C. Cornwell, New York. 
 
 M. L. Crawford, Texas. 
 
 J. L. Faulkner, Alabama. 
 
 N. A. Fletcher, Michigan. 
 
 J. F. Hanson, Georgia. 
 
 C. C. Harrison, Pennsylvania. 
 
 Rowland Hazard, Rhode Island. 
 
 J. B. Henderson, District of Columbia. 
 
 Samuel Hill, Minnesota. 
 
 John P. Irish, California. 
 
 C. C. Jackson, Massachusetts. 
 
 Eugene Levering, Maryland. 
 John J. Mitchell, Illinois. 
 Alexander E. Orr, New York. 
 Henry C. Payne, Wisconsin. 
 Geo. Foster Peabody, New York. 
 T. C. Power, Montana. 
 H. L. Rem.mel, Arkansas. 
 E. O. Stanard, Missouri. 
 E. B. Stahlman, Tennessee. 
 Augustus E. Willson, Kentucky. 
 W. R. Trigg, Virginia. 
 
 The Committee was instructed to urge Congress to pass a bill 
 authorizing the President to appoint a Commission to formulate a 
 plan of reform. Failing in this, it was instructed to appoint a Com- 
 mission of eleven persons to report a plan. In compliance a bill 
 
REPORT OF THE MONETARY COMMISSION. 29I 
 
 was promptly passed by the House. The Senate refused. The Com- 
 mittee thereupon selected the following persons to 'constitute the 
 Commission : Geo. F. Edmunds of Vermont ; Charles S. Fairchild 
 of New York ; C. Stuart Patterson of Philadelphia ■ J. W. Fries of 
 Salem, N.C. ; T. G. Bush of Anniston, Ala. ; George E. Leighton 
 of St. Louis ; R. S. Taylor of Ft. Wayne ; Louis A. Garnett of 
 San Francisco; Prof. J. L. Laughlin of Chicago, and Stuyvesant 
 Fish of New York. 
 
 " On the 2 2d of September the Commission met at Washington 
 and for months engaged in the most diligent and scientific investi- 
 gation of the needs of the country and the monetary systems of 
 the world. Data of all kinds were placed before it and there were 
 contributed a vast number of suggestions and plans from men in all 
 walks of life, including nearly all those in America who have obtained 
 prominence in the control of large affairs." Among the methods 
 used for obtaining information was a circular in which thirty-two 
 questions were proposed in reference to the nature of money and of 
 that of our own. On the 17th of December, 1897, the Commis- 
 sion, so armed, submitted to the Executive Committee of the Con- 
 vention its plan of currency reform, which was : 
 
 1. To remove, at once and forever, all doubt as to what the standard of value 
 in the United States is, and is to be. 
 
 2. To establish the credit of the United States at the highest point among the 
 nations of the world. 
 
 3. To eliminate from our currency system those features which reason and 
 experience show to be elements of weakness and danger. 
 
 4. To provide a paper currency convertible into gold and equal to it in value at 
 all times and places, in which, with a volume adequate to the general and usual 
 needs of business, there shall be combined a quality of growth and elasticity, 
 through which it will adjust itself automatically and promptly to all variations of 
 demand, whether sudden or gradual ; and which shall distribute itself throughout 
 the country as the wants of different sections may require. 
 
 5. To so utilize the existing silver dollars as to maintain their parity with gold 
 without imposing undue burdens on the Treasury. 
 
 6. To avoid any injurious contraction of the currency. 
 
 7. To avoid the issue of interest-bearing bonds, except in case of unlooked- 
 for emergency ; but to confer the power to issue bonds when necessary for the 
 preservation of the credit of the government. 
 
 8. To accomplish these ends by a plan which would lead from our present 
 cojifused and uncertain situation by gradual and progressive steps, without shock 
 or violent change, to a monetary system which will be thoroughly safe and good,, 
 and capable of growth to any extent that the country may require. 
 
292 REPORT OF THE MONETARY COMMISSION. 
 
 i. The first task assumed by the Commission, "the removal of 
 all doubt as to what the standard of value in the United States is 
 to be," is wholly superfluous, as this task has been discharged by a 
 Power far higher than its own. It is not to be supposed that a 
 beneficent Providence would have left a matter of such tran- 
 scendent importance as the establishment of a conscience, as it 
 were, in affairs to a Commission appointed so late as the year of 
 our Lord 1897 ! The kind of standard, always self constituted, is 
 relative to the condition of a people. In the United States previous 
 to 1 834 silver was the proper standard, alike on the score of con- 
 venience as well as of uniformity in value. At an early period 
 copper was an appropriate standard. The rapid increase in the 
 production of these metals and their consequent fall in value dis- 
 charged both from such use. To-day the loudest-mouthed silverite 
 would be as scrupulous in subjecting all his operations, when he was 
 to receive anything, to the standard of gold as the warmest advocate 
 of that metal. The standard of value, whatever it is, is in no danger 
 so long as it takes two to make a bargain, as one at least will always 
 demand an equivalent measured by the highest standard for that 
 with which he parts, a matter which the advocates of silver wholly 
 overlook. Both alike in entering upon a transaction must know 
 where they stand, what they are to receive, and what they are to be 
 called upon to pay. Were silver to be had at its actual value the 
 advocate of it as money would be glad to pay it out at its nominal 
 value in the purchase of a horse, but he would in vain search for the 
 fool that would accept it in the sale of one. 
 
 2. The credit of the. United States which the Commission is 
 called upon to maintain is already sufficiently high and has not risen 
 since the publication of its report. 
 
 3. The elimination from our currency of all elements of weak- 
 ness and danger is not to be secured by idle talk, but by providing 
 that none shall be issued that is not gold ; or that has not, through 
 its constituent, the value of gold by securing to the holder the same 
 value that gold as money would secure, a provision which the Com- 
 mittee wholly overlooked. In overlooking this everything was 
 overlooked. 
 
 4. " In providing a paper currency that at all times and all places 
 shall be convertible into gold," the Committee proposed to reverse 
 all that has been accomplished in discharging, by the use of symbols 
 
REPORT OF THE MONETARY COMMISSION. 293 
 
 costing nothing in themselves, capital from the exchanges — to make 
 provision in gold equal to the amount of currency issued. Every 
 contract, unless otherwise specified, is held to be payable in gold as 
 a guarantee that it will be discharged in that which has a value equal 
 to that of gold. So adequate is the guarantee that not one contract 
 in a million is paid in gold, although there is not one contract in a 
 million that is not payable in terms in it. Not one person in a 
 million entering into a contract thinks of preparing gold for its dis- 
 charge. Not one in a million demands gold in its discharge. All 
 that is wanted to its acceptance is that it will secure to the holder 
 the same amount of merchandise as an equal nominal amount of 
 money in the form of gold. If a substitute for gold, symbolic 
 money, will serve such purpose equally with gold, it will always, 
 from the greater safety, economy, and convenience of its use, have 
 the preference. That it may have the preference it must represent 
 merchandise in demand for consumption. Of the amount and kind 
 of such merchandise a person experienced in distribution, the mer- 
 chant, is a competent judge. To him the producer freely intrusts 
 on credit his products. A bank reposing confidence in the integrity 
 and experience of the merchant issues its notes and credits in the 
 discount of his bills, supplying instruments of distribution to con- 
 sumers. In addition to the security of the merchandise for which 
 the bills discounted were given, the bank has the guarantee of 
 the makers and indorsers of the bills. The note holder has all 
 the security which the bank holds, and in addition its reserves. The 
 preceding steps well taken, the note holder is perfectly secure, 
 neither needing nor demanding any additional provision in his favor. 
 By the method described merchandise in all commercial countries 
 is now in great measure distributed without the intervention of 
 metallic money, of capital ; the only interposition required on the 
 part of the Government being that the real capital of the banks 
 equals their nominal capital ; and that their issues be restricted to 
 the discount of merchants' bills. Borrowers at them have the natural 
 right to demand that the proceeds of their loans shall be in the form 
 best suited to their convenience or wants. No more provision is to 
 be made for those taking the proceeds of their loans in the form 
 of notes than for those who take them in any other form. The 
 quantity or form is not to be determined by any theoretical or 
 empirical standard set up in advance by the Government. If a loan 
 
294 REPORT OF THE MONETARY COMMISSION. 
 
 is fit to be made the borrower has the right to determine the 
 manner in which it shall be utilized. To impose any burdens not 
 necessarily involved in the processes described is to show that 
 the first element in monetary science has not been mastered. To 
 make provision so that " paper money be at all times and in all 
 places convertible into gold" would be to reduce transactions to 
 one-tenth their present amount. 
 
 5 . "To utilize the existing silver dollars so as to maintain their 
 parity with gold." The old story comes up at every turn that value 
 is to be given to silver dollars by their use. But no one will use 
 them. What then? Issue notes against them which every one will 
 accept with avidity. But suppose the holders of these notes should 
 take it into their heads now and then that they would like a little 
 gold? But they never will ! By the substitution of certificates for 
 dollars not one of these would ever get into circulation ; while from 
 the use created for the certificates not a dollar of them would ever 
 be demanded in gold. But the matter here raised will be more 
 fully considered further on. 
 
 6. The work of reform is to proceed so that there be no " inju- 
 rious contraction of the currency." This matter would never have 
 been raised had our system been a sound one. The amount of 
 currency properly issued always measures the value of merchandise 
 in process of distribution. If the demand for a particular kind falls 
 off the number of bills made representing it and discounted will 
 fall off, the amount of money being reduced in like ratio. In such 
 case there is no complaint of " injurious contraction," as every one 
 understands to what this is due, and that it is to be corrected by 
 increased production on other lines. It is a matter with which 
 Government has no more to do than with the number of pigs or 
 cabbages that are to be raised. As with a proper system there can 
 be no inflation of the currency, it being discharged by its use, so 
 there can be no " injurious contraction of the currency." The only 
 function of Government in the premises is to see to it that no issues 
 be made to serve as money for the retirement of which ample 
 means are not previously provided. Government money is always 
 an inflation of the currency, no provision being made for its re- 
 tirement previous to its issue. Its retirement always seems to be 
 an " injurious contraction," as when retired there is nothing to take 
 its place. The injury is the proper penalty paid for a wrong or 
 
REPORT OF THE MONETARY COMMISSION. 295 
 
 mischievous act. To avoid an " injurious contraction " the Com- 
 mission should have seen to it that there could be no expansion 
 of it. 
 
 7. The proposition as to the issue of bonds is a very proper one. 
 
 8. "To proceed by progressive steps, without shock or violent 
 change, to a monetary system which would be thoroughly safe and 
 good and capable of growth to any extent the country may require." 
 A vast undertaking upon which the Commission was " employed for 
 months in diligent, scientific investigation," the results of which will 
 be shown in the pages which follow. 
 
 THE FACTS AS TO THE CURRENCY. 
 
 After laying down its line of work the Commission under the 
 above head gave a detailed statement of the kind and amount of 
 the various classes of money in circulation. 
 
 Gold. The amount of this in the country according to the Com- 
 mission is $729,661,110, of which $153,573,148 were held in the 
 Treasury; $36,814,109 held against outstanding certificates, and 
 $195,891,107 in the banks. 
 
 Silver. The coinage of silver dollars up to Nov. 1, 1897, had 
 equalled $452,713,792, of which$392, 715,014 were in the Treasury, 
 and $60,196,778 in circulation. In addition there were 115,361,079 
 ounces of silver bullion in the Treasury, against which $109,313,280 
 silver notes were in circulation. The silver dollars coined under the 
 Act of 1878, and the notes issued under the Act of 1890, made an 
 aggregate of $562,027,070. The cost of distribution of the silver 
 dollars has been$i,o64,io6. The amount of silver certificates issued 
 equalled $372,828,919. 
 
 The amount of United States notes outstanding was $346,681,016, 
 of which $87,684,018 were in the Treasury; $48,625,000 held 
 against outstanding certificates, and $258,996,998 in circulation. 
 
 The aggregate amount of United States Treasury notes, silver 
 certificates, and silver dollars equalled $908,708,088, of which 
 $847,431,904 were in circulation. 
 
 The number of banks doing business, Oct. 15, 1897, was 3,610; 
 their circulation equalled $230,132,275, of which $4,998,012 were 
 in the Treasury. The amount of United States bonds held by the 
 banks for security for their circulation equalled $277,235,920. The 
 amount of deposits held by National Banks equalled $1,869,491,- 
 
296 REPORT OF THE MONETARY COMMISSION. 
 
 310. From the organization of the banking system in 1862 the 
 banks have paid into the National Treasury the sum of $150,207,- 
 
 339- 
 
 The Commission then proceeded to the subject of 
 
 THE STANDARD. 
 
 " The most serious evil affecting our present monetary system," 
 said the Commission, " is the threatened degradation of its 
 standard." This statement was followed by an extended review of 
 the events relating to the currency down to 1896, the election of 
 that year being decisive in favor of that of gold as the standard. 
 
 The pertinence of this retrospect, said the Committee, is the proof which it 
 affords of the fact that so large a portion of the people of the United States have 
 no conception of the nature or importance of a money standard. In such a 
 country as ours the legal monetary standard is whatever a majority, or a plurality, 
 it may be, of the voters say it shall be. It is, therefore, of the utmost importance 
 that the standard shall not only be distinctly declared in the law, but clearly fixed 
 in the minds of the people as the first and indispensable element of a sound 
 monetary system. All history is evidence that the people who suffer most from a 
 degradation of the standard are not the rich and powerful, but the poor and help- 
 less. Compared with this danger all existing evils of mere kind or quantity of our 
 present money are relatively only inconveniences. The first need of the situation 
 is to fortify the standard. 
 
 Many of our fellow citizens have hoped in all sincerity that the problem of the 
 standard would be solved by international bimetallism. An earnest effort has been 
 made to realize that hope, but it must now be abandoned. The only alternatives, 
 therefore, are the continued maintenance of the existing gold standard, or the 
 adoption of the silver standard. If the latter alternative be taken, the obligations 
 of the United States, of the States, of all municipalities, of all private corporations, 
 and of all individuals, the receipts of income from every source, the proceeds of 
 policies of insurance, the deposits in banks and savings funds, and the wages of 
 labor, will then be payable in a debased and- depreciated currency ; and individual 
 and corporate bankruptcy, and, worst of all, national dishonor, will follow. If 
 the former alternative be taken, and the necessary means be adopted to secure 
 the stability of the gold standard, the credit of the country will be established; 
 the national debt can be refunded at lower interest rates; the surplus capital of 
 the world will come here to find profitable investment ; and our country will 
 enjoy the prosperity that follows a currency system based upon a stable standard 
 of value. 
 
 The Commission is mistaken. The people of the United States 
 have the keenest conception of the nature and importance of a 
 monetary standard, that of gold — far keener than that of the 
 
REPORT OF THE MONETARY COMMISSION. 297 
 
 importance of a moral one. The savage needs no teaching in order 
 to demand an equivalent for anything with which he parts. He 
 may require a great deal to perform the duties he owes to another. 
 The more acute and vulgar sense necessarily precedes the higher 
 one. What better evidence is wanted of the keenness of this sense 
 on the part of our people than the way in which the silver dollar is 
 universally shunned? The Government has spent more than a 
 million dollars to get it into circulation. The backward flow is as 
 unremitting and in the same volume as is the enforced and outward 
 one. It is with a sense of uneasiness, bordering on shame, that 
 every man receives a silver dollar, for he well understands it to be a 
 fraud, and that if kept on hand twenty-four hours it may involve a 
 loss exceeding one half its nominal value, the disagreeable sensation 
 being increased by the plan immediately formed to get rid of it. 
 The members of the Commission believe that the great mass of the 
 people are so incapable that they cannot take care of themselves. 
 Let one of them offer a Silverite a bag of one thousand silver dollars 
 in payment of a pair of horses. The offer would be disdainfully 
 spurned unless their owner could see some way of shoving the silver 
 off upon " some other fellow " for an equal amount in gold. At the 
 same time nothing would better suit him than to offer at their nom- 
 inal value, provided they could be had at their real value, one thou- 
 sand silver dollars in payment for a pair of horses worth one thousand 
 dollars good money. Fortunately it takes two to make a bargain, 
 or the Silverites could indeed be a source of infinite mischief. The 
 Commission assumes that it takes only one to make a bargain ! 
 Fortunately, too, the advocates of silver are half the time the most 
 resolute champions of gold. While silver is the money when they 
 themselves are to pay, gold is always that in which they are to be 
 paid ! The quarrel is not over a standard, for nobody really wants 
 this changed, but how some one can be overreached. There is no 
 more probability that the standard of value is to go from gold to 
 silver than that the moon instead of the sun is to become the centre 
 of our system. The one is as frell established in its sphere as 
 the other. The description therefore by the Commission of the 
 terrible condition of things that is to result from the adoption of a 
 silver standard " when all the obligations of the United States, of 
 the States, of all municipalities, of all private corporations, and of 
 all individuals, the receipts of income from every source, the pro- 
 
298 REPORT OF THE MONETARY COMMISSION. 
 
 ceeds of policies of insurance, the deposits in banks and savings 
 funds, and the wages of labor, will be payable in a debased and 
 depreciated currency, individual and corporate bankruptcy, and, 
 worst of all, national dishonor, to follow," was as absurd as would 
 have been one of the conditions of things, the moon instead of the 
 sun becoming the centre of our system. The danger lies in a very 
 different direction, in the opportunity afforded, should the base 
 dollars come upon the market, for the payment on a vast scale of 
 debts at a value not equalling one-half that at which they were 
 contracted. A scene of great confusion and disaster, well worthy 
 the pen of the Commission, would follow. Still, as in the past, con- 
 tracts would be made only at the standard of gold, while the greater 
 part of those outstanding would be discharged at the value of gold 
 from a sense of justice as well as of interest, the field for the use of 
 silver being left to those who had no sense either of justice or 
 shame. 
 
 The Commission then proceeded to the discussion of — 
 
 THE SILVER CURRENCY. 
 
 The silver certificates, being the expressed representatives, dollar for dollar, of 
 silver dollars deposited, ought to continue to be exchangeable only for silver 
 dollars. 
 
 As the owners of a large stock of silver bullion, silver dollars, and subsidiary 
 silver, the people of the United Stales are directly interested in the continued use 
 of silver as currency, provided that the silver can continue to be maintained at par 
 with gold. 
 
 The silver dollar is by reason of its size and weight an inconvenient coin to 
 carry about the person, or to use in change. Most people, therefore, do not 
 desire to use silver dollars as currency, if they can have, as representatives of the 
 coin dollars, notes in denominations of $1, $2, and $5. Even with the induce- 
 ment of free transportation from the Treasury, it has never been possible to force 
 into circulation at any one time an amount of silver dollars exceeding $67,000,000, 
 and there are now outstanding only $60,196,^78, of which at least $10,000,000 
 are held by the national and State banks. On the other hand, there are in cir- 
 culation $354,355,031 of notes of the denominations of $1, $2, and $5, of which 
 $154,965,473 are silver certificates and $199,389,558 are United States notes, 
 treasury notes of 1890, and national bank notes. Of the total amount of silver 
 certificates outstanding, $154,965,473 are, as before stated, in denominations of, 
 $1, $2, and $5, and $229,205,031 are in larger denominations. If, therefore, the 
 United States notes, treasury notes of 1890, and national bank notes of the 
 denominations of $1, $2, and $5 be retired, their places can be taken by a further 
 issue of silver certificates to the amount of $199,389,558 in denominations of $1, 
 $2, and $5, and an equivalent amount of silver certificates of larger denominations 
 be retired. 
 
REPORT OF THE MONETARY COMMISSION". 299 
 
 The effect of this plan will be that the currency of the country of all denomina- 
 tions below $10 will be silver coin, and silver certificates based upon silver dollars 
 held in the Treasury, supplemented by gold coins of the denominations of $2.50 
 and $5. 
 
 The Government has received the full face value for all the silver dollars which 
 have been put in circulation either in kind or by means of representative certifi- 
 cates. The silver coins differ from the note issues only in the fact that the 
 material of which they are made has some market value as bullion. They are, 
 nevertheless, as justly obligations of the Government and as properly exchange- 
 able at par for gold as the United States notes. A gold reserve must, therefore, 
 be provided for such exchange; but as the retirement of the United States notes, 
 treasury notes of 1390, and national bank notes of denominations less than $10 
 will leave the silver dollar, the silver certificates in denominations of $1, $2, and 
 $5, the subsidiary silver, the minor coins, and the gold coins of the denomina- 
 tions of #2.50 and #5 as the only currency for small transactions, it is probable 
 that the trade of the country will keep the silver and its representatives in circu- 
 lation, and prevent the coming in of any considerable quantity of that currency. 
 It is also to be observed that when popular confidence shall have been restored 
 as to the maintenance of the gold standard and the security of our currency 
 system, there will be no general desire to exchange silver dollars or silver certifi- 
 cates for gold, for the silver currency will then be, beyond question, as good as 
 gold. 
 
 The Commission differs from the Secretary of the Treasury and 
 the Committee on Banking and Currency of the House, in declaring 
 that silver certificates are not promises of the Government, being 
 only evidences of deposits payable in kind. It agrees with them 
 that silver dollars are to remain a money of the country. The 
 Government having a large amount on hand, provided at great 
 cost, their value is to be maintained at the par of gold to escape an 
 enormous loss. Its method is that of the Secretary, that no notes 
 be issued by the banks or by the Government, except silver certifi- 
 cates, under denominations of ten dollars. By such provision the 
 demand for the certificates for use as money would be so great that 
 they could not be withdrawn from the channels of circulation to be 
 presented for silver — this to be presented, if it were wanted, for 
 gold. The value imparted, from the necessity of their use, to the 
 certificates, would be imparted to the silver upon which they were 
 based. By such means, "confidence being restored as to the main- 
 tenance of the gold standard and the security of our currency 
 system, there would be no desire to exchange silver dollars for gold, 
 or silver certificates for gold, for the silver currency will beyond 
 question be as good as gold." 
 
300 REPORT OF THE MONETARY COMMISSION. 
 
 Here is the old story that meets us at every turn, that value, either 
 intrinsic or representative, is no necessary attribute of money. 
 But metallic money is such by virtue of being capital in its highest 
 form. Symbolic money to serve as such must secure to the holder 
 the same amount of capital, merchandise, as money in its highest 
 form. ■ It is accepted for the reason that it secures to the holder the 
 same values, in exchange, as metallic money in its highest form. 
 The moment it is seen that it is not an equivalent it will not be 
 accepted. To assume otherwise is to assume that we are a race of 
 idiots. Government notes to serve as money must, by provision, 
 or assumed provision, of law, be payable in gold. A certain amount 
 of notes issued in anticipation of taxes might be accepted by the 
 public without such provision. To the extent that active employment 
 can be had for them their value would be maintained, their con- 
 stituent, and a very proper one, being government dues to be pres- 
 ently paid. A resort is not unfrequently had to such notes bearing 
 usually a lower rate of interest to cover the period previous to their 
 use. It may be laid down therefore as an axiom that every prom- 
 ise to serve as money must have behind it that which will secure to 
 the holder the same results or values as gold, any deficit of these to 
 be made good in gold. The assumption of the Committee, there- 
 fore, that silver certificates will permanently remain in circulation 
 from the necessity of their use, not being promises of the Govern- 
 ment convertible into gold, has not the slightest support in reason 
 or precedent. It is an assumption that nothing may equal some- 
 thing. A Commission that can put forth such wretched stuff as 
 this is a very unsafe guide to the nation. It is now universally pro- 
 claimed that the Government is behind the silver certificates. The 
 moment it withdraws such support they will fall to the value of their 
 constituents. They are now supported by the value of such con- 
 stituents, reenforced by the assumption that the Government is to 
 make them on the demand of the holder equal to gold. While 
 Government, according to the Commission, is not to be responsible 
 for the certificates, it is to stand behind the dollars in which they 
 are payable. It is assumed that it can readily stand upon such an 
 assumption, as no one will demand gold for silver, the provision of 
 the former for a few sporadic cases of presentation not exceeding 
 five per cent, of the amount of the dollars outstanding. But who in 
 want of gold will ever subject himself to the burden of first drawing 
 
REPORT OF THE MONETARY COMMISSION. 3OI 
 
 silver from the Treasury, using this for drawing gold from the same 
 source, when he could demand and receive gold from the purchaser 
 for anything with which he had to part, without any abatement of 
 its price? The Commission forgets that as a people we are over- 
 flowing with bank money every dollar of which is payable in gold, 
 there being not the least reason why the Government should issue 
 notes of its own to serve as money. Should the plan of the Com- 
 mission be adopted no one, from the distrust created by the small 
 provision made by the Government therefor, would ever touch a dollar 
 of silver on any terms. Another conclusive objection to the plan of 
 the Commission is that it bases one kind of money upon another, one 
 kind never coming into use. The money of commerce needs no 
 other support than the subjects of consumption, supported by the 
 reserves of the issuers and the makers of the bills discounted. To 
 the extent that symbolic money is used capital is discharged from 
 distribution. In the place of such money, always retired by its use, 
 the Commission recommends one which has a large amount of cap- 
 ital behind it never coming into use. 
 
 It is assumed by the Commission that as the Government has 
 coined a vast amount of silver at an enormous cost its use as money 
 is to be maintained. But why should Government seek to maintain 
 in use, at an enormous cost, a money which the people wholly reject 
 and for which there is no need whatever, all proper to be had being 
 provided in the form of symbols of merchandise, — a money which 
 has produced almost untold disaster in the past, and which threatens 
 still greater disasters in the future? The cost of the 459,946,701 
 ounces of silver, purchased to serve as money, was $464,210,262. 
 Its value at 50 cents the ounce, about the present price, is $229,- 
 950,000. The loss in the fall of price alone equals #234,260,262. 
 The loss in the matter of interest amounts to $ 140,000,000, the total 
 being #374,260,262. The silver dollars are whollyuseless as money 
 or as support for the certificates issued against them. As promises 
 of the Government they would circulate just as well without as with 
 such support. If the Government is to supply money on the best 
 terms to itself and the public, all that it has to do is to issue fiat 
 money pure and simple. It could then sell its silver, now a wholly 
 useless load, reducing its interest-bearing debt to the amount of its 
 value. While undertaking to maintain silver certificates in circulation, 
 the declaration, should it be enacted into a law, of the Commission, 
 
302 REPORT OF THE MONETARY COMMISSION. 
 
 that the certificates were not the promises of the Government, would 
 lead to an instant abandonment of their use. The public would no 
 more touch them than they will touch their constituents. The 
 annals of history are to be in vain searched for a parallel instance of 
 improvidence and folly to this wretched silver business, now having 
 the earnest support of the Monetary Commission ! 
 
 But where does the action of the Commission place the nation in 
 the great battle with silver? It proclaims that the $450,000,000 of 
 it that have been coined were well coined, that they will be so 
 absorbed in the business operations of the country that not a dollar 
 of them will be presented for gold. They will, to repeat the Com- 
 mission, be "as good as gold." The business operations of the 
 country are increasing at an enormous rate. In like ratio should 
 there be an increase of the currency supplied by silver represented 
 by appropriate certificates. The increased demand for money will 
 certainly equal if not exceed the domestic product of silver. Assum- 
 ing the premises of the Commission, the logic for its increase as 
 money is irresistible. The great champions of the cause of silver are 
 those especially appointed for its overthrow ! And where does the 
 assumption of the Commission that silver certificates to the amount 
 of $450,000,000 may be well issued place it in the great fight 
 against base money? If that amount of government notes be good 
 money, why should that sum be the limit of it ? Only for the reason 
 that provision for such an amount has been made. But the amount 
 of a currency must be relative to that of the transactions taking 
 place. If Government may well issue a large portion of it, may it 
 not, upon the same argument, issue all? Assuming the premises, 
 the declaration of the late Democratic National Convention was 
 well made that — 
 
 Congress alone has the power to coin and issue money, and President Jackson 
 declared that this power could not be delegated to corporations or individuals. 
 We therefore denounce the issuance of notes intended to circulate as money by 
 national banks as in derogation of the Constitution, and we demand that all 
 paper which is made a legal tender for public or private debts, or which is receiv- 
 able for duties to the United States, shall be issued by the Government of the 
 United States, and shall be redeemable in coin. 
 
 If the argument of the Commission in favor of silver certificates 
 be well made, the declaration of the Convention was well made. The 
 premise established that government may create money, the quantity 
 must be measured by the real or assumed wants of the people. 
 
REPORT OF THE MONETARY COMMISSION. 303 
 
 F/om the subject of the silver coinage the Commission proceeded 
 to that of — 
 
 THE DEMAND OBLIGATIONS OF THE GOVERNMENT. 
 
 The demand obligations, properly so called, consist, said the Commission, of 
 the United States notes, or "greenbacks," amounting to $346,681,016, and the 
 treasury notes of 1890, amounting to $109,313,280. While the former are not in 
 terms payable in gold, and the latter are by law payable in gold, or silver, at the 
 discretion of the Secretary of the Treasury, it is obviously necessary, in order to 
 keep good the pledge of the Government to maintain the parity of the two metals 
 as coined, to pay all its notes in gold when gold is demanded by the holder. So 
 that, in a practical sense, the note obligations of the Government payable in gold 
 on demand must be reckoned at the sum of the greenbacks and the coin notes, 
 that is, $455,994,296. 
 
 The measures recommended in relation to these obligations may be briefly sum- 
 marized as follows : 
 
 1. The separation of the note-issuing and redeeming operations of the Treas- 
 ury from its ordinary fiscal operations by the creation of a Division of Issue and 
 Redemption, and the transfer to it of the gold reserve and other resources held 
 against obligations ; the government notes to be paid in gold coin on demand 
 through that division. 
 
 2. The reserve to be maintained from revenue when adequate, and by sale of 
 bonds when necessary ; the proceeds of such sales to be used for that specific 
 purpose, and no other. 
 
 3. Notes paid to be cancelled as paid, up to the amount of $50,000,000 ; the 
 cancellation thereafter for five years not to exceed the increase of bank notes. 
 After five years the notes paid to be retired at a rate not exceeding 20 per cent, 
 per annum of the amount then outstanding ; at the end of ten years the legal- 
 tender quality of the notes then outstanding to cease. 
 
 4. No note, once paid, to be reissued otherwise than in exchange for gold, 
 except that, in case of an excessive accumulation of redeemed and uncancelled 
 notes in the Division of Issue and Redemption, the Secretary of the Treasury 
 may use them in the purchase of United States bonds for the benefit of the Divi- 
 sion of Issue and Redemption ; such bonds to be held in that division and sold 
 for the benefit of the redemption fnnd when directed by the Secretary of the 
 Treasury. 
 
 With the Commission silver certificates are not to be demand 
 obligations of the Government. Of the latter $50,000,000 are 
 to be retired. For the next five years the rate of their retirement 
 is not to exceed that of the increase of bank notes. Should there 
 be no considerable increase in bank notes, and it is not probable 
 that there w.ll be, the situation for the next five years will remain 
 substantially unchanged. With the silver certificates in circulation 
 the aggregate amount of government money would equal $850,000,- 
 000. In view of the terrible disasters of the past, can the country 
 
304 REPORT OF THE MONETARY COMMISSION. 
 
 afford to wait five years before any adequate steps are taken for re- 
 form ? If none are taken, will not the disasters of the past, greatly 
 aggravated, repeat themselves? There is now a lull in the storm 
 from the assumption, due to the results of the late general election, 
 that some adequate steps for reform will be taken. So far none 
 have been proposed. If the government money had represented 
 an equal amount of gold, no disturbance would have been created 
 except that resulting from enormous and useless accumulations of it. 
 The disasters resulted from the fact that the notes of the Govern- 
 ment had behind them neither gold nor merchandise. They were 
 almost to their whole extent inflations of the currency. Money will 
 always be treated by the holder as capital. So far as it is not capi- 
 tal, nor the representative of capital, it is always and necessarily a 
 source of disturbance. But will not a currency purposely debased 
 be, so far as circulation can be had for it, far more productive of dis- 
 aster and distress than a sound one, or of one declared by Govern- 
 ment to be sound, that is, payable in gold ? In a roundabout way, 
 to be sure, the certificates are to be maintained at the value of gold 
 by maintaining silver, their constituent, at the value of gold. But if 
 such plan were adopted it would from its absurdity create such an 
 apprehension and distrust as almost instantly to precipitate a crisis. 
 Before the Commission proceeded upon its work, should it not have 
 mastered a few of the elementary principles of monetary science ? 
 These mastered, its report, instead of covering thirty-two pages, 
 could have been well included in twenty lines. The substance of it 
 would have been that every one possessed of merchandise fitted for 
 consumption is competent to issue instruments for its distribution, 
 such instruments having the value of gold from having behind 
 them that which has the value of gotd. The proper organizations 
 for their issue are, however, banks, the capital of which, in order to 
 avoid risk, is dedicated to a single purpose. By such means a per- 
 fectly sound currency can be provided — a currency with the issue 
 and redemption of which Government should have nothing to do 
 except to see that it be properly issued ; a currency in which not 
 only all the domestic exchanges would be effected, but in which the 
 revenues of the Government should be payable, such gold as might 
 be wanted being supplied by the issuers of the money of commerce. 
 In proof precedents of forty years could have been conclusively 
 recited. Instead of this the Commission makes the subject of 
 
REPORT OF THE MONETARY COMMISSION. 30-,' 
 
 money, which should be the simplest, the most involved thing in the 
 world. 
 
 In case of an excessive accumulation of redeemed and uncan- 
 celled notes in the division of Issue and Redemption the Secretary 
 may use them in the purchase of government bonds for the benefit 
 of such division ; that is, the notes flowing into the Treasury may be 
 reissued, the clause at present in force directing their reissue being 
 in fact retained. But what amount in this division would be an ex- 
 cessive one ? It has not the use for a dollar of the notes returned to 
 it, its expenses being provided for by the regular appropriation bills. 
 The excess is to be determined, not by the amount in the division, 
 but by the degree of the pinch in the money market. Who is to 
 determine the fact ? The Secretary of the Treasury, upon evidence, 
 of course. Suppose the pinch be due to a lack of merchandise, for 
 the money of commerce will always equal that of the subjects of 
 consumption. In such case, if there be a lack of money the ap- 
 propriate remedy would be an increase of products to be symbol- 
 ized. It is not to be relieved by an issue of government notes, evi- 
 dences of debt instead of capital, instruments in excess of the 
 means of expenditure, and of waste and disturbance in ratio to the 
 amount of issue. The greater the amount of government money 
 issued, the greater the demand for it to repair the waste that it always 
 creates. For the Commission to assume to guard against an exces- 
 sive accumulation of United States notes in the Treasury is, so far, to 
 place itself on purely Populistic grounds, that Government must see 
 to it that a money of its own notes be at all times relative to the 
 real or assumed wants of the people. 
 
 All good citizens must desire, continued the Committee, that the credit of the 
 Government shall rest on a basis so secure that no wind that can blow will ever 
 shake it ; that the standard by which all obligations and values are measured 
 shall be the most perfect expression of truth and honesty and unchangeableness 
 which is possible of attainment ; and that all the money in circulation shall be up 
 to that standard in its value, and shall, in respect to its form and quantity and 
 distribution, serve every requisite of commercial and personal use as equally and 
 completely as is in the nature of things possible. If it is necessary in order to 
 accomplish these results to relieve the Government from the function of supply- 
 ing money in the form of its own notes, it is only necessary to make that fact 
 clear to the people to secure their approval of the measure. Not to believe this 
 would be to despair of the capacity of the people for wise and successful govern- 
 ment. 
 
 A government paper currency educates the people who use it in false notions 
 
306 REPORT OF THE MONETARY COMMISSION. 
 
 concerning money. Such a currency, circulating year after year without redemp- 
 tion, appears to those who do not look at it critically to derive its value from the 
 "government stamp." It ceases to be regarded as a promise to pay money, 
 and is thought to possess the virtue of money in and of itself. It is so easy to 
 create it that in any emergency the call for more is perfectly natural. There can 
 be no doubt that the aberration of judgment on the money question by so many 
 of our people in recent years has been largely due to the miseducating influences 
 of the greenback currency. The young and middle-aged men of to-day have 
 grown up in a vitiated financial atmosphere. 
 
 Such a currency also lacks the important quality of automatic adaptability to 
 the varying demands of business. A paper dollar is a useful form of currency 
 so long as there is legitimate use for it. When there is no legitimate use for it, 
 it becomes a superfluous and injurious thing — a temptation to speculation, 
 extravagance, and unwise business ventures. A paper currency created by legisla- 
 tion is fixed in volume by the law of its creation, and can neither contract nor 
 expand in response to those varying conditions which are bound to occur in the 
 affairs of men. 
 
 More important than this is the fact that such a currency puts upon the 
 Government the burden of maintaining the credit of all the financial institutions 
 of the country. The government notes are as good as gold only so long as the 
 Government redeems them in gold. If it should fail in thai, all bank notes, 
 bank deposits, insurance losses, and debts and dues of every kind not specifically 
 payable in gold would be payable in the depreciated paper or in silver. 
 
 The Commission declares that the " standard by which all obli- 
 gations and values are measured shall be the most perfect expression 
 of truth and honesty and unchangeableness." Great words these ! 
 In another sentence it declares that silver coined in fraud, legal 
 tender at its face value, although worth only 44 cents to the dollar, 
 is to remain a standard money of the country ! In one breath it 
 declares that the Government is to be relieved of the function of 
 supplying money in the form of notes ; in another that it is to issue 
 them in their worst form, and on a vast scale. " A government 
 paper currency educates the people in false notions concern- 
 ing money," yet it recommends its continued use. It will not do 
 to reply that silver certificates are not government money. They 
 are issued by Government as money and are accepted as readily as 
 greenbacks, not one in a million using the United States money 
 thinking of, or caring for, the kind. "Government currency ceases 
 to be regarded as promises to pay money, and is thought to possess 
 the virtue of money in and of itself." That is just what the Com- 
 mission declares it to be — " money in and of itself;" that which 
 is not good money in itself is, by use, to be made good money. 
 "It is so easy," said the Commission, "to create government 
 
REPORT OF THE MONETARY COMMISSION. Tfi'J 
 
 notes that in any emergency the call for more money is perfectly 
 natural." The call is not only natural, but inevitable. If $45 2,000,- 
 000 of debased silver money, or its representative, may be made 
 to-day good money by use, as the Commission declares it can 
 be, $550,000,000 in a year's time will be better. "The aberration 
 of judgment on the money question," said the Commission, "is 
 largely due to the miseducating influence of the greenback currency.'' 
 Will not silver certificates, not payable in gold, circulating from the 
 necessity of their use, be as "miseducating" as greenbacks? If 
 greenbacks " have vitiated the financial atmosphere," will not silver 
 certificates vitiate it still more ? 
 
 " A paper dollar," said the Commission, " is a useful form of 
 currency so long as there is a legitimate use for it." But all kinds 
 of moneys are the same to the holder. The cost to him of all kinds 
 is the same, that of gold. All are assumed to be capital or the 
 symbol of capital. There is a legitimate use for all, so far as the 
 holder is concerned, every one having abundant opportunities for 
 their use. " Where there is no legitimate use for it, it becomes," 
 said the Commission, "a superfluous and injurious thing." But 
 every one has a " legitimate use " for all he has. If not immediate 
 he makes loans of it at interest until occasion arises for its use. Not 
 a dollar in existence that can be spared is allowed to lie idle. Not a 
 dollar when well issued is ever superfluous. If unemployed it is be- 
 cause capital is unemployed. The Commission was here struggling 
 with something it could not master. It saw in the past that " specu- 
 lation, extravagance, and unwise business " resulted from the use of 
 paper dollars. The inference with the Commission was that more 
 were issued than the channels of circulation would absorb. It 
 was the excess, with it, running wild after something, that has 
 created all the mischief, that remaining in the channels of circu- 
 lation being entirely harmless. The mischief results from the fact 
 that money, whatever the kind, good or bad, will, so long as the 
 credit of the latter is maintained, always remain in the channels of 
 circulation, the bad always working mischief after its kind. How is 
 the Commission to determine whether the use of money is legitimate 
 or illegitimate? Government notes to the amount of $456,000,000 
 in the form of silver certificates are, with it, legitimate money. 
 Instead of being legitimate money, government notes are always 
 illegitimate money. But the holder as well uses them as gold in the 
 
308 REPORT OF THE MONETARY COMMISSION. 
 
 purchase of a barrel of flour. As the cost to him of good and bad 
 money, so long as the credit of the latter is maintained, is the same, 
 and the use of good and bad money by him is equally legitimate, 
 the matter to which the attention of the Commission should have 
 been turned was that no bad money be ever issued ; a very easy 
 matter, the only provision required being that none be issued for the 
 retirement of which adequate means are not previously provided. 
 
 The trouble with bad money is that having no proper constituent 
 it eats up the substance provided for the discharge of good money, a 
 matter which the Commission wholly overlooked. All paper dollars 
 are with it the same, the excess only to be guarded against. So long 
 as the channels of circulation do not overflow all will be well. It 
 could not master the simple and obvious fact that it was the kind 
 that did the mischief — paper dollars without any constituent behind 
 them, instruments so long as credit could be had for them in excess 
 of the means of expenditure. All such paper dollars are bad money, 
 whether the amount be $1,000,000 or $900,000,000, as is the case 
 with the United States. It was here again that the Commission 
 stumbled and fell. With it the silver certificates, having no relation 
 to affairs, having nothing behind them adequate to their present 
 retirement, were good money from "the legitimate use to be had 
 for them." They are all bad money, as their constituent is not 
 reached by their use. Every dollar of them is a temptation " to 
 speculation, extravagance, and unwise business." Yet they are the 
 very kind of money that the Commission is seeking to establish as 
 that of the land. 
 
 The Commission takes occasion to repeat that should the Gov- 
 ernment fail to redeem its promises in gold, " all bank notes, bank 
 deposits, insurance losses, and debts and dues of every kind, not 
 specifically payable in gold, would be payable in depreciated paper 
 or in silver" ! The Commission is again mistaken. People in the 
 United States are not such fools as it takes them to be. No folly or 
 knavery of the Government will cut them off from the use of the 
 best means to a given end, one of the most important of these 
 being a proper measure of value, supplied, fortunately, by a Power 
 higher than their own. 
 
 While the silver dollars are not, said the Commission, by the terms of the law, 
 
 exchangeable for gold coin, their current value is sustained by the promise of the 
 
 • Government to maintain their parity with gold, so that we have a total volume of 
 
REPORT OF THE MONETARY COMMISSION. 309 
 
 paper and silver in circulation amounting to $908,728,087, all resting for its value 
 on the credit of the Government, except in so far as the bullion in the silver dol- 
 lars has value. That credit is maintainable only as a whole. The paper of the 
 United States could not be dishonored and its silver upheld. It is necessary, 
 therefore, that the Government shall keep a large fund in gold, and continue to 
 do so so long as the credit currency is outstanding. Such a fund in the hands 
 of the Government is defenceless against attack. In countries where the Govern- 
 ment has no demand debt outstanding, and the gold reserve is held by banks, the 
 nation's stock of gold is capable of some degree of protection through the rate of 
 interest charged for loans. But our Government has no such resource. Its great 
 gold reserve is an open mine free to all who bring its notes. The exigencies of 
 war or commerce are liable to create sudden and great demands for gold. And 
 as the entire monetary system of the country hangs upon that one reserve, the 
 situation is one of uncertainty and hazard against which no insurance is possible, 
 and which is bound to continue while the Government demand obligations are 
 extant in large volume. It would go far to remove the perennial strain of this 
 situation and strengthen our financial position at home and among nations to 
 transfer this burden to the banks and other moneyed institutions. 
 
 Why did not the Commission recommend that the Government 
 go wholly out of a business for which it has no function, instead of 
 maintaining $452,000,000 of silver certificates held by it to be good 
 money, which for the want of any adequate provision are a constant 
 menace to the general welfare ? 
 
 Between 1st January, 1879, and 1st November, 1897, said the Commission, the 
 Treasury paid United States notes in gold to the amount of $507,470,149, being 
 $160,789,133 in excess of $346,681,016, the entire amount outstanding at the 
 resumption of specie payments ; which paid and repaid and yet undiminished 
 amount still remains outstanding to be paid again, and, unless some change be 
 made in the existing law, again and again. 
 
 Between 14th July, 1890, and 1st November, 1897, treasury notes of 1890, 
 issued for the purchase of silver bullion, have been redeemed in gold coin and 
 reissued to the amount of $90,680,879. 
 
 After a great deal of irrelevant and unnecessary talk under the 
 head of "demand obligations of the Government" the Commis- 
 sion proceeded to that of the 
 
 BANKING SYSTEM. 
 
 The Commission proposed : 
 
 1 . A national system with improved regulations as to examination, supervision, 
 etc. 
 
 2. The issues to be based upon those readily convertible assets which represent 
 the exchangeable wealth of the country in its natural products and manufactured 
 goods. 
 
3IO REPORT OF THE MONETARY COMMISSION. 
 
 3. A limitation of the amount of the issues to the unimpaired capital of the 
 issuing hank. • 
 
 4. A further security in a common guarantee fund. 
 
 5. The continuance of the present redemption fund and method of redemption, 
 with the extension of the places of redemption under the approval of the Secre- 
 tary of the Treasury. 
 
 6. A further security in the liability of the shareholders to the full amount of 
 the par of their shares. 
 
 In pursuance of the above the Commission submitted the follow- 
 ing propositions : 
 
 I. The total issues of any national bank shall not exceed the amount of its 
 paid-up and unimpaired capital, exclusive of so much thereof as is invested in 
 real estate. All such notes shall be of uniform design and quality, and shall be 
 made a first lien upon all the assets of the issuing bank, including the personal 
 liability of its stockholders. No such notes shall be of less denomination than 
 $10. 
 
 If the issues of banks were never to exceed their share capital 
 there would be no object in their creation, as capital can be 
 loaned as well with as without them, and better, no expense 
 being involved. Banks are provided not to lend capital, but to supply 
 instruments of distribution. Although every one possessed of mer- 
 chandise has the right to issue instruments for its distribution, these 
 for obvious reasons are better issued by corporations. The purpose 
 of a bank is to supply instruments, the amount of these to be 
 measured by that of the subjects of consumption; its capital is 
 never to be loaned. This is to serve as a reserve to take in such 
 issues as are not returned to it by its borrowers, its issues being four 
 or fivefold greater than its capital or means. In ratio as it parts, 
 from any cause, with its capital it ceases, in the proper sense of the 
 word, to be a bank. Were we on a proper system the reserves to be 
 provided need not exceed the average of losses suffered, which 
 equal hardly one per cent, of the loans made. The issues of a 
 bank are to be in ratio to its means. The issues of the Chemical 
 Bank of the City of New York, with a share capital of $300,000 
 performing all the functions of money, equal $25,000,000. Such 
 issues, as far as the public is concerned, might as-well be in the form 
 of notes as in that of credits written upon its books, all alike being 
 payable in gold. Were this bank restricted in its issues to its paid- 
 up capital these would not equal one eightieth part of their actual 
 amount. They exceed more than eightyfold its capital, for the 
 
REPORT OF THE MONETARY COMMISSION. 311 
 
 reason that its surplus, upon which its loans are almost wholly based, 
 equals $7,000,000. As it is, its surplus, capital in hand, exceeds 30 
 per cent, of its loans. A bank may have its capital fully paid and 
 unimpaired and yet not be entitled to issue a dollar in the form of 
 notes or credits, as its loans, well secured, may not for a long time 
 be paid. It may be compelled to accept in their payment kinds 
 of property adequate finally to their discharge, but not proper to 
 serve as reserves. Had the Commission provided that no loans 
 should be made but in the discount of merchants' bills it would have 
 covered the whole ground. So restricted banks maybe well trusted 
 to provide a proper amount of reserves. Of all this the Chemical 
 Bank may be taken as an illustration. No one, not even directors 
 themselves, can tell whether the capital of a bank is unimpaired 
 until loans are paid. The rule to be observed is that no loans be 
 made that are not adequately secured by the subjects of consumption. 
 These provided, all other matters will take care of themselves. 
 
 Or to take an illustration on a far larger scale. The share capital 
 of the banks, members of the Clearing House, in the city of New 
 York, equals $59,000,000. Their issues in the form of deposits 
 equal $700,000,000, a sum fifteenfold greater than their share 
 capital. Their issues properly made might, so far as their safety is 
 concerned, be in the form of notes or in that of deposits ; either 
 kind, their issues properly made, being presently returned to them 
 by the makers of their bills. Their reserves, consisting of $136,- 
 000,000 of gold and $69,000,000 of legal tenders, equalled (March 
 26, 1898) $205,000,000, a sum nearly fourfold greater than their 
 share capital, and equalling 34 per cent, of their issues. No wiser 
 step could be taken than, removing all obstacles, to induce these 
 banks to issue notes to the amount of $200,000,000, reducing their 
 deposits in like ratio. By such provision the charge by way of 
 interest on money in the form of notes would be no greater than 
 that in the form of deposits. All obstacles removed, they would 
 issue only a small amount of notes, for the reason that their borrowers 
 would prefer to receive the proceeds of their loans in other forms. 
 The tendency everywhere is to increase the use of deposits by 
 cheques of small denominations, these having the preference to 
 notes in being payable to the order of the holder, being at the 
 same time records of the transactions to which they relate. Without 
 the issue, by G-overnment or banks, of notes a currency would be 
 
312 REPORT OF THE MONETARY COMMISSION. 
 
 speedily provided adequate to the wants of the people, that in the 
 form of notes being issued by concerns of high character and 
 adequate means. The better way, however, is to have them issued 
 by institutions dedicated to a single function, their capital not being 
 imperilled by a multiplicity of undertakings, their issues being sub- 
 ject to no other restrictions than that proper reserves be provided, 
 and that they be simply instruments of distribution. The simplicity 
 of such method may, perhaps, in the present confused state of the 
 public mind be fatal to its adoption. 
 
 By the plan of the Commission, no notes are to be issued by banks 
 under $10. A strange and fantastic proposition to shove aside 
 bank notes payable in terms in gold, and having behind them ample 
 security in addition to the reserves provided, to give their place to 
 silver certificates, the basest and most fraudulent kind of money 
 ever uttered, — a money having no relation to affairs, not being the 
 promises of the Government, and solvable only in silver dollars 
 worth 44 cents each. In case of a breakdown by the Government, 
 a worthless or debased currency, enormous in amount, would be 
 almost wholly in the hands of the people. With one of banks in 
 its place they would have had the best that could be issued. The 
 proposition of the Commission would be a marvel of the times, were 
 it not that our institutions and ideas are the result of a general 
 average. A certain part of the country is producing silver. Its 
 interests must be respected. A certain number want silver, that 
 debts may be paid in base money. Their demands must be 
 respected, and so on throughout the entire list. When the grand 
 average is reached, there is, from pure imbecility, a dead-lock all 
 round ! 
 
 2. Up to an amount equal to 25 per cent, of the capital stock of the bank (the 
 whole of its capital being unimpaired), the notes issued by it shall not exceed the 
 value of United States bonds, to be fixed as hereinafter provided, deposited with 
 the Treasurer of the United States. The additional notes authorized may be 
 issued without further deposit of bonds. 
 
 Beginning five years after the passage of the proposed act, the amount of bonds 
 required to be deposited before issuing notes in excess thereof shall be reduced 
 each year by one-fifth of the 25 per cent, of capital herein provided for ; and there- 
 after any bank may at any time withdraw any bonds deposited in excess of the 
 requirements hereof. 
 
 In reply to the above it is only necessary to say that all which the 
 note holders ask, or are entitled to ask, is that their holdings be 
 
REPORT OF THE MONETARY COMMISSION. 3 13 
 
 symbols of merchandise, supported by the reserves of the issuers and 
 of the parties to the bills discounted. All beyond is useless burden 
 upon distribution. 
 
 3. Every national bank shall pay a tax at the rate of 2 per cent, per annum, 
 payable monthly, upon the amount of its notes outstanding in excess of 60 per 
 cent., and not in excess of 80 per cent, of its capital, and a tax at the rate of 6 per 
 cent, per annum, payable monthly, upon the amount of its notes outstanding in 
 excess of 80 per cent, of its capital. 
 
 By the above provision banks may issue notes to the extent of 
 their share capital. But upon such issues exceeding 60 per cent, 
 of the same a tax of 2 per cent, is to be imposed ; and a tax of 6 
 per cent, upon all in excess of 80 per cent. Why? It would puzzle 
 a Philadelphia lawyer to tell. If notes up to 60 per cent, are good 
 money, why should an effective restriction be imposed upon all 
 beyond? The ways of the Commission are too mysterious to be 
 fathomed. Still, an attempt may be made. From the precedents 
 of the past it assumes that the notes of banks are pretty dangerous 
 things anyhow. They are useful up to a point. The tendency to 
 exceed this must be checked. They are good servants, but bad 
 masters. They must not be allowed to get the upper hand. The 
 Commission had heard of the mischief wrought by them in the past. 
 It was to correct such mischief, as was alleged, that the National 
 Government compelled the banks to put up full security for every 
 note issued, independent of other provisions therefor. From that 
 time the notes of banks have been under a cloud. The history and 
 precedents of the past must be respected. Still, there may be some 
 mitigation of them, but not too great a mitigation. In this business 
 the old hunter's rule is that of the Commission : " Aim so as to hit 
 if it be a deer or miss if it be a calf ! " 
 
 4. The Comptroller of the Currency shall from time to time, as called for, 
 issue to any bank the capital of which is full paid and unimpaired any of the 
 notes herein elsewhere provided for, on the payment to the Treasurer of the 
 United States, in gold coin, of 5 per cent, of the amount of notes thus called for, 
 which payments shall go into the common guaranty fund, for the prompt payment 
 of the notes of any defaulted national bank. Upon the failure of any bank to 
 redeem its notes, they shall be paid from the said guaranty fund, and forthwith 
 proceedings shall be taken to collect from the assets of the bank and from the 
 stockholders thereof, if necessary, a sum sufficient to repay to said guaranty fund 
 the amount thereof that shall have been used to redeem said notes ; and also 
 such further sum as shall be adequate to the redemption of all the unpaid notes 
 of said bank outstanding. 
 
314 REPORT OF THE MONETARY COMMISSION. 
 
 Why, instead of requiring a guarantee fund to be held by the 
 Government, did not the Commission provide a system that would 
 make such fund wholly unnecessary, by providing that no issues be 
 made except as instruments of distribution? The requirement 
 of a guarantee fund in itself throws a certain discredit upon notes, 
 that they are a different and lower kind of money than other issues. 
 All instruments of distribution are the same in kind, whether mer- 
 chants' bills or issues of banks made in their discount. There is no 
 more reason why a bank should put up a guarantee fund for its 
 issues than that a merchant should be compelled to put up with 
 the Government a guarantee fund that his bills shall be paid. 
 
 In addition to the 5 per cent, guarantee the old redemption fund 
 of 5 per cent, is to remain. Under the plan of the Commission 
 deposits equalling 35 per cent, of the issues to be made are to be 
 deposited in the Treasury for the security of its notes ; that is, 25 
 per cent, in bonds and 10 per cent, in gold before a note can be 
 issued, another striking evidence of the lower nature of notes com- 
 pared with issues otherwise made. They are to be kept under strict 
 control. With the conditions imposed not a bank in the United 
 States would willingly avail itself of the right to issue a dollar of 
 currency in the form of notes. 
 
 If the said guaranty fund of 5 per cent, of all the notes outstanding shall be- 
 come impaired, by reason of payments made to redeem said notes as herein pro- 
 vided, the Comptroller of the Currency shall make an assessment upon all the 
 banks in proportion to their notes then outstanding sufficient to make said fund 
 equal to 5 per cent, of said outstanding notes. 
 
 The losses resulting from the incapacity or dishonesty of one 
 bank should no more be borne by others than those resulting from 
 the incapacity or dishonesty of one merchant should be a burden 
 upon those solvent. The Commission, by imposing no adequate 
 restriction upon the issues of banks, opens the widest door for 
 dishonesty and fraud, the results of which it in vain seeks to 
 avoid. The provision called for by way of security is not only 
 wholly unnecessary, but in the highest degree burdensome and 
 unjust. If the banks of New England are to be called upon to 
 make good the losses caused by misconduct or fraud of the banks 
 of Kansas, the merchants of New England should be called upon 
 to make good losses resulting from the failure, from misconduct or 
 fraud, of the merchants of Kansas. In this matter of mutual 
 
REPORT OF THE MONETARY COMMISSION. 315 
 
 guarantee the Commission have taken a tremendous step towards a 
 Socialistic Government in which all property is to be common, all 
 liable for each others' debts — debts, in spite of all lofty talk, never 
 to be paid. 
 
 6. So much of the provisions of existing law as require each National Bank to 
 receive at par, in payment of debts to it, the notes of other National Banks, and 
 making such notes receivable at par in payment of all dues to the United States 
 except duties on imports, shall be extended to cover notes issued under the pro- 
 posed plan. 
 
 The provision that banks are to be compelled to accept in pay- 
 ment of their bills notes of other banks is alike absurd and unjust. 
 It may turn out to be nothing less than pure robbery. With it a bank 
 might be compelled to receive a large amount of notes having no 
 present value of other banks, nor any until Government might act. 
 In the meantime it might itself, from its inability to meet calls upon 
 it, be forced into liquidation. But Government might never be 
 called upon to interfere, as all the notes which it was forced to 
 accept might be paid in silver dollars worth 44 cents each. Suppose 
 the silver dollars are to be let loose so as to be had at their real 
 value. What then ? The provision assumes that the machinery of 
 issue is to remain a permanent department of the Government, 
 which', having nothing for distribution, has no more function in such 
 matters than in declaring the number of pigs or cabbages that are 
 to be raised, or whether milk is to be turned into butter or cheese. 
 So long as the Government retains its grasp over the currency the 
 confusion and disaster of the past is to be that of the future. Every 
 bank and every individual has the right to determine the kind of 
 money in which it is to be paid. Otherwise all rights, and with them 
 society itself, are at an end: To give one the option to pay in the 
 money that he chooses may be to give him the right to pay nothing. 
 That one kind of the dues to Government may be paid in one kind 
 of money and another in another is bi-metallism pure and simple ; — 
 a strange but logical conclusion, from its premises, of the grand Mon- 
 etary Commission ! Two kinds of money ! One for one purpose 
 and one for another. It is the same as to provide one kind of con- 
 science or sense of duty for one class and another for another. Fol- 
 lowing out the lines laid out by it, the Commission has only to go 
 far enough to destroy, had it the power, society itself, by destroying 
 
316 REPORT OF THE MONETARY COMMISSION. 
 
 the standard or criterion of value upon which all its transactions are 
 based. 
 
 7. National banks shall hold reserves in lawful money against their deposits 
 of not less than 25 per cent, and 15 per. cent, for the respective classes as now 
 provided by law, at least one-fourth of which reserve shall be in coin, and held in 
 the vaults of the bank. Neither the 5 per cent, redemption fund nor the 5 per 
 cent, guaranty fund shall be counted as part of the reserve required. No bank shall 
 count or report any of its own notes as a part of its cash or cash assets on hand. 
 
 By the plan of the Commission a bank, before it could issue 
 notes, would have to put up government bonds equal to 25 per 
 cent, of their amount, 5 per cent, with the redemption fund and 5 
 per cent, with the guarantee fund, the two last to be in gold, the 
 aggregate being 35 per cent, of the notes to be issued — a vast bur- 
 den which, under a proper system, might be wholly avoided, as in 
 addition to it the ordinary reserves are still to be provided — a 
 burden the necessary effect of which would be an unsound currency, 
 as the temptation to make loans upon an inadequate security, the 
 motive being a high rate of interest, would be too great to be resisted. 
 The greater the burden imposed by way of security, the worse the 
 currency ; the less, the better ! In one case a very considerable 
 portion of the means of the bank would be uselessly tied up ; in the 
 other it would be, as it always should be, in hand. Loans of a bank 
 may be in a ratio fivefold greater than its reserves, its capital. A 
 bank with a capital of $1,000,000 serving as a reserve may well 
 make issues equalling $5,000,000 in the form of notes. The deposits 
 required under the proposed bill would reduce its means to $650,000, 
 and its loaning power to $3,250,000. Under the proposed plan, 
 were it not compulsory, not a bank would be organized. 
 
 8. Permit the organization of national banks with a capital stock of $25,000, 
 in places of four thousand population or less. 
 
 This proposition has already been sufficiently considered. 
 
 9. For the purpose of meeting the expenses of the Treasury in connection with 
 the National Bank System, a tax of one-eighth of I per cent, per annum upon its 
 franchise, as measured by the amount of its capital, surplus, and undivided profits, 
 shall be imposed upon each bank. 
 
 The tax here imposed is wholly needless, being a heavy and use- 
 less burden, first upon the banks and then upon the public, upon 
 whom, in the end, all burdens of the kind fall. 
 
REPORT OF THE MONETARY COMMISSION. 317 
 
 IO. Any national banking association now organized which shall not, within 
 one year after the passage of the proposed act, become a national banking asso- 
 ciation under the provisions hereinbefore stated, and which shall not place in the 
 hands of the Treasurer of the United States the sums hereinbefore provided, for 
 the redemption and guarantee of its circulating notes, or which shall fail to comply 
 with any other provision of the proposed act, shall be dissolved ; but such disso- 
 lution shall not take away or impair any remedy against such corporation, its 
 stockholders or officers, for any liability or penalty which shall have been pre- 
 viously incurred. 
 
 The Commission would command the sun ! The chairman, who 
 is a distinguished lawyer, ought to know that the Congress of the 
 United States cannot by its mere mandate dissolve corporations 
 properly constituted and having a long time to run. 
 
 But the climax of assumption and folly is reserved for the last 
 paragraph of the Report of the Commission. 
 
 This plan is based in its main features upon principles which are conceived to 
 be fundamental and unchangeable, and which never have been, and never can be, 
 departed from without disaster. Its methods and details are, of course, capable 
 of considerable variation consistently with these principles. The methods sug- 
 gested have been reached after very careful inquiry and study, and it is thought 
 that they will prove to be practical, and adequate to the realization of a safe and 
 steady system of finance and currency, in which all the people of our country, of 
 whatever calling or political opinion, are equally and most deeply interested. 
 
 Among " the principles fundamental and unchangeable " laid down 
 by the Commission was that silver, to the amount of $450,000,000, 
 full legal tender, worth only 44 cents to the dollar, has. been well 
 coined, and that a like amount of certificates based upon them, 
 not being the obligations of the Government nor payable in gold, 
 may well serve as money from the necessity of a medium of ex- 
 change ! "The methods reached after very careful inquiry and 
 study" must have been reached upon some planet other than our 
 own, the inhabitants of which, one-half Socialists and one-half Pop- 
 ulists, had about an equal share in the deal. 
 
 The Report of the Commission, as was that of the Conference 
 between the Secretary of the Treasury and the Committee of the 
 House, has been reproduced at much length from the additional 
 opportunity afforded for restatements of the laws of money. The 
 whole question turns upon whether money must be the kind of 
 capital most universally in demand, or the symbol, retired by its 
 
31S REPORT OF THE MONETARY COMMISSION. 
 
 use, of capital; to reach which, but for its symbol, money most univer- 
 sally in demand would be used ; or whether money exists from the 
 necessity of a medium of exchange, value being no necessary attri- 
 bute of it. If the .first proposition be the correct one, then the 
 Secretary of the Treasury, the Committee on Banking and Currency, 
 the Indianapolis Convention, and the Commission appointed by it 
 are wholly at fault. If the second be the correct one, the sooner 
 we turn to a currency of pebble stones the better. If it be the 
 correct one, the expedients of the Commission, involving a most 
 elaborate and burdensome system, should not for a moment be enter- 
 tained. The situation must be most perilous when neither the 
 Secretary of the Treasury, nor the Committee of Banking and 
 Currency of the House, nor the Indianapolis Convention, nor the 
 elect eleven specially selected out of 12,000,000 American citi- 
 zens show any capacity for dealing with it. If the chiefs and 
 leaders are so wanting, where must be the rank and file? The 
 Commission did indeed indulge in platitudes as to the necessity 
 of retiring a portion of the demand obligations of the Govern- 
 ment, its legal-tender notes assumed to be payable in gold, but 
 for no other reason, apparently, than that these have been the 
 great source of annoyance to the Treasury, being the only kind 
 used for drawing gold from it. It wholly overlooked the fact that 
 money follows a law of its own as certain and inexorable in its- 
 operations as that of gravity itself. To seek to override it is 
 to court certain defeat and disaster. If notes of Government are 
 to serve as money, its legal-tender notes, fiat money, payable in 
 gold, are always to have the preference. Compared with certif- 
 icates, by common consent payable in gold, they have always had 
 the preference, although the provision for their retirement is much 
 less than that assumed to be provided for the retirement of the 
 certificates. But no forward step will ever be taken until the 
 proper alternative to the present system, a money of commerce, 
 with the proper methods of its issue, is first shown. As the report 
 of the Commission is likely to become the basis of action by 
 Congress, it is now the great obstacle to the solution of our 
 difficulties. Before the Secretary unfolded himself great things 
 were expected of him. It was believed that his training in affairs 
 had taught him lessons not to be found in the books and far beyond 
 the common level. But the result shows that his training has 
 
REPORT OF THE MONETARY COMMISSION. 319 
 
 taught him nothing. The disappointment is more acute for the 
 reason that he is the first man trained in affairs who has for a long 
 period been appointed to the high office which he now holds, 
 generally the reward of political partisanship. From the Com- 
 mittee of the House appointed, as it were, by lot little was to be 
 expected. From the Indianapolis Convention, which was assumed 
 to embody the highest experience of the country, great things were 
 naturally hoped. Its recommendations, however, show it to be as 
 incapable of dealing with the great subject as the Secretary himself, 
 or the Committee of the House, while the Report of the Commis- 
 sion, appointed by the Convention and reflecting its views, only serves 
 to render the situation still more involved. It may seem presumptuous 
 in such a presence to speak so freely, but in vindication it is assumed 
 that the premise laid down, that money must be capital or the 
 symbol, discharged by its use, of capital, is unassailable. All that has 
 followed has been the proper application of it. All that the writer 
 has had to do was to rescue from oblivion the priceless records of the 
 past and apply the lessons which they teach. It was General Jack- 
 son, that high priest of Populism, who dealt the stunning blow from 
 the effects of which the country has never recovered. 
 
ANSWERS TO THE INTERROGATORIES OF THE 
 MONETARY COMMISSION. 1 
 
 METALLIC CURRENCY. 
 
 Q. I. Should or should not the silver dollars and silver certificates be redeemed 
 on demand in gold? If redeemed, what reserves should be provided and how? 
 
 A. They should not be redeemed in gold, from the disturbance 
 which might be created by its provision. They should be funded 
 into a long bond of the Government having the value of gold, no 
 other provision or reserves being required. 
 
 Q. 2. What in your judgment would be the probable amount of silver dollars 
 and silver certificates presented if direct redemption were enacted. 
 
 A. All, from the distrust in which they are universally held by 
 our people ; every one preferring money of full value to money 
 worth only half its nominal value. 
 
 Q. 3. To insure the permanent inviolability of the gold standard, what 
 legislative measures would you recommend? 
 
 A. The " inviolability " of the gold standard is insured by the 
 same natural law that insures the " inviolability " of steel as a tool, 
 or a railroad bar, in place of lead. The superior fitness of gold over 
 silver as money is as palpable as that of steel, for the uses to which 
 it is applied, over lead. Legislation in the premises would be 
 wholly superfluous. 
 
 Q. 4. For the purpose of facilitating the use of existing silver currency, what 
 do you recommend as the smallest denomination of United States notes and 
 bank notes which would be put into circulation ? 
 
 A. Instead of " facilitating the use of existing silver currency " 
 the great object should be its discharge, equally with gold, from 
 use as money, to be applied as capital to production, more con- 
 venient instruments of distribution than either being provided. 
 The disuse of both as the money of exchange establishes a law not 
 to be overthrown so long as cheap and convenient processes have 
 the preference over costly and inconvenient ones. No Government 
 notes should be in circulation. Those of banks should be of 
 
 1 See page 291. 
 
DEMAND OBLIGATIONS. 321 
 
 denominations (not less than a dollar) suited to the wants of the 
 public. 
 
 DEMAND OBLIGATIONS. 
 
 Q. I. Do you consider that there are any dangers arising from allowing the 
 United States notes to remain as a permanent part of our circulation ? 
 
 A. Very great danger, as no promises to serve as money should 
 be issued for the retirement of which, previous to their issue, ade- 
 quate means are not provided. They are all of the nature of issues 
 made in the discount of " accommodation paper " by banks. 
 
 Q. 2. On what grounds, if any, would you favor the gradual but entire with- 
 drawal of the Treasury notes of 1890 and of the United States notes? 
 
 A. On the ground that for their retirement no provision is made 
 previous to their issue, such provision being the essential condi- 
 tion of issue of every form of paper money proper for use. They 
 are a wholly superfluous form of currency. 
 
 Q. 3. If it shall be decided to retire the United States notes, how can it be 
 done without adding to our bonded debt? 
 
 A. It cannot be done except by funding. 
 
 Q. 4. How, in that case, can provision be made for maintaining an adequate 
 amount of currency available for purposes of business? 
 
 A. By returning to the banks the bonds now put up for the 
 security of their notes, and by allowing them to issue notes, with- 
 out any restrictions as to amount, in the discount of merchants' bills, 
 — business paper, — of bills that have behind them merchandise 
 adequate to their full discharge. By removing the restrictions now 
 imposed as to issues all the State banks would become national 
 banks subject to the supervision of the National Government. 
 
 Q. 5. If it be thought inexpedient to fund the United States notes, how can 
 they be redeemed with an assurance that bank currency will take their place? 
 
 A. If banks were allowed to issue currency limited only by the 
 . amount of merchants' bills offered for discount an adequate amount 
 of currency would be provided — an amount equalling the wants of 
 the public, or to that which should be in circulation, such amount 
 never to exceed the subjects of expenditure, money as such being 
 simply an instrument for the purpose of reaching them. 
 
 Q. 6. Meanwhile, what security or gold reserves would you recommend ? 
 
 A. If the share capital of banks were fully paid up, and if no 
 issues were made but in the discount of merchants' bills, the matter 
 of reserves might be well left to take care of itself, as the issues made 
 
322 BANKING. 
 
 in the discount of such bills would be returned in their payment. 
 In such case no balances could arise to be paid in coin. Still, as 
 some bills will not be paid, to such extent reserves are to be pro- 
 vided. 
 
 Q. j. In case provision should be made for the retirement of United States 
 notes, how could their presentation for redemption be best secured? 
 
 A. If provision were made for the issue of the currency of 
 commerce up to the value of merchandise in process of distribution 
 for consumption, as this was issued the notes of the Government, 
 being debt without interest and wholly superfluous, the channels 
 of circulation being otherwise filled, would be exchanged for bonds 
 drawing interest or converted into capital to be made the basis of 
 production. If voluntary conversion into bonds did not proceed 
 at a sufficiently rapid rate the notes received in the payment of the 
 revenues could be cancelled, provision of means for carrying on 
 the Government to be made by an issue of bonds. 
 
 Q. 8. Should Government issues be withdrawn only as bank notes are put 
 out? That is, if an elastic system of bank issues should be adopted, would it be 
 desirable to define and maintain any given quantity of circulation ? 
 
 A. The first step in the way of reform should be the provision 
 of an adequate currency of commerce — of the issues of banks. 
 This made, the retirement by the holders of the government 
 notes would immediately begin. When these were retired the 
 currency would be wholly elastic, being abundant as the merchandise 
 symbolized was abundant and scarce in ratio as merchandise was 
 scarce. Where there was no merchandise for distribution there 
 would be no money ; silver and gold equally with- cotton and corn 
 being the subjects of exchange and consumption. The only limit 
 to the issue of banks would be the amount of bankers' bill offered 
 for discount represented by merchandise of an equal value in process 
 of distribution for consumption. 
 
 Q. 9. Would the banks in fact furnish the currency which the country needs, 
 if the Government notes were withdrawn? 
 
 A. They would supply all the currency wanted, or entitled to be 
 issued. 
 
 BANKING. 
 Q. I. Is it possible to rely upon national bonds as security for bank-note 
 issues? 
 
 A. No other provision is necessary for the convertibility of the 
 
BANKING. 323 
 
 issues of banks into gold, or for their return to the issuers in the 
 payment of their bills, than that they represent merchandise in 
 demand for consumption. With such provision the additional one 
 of the United States bonds is wholly superfluous. It is as absurd 
 to require banks to put up security for their notes other than their 
 capital and reserves, these further supported by the full constituents 
 of the bills discounted, as it would be to require merchants seeking 
 discount to put up security equal to the full amount sought. Losses 
 may arise from the employment of untrustworthy or incompetent 
 agents, but these bear no proportion to the advantages of discharging 
 capital from distribution. 
 
 Q. 1. Can any safe and practical plan be devised for using any other securi- 
 ties as a basis for bank-note issues ? 
 
 A. The answer to this question is included in the preceding 
 one. 
 
 Q. 3. If bonds should be used exclusively as a basis for issues, would it be 
 possible thereby to secure an elastic note circulation? 
 
 A. It would not. A currency to be elastic must represent the 
 subjects of consumption ; it would then vary necessarily with the 
 amount of the latter. To repeat — if the subjects of consumption 
 are scarce, money will be scarce ; if plenty, money will be plenty. 
 When there are no subjects of consumption there should be no 
 currency. The one is the reflection of the other. 
 
 Q. 4. If bank-note issues be based exclusively on assets of the bank, is the 
 nature and extent of the security such as effectually to protect the note-holder? 
 What limit should be set to such note issues ? 
 
 A. No. The assets of a bank may afford no immediate pro- 
 tection to the note-holder. They may largely consist of real estate 
 not presently convertible into money, the standard of value, the 
 universal equivalent. Other assets, such as bonds and mortgages, 
 may have the same infirmity in not being presently convertible into 
 gold, or exchangeable into subjects of consumption. The only 
 assets of banks competent to protect note-holders are gold, or 
 subjects of consumption, to reach which gold as money would be 
 used. The only limit to be set to the issues of banks is the amount 
 of bills representing merchandise in process of distribution for 
 consumption. 
 
 Q. 5. Since bank assets (including stockholders' liabilities, etc.) must be 
 the means of ultimate redemption of such issues, what funds would you deem. 
 
32^ BANKING. 
 
 necessary to be held as a cash reserve for the immediate redemption of the notes; 
 and in what form, and in whose hands? 
 
 A. If the assets of banks consisted of bills certain to be paid — 
 that is, of bills representing merchandise in demand for consump- 
 tion — no reserves would be required, payment being a mutual off- 
 setting of bills on one side and notes and credits issued in their 
 discount on the other. Reserves are provided by banks and 
 bankers to take in such issues as are not returned in the payment of 
 their bills. The amount depends upon the character of the bills 
 discounted. To the extent that accommodation paper is dis- 
 counted, the reserves will be called upon to an equal amount, as the 
 notes and credits issued will be returned, not by the debtors to the 
 banks, but by their creditors. Were no loans made but in the dis- 
 count of business paper reserves equalling 5 per cent, of the issues 
 would be ample. They should always be in the form of the uni- 
 versal equivalent, and always remain in the hands of the issuer. 
 
 Q. 6. In case of notes based on bank assets, what means can you suggest to 
 obtain and preserve a high character of discounts? 
 
 A. By restricting discounts to business paper, the constitutents 
 of which by its consumption would always return the issues made 
 without interposition on the part of the issuer. 
 
 Q. 7. Can any watchfulness of other banks, connected by locality or business 
 connections, be brought to bear on a bank to prevent bad banking? Can such a 
 scheme be devised as in cities where Clearing House Associations detect and 
 punish weakness, by which country banks can be guarded? 
 
 A. The only watchfulness which a bank can exert over other 
 banks is by demanding daily the adjustment of all balances found in 
 its favor. Such "watchfulness" is now exercised in all cities in 
 which clearing houses are established, the rule of the stronger 
 being with all the rule of the weaker. The way to prevent " bad 
 banking "is to forbid the issue of currency except in the discount 
 of merchants' bills. In places where there are no clearing houses 
 the restriction of discounts to merchants' bills is all the provision 
 that is required. 
 
 Q. 8. What plan of examination and inspection would you recommend? 
 A. Monthly statements of the condition of each bank, the mak- 
 ing of incorrect or false ones being made a high penal offence. 
 
 Q. 9. What methods would you suggest by which uniformity of note issues 
 based on assets could be secured throughout the country ? If by redemption, state 
 where and how? 
 
BANKING. 
 
 3 2 5 
 
 A. By the restriction of issues to discount of business paper. 
 Such issues will unerringly return to the issuers in the payment of 
 bills discounted. 
 
 Q. 10. What, if anything, beyond provision for immediate redemption is 
 needed for securing the elasticity of note issues in periods of normal business? 
 
 A. All issues made in the discount of merchants' bills are 
 elastic as they are the measure of the subjects of consumption — 
 of the means of expenditure. 
 
 Q. II. In times of panic or sudden stringency, how would you provide for 
 additional issues by the banks to enable them to continue discounts and prevent 
 commercial distress? 
 
 A. There can be no "panic or sudden stringency" so long as 
 the currency is issued only in the discount of merchants' bills, as 
 the instruments measure the means of consumption, and as they 
 must be used to reach their constitutent, and never, as a rule, for 
 the purpose of reaching gold, as this, as money, has no other 
 function but to reach other, kinds of merchandise. So long as the 
 currency is not in excess no commercial disturbances or distress 
 will arise, consumption never being in excess of the provision 
 therefor. 
 
 Q. 12. Of what should the bank reserves consist? 
 A. Of the universal equivalent — gold. 
 
 Q. 13. Should any national bank be permitted to pay interest on the current 
 deposits of other banks? 
 
 A. Yes. Banks holding deposits for which their owners have 
 no immediate occasion may well make them the basis of loans, that 
 all available capital may be employed in production and distribu- 
 tion. 
 
 Q. 14. Should deposits of country banks in reserve cities be authorized to be 
 counted as a part of the required reserve? 
 
 A. -They should, as they represent the universal equivalent, or 
 merchandise readily convertible into the same. 
 
 Q. 15. What should be the minimum limit of capital for national banks? 
 
 A. No limit should be imposed. It is not probable, however, 
 that banks with capital of less than $50,000 each will be established, 
 from the expense of conducting them. 
 
 Q. 16. Should the existing 10 per cent, tax on State bank notes be repealed? 
 A. Yes. 
 
326 BANKING. 
 
 Q. 17. Should any national bank be permitted to establish branches under 
 its single management? If so, under what limitations, if any? 
 
 A. Yes ; such branches being subject to limitations and restric- 
 tions imposed upon the parent bank. 
 
 Q. 18. Should branch banks be obliged to redeem the notes of the parent 
 bank and of other branches? 
 
 A. That is a matter for the determination .of the parties 
 thereto. 
 
 Q. 19. Should branch banks be required to maintain any specific proportion 
 of reserves to liabilities, independent of regulations for the general accounts of the 
 parent bank? 
 
 A. The restrictions imposed upon the parent bank should be 
 imposed upon its branches, as the functions of all are the same. 
 
 November 8, 1897. 
 
EXTRACTS FROM "MONEY AND LEGAL TENDER IN 
 THE UNITED STATES." 
 
 BY H. R. LlNDERMAN, Director of the Mint. 
 
 AUTHORITY TO COIN MONEY AND REGULATE ITS VALUE IN THE UNITED STATES 
 UNDER THE ARTICLES OF CONFEDERATION. 
 
 Art. II. Each State retains its sovereignty, freedom, and independence, and 
 every power, jurisdiction, and right, which is not by this Confederation expressly 
 delegated to the United States in Congress assembled. 
 
 Art. IX. The United States in Congress assembled shall also have the sole and 
 exclusive right and power of regulating the alloy and value of coin struck by their 
 own authority, or by that of the respective States. . . . The United States in 
 Congress assembled shall have authority ... to borrow money or emit bills 
 on the credit of the United States. 
 
 PROVISIONS OF THE CONSTITUTION OF THE UNITED STATES AS TO COINAGE, 
 LEGAL TENDER, WEIGHTS AND MEASURES. 
 
 Art. I., Sect. 8. The Congress shall have power to coin money, regulate the 
 value thereof, and of foreign coins, fix the standard pf weights and measures, 
 . . . and to provide for the punishment of counterfeiting the securities and 
 current coin of the United States. 
 
 Art. I., Sect. 10. No State shall coin money, emit bills of credit, or make any- 
 thing but gold and silver coin a tender in payment of debts. 
 
 Art. I., Sect. II. The powers not delegated to the United States by the Con- 
 stitution, nor prohibited by it to the States, are reserved to the States respectively, 
 or to the people. 
 
 After the Declaration of Independence, and before the adoption of the Articles 
 of Confederation, each of the thirteen original States had, as an attribute or inci- 
 dent of sovereignty, the right to coin money. 
 
 In the Articles of Confederation the States expressly delegated to the United 
 States in Congress assembled " the sole and exclusive right and power of regu- 
 lating the alloy and value of coin, struck by their authority or by that of the re- 
 spective States." 
 
 Under this provision the States retained the right to coin money concurrently 
 with the Government of the Confederation, but only according to the standard of 
 fineness, weight, and value prescribed by the central government. 
 
 The right to emit or issue paper money, known as " bills of credit," had been 
 exercised by the several States, before the adoption of the Articles of Confedera- 
 tion, and by these authority was given to the United States to issue such bills. 
 
 Paper money continued to be issued by the States, and was also issued by the 
 Government of the Confederation under the authority delegated in the compact. 
 
328 METALLIC MONEY IN COLONIAL TIMES. 
 
 The object, in delegating to the United States the sole and exclusive right to 
 regulate the alloy and value of coin, was to insure uniformity as to weight, fine- 
 ness, and value throughout the several States. . . . 
 
 LEGISLATION REGULATING THE VALUE OF FOREIGN COINS. 
 
 At the first session of the first Congress, which commenced in the city of New 
 York, March 4, 1789, under the provisions of the new Constitution, an Act was 
 passed, July 31, 1789 : "That all foreign coins and currencies shall be estimated 
 according to the following rates : each pound sterling of Great Britain, at $4.44 ; 
 each livre tournois of France, at 1 84 cents ; each florin or guilden of the United 
 Netherlands, at 39 cents ; each mark banco of Hamburg, at 33! cents ; each rix 
 dollar of Denmark, at 100 cents ; each rix dollar of Sweden, at 100 cents ; each 
 rouble of Russia, at 100 cents ; each real plate of Spain, at 10 cents ; each milreis 
 of Portugal, at 124 cents ; each pound sterling of Ireland, at $4.10 ; each tale of 
 China, at 148 cents ; each pagoda of India, at 194 cents' ; each rupee of Bengal, 
 at 554 cents ; and all other denominations of money in value as near as maybe to 
 the said rates." 
 
 The value of these foreign coins was expressed in the terms of the money of 
 account established by the Congress of the Confederation, and on their estimated 
 value respectively as compared with the Spanish dollar. 
 
 Different acts regulating the value and legal tender of foreign gold and silver 
 coins were afterwards passed, to which it is not necessary to refer in greater detail, 
 as those coins have long since passed out of circulation. All the legislation upon 
 the subject, except the Act of July 31, 1789, contemplated the substitution, as 
 early as practicable, of a national coinage. The value at which various foreign coins 
 were made a legal tender in United States money was, as a rule, a fraction less than 
 their bullion value, the effect of which Was to send them to the mint for conversion 
 into United States coins. By the third section of the Act of February 21, 1857, 
 all former acts authorizing the currency of foreign gold and silver coins, and 
 declaring the same a legal tender in payment of debts, were repealed. 
 
 METALLIC MONEY IN COLONIAL TIMES AND UNDER THE CONFEDERATION. 
 
 During the period of our colonial history, and down to the time of the issue of 
 national coinage under the Federal Constitution, gold and silver coins of different 
 nations were in use in North America, but silver alone appears to have been legally 
 recognized, for the reason, no doubt, that the silver standard prevailed generally. 
 
 The colonial money of account was originally an ideal unit called a pound, 
 with divisions of shillings and pence. There was, however, no legal tender; but 
 the Spanish dollar (silver) appears to have been the money generally used in 
 coin-payments and universally current in the Colonies. This dollar was in fact the 
 principal coin of commerce at that time, and for many years before. 
 
 Each Colony had its own paper currency, in which the value of the Spanish 
 dollar was, in 1782, according to Robert Morris, "in Georgia five shillings; 
 North Carolina and New York, eight shillings ; in Virginia and the four Eastern 
 States, six shillings ; in all the other States except South Carolina, seven shillings 
 and six pence, and in South Carolina, thirty-two shillings and six pence." 
 
METALLIC MONEY IN COLONIAL TIMES. 329 
 
 In computations of exchange with England the Spanish dollar was uniformly 
 estimated at four shillings six pence — or fifty-four pence — sterling. 
 
 The rate of four shillings six pence sterling was based on assays made at the 
 London mint of pieces in circulation previous to 1717, according to which these 
 dollars contained 386! grains fine silver. 
 
 According to the British standard, established in 1601, 444 grains of fine silver 
 were rated at five shillings two pence sterling and therefore four shillings six 
 pence was represented by 386-/),- grains. 
 
 In 1 728 the fine silver in the Spanish dollar was reduced by law to 3833^ grains, 
 and in 1772 to 374J grains. 
 
 In Congress, July 6, 1785, the dollar was established as the ideal money unit of 
 the United States of America. On the 8th of August, 1786, it was enacted that 
 the standard for coinage of gold and of silver should be II parts fine and I part 
 alloy, and the money unit or dollar should contain 375i%- grains fine silver. 
 
 The divisions of the money of account were, by the same enactment, denomi- 
 nated dollars, dimes, cents, and mills, and the following coins authorized: 
 
 Silver. Dollar 3751% grains fine silver. 
 
 Half-dollar 187^ " 
 
 Double-dime 75tVo 8 (T " " 
 
 Dime 37^ " 
 
 Copper. Cent 157^ 
 
 Half-cent 78J " 
 
 Gold. Eagle (ten dollars) . . 24.6^$$$ grains fine gold. 
 
 Half-eagle (five dollars) . I23t\$, 4 - " " 
 
 The intention, in fixing the quantity of fine silver in the monetary unit, was to 
 conform to the estimated average content of fine silver in the Spanish dollar 
 then in circulation in this country. 
 
 The ratio of gold and silver in the coins thus authorized was I to 15.253. The 
 market relation of the two metals was at that time I to 141%. In the ratio pre- 
 scribed for the coinage, silver was undervalued to the extent of nearly 2 per cent. 
 
 The object of this undervaluation of silver cannot now be ascertained: 
 
 Silver, as before stated, was then, as it had been for a long period before, the 
 principal money of commerce, and supplies of that metal were much more likely 
 to be received than gold. 
 
 Gold and silver were, at that time, undiscovered in the territory of the United 
 States. The reliance for the needed supply was upon other countries, in exchange 
 for commodities. 
 
 The ratio, or relative valuation, established was not calculated to insure the con- 
 current circulation of gold and silver coins, yet this, it appears, was contemplated. 
 Comparatively nothing was accomplished, during the brief life of the Confedera- 
 tion, in carrying into effect the resolutions of Congress in respect to a mint or 
 coinage. . . . 
 
 The Goyernment of the Confederation sought to withdraw the depreciated, 
 almost worthless paper currency, and establish a metallic money system, but the 
 difficulties in the way, arising from the impoverished condition of the country, 
 and deranged state of its industries, rendered this impossible. 
 
33° ESTABLISHMENT OF THE MINT. 
 
 ESTABLISHMENT OF THE MINT, MONEY STANDARD, NATIONAL COINAGE, 
 MONEY OF ACCOUNT, AND LEGAL TENDER. 
 
 The Act of April 2, 1792, established the mint, also the money of account, and 
 authorized a national coinage. 
 
 The ideal unit of the money of account was the dollar divided into dimes or 
 tenths, cents or hundredths, and mills or thousandths. 
 
 The money standard established by this act was gold and silver, in the ratio or 
 relative valuation of I to 15. The gold coins authorized to be struck were the 
 eagle, half-eagle, and quarter-eagle, of the declared value of ten, five, and two 
 and a half dollars respectively ; silver coins, the dollar, half-dollar, quarter-dollar, 
 and dime; copper coins, the cent and half-cent. 
 
 The gold and silver coins were made legal tender without limit, and the coin- 
 age thereof was free to all persons depositing bullion at the mint. 
 
 The copper coins were not made a legal tender, but were in effect simply 
 declared to be of the. value inscribed upon their face. 
 
 The standard for the silver coins was 1,485 parts fine to 179 parts alloy, the 
 alloy to consist wholly of copper. This standard corresponds to 892.43, and - 
 was retained until the end of the year 1836, when the silver coinage was inter- 
 mitted, in anticipation of the passage of the. Act of January 18, 1837, which 
 changed the standard to .900. 
 
 The fineness of eleven-twelfths was adopted for the gold coinage ; that is to 
 say, the coins were to be composed of eleven parts of pure gold to one of alloy. 
 The alloy of the gold coins to be composed of silver and copper not exceeding 
 one-half silver, as might be found convenient. This standard corresponds to 22 
 carats, or to 916.66. The alloy was not valued in either the gold or silver coin- 
 age. 
 
 The standard weight and content of pure metal in the coins were as follows : 
 
 Standard weight. Pure gold. 
 
 Eagle 270 grs. troy. 2474 grs. troy. 
 
 Half-eagle 135 " 123I " 
 
 Quarter-eagle . . . 674 " 61 J " 
 
 Standard weight. Pure silver. 
 
 Dollar 416 grs. troy. 371^ grs. troy. 
 
 Half-dollar .... 208 " 185I " 
 
 Quarter-dollar ... 104 " 92^ " 
 
 Dime 4if " 37* " 
 
 Half-dime 2o| " • i8yV " 
 
 The variation from standard or " remedy of the mint " allowed in the gold and 
 silver coins was one part in 144 parts. . . . 
 
 The dollar or unit adopted in 1786, by the Congress of the Confederation, was to 
 contain 3751% grains pure silver. Before any coinage took place, the intrinsic or 
 bullion value of the unit was altered by the following provision in the Mint Act 
 of 1792; to wit: " There shall be, from time to time, struck and coined at the 
 said mint, dollars or units, each to be of the value of a Spanish milled dollar, as 
 the same is now current, and to contain 371^ grains of pure, or 416 grains of 
 
MONEY STANDARD FROM 1792 TO 1S53. 33I 
 
 standard, silver." The average quantity of fine silver contained in the Spanish 
 dollars then in circulation in this country was, according to the assay of a num- 
 ber of pieces, 371 grains, to which was added J of a grain to avoid inconvenient 
 fractions in prescribing the weight of the coins under the ratio of 1 to 15. 
 
 In taking this course in reference to the coined dollar, Mr. Hamilton no doubt 
 had in mind the importance of exact justice between debtors and creditors, and 
 recognized the principle that a government, in fixing a money standard, cannot 
 with justice depreciate the existing measure of contracts to the injury of creditors, 
 or appreciate it to the detriment of debtors. 
 
 The Monetary Act of 1792 continued in force and without modification or 
 amendment until June 28, 1834, when an act was passed prescribing the following 
 weights for the gold coins respectively : 
 
 Standard weight. Pure gold. 
 
 Eagle, value $10 258 grains. 232 grains. 
 
 Half-eagle, value #5 129 " 116 " 
 
 Quarter-eagle, value $2.50 . . . 64^ " 58 " 
 
 This act further provided that said gold coins should be received in all pay- 
 ments, when of full weight, according to their respective values ; and when of 
 less than full weight, at less value, proportioned to their actual respective weights. 
 The standard fineness of the above coins was 899.225, and was retained until 
 changed to .900 by the Act of January 18, 1837. The weights of the gold coins 
 were not, however, altered by this last act ; and all gold coins made after July 31, 
 1834, are legal tenders according to their nominal values. 
 
 The fineness, it will be remarked, was fractionally advanced, whereby the con- 
 tents, fine, of the coins became : 
 
 Eagle . . 232.2 grains. 
 
 Half-eagle 116.1 " 
 
 Quarter-eagle 58.05 " 
 
 and the new coins in proportion as follows : 
 
 Dollar 25.8 grains standard. 23.22 grains fine. 
 
 Double-eagle . . 516 " " 464.40 " " 
 
 Three-dollar piece . 77.4 " " 69.66 " 
 
 The coinage of double-eagles and gold-dollar pieces, or units, was authorized 
 by the Act of March 3, 1849, and the three-dollar piece by the Act of Feb- 
 ruary 21, 1853. 
 
 MONEY STANDARD FROM 1792 TO 1853. 
 
 The brief account of the legislation in relation to gold and silver money, from 
 the organization of the Government under the Constitution of the United States 
 down to the commencement of the late civil war, given in the preceding pages, 
 exhibits the following features : 
 
 I . The adoption, in 1 792, of a gold and silver standard on a ratio or relative 
 valuation of 15 to 1, which ratio corresponded substantially with the market rela- 
 tion of the two metals at that time. 
 
33 2 SPANISH AND MEXICAN COINS. 
 
 2. A reduction in 1834 and 1837 of the weigh* and fineness of the gold coins 
 by which the ratio or relative valuation of gold and silver in the coinage was fixed 
 at I to 15.988, instead of 1 to 15. 
 
 This change increased the coining rate or legal-tender value of gold in this 
 country (*&fc per cent., and was made because for several years previous gold had 
 been worth more in the markets of the world than its valuation in United States 
 coins. 
 
 The author of the coinage law of 1792, Hamilton, assumed that in the markets 
 of Europe one ounce of pure gold was equal in value to fifteen ounces of pure 
 silver, which appears to have been the fact; but within a few years thereafter this 
 relative value of the two metals changed, so that an ounce of pure gold was 
 equal in value to 15^ or 16 ounces of pure silver. 
 
 Gold being undervalued in United States coins, the latter found their way to 
 markets where gold commanded more than the value stamped at the United 
 States mint. Congress, in the year 1834, undertook to remove this difficulty by 
 a corresponding increase of the coinage rate in value of gold. 
 
 3. It was soon apparent, however, that gold had been slightly overvalued by 
 the new law (1834). This overvaluation and the fact that the coining rate of the 
 two metals in the principal European countries was 1 to 154 gave silver a higher 
 value in the market as bullion than its coining rate at the United States Mint. 
 Concurrent circulation with gold could not be thereafter effectively maintained. 
 
 4. The difficulties experienced by this expulsion of the silver coins from the 
 channels of circulation, especially those of small denominations, finally called for 
 a new adjustment of the coinage, and, in 1853, the weight of the silver coins of 
 less denomination than the dollar was reduced to an extent sufficient to insure 
 their retention in circulation, but their legal-tender quality was, at the same time, 
 limited to the amount of five dollars. 
 
 The measures adopted in 1834 and 1853 in respect to the coinage were decided 
 steps toward the establishment of a single gold standard, and were no doubt so 
 intended. 
 
 WITHDRAWAL AND RE-COINAGE OF FRACTIONAL SPANISH AND ■ MEXICAN COINS. 
 
 For many years prior to the reduction, in 1853, of the weight of United States 
 silver coins of less denomination than the dollar, the pieces known as the quarter, 
 eighth, and sixteenth of the Spanish and Mexican dollar constituted a consider- 
 able portion of the change money of this country. From long use these pieces 
 had become so worn that on the greater portion of them the inscriptions and 
 devices were quite illegible, and their bullion value was thus reduced considerably 
 below the nominal or tale value at which they were current by law and usage. 
 
 After an ample supply of United States silver coins of reduced weight and 
 limited tender had been issued, there was no longer any excuse for allowing the 
 worn and depreciated Spanish and Mexican fractional pieces to remain in circu- 
 lation. 
 
 An act was accordingly passed (February 21, 1857) repealing all former acts 
 making these foreign coins current or legal-tender money, and fixing the follow- 
 ing rates at which they should be received at the Treasury of the United States, 
 its several offices, and at the several post-offices and land-offices. 
 
COINAGE ACT OF 1S73. 333 
 
 i of a dollar, or piece of two reals, 20 cents. 
 i " one real, 10 cents. 
 
 tV " half " 5 cents. 
 
 These pieces had previously been current at twenty-five, twelve and a half, and 
 six and a quarter cents respectively, or thereabouts. 
 
 When received at the Government offices, they were sent to the mint for con- 
 version into United States coin. They were also received at the mint at their 
 nominal values respectively, in exchange for the copper-nickel cents authorized 
 by the same act. 
 
 Under the foregoing provisions of law the foreign fractional coins speedily 
 found their way to the mint, and in a few years disappeared from circula- 
 tion. . . . 
 
 COINAGE ACT OF 1873. CHANGE FROM THE STANDARD OF GOLD AND SILVER 
 TO THE GOLD STANDARD. 
 
 The mint of the United States was originally established at Philadelphia, as 
 that city was at the time, 1792, the seat of the National Government. When, a 
 few years afterwards, the seat of Government was removed to Washington city, the 
 mint, because a manufactory, continued at Philadelphia. 
 
 In the early years of the mint its organization was almost entirely independent 
 of the Treasury Department, and its reports were made direct to the President of 
 the United States. But the legislation in relation to mints and coinage, fur some 
 years prior to 1870, virtually made the mint and its branches a bureau of the 
 Treasury Department. There were, however, provisions of law, conflicting in 
 their character, as to the relative power and duties of the Secretary of the Treas- 
 ury and the Director of the Mint. To remedy this, and to consolidate coinage 
 enactments; were the chief objects of the act, approved February 12, 1873, revis- 
 ing and amending the laws relative to the mints, assay-offices, and coinage of the 
 United States. This act established the mint as a bureau of the Treasury 
 Department, with a chief officer denominated the Director of the Mint, who, under 
 the general direction of the Secretary of the Treasury, had the supervision of all 
 the mints and assay-offices of the United States. 
 
 The same act placed the different mints upon an equality, and devolved the 
 local management of each upon an officer styled the Superintendent, the title of 
 branch mint, previously existing as to all the mints except that at Philadelphia, 
 being changed to thatof mint. 
 
 The act made no change in the standard fineness of any of the coins nor in 
 their standard weight, except that the coining rate of silver into coins of less denom- 
 ination than the dollar was increased from 384 to 385-^- grains (or 25 grains, 
 metric system) to the dollar, which slight increase in weight was made for the pur- 
 pose of bringing those coins into conformity, as to content of silver, with the five- 
 franc coin of the "Latin Union, and the money units of the several States in Central 
 and South America. Under the provisions of this act the coinage and issue were 
 discontinued of the silver dollar of 4124 grains, the three-cent silver piece, the 
 five-cent silver piece, and the two-cent bronze piece. 
 
 Authority was given for the striking, for commercial purposes, of a new coin, 
 
334 COINAGE ACT OF 1873. 
 
 denominated the "trade dollar," of 420 grains troy (900 fine), standard silver. 
 The act further declared that the one-dollar gold-piece, at the standard weight 
 of 25-^ grains, should be the unit of value, and continued all the coins an un- 
 limited tender at their nominal values, when not below the standard and limits of 
 tolerance provided for the single piece ; and when reduced in weight below said 
 standard and tolerance, a tender at a valuation in proportion to their actual 
 weight. 
 
 It was further provided that the gold coins of the United States, if reduced in 
 weight by natural abrasion not more than one-half of one per centum below 
 the standard weight prescribed by law, after a circulation of twenty years as shown 
 by the date of coinage, and at a ratable proportion for any period less than twenty 
 years, should be received at their nominal values by the United States Treasury 
 and its offices, under regulations to be prescribed by the Secretary of the Treasury 
 for the protection of the Government against fraudulent abrasion or other prac- 
 tices. Previous to the enactment of this law the double standard of gold and silver 
 had been uninterruptedly in legal existence; although the full legal-tender coins 
 of the two metals had not, for any considerable time, circulated concurrently. 
 
 The relative valuation of gold and silver — 1 to 15 — in the coinage, as estab- 
 lished in 1792, continued until 1834, when it was changed to I to i5rWo > sav > ' 
 to 16 nearly, by a reduction in the weight and fineness of the gold coins. 
 
 For more than twenty years before this change was made, gold had a higher 
 value in the market than in the nominal or legal-tender value of United States 
 coins. The gold coins, therefore, commanded a premium in the silver coins, and 
 were largely melted or exported. 
 
 After the change of standard the silver coins were worth more as bullion than 
 their legal-tender or nominal value, and afterwards gradually disappeared from 
 circulation. To meet this last difficulty, Congress, in 1853, reduced the weight of 
 the silver coins, except the dollar piece, sufficiently to retain them in circulation. 
 The double standard, however, was nominally continued, silver being represented 
 by the dollar piece. This dollar piece, however, was not coined or used as money 
 to any considerable extent, on account of its having a higher bullion than nominal 
 or tale value. 
 
 The declaration of the Coinage Act of 1873, that the gold dollar was to be 
 hereafter the unit of value, and the omission of the silver dollar from the coins to 
 be struck under the provisions of that act, placed the United States upon the 
 single gold standard. The silver dollar had already become obsolete in fact ; the 
 law of 1873 merely conformed to that fact. This legislation was a continuation 
 and consummation of that which took place in 1834 and 1853, which had for 
 its object the use of gold as the principal money in coin payments in this 
 country. 
 
 In respect to this last legislation it may be said that at the time it took place, 
 and for some time previously, the weight of opinion in Europe and America was 
 against the practicability of maintaining a double standard on any basis which 
 might be selected, and in favor of a single gold standard. This important feature 
 of the Coinage Act of 1873 had been agreed upon by Congress before it became 
 apparent that a serious decline in the value of silver was likely to take place, in 
 consequence of the change from the silver to the gold standard by the German 
 
COINAGE ACT OF 1S73. 335 
 
 Empire ; and this change in reality could have had no influence in determining 
 the question. 
 
 After the great decline in the price of silver had commenced, it was claimed 
 that the discontinuance of the silver dollar had been determined upon without 
 due consideration, especially in view of the large amount of public and private 
 indebtedness. 
 
 Whatever difference of opinion may now exist as to the wisdom of the measure, 
 it may be asserted, without the fear of successful contradiction, that no one who 
 favored this legislation had the least idea of giving creditors any advantage over 
 debtors. Opinions will of course differ as to the propriety of changing the metal- 
 lic money standard at a time when the actual circulating medium of the country 
 was an irredeemable paper currency, but it is certain that if legislation, of which 
 complaint is now made, had not occurred, the interest-bearing obligations of the 
 United States would, in the mean time, have depreciated proportionally with the 
 decline in the value of silver ; and all attempts to fund obligations at lower rates 
 of interest would no doubt have failed, as it would have been impossible during 
 the last four years to have sold at par, in gold, public securities legally payable in 
 silver dollars of 4124 grains, United States standard. 
 
 The acts of Congress relative to the coinage subsequent to that of 
 1873 have been sufficiently set forth in the preceding pages. 
 
 From the foundation of the Government to the Act of 1878, in 
 which downright folly and dishonesty had about an equal share, 
 there was, for eighty-nine years, in the matter of the coinage, but one 
 purpose — the reconciliation of the coin and commercial value of the 
 metals that composed it, two standards being at first attempted, that 
 the amount of money might thereby be increased, each standard to 
 be an equally accurate measure of value. It was an impossible task, 
 as it was inevitable that only one standard could at the same time 
 be in use. At the first attempt, although silver by being under- 
 valued became the standard in use, it never to any considerable 
 extent became the instrument of exchange, the instruments there- 
 for being supplied by banks symbolizing merchandise in process of 
 distribution. In time, from the greater convenience of its use, 
 transactions being greatly increased, gold, being undervalued in the 
 coinage, became the standard money of the country. All these 
 changes were dictated by common sense and common honesty, the 
 sole purpose being to adjust the currency to the wants of the people, 
 and that contracts might be discharged at the value at which they 
 were entered into. So adequate was the provision of currency by 
 banks that gold interposed in considerable quantities only in balances 
 arising in the foreign and domestic trade of the country. The first time 
 
336 COINAGE ACT OF 1 878. 
 
 in the matter of the coinage that a sinister purpose was entertained 
 was in the Act of 1878 which restored silver as a standard at the 
 old ratio, although from its demonetization in 1873 it had, compared 
 with gold, fallen nearly 10 per cent, in value. The indebted, not 
 including the commercial classes, naturally welcomed the debase- 
 ment of the currency, under the assumption that thereby their debts 
 could be more easily paid. Politicians in Congress, with no well- 
 grounded principles or convictions of their own, naturally catered to 
 the wishes of the most clamorous of their constituents. Hence the 
 dilemma in which the country now finds itself. The folly of the 
 craze for cheap money is all the more absurd as under any system 
 money will be the costliest thing in the world. It is this which 
 makes it money. It must be that kind of merchandise the value of 
 which can suffer no depreciation that it may constitute the reserves 
 of society. It must be as valuable ten years hence as it is to-day. 
 The loudest-mouthed advocate of silver, or fiat money, will, in part- 
 ing with values, accept in exchange nothing but an equivalent. 
 Silver is not such equivalent. The standard of value fitted to serve 
 as such is no more to be overthrown than the instinct which prompts 
 a man to be always on the alert to protect himself from loss. Were 
 the whole subject of the standard of value to be left to the Silverites 
 they would unhesitatingly adopt that of gold as the most conducive 
 to their interests, the cost, whatever the material, being the same. 
 The provision of gold as a standard is impregnable so long as it 
 takes two to make a bargain, one of whom at least will always 
 demand an equivalent in exchange. Under present conditions 
 silver can no more become a standard money than wampum or 
 cowries. How, then, are we to account for the craze upon the sub- 
 ject which in the United States is almost universal? The explana- 
 tion is alike obvious and simple. The money of the Government, 
 whether metallic or paper, has its proper insignia. As its notes 
 appear to have no other support, it is assumed that they require no 
 other — in other words, that Government by its fiat may create 
 money. As use implies value, it is assumed that it will impart 
 value to silver as money, a value so great as to restore the old ratio 
 of 16 to 1. But no matter the amount provided, neither silver nor 
 gold will be used as the ordinary instrument of exchange — and 
 gold only from its superior fitness as the standard of value. The 
 assumption of value derived from use falls consequently to the 
 
COINAGE ACT OF '^S. 337 
 
 ground. The instruments of exchange, as well as standards of value, 
 rest upon conditions which have all the force of natural laws. It is 
 in overlooking this that all our mistakes and disasters have arisen. 
 In the matter of money we are where the Alchemists were hundreds 
 of years ago, and before induction took the place of assumption in 
 affairs. Proceeding wholly upon assumption, there was no limit to 
 the literature of the Alchemists, so there is none to that of the 
 advocates of silver, or fiat money, both of which by the touch of 
 the magician are to be made the equivalent of gold. Of the works 
 of Geber, the great transmuter of lower forms of matter into higher, 
 into gold, a list of 500 is still preserved. Had he not died at a 
 comparatively early age the list would have been swollen to 1,000, 
 each one from the standpoint of the author carrying all the forced 
 demonstration. The world for a time outgrew the " gibberish," a 
 term properly deduced from the name of the great transmuter of 
 antiquity. We have returned to it again in the persons of Senators 
 Stewart, Jones, Voorhees, and the like, each of whom could easily 
 rival their great prototype in uttering 500 works, all carrying the 
 same force, with no other change in the succeeding volumes than 
 that of transposing the sentences of which the first was composed. 
 

 
 
 
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