THE FINANCIAL SITUATION. BT aEOEGE P. TALÈOT. EcißubHshed from The fiuancial problem before Congress and Mie counti^ embraces the following objects, viz: to establish the national credit; to light¬ en |lic burdens oi national Insation; to low- (*!• the rates of interest; to create a permanent national carrcney convertible at par into coin; to provide for the payment oi the na¬ tional debt. These are named in the order of their urgency and importance, but It is es- tiemely desirable that some, comprehensive legislation may be adopted tli.at .shall accom¬ plish them all together. It is 10 be regretted that l.lic reaponsjbllil.y. of doing or nogleciing lucls so iinpeiatlvely demanded by onr disa.stroi,s sltuallou rests with the present Con gross, Thcv could have been done better two yo,ars ago, when the (ieople were more patient, more prosperous, and before ther,-- wa.s any considerable in¬ terest invested lu bad nietbods. Birt the present is better tban any time in tbe future, Cvery month of tbe present coudition keeps business depressed, discourages enterprise, wastes public and private capital, hinders the national growth, iorces trade 'into foreign channels, discourages the people burdened wjth taxes and high costs of livin^,-begets that feeling of desperation out of which^.erimes gi'ow dulls the fine sense of public and pri¬ vate honor, lessens confidence in tire furm of oru' goveniment and paves the w.ay for anar¬ chy and revolution. The thoughtlul observer of the proceedings of Congress does not find mucB to encourage him to expect that any cfBcacious scheme of relief can be agreed upon by the members of the present national legislature. Some of them seem to think, that a mere promise to pay, with no means of enforcing payment by the creditor, and no ability, or even disposi- ihe Portland Press. tlon to pay by the debtor, is money, or can he made money by law, good enough lor a circu¬ lating inedinm, and an honest equivalent for all private debts, and even for the solemn sealed bonds of the govcmument held by its creditor's at home and abroad. Some depre¬ cate payment ol the government notes accord¬ ing to their tenor, as a calamity out of which public and private disaster are siu-e to flow. Some wish to ciue the depreciation, into which these notes have lallen on account of the inability to pay tbem, by the issue of more, Othei-s, it Is to ha hope J, hold to opposite theories. Fin.aneial and politico-economieal questions are so fascinating, and can bè ar¬ gued so plausibly upon opposjtó sides, that de- bale, instead of tending tú 'reconcile differ¬ ences, Is moi-e likely (o coniirni each sohqol in its theories or vagaries. But If it were possible for the differences to be reconciled, it is doubtful If Congress will be courageous enough to adopt any, measures, the immediate effects of which will be to depress trade or lossdu présent values While it is obvlous that we cannot relnm to honest prices wlthon'inflicting losses upon those who have purchased at excessive rates, no party and lew men are willing to hear the reproaches and acousatloná of the few, whose losses will ineasm'e the gains of the people at large. It is the eve of a pres¬ idential election, and every measure will be canvassed first of all in reference to its effect upon the election of the candidates upon one side or the other. II a salutary and neces¬ sary reform cannot command the support of a State or a section, whose aid is necessary to carry the election, it will be rejected or postponed. Most medications are for the time disagreeable, and with a patient siekeh- 2 itig towatás death, l)üt yet too irritable and too uareasonable to submit to a painlul oper¬ ation, or take any mediciue that is not pala¬ table, the chances of recovery seem anything but hopeful. TO ESTABLISH THE NATIOS AL CBEDXT. That the 6 percent, bonds of the United States will command but 74 per cent In the great money markets of the old world, while the 3 percent, consolidated loan ot Great Brit¬ ain is eagerly sought tor at 94 per cent, is a most unmistakable index of the low estimate in which the credit of the United States is held abroad. These quotations control our own stock-markets; the price of United States stocks in New York never being sensi¬ bly différent from their price in London with gold premiums and exchange added. Indeed when we consider that the entire loan to the United States by its own people was furnish¬ ed in paper money, which passed at an aver¬ age depreciation ot 50 per csnt., and thus that in the generosity of patriotism we were un¬ willing to loan our own government our sui'- plus wealth, but with the promise, that lor every dollar paid we should receive in gold or its equivalent a dollar and a half, and half- yearly interest, which .should bo 6 per cent not ot what wcloaued, but ot yvhat we ex¬ pected to receive, it is plain that our nation¬ al credit has never sunk so low abroad as at home. This estimate of the solvency and good fairh of the United States is as unreasonable as it is humiliating. A United States loan at 6 per cent, ought to be worth just as much more than a British loan at three per cent, as the difference in interest would make it. Whether we consider disposition or ability to pay, the credit of the United States ought to stand higher than that of Great Britain. The national debt oí Great Britain is so vast that it is not expected that within any definite time it can he paid. Its magnitude and hope¬ lessness have been made among those, who for generations have borne its burdens, a pop¬ ular jest. Thé United States have in eighty years paid to the last dollar, two national debts growing out of great wars, and hetoie they had fairly emerged from a still greater war, in the midst of disasters and a disrupted Union, have made such strides towards the payment of a ihiid national debt as to as¬ tonish the world. Great Britain, France, Prussia and Eussia all cherish within them the seeds of revolu¬ tion in the spirit of democracy more or less developed, which Mr. Carlyle predicts is surf to assert itself in the attempt to estah.ish pop¬ ular in the place of mon.arcbical institutions. England advances sensibly and boldly to¬ wards republicanism. In France the spirit of democracy abides the demise of one strong- willed and able sovereign, while all Emppe waits the signal from these two leading na¬ tions to displace every vestige of despotism and ipudaiism. The United States have pass¬ ed tliroLigli this crisis, and now that they have successi ally, solved the great problem of slar very and elimina'.ed fioiu their system a relit of barbarism, which tlneatened revolution, sectional strife and separation, their enemies have ceased to predict for them anarchy or military despotism. Eveiy government in Europe is liable to be the victim of the balance of power system, by which that continent has been scourged and dominated for more than a century. Tire ex¬ igencies ol a reigning family or a priesthood, an imperial policy or a national aspiration, may require the absorption ot Spain or the seques!,ration of Austria, or the removal o! Turkey, just as they have required the dls- membenuent ol Poland, the creation ot Italy, and the blotting out oi Naples and Saxony. The United States, with no rival on the con tinent which waits for its mastery, disentan¬ gled from the fatal web in which ferhle dy¬ nasties sit watching against each other's in¬ trigues, and against the great common enemy ot all—tlie people, remains secure in its pro.s- perity, its unassailable power, and the per¬ manence which institutions in harmony with civilization and popular attachments give it. Whoever purchases a United States bond', takes it with the security which an establish¬ ed government guaranteed against popular re¬ volutions can give. Whoever subscribes to a Turkish, an Austrian, a French or even an English loan, takes the risk of what the re¬ volutions of the next century may do in changing or destroying these governments. But It is not national pride only that prompts every American citizen to resent this imputa¬ tion upon the solvency and honesty of W» 3 mrernment, nor the determiuatio» of repub ^Çïis to vindicate against the aspersions of the world the pennaueiice and power of a republic. The establishment of the national credit is the most essential measure of finan¬ cial reibrm. We huve a debt of about two, and a half billions of dollars, upon which the people in a lime of peace, and with the dan¬ ger of national disruption averted, aie pay¬ ing war rates, of interest—the same inter¬ est they were.paying when loans were asked of them of more than half a billion a year, and when it was the almost unanimous opinion of dispassionate outeide observers that the Republic was on the eve of over¬ throw. Are we not as able, and as well disposed to pay our national debt, as Great Britain to pay hers? Why should our rate of interest be m^tejially higber? Frbm-this year till 1881 our entire debt inay^eipaid or renewed. We cannot pay it. It i^tfö first dictate of p'radence to renew it upqÇ*t«rms not derogatory to the national credfthud satislactoi-y to the national creditor. T(/yepew it at the same exorbitant rales i.s toieá^ess ourselves bankrupt and our gov¬ ernment a mob, which we have no expecta¬ tion of orgqualize the distribution of wealth, and give to industry its just equiva¬ lent of what labor and capital together ac¬ quire. In a state of peace, of fixed values, of reg¬ ular industry uninterrupted by any great ca¬ lamity, when business may be pursued with little risk, profits must be smaller and the margin between cost price and selling price must be made nai-rower. The key and index of this decline in the excessive advan¬ tage of capital over labor is the fall in the current rate of interest. This is a matter least of all capable of di¬ rect legislative regulation. It is to be effect¬ ed first by a return to specie payments. The vast sums the government had to borrow to suppress the rebellion, at a time when the money markets of Europe by the unfriendly feeling of their governments were virtually shut against us, could but raise the rates of interest everywhere in the United States. Much of the money lent to the nation by its citizens was in currency, depreciated to one- half the value of gold, upon which a semi¬ annual interest was paid, equivalent to 12 per cent, of the amount loaned. By the apprecia¬ tion of the currency the rate has fallen from 12 to 8 or 9 per cent., but simultaneously with the fall in interest, becomes operative the ex¬ emption from State and local taxation, which under a vigorous payment of war debts everywhere by the States and towns must be equivalent to a bonus of about -3 per cent. As there are between one and two bil¬ lions oí these bonds thus favored, still to be had for a small premium, it is easy to see how an investment, capable in itself of holding nearly all of the surplus wealth of the people, must control the interest upon all other in¬ vestments. Accordingly the banks, bankers and private capitalists will not loan at less than what are called government rates, to'the best customers on amplest secm-ity and for short terms. Second class borrowers must pay more, and mortgages that used to be sought at 6 per cent, cannot be cashed but upon some arrangement to pay from 10 to 12 per cent, interest. The man who has money has a standard in government interest, even now amounting to about 11 per cent., for what he shall exact of his customers. The builder, contractor, man¬ ufacturer or business man, who borrows mon¬ ey, has this sum with a just profit upon it, to assess upon his customers and employers, and the whole falls at last upon the laborer and consumer. The return to specie payments strikes off at once 2 or 3 per cent, of this extra interest, and thus lowers the standard of interest, and with it of profits everywhere. Could a tax be imposed by the States and towns upon the bonds, they would entúely lose their prestige and sink into the poorer class of investments. It is evident that this cannot be done consist¬ ently with the law of the contract, but as these bonds from and after next year until 1881 become payable, they may be paid or exchanged for bonds, either taxable at a rate of five per cent, or exempt from taxation at a still lower rate. But the return to specie payments is possi¬ ble now, and until specie payments shall have been resumed so long as to have re-establish¬ ed the credit of the g&vemment, more favor¬ able loans will not be possible. While specie payments are resisted the current rates of in¬ terest must be nearly up to Ghe government rates. As soon as they are established inter¬ est falls everywhere—the necessary condition of more favorable loans—and when those new loans are negotiated, the sale and transfer of the bonds abroad, where interest is atits??ii»i- imum, (a movement sure to take place) will restore to private hands the vast sums ex¬ tracted from private enterprise by the neces¬ sities of the war, again to stimulate manufac¬ tures, to employ labor, and push with a vigor hitherto unknown the development of the wonderful resources of the country. In poor countries, and in those where com¬ merce is disorganized or shackled, interest is always high; but in rich countries like Eng¬ land, Prance and Germany,the rates of inter¬ est steadily tend downward. It is the unnat- rual condition, not of our war or of our debt but of our distrrbed finances, that while our people have been growing rapidly and exces¬ sively rich, rates of interest have been rising. The increase of investable capital was mani¬ fested by the vast sums paid for government bonds, which were sold at one time at the rate of $30,000,000 a day, in reckless invest¬ ments in oil and copper stocks, and in the re¬ vival of railroad enterprises in the midst of high prices and heavy taxation. The excess sive supply of capital ought to lessen the 11 price of it, and bring down the rates of inter¬ est peimanentiy below tbe old standard of the ante-rebellion period, and tbis must be tbe re¬ sult as soon as tbe government by returning to a coin standard ceases to pay sucb a beavy bonus to its creditors. TO ESTABLISH A NATIONAL CUKEISNCT. ïbe present system of national banks, tbougb an acknowledged improvement upon tbe State corporate and private banks, to wbich it bas succeeded, is avowed by finan¬ cial thinkers to be but an approximation to¬ wards tbe establishment of a national cui-- rency. Nothing but the* enormous honus held out by our distressed government, in its deadly peril, could have lured tbe timid capi¬ tal invested in these institutions, within reach of such salutary legislation as will yet make It, at all times, tbe basis ot private prosperity and tbe sujiport of tbe national credit. If it be asked why not maintain with tbe national banks tbe hard bargains hastily made under the pressure of tbe severe ne¬ cessities of tbe war, tbe answer is : 1st. Because they binder rather than help tbe establishment and maintertance of spe¬ cie payments, which is tbe first condition of national honesty, credit and prosperity. 2d. Because they are too expensive, re¬ ceiving from tbe people a large gratuity for performing a function, which they have not performed, and which it is evident, without the assistance of tbe government, they can¬ not perform. 3d. Because they are not adapted to assist tbe government in a time of national peril like a rebellion or a foreign war. Let us consider what are tbe essential re¬ quisites of a national bank or an association of national banks. They are first to supply a convenient paper medium of exchange to sup¬ ply tbe demands of business, which shall be sufficiently secured by a pledge of the credit of tbe government upon a deposit of public stocks, and tbe value of which shall be kept up to the standard of gold and silver by tbe prompt payment of coin to every bill bolder demanding it. Tbe first of these functions tbe National Banks have performed ; their paper is ev¬ erywhere current at a uniform value ; its con¬ venience is recognized and its security for ul¬ timate payment is as complete as it could be. The last mentioned function of a safe and solvent bank they have never performed, they evidently cannot perform. Looking at tbe act of Congress authorizing Banking Associa¬ tions, it looks like an arrangement whereby such associations were to invest their whole capital in United States bonds, and in coiisid- eration that tbe United States would furnish them an equal amount of circulating notes, and would make them current as money, and would continue to pay interest on such bonds, they agreed. to redeem such notes in coin, when presented. Each bill stipulates that the corporation issuing it shall pay the hearer on demand five, ten, fifty or one hundred dol¬ lars. But this, though the ostensible, was not the real transaction. The real transaction was, that for the present and for an indefinite term the United States would continue to supply the currency, and pay full interest up¬ on the bonds, and the banking associations need not give themselves the slightest con¬ cern to pay any bill holder a dollar. True, there is a provision, whereby the holder of a national bill may demand a greenback of cor¬ responding amount, but as the sagacious pub lie, though debating the question much, have never been able to tell which was worth least, the note of a suspended Treasury, or of a suspended bank, the exchanges from curren¬ cy to greenbacks have not been frequent nor onerous to tbe banks. The fact is the banks had virtually failed at the time they commenced business as the financial agents of the Treasury, and the Treasury, having failed before, was in no po¬ sition to taunt them for such failure. The situation was precisely that of a bankrupt who, finding his notes not negotiable, employs another bankrupt to endorse, circulate and redeem them. The banks however are not to be blamed for not paying their bills in specie, their weakness being incidental to their connection with the government; for though the govern¬ ment has the excuse of its inability to pay and the banks have not lost capital, but have been growing rich and paying large dividends, yet so long as the government paper is forced by law into circulation, and not redeemed, and gold is changed from money into mer¬ chandise, it is very evident that the banks cannot initiate specie payments. 12 But the difficulty is that the present com- plioation of suspense raising as I have shown the rates of interest, and retdering bank¬ ing more than ever profitable, is one that the banks have a strong interest to maintain, and they will do their utmostto prevent and de¬ lay specie payments, and to persuade the gov¬ ernment and the people, that resumption will be dangerous rather than salutary. While the ÏTational banks fail to perform one of their essential functions, in maintain¬ ing the equivalency of their notes to specie, it does not seem honest that they should re¬ ceive pay for doing it. The banks owning a number of United States bonds, let us say amounting to $300,000,000, bring them to the Treasury of the United States, and deposit them. They ask that the amount of them be advanced in money. The United States say we have no gold and silver, but we will give you something which we will guaranty shall be paid, which we will receive and pay out as cash for debts, loans, and salaries, and which by every power of legislation we will make equivalent to money. They according¬ ly pay the banks $270,000,000, of the amount of the bonds. The banks receive, pay, and loan this sum as money and keep it thence¬ forth, ir being received every where as the equivalent of money and the instrument of purchase and payment. . Why should not a payment of nine tenths of the bonded debt by the obligees stop nine tenths of the interest of the bonds ? Is it jnst after payment of a debt for the creditor to ex¬ act perpetual interest on it, as though it had not been paid? If the United States had ad¬ vanced upon the bonds $300,000,000 of gold, which the obligee on the bond was to have, spend, loan or invest at his pleasure, would not the debt he paid and interest stop ? But is not the currency furnished so long as the payer makes good' his guaranty that it -shall be money equally a payment? Was it not in fact of equal value not only with the actual consideration of the bond, but with the debt seciu'ed by the bond ? or at the very least is it notât some just rate of discount, to be ac¬ counted for by the party receiving it, as an instalment of payment and a foreclosing of interest pro tanto ? The continued payment of interest on so much of the amount due up¬ on the government bonds as is. paid by the circulating notes, that is nine tenths of the amount, is entirely without consideration or equity, a gratuity for which the government receives no equivalent whatever. The ab¬ surdity of such an arrangement would be less glaring if the banks had fulfilled or been in condition to fulfil, or held out any encom- agement to fulfil at e definite future time the ostensible stipulation, for which the gratuity is paid, that is the redemption oí the circu¬ lating notes in coin. Until they do that, the interest upon the bonds should not be paid, at least upon the sum actually paid.. - The justice and economy of the continued payment of this interest is maintained upon the following grounds. 1. The banks laid the f/overnment under great obligations by purchasing so many of its bonds. The hanks ¿id just what other capitalists did, who had money to spare; they invested in the best securities and at the highest rates the market afforded. They bad the sagacity to see that it was rhe admirable bargain for them, which it has turned out They entered upon it with the more alacrity .in that they found they had this preference over other capitalists, that whereas the latter upon paying the United States a thousand dollars for a United States bond of that denomina¬ tion have not since seen their thousand dol¬ lars and have not a cheerful prospect of- see¬ ing it very soon, the former who pay a thousand dollars for just such a bond, immediately present it and receive nine linn- dred dollars of the amount, and yet continue to receive the same interest as the man who has not been paid at all. They eat their cake and have their cake, a feat unfavored credit¬ ors have not found out how to perform. The only hesitation of the hanks in coming into an arrangement so profitable to themselves must have been fi-om such doubts as a sober business man would be likely to have that money would ever be borrowed by any person upon such hard terms, or from anticipation that íAis part of the bargain, would he made more equal between borrower and lender as soon as the former could recover his presence of mind, disturbed by his pecuniary necessi¬ ties. 2. The national banking system is pat¬ terned after that of the State of New York, and interest is payable upon the government bonds just as equitably as upon the State stocks, in which the capital of the New York 13 banks 10as invested. The transaction in the two cases is essentially different. A State has no XJOwer to ereate a circulating medium, being prohibited by the Constitution from emitting Miis o/cridii. It cannot therefore substitute its own notes for those of the banks. The State of New York does not supply the currency used by its banks to do their business, nor guaranty its payment nor make it a legal tender, nor agree to receive it for the State dues. The State merely makes itself a trustee of so much of the capital of the banks as is invested in its own bonds, which it stands ready to pay, principal and interest according to their tenor, and en¬ dorses a notice of this security upon the bills issued by the banks. Bi.t the general government has power, the power which it has repeatedly exercised, of issuing circulating notes. It has issued in competition with the national bank cur¬ rency its own demand notes, and made them legal tender, and maintained their currency by law. It had no necessity of resorting to the h]direction by which the States evade the prohibition of the Constitution. The general government does in fact not only legalize, monetize, and endorse in ad¬ vance the currency it furnishes to the na¬ tional banks, but it mechanically creates it. .■Vil its crecfit, exchangeability and intrinsic value spring from this endorsement and from the security of the bonds held by the United States for its redemption. The banks that were to have redeemed the circulating notes on presentation, it was well kuotvn could not do it, and so could have given no credit whatever to them by their own prom¬ ises of payment. The public receive the notes solely upon the faith of the United States, without caring to notice what banks issue them.. So little is the guaranty of the bank esteemed, that, in several Instances, the only effect the total failure of the bank giving it has had, has been to make its notes in request at a premium by the rule of arithmetic that increases a sum from which a minus quantity is subtracted. While then a paper currency may he is¬ sued directly by the general g overnment, while the clumsy contrivance of a guaranty by corporations, that it was known could not perform this guaranty when given, and have since been in no condition to do it, has only tended to discredit the national bank bills, why should not the government haye the profit derivable from an issue of money of which it is both the maker and the respon¬ sible guarantor? 3. The National Banks repay in taxes all the interest they receive on the bonds depos¬ ited as security for their circulation. This proposition was first put forth by Mr. Jay Cooke in a plea for the National Banks, which has been extensively circulated. It was subsequently adopted by Mr. Hulburd, the Comptroller of the Currency, and reduc¬ ed to a calculation, which has received the sanction of Secretary McCulioch in his annu¬ al report, and with a slight exception has been certified as correct by Senator Morrill of Vermont, one of the ablest and most con¬ servative financiers in Congress. And yet its falfacy seems to this writer so manifest as to excite surprise that it has so far escap¬ ed anything like a general and accepted ex¬ posure. Here is the calculation as stated by Mr. Comptroller Bulburd: The national banks are compelled by law to hold constantly in reserve a certain per cent- age of their circulation and deposits in United States legal-tender notes. The amount thus held permanently in reserve is never less than $150,000,000, (generally about $180,000,000,) and is a gratuitous loan to the Government. The banks get no interest on it. It i.s so much of their capital unproductive, invested in non- interest-bearing notes of the Government. The case, may he stated thus: The bapks liavo loaned to the Government as folloVs: For bonds deposited to secure their circnJation, hearing six per cent, in- (eresr, Bearing five per cent, Permauent reserve ol legal tenders $250,000,000 90,000,000 160,000,000 Totallean to Ihe United States, $190,001,000 For which they receive— Six per cent, intereston $250,000,000 $1.5,000,000 Five per cent, inierest on $90,000,000, 4,500,000 Total, .$19,500,000 Eat they retiuid in taxes. 16,000,0i 0 Leaving, $3,500,000 which the Government pays the hanks for a loan of $490,000,000—a little less than three fourths of cue per cent. Tliere is still another aspect of this case; The banks are held rigidly accountable for the interest they reoeive on money honestly loaned to the- Government when it needed money, and they claim credit for the money loaned to the Government without interest. They hold these $150,000,000 in obedience to the mandates of the law, while money is worth to them six per cent. They therefore give the Government the use oí the money ; that , is to say— 14 Six per cent, on $150,000,000 non-inter- esi-bearinsr Uni' od States notes held pernranently in resei ve, $9,000 000 They pay in the shape of taxes, 16.000,000 Total, $25,000,000 They receive interest from the Govern¬ ment, 19,500,000 Leaving, $5,500,000 which the hanks actually pay as a honu.s to the Government for the privilege of circulating their own notes. There are certain «bvious aspects of this calculation which tend to throw suspicion on its fairness. The five per cent, bonds ai'c reckoned as of equal value with the sis per cent., whereas they have always rated at from 5 to 10 per cent, lower. The permanent reserve of legal tenders is not part of the loan to the United States as will be hereafter shown. The interest received is credited at gold rates, while the taxes paid are charged at currency rates. Making the proper correc¬ tions the statement will stand thus : Loaned to U. S. on 6 per cent, bonds, $260,000,(100 „ „ 5 „ „ 81,000 000 Total, $331,000,000 For which ihey receive 6 per cent, in¬ terest on $250,000 000, as currency, $21,000,000 For which they receive 5 percent, in¬ terest on $90,000,000 as currency, 6,300,000 Total, $27,300,000 But they refunded in taxes, J6.0i)0,')00 Leaving, $11,300,000 which is about 31-3 per cent, on the loan of the banks to the Government. But looking more closely into this calcula¬ tion, is it probable that the permanent re¬ serve of U. S. demand notes held by the hanks is so large as $150,000,000 ? The whole amount of these notes outstanding is only about $370,000,000, of which the treasruy holds about $30,000,000, leaving $340,000,000. If the banks hold $150,000,000 there remain but $190,000,000 in circulation. The cuiTcn- cy reserve, like the specie reserve under the State laws, is theoretical i-ather than actual. The immense volume of deposits, a billion and a quarter dollars acc irding to the amount returned lor taxes, and the loans so largely in excess of capital, show that the hanks are utilizing and earning interest upon every thing they can prudently avail themselves of as money. With virtually no liability to redeem their circulation, with a supervision lar more las than under State laws, with an obligation to make returns only quarterly, it is to be supposed that the reserves of legal tender notes are kept as low as is consistent with a prudent regard to sell-interest. But is the reserve, whether $150,000,000 or more, or less, any part of the loan of the banks to the government, for which they are equitably entitled to interest? The only ad¬ vantage which the government can be suppos¬ ed to derive from the reserves in the banks is, that so much of its debt drawing no inter¬ est is kept out without presentment lor pay¬ ment. We must consider how the govern¬ ment is affected by this, first, in a time of suspended specie payment, second, in a time of specie payment. It is evide nt that in a time of suspended specie payment, that is tor the last six yearg, and probably for a year or two to come, the government is not affect¬ ed one way or the other by the retention of this reserve. Safe in its own avowed insol¬ vency, it is a matter oí perfect indifference to the government, whether its dishonored notes are in the vaults of the banks, in the pockets of the people, or presented at the treas¬ ury for payment. It closed its doors and put out the sign of No Funds years ago, and since that time it has not been annoyed by suits costs, damages,extra interest, or very importu¬ nate duns. So that up to the present time, it is most preposterous for the banks to claim that they have kept a hundred and fifty million of the United States demand notes trom being presented tor payment, whereby the treas¬ ury would have lost so much gold, or been mulcted iu the payment of so much interest on bonds. The United States took effectual care ofitsell'by stopping payment, and refusing bonds, and does not owe the banks as Mr. Hulburd makes out, $9,000,000 a year for keeping up its credit. It remains -to consider what beneficial in¬ terest the government has in the bank re¬ serves in a state of specie payments. Let it be understood that every demand note of the government might be presented at the treasury and converted into coin or interest- bearing bonds, and it is evident that the larger the volume of the.se notes that could be kept in use as currency, the less interest the treasury would he liable to pay. Now do the banks by their agency increase or lessen this volume of unpresented quriency? Clearly they lessen it. For if there were no hanks, every merchant, tradesman, business man and householder who now keeps say $25 in his pocket and a balance of say $200 deposited in a bank, would be obliged to keep $225 in 15 his pocket to meet his daily expenses and li¬ abilities. This $225 he could not invest or use; it would be a reserve that could never embarrass the treasury. But by putting $200 of his $225 in a bank, the bank, safe in its incoming deposits and accruing loans, can prudently loan and earn interest on $150 of it and have a reserve of $50 besides. This reserve they would be very iikely to present at the treasury ior specie, and they might find too no more profitpble investment for the $150 than to purchase a government bond, to be converted again to currency when its amount could be loaned at a better rate. So that the intervention of banks has the effect of reducing the reserve currency to a mini¬ mum, and as soon as its amount becomes certain to make it available by exchanging it for specie or interest-bearing bonds. There is still another reason why the re¬ serves of greenbacks are not chargeable to the United States as a loan from the banks. Though the law requ'res the banks to keep on hand 25 per cent, of their circulation and 25 per cent, of their deposits in United States demand notes, it is a requirement, not for the advantage of the government, hut for the advantage and safety of the banks. Every business man finds it necessary to keep a considerable percentage ot his capital with¬ in reach as cash. Be foregoes the interest on this amount, on account of the ease and crefit which it gives him in doing business, just as prudent and successful bankiug re¬ quires a certain reserve of available cash to use in emergencies, when a public distrust might in a few hours amount to a ruinous panic compelling laiiure. What this amount should be the prudent banker learns by ex¬ perience. If there were no law on the sub¬ ject a wise seltMnterest would not be likely to put it much less than the requirement of the government. If then banking is of it¬ self a contrivance whereby capitalists in viting deposits by their own integrity and wise management can loan their paid-in funds once and their deposits twice over and thus get three fold interest on their capital, ought they to complain because they cannot get a fourth interest on such cash as they reserve for contingencies, or charge that in terest to the government? Of the $16,000,000 paid annually by the banks in taxes, $8,000,000 are for State and $8,000,000 for national taxes. Have $8,000,000 been contributed by the national banks in taxes to the States ? The only mode the State has of levying taxes upon ihe national banks is by taxing the shares of the stockholders. It is so much actual capital which was taxable as money before it was paid in as bank stock, and would be taxable as money if the banks should go into liquidation, or would be tax¬ able as stock if it had been or should be in¬ vested in raiiioads, manufacturing or insurance. No new source of revenue for the State has been created by the institu¬ tion of national hanks, and to the State it is •a matter of indifference whether so much of its accumulated capital is held as money or invested in banks, or invested in other stocks or in ships, or lands. It cannot escape State taxation whatever form it takes. For these reasons probably. Senator Morrill of Vermont conceded, in adopting Mr. Hulburd's calcula¬ tion generally, that the credit of $8,000,000 tor taxes to the State, was not to be allowed. But more than this, the States have actual¬ ly lost a source of revenue in the establish¬ ment of national banks. In Maine the State banks contributed one per cent, of their cap¬ ital to the school fund, and this sum must now be made up by general taxation. The national banks have been in existence about four years. Up to the present year, by de¬ lects in the law and constitutional impedi¬ ments interposed by the courts, not a dollar has been paid as taxes upon the shares of na¬ tional bauks. If anything has been paid this year, upon the same property, it has been paid under protest, and with the right reserv¬ ed to recover it back. So that the only effect hitherto of the establishment of national banks upon the State has been to place so much of the accumulated capital of the peo¬ ple, which contributed to the general taxes at par as cash, and a special school fund tax beside», entirely beyond the reach of State and municipal taxation. Is the item of $8000,000 for taxes paid to the general government allowable? Certain¬ ly not, unless the bvnks contribute in excess of a uniform rate imposed upon capital em¬ ployed in cognate branches of business, insurance companies are taxed one anda half per cent, of their premiums, railroads two and a half per cent, and telegraph and ex¬ press companies three per cent, of their gi-oss 16 receipts, wUle manufactures pay from ttiree to Ato per cent, ad valorem upon their fabrics. Banks pay one half per cent, upon their average deposits and one half per cent, upon their capital, evidently a rate rather un¬ der than above the general imposition upon profitably employed capital. But the argument is based upon the as¬ sumption that by ceasing to pay interest on its paid bonds the general government will lose a revenue from taxation of $8,000,000 per annum. This assumption will have no foun¬ dation if in reforming the Internal Revenue system, as is here proposed, all special taxes are swept away. It has become possible, and expedient, to give up this taxation at all events,and surrender the only plausible equiv¬ alent lor the gratuitous payment of such in¬ terest. The effect of taking from the banks the power to emit their own bills of credit to cir¬ culate as money will be either to continue the banks as hanks of discount and deposit performing substantially the same functions as ihey now do or to drive the capital employed in them into insurance, manufacturing, rail¬ roads or other stocks, or to leave such capital invested in United States bonds. It is only m the latter continj^ency, that the United States would lose a present source of revenue. But that contingency is not likely to happen. Banking is almost as old as commerce. Men and companies banked upon coin and bills of exchange centuries be¬ fore paper money was invented. Banking is and has been profitable in the hands of men and corporations, that never had the power of issuing their notes as money. Some of the strongest and richest banks under the old sys¬ tem scarcely availed themselves of the right they had to issue currency. To lend money is one of the necessities of capital. The poor man need not harrow, he may be patient and earn ; but the rich man must lend and get his interest or he will starve to death. While it is a necessity of accumulated capital to earn interest, while men that have money can gain confidence, a.nd attract without paying inter¬ est, deposits, by associating their means and credit, there will be banks performina profit¬ ably to themselves and usefully to the com¬ munity all the essential offices they now per- foim. If the banks continue and special taxes are maintained, they will he as now the subiectii of taxation. At least their deposils will he taxable, and deposits contribute $6,500.000 of taxes, whereas capital contributes but $1,500,- 000. If they go into liquidation and invest in other business the capital so transferred will yield a greater tax than it does in banks. If they go into liquidation and hold their bonds the goveiTiment gets an equivalent, as from its other creditors, for the interest it pays, and there is a demand for $300,000,000 more bonds to use as a basis lor the banking busi¬ ness that private individuals or new compa¬ nies will establish to fill the vacuum, and up¬ on that $300,000,000 it will pay no interest. The true cost of the national banks to the United States supposing that a mode of com¬ pelling State taxation has at length been found, and supposing all the banks stood in relation to the bank tax as the Maine banks stand, should be stated thus : Interest paid on capital stock, invested inU. S. bonds, gold at $1 40, $27,300,000 l-oss of State tax of t per cent., 3 UCO.OOO Total, $30.300,000 Less tax on capital ¿ per cent., 1,500,000 Total per annam, $28,800,000 wbicli is 8.7 per cent on a loan of,$331,000,000 by the banks to the Government. Mr. Hulburd's extravagant estimate that the banks pay a bonus of $5,500,000 to the government may be offset by the lollowing: $27,300.000 3,000.000 8,000,000 Interest paid Uy capüal stock as above, Loss oí bank tax, Toss of State taxes on shares. Less ning reserves oí currency, which, if there were no banks, would be $000,000,01)0 inslead oí $150,000,000, Toi al. Less taxes received on capital, 37,000.000 $75,300,000 1,500,000 $73,800,000 TO ESTABLISH A NATIONAL CDBBENCT. Instead of the clumsy indirection of fur¬ nishing a currency for the hanks and giving them gratuitously the profits of its circula¬ tion, when they have not been able to begin to perform the service of redeeming it, when its only value is derived from the collateral undertaking of the government to provide lor its redemption, and its currency is due alone to the fact that it is exchanged for legal tender treasury notes, let the govern¬ ment itself issue and ledeem the currency. The coining of .money is, under the Consti¬ tution, a function of the general government. 17 The eiroulatingmeclium of every country, from the age of Caasar to the present time, has borne the image and superscription of the reigning sovereign. 'Ube coin of Great Britain is called the King's coin. Gold has its intrinsic value as bullion, hut derives its monetary value from the fact that it is stamped with the embiems of national sovereignty, and its weight aud worth are authenticated by the sovereign powertiiat issues it. Whatever takes theplace of coin, as the permanent substitute and representative ot it, shoivld be issued like it in the name of the sovereign power, and its issue, circulation and redemption shpuld be regulated solely hy the uational govern¬ ment. After the establishment of specie payments by the United States treasury, which is the first and indispensable step towards any real financial reform, let the circulating notes ol the banks be retired, in such modes, aud at ■such intervals, as shall not disturb the busi¬ ness of the country, and give the banks the option to withdraw a corresponding amount of their bonds, or receive an equivalent amount of United States notes of denomi¬ nations suitable tor currency, redeemable on demand at the treasury in coin. Alter giv¬ ing this option to the existing banks, let as many other banking corporations as may ob¬ tain charters from the several States, be lur- nished each with from $100,000 to $1,000,000 demand notes, to he used as currency upon a surrender ot an equivalent amount of United States interest bearing bonds—they paying the accrued interest, but no jiremium, whatever the market rates may be. The money thus obtained the banks can use uuder their corporate powers, in making loans and discounting commercial paper. L'H us suppose the rates of iuterest restricted as now to six per cent. By reckoning interest as is done, not upon the sum loaned but upon the greater sum discounted, by adding exchange, and by the compounding resulting from short loans, the gross annual interest earned can be made 7 per cent. But tbe 'money paid out upon a discounted bill at 10 o'clock, was paid upon a mortgage, and at 11 o'clock the mortgagee brings it in as a deposit, the bank- loans it again upon an endoi'sed note, the cus¬ tomer uses it in purchasing a caigo of lum¬ ber, and at 12 o'clock it returns to the hank as a deposit, and before 1 o'clock it is paid out in purchase of a 30 days bill of exchange. In this way banks receive, as their returns show, interest never on less than once and a half, and from that to four times their capi¬ tal. Besides these sources of income, the banks will be the financial agents of the gov- ernmeat in circulating and keeping out its notes, in re leeming these notes in coin, and in exchangiug bonds and notes for each other; for all which services they ought to be paid a j ust commission tobe fixed by law. It is believed that under such a system an am¬ ple margin is left for safe and profitable bank¬ ing, and that there need not be the slightest apprehension that the commercial communi¬ ty will be deprived of the salutary and essen¬ tial agency of banking institutions. If the original provision of law allowing the exchange of treasury notes for interest- bearing bonds, which it was a piece of bad faith and biid eeouomy to repeal, he restored, as is recommended by the Finance Commit¬ tee of the Senate, the whole volume of greenbacks issued and to be issued will be at any moment convertible into such bonds .and the bonds back again into greenbacks. But to prevent small interest-bearing bonds of $50 and $100 from being used as currency, while they draw interest, such bonds should never be converted into notes, except when presented in sums of $1,000 and the maxi¬ mum of civeuiating treasury notes should be-, as now, fixed from time to time by law. Indeed if the existing banks should manifest a dis¬ position to sustain the credit of the govern- nieiit, and co-operate with it in establishing and maintaining a permanent paper cur¬ rency redeemable in specie, the government might make them its sole financial agents, iurnishing them its bonds at par, and fur¬ nishing circulating notes only upon their requ1sition,'under such secm'ity and such su¬ pervision, as the assuming of such trusts would make necessary. The people under such a monetary system will not only be relieved from the interest ot so much of the national debt as is embraced in the circulating notes, hut they will have a currency, which the whole nation is pledged to pay, a currency contracting aud expanding according to the demands of trade. When business is active the interest-hearing debt passes largely into demand notes, money be¬ comes abundant, and the government gets re- 18 lieved from interest; when business is dull surplus demand notes are invested in bonds, and the government pays interest to relieve the people. Of coui'se the hanks will not pay so large dividends, nor accumulate surplus profits so rapidly as they have the last four years. Nor should they, for the heavy interest earned by banking capital has aggravated the market rates of interest, and diverted capital from in¬ dustrial enterprises. Some of the country banks, not having the advantage of large deposits may choose to wind up their affairs. If so there will be an opportunity to establish banks in sections of the country where they are needed, without enlai-ging dangerously the aggregate bank capital. The business of loaning money and discounting paper, which individuals have done with profit, corpora¬ tions whose credit is strengthened by associa¬ tion, can do with still greater profit. There need be no apprehensions that banking, which has become one of the commercial in¬ stitutions of civilized men, will come to an end, or that the government will be compelled to leave its proper ftrnctions, and to under¬ take the business of loaning money to needy merchants and of discounting bills of ex¬ change. If less profitable under such a system, bank¬ ing /vill become more safe. No longer hable to redeem their notes in coin, they need not keep large reserves of coin, and so long as they loan on reliable paper, ihey may still further than under the present system utilize their deposits. When specie enters again in¬ to circulation, it will naturally flow to the banks and whenever the banks redeem treas¬ ury notes with specie, not kept on deposit with them by the United States for such pur¬ pose, they will receive a commission, sufficient to reimburse them for getting, and interest for keeping in reserve such specie. OBJECTION'S CONSLDEEED. Almost all that has hitherto been said in favor of the substitution of government notes for bank notes has been in a spirit of unwise and contemptuous disparagement of the im¬ portant functions, which banks perform. On the other hand this project has been scouted upon the purely gratuitous assumption, that it would be fatal to the very existence of our banking institutions. I think I have already shown that no such consequence Mr. J. S. Pike who has written a series of financial articles in the New Tork Tribune, asserts: Banks must be investtduithihe pow¬ er of issuinf/ their own notes in order to keep them m profitable operation. It is veiy certain that neither individuals nor com¬ panies will use their means to establish and carry on banks out of a patriotic regard to the public good, /fhey will enter upon that as upon any other business from considera¬ tions purely oi-personal advantage. It they can see a margin of profit beyond ordinary interest and all contingencies, they will un¬ dertake It, and not otherwise. It is only nec¬ essary then to know that a field is open for profitable banking without the power of is¬ suing notes as money, and we may be sure that it will attract the capital of existing banks or their successors. I have already shown, that the power of loaning the entire capital and once or twice the deposits of a bank, gives such advantage to corporations over individuals as to insure the monopoly of the former. Interest on the capital is a certain and defi¬ nite sum. How much interest can be earned upon deposits? The average of deposits in all the national banks tor the year 1867 was about one billion and a quarter of dollars. The law, ini fixing 25 per cent, as the reserve of deposits, seems to imply that 75 per cent, may be safely loaned. The loans of the New York city banlcs during a time of extraordi¬ nary contraction last month, amounted to one and a half times their capital. The loans of the Boston national banks from Feb. 10th to Feb. 14th averaged about two and a third times their capital. The loans to individuals of all the banks' as returned January, 1868 amounted to $635,000,000, nearly twice the par value of the bonds, which composed their capital. One of the returns of a bank in this city during the war showed loans amounting to four times its capital. From these statis¬ tics it is reasonable to assume, that a bank can and may safely loan-an amount equal to twice its capital. Now let us suppose a bank with a capital of $500,000 paid in. It pur¬ chases of the government, bonds amounting to $500,000 and receives in exchange for the bonds $500,000 in United States treasury notes ; by the deposits which it attracts, it becomes able to loan this sum twice over at 19 "7 per cent, amouuting to $70,000. Let us suppose its annual expense tor rent, ofiBcers, &c., to be $20,000 and it bas $50,000 to dis¬ tribute to its stockholders. This is exclusive of the commissions it may receive as a finan¬ cial agent of the government, and of any bonus it may earn in the sale of government bonds. If the present banks with all their fixtures, good will, capital and experience do not choose to undertake this business, let them give notice accordingly, and other men will be ready to assume it. The change from a bank currency to a greenback currency will be resisted by a combination of sixteen hundred banks repre¬ senting a capital of $400,000,000 and the best talent and strongest influence in the country, and will have a most disastrous effect upon business. Undoubtedly the banks, which have continued to receive an interest of never less than 8 per cent, of what they loaned the gov¬ ernment, will desire to continue to receive it, notwithstanding they have received payment of the loan itself, in what they have most advantageously used as money. No doubt they will make most plausible statements that without such advantage they cannot sustain themselves, and they may even threaten to use their power to disarrange business. Every monopoly is tenacious of its unequal advantages. But if Congress listens calmly to such complaints, considers them fully, and then settles the financial problem in just regard of the rights of all the people, it is an imputation upon the intelligence and the patriotism of the stockholders and banks to insinuate that they will not acquiesce. No citizens are more interested than they in the revival of business, the diminution of taxation, and the establishment of the na¬ tional credit. While profiting temporarily from the financial difiScnlties of the govern¬ ment, what they expect and demand is, pro¬ tection in the pursuit of a legitimate and useful business, and a fair distribution of wealth to the capital that acquired it and the labor that increased it. Mr. I'ike in the article already quoted from says : " The. treasury note can never act as a substitute for the bank bill in ordinary times, unless the treasury turns banker, and sells Us greenbacks for the same kind . of securi¬ ties thiit the bank takes for its notes." There is not the slightest need of the treas¬ ury turning banker, any more than because it coins the metallic currency it needs to make all the payments that are made with coin. It will sell its currency iust as it has sold its revenue stamps, and its postal currency. ■Does it follow, because the government fur¬ nishes and redeems the fractional currency, that it must do all the small trade, by which it is distributed to the people ? It is the first condition of lending money, that a man should have it to lend. If a man finds that ten per cent, can be made by leaning money, he will loan his own ; if he has none he will buy it of those that have it to sell and do not wish to loan, and pay tor it with what they will receive as an equivalent. The demand notes of the goveinment are distributed to the people at the rate of several hundred millions a year in the expenditures of the government; if that does not supply all the money needed, those that want more, will buy it if they can make anything by it, and pay in bonds which are in abundant snpply at reasonable rates. Why complicate theflnancial difficulties by setting the banking capital, in hostility 'to the government? , Because the establishment of specie pay¬ ments is the vital and indispensable method of entering upon a cure of the present finan¬ cial difficulties. The banks are compelled by their constitution to stand as the chief hin¬ drance to specie payments. The United States have outstanding about $340,000,000 of demand notes. The banks have out about $300,000,000. Nominally they are all due in coin. There is in the country but about $300,000,000 of coin as estimated, not enough to redeem half this amount. If there were but one debtor liable, to pay, either the banks or the government, then after the presentation o f $50,000,000 or thereabouts the clamor for specie would subside, and the currency would be held and used as equally good with gold. While the government and banks were all ke insolvent there was no competition between them; the moment one begins to pay the oth¬ er antagonizes it. Let the treasury begin to pay coin to-morrow, and the banks, which already hold $ 150,000,000 to $180,000,000 of greenbacks would begin to gather in all the rest in circulation, and knowingthat their turn to pay had come, as a matter of self-preserva- 20 tiott as well as to drlye the govehiment baek to l^. old. insoíveúoy, would liegln to draw wit^ their greenbacks ail üie coin from the treasury. Until the United States make some treaty with the hanks, or better still till they either assume or surrender this divided empire of issuing the paper currency of the country, specie payments and their attend¬ ant benefits are Impossible. TO PAY THE SATIONAI. DEBT. Upon this topic .after the points already discussed hut a word or two need he said.— No theory is insisted upon that a ualionui debt is a national blessing. Ail debt Is a mis¬ fortune whether it rests upon an indlTldua] or a nation. But pcopic siiould discuss the question of paying theh- aggregate npoii tlie piudeullal considerations pertinent to an individual debt. If a man can earn G per ceni, with uiunoy and can borrow it at 3 per cent, it is a matter of prudence to remain in debt. So if the United States can ftmd Its whole dêhf at nú ayeiáge of 3 per cent, and the tax-paying people ,(átn increase their t^iegate wealth 6 per cent, per annum by withoiding payment, then it is pradent to remain in debt. One thing ought to be proTided, that within fifty years one and a half pillion dol¬ lars of the principal of the national debt should not be paid, so as to have that am¬ ount as a basis lor tbeyeai-ly increasing bank¬ ing capital of the oountrf. With the debt placed ata just rate of in¬ terest, that amount of it not embodied in de¬ mand notes, may be paid from the increased revenues by which ihe revived commerce and industry of the country are sure to exceed the estimates. Our revolutionary debt, a heavier incum¬ brance upon the wealth of the country than the present one, paid itself out of tarlfls i d- justed mainly to the ordinary wants of tbe government and tbe profitable dcvciopinent of industry and commerce.