•
rfCY
' Y
\
WM. A. BERKLEY,
dent »f I'kfenix Furniture Company,
M) KAI'IPS. Ml< H.
THE MONEY QUESTION.
THE LEGAL TENDER PAl'KU
MONETARY SYSTEM
( > F 'I1 I I K
UNITED STATES.
A\ ANALYSIS OP THE SIM:. IK BASIS OR BANK CURRENCY
SysTK.M, AND <>F THE LEGAL TENDER PAPER MONEY
SYSTK.M; TOGETHER WITH ^AN HISTORICAL AC-
COUNT OF MONEY AS IT HAS BEEN INSTITUTED
IN mi-; PRINCIPAL NATIONS OP EUROPE
AND IN THE UNITED STATKS.
l!v WILLIAM A. HERKEY.
GRAND RAPIDS, MICH.:
\V. \Y. IIAIIT, STEAM HOOK AND .1O|J
1876.
s
PREFACE.
I.v appearing before the public in the character of a
writer, upon what is commonly supposed to be a very
abstruse subject, a word of explanation seems to be neccs-
>ary. For over a quarter of a century I have been actively
engaged in business, as a manufacturer, and have naturally
been led to enquire into the laws which govern the produc-
tion and distribution of wealth. It was a matter of perplexity
to me why it was that a nation possessed of the wonderful
natural resources and the enormous productive powers that
are possessed by the American people, should not enjoy
general and uninterrupted prosperity; and, knowing that
wealth is chiefly the product of labor, that the industrial
classes^!' society are unable to retain anything like a fail-
proportion of the wealth produced by their labor. The
fanner, usually considered the most independent of mortals,
is engaged in a never-ending struggle to secure a mere com-
petency; the same is true of the mechanic, the laborer, etc.;
and the merchant, the manufacturer and others engaged in the
production and distribution of wealth, aided by capital, arc
oppressed with a consciousness that their capital may at any
time take to itself wings and fly away, no matter how wisely
or prudently they may conduct their affairs. On the other
hand, wealth is seen flowing in a constant stream into the
laps of those who do not employ their capital in any wealth
producing pursuit, but use it, in the shape of money, as an
instrument to control property and labor. This certainly is
sufficient to justify the suspicion that the unequal distribu-
tion of the products of labor which is constantly going on
in the land, greatly to the disadvantage of society, is due to
IV. j'l; !
tin- manner in which money is instituted; and the <|ucxti
-' •, in \vh:it re>]iect ix money improperly instituted, and
wliat is the remedy?
If it had not been for the experience furnished during the
Kchcllioii, the great body of the American people would
doubtless liave continued to struggle on, in entire ignorance
of tlie fact that it is possible to establish a monetary system
on any other principles than those inculcated by the udvo-
the -pecie hasix or bank currency sy>tem. Fortu-
nately, however, it was then fully demonstrated that a >ystem
of money, Mich as was suggested by Jefferson and other
eminent founders of the republic, could be instituted upon
entirely different principles a system thai would distribute
the product* of labor in entire harmony with the law-
trade, and far more equitably than could possibly be done
through the instrumentality of bank currency. The ma-
undoubtedly reali/e the truth of this, but are at loss to give
-i reason for the faith that is in them. This is not at all
Mranire. The wealth, intelligence and ability of the nation,
.veil as the power of the prcxx, arc arrayed on the side of
the banks, precisely as the same element- were arrayed on
ihe side "f the 1'nitcd States liank in the memorable context
between that institution and the people, under the patriotic
leadership .if (ieneral Jackxon. Kven j»rofesx«.rx of political
aorny are dragooned into Jthe same ignoble service, ami
compelled to distort tho principles ol the science, to which
they pr«»fcx> to be devoted, for the juirjMise of «icceivinur the
public. In piirsuinLT my «»wn invi-stiirati«»nx, T found, to my
siirprix.-, that, e\<-ej.t Kcllo^-/* admirable work, written
s..m«- \.-arx before the war, there \va- no book extant of a
popular character, from which anything like a clear under-
din.ir of the .juextioiis involved in the pre-eiit crisis could
I" obtained; and that the public was entirely dependent
ri: i: K 4CB. \.
upon (he fugitive writings of tin- t'ew earnest and aide men,
who have espoused the cause of the people, for information
upon the subject. It was in view of these circumstance-
that this work was undertaken. I would have been glad,
indeed, if some one, who was better prepared for the duty,
had undertaken it; but as that did not seem probable, and,
knowing the great want of such a work from my own expe-
rience, I determined that it should be written at all events,
in order that the American people might have a fair oppor-
tunity to decide intelligently upon this all important ques-
tion. No claim is made to originality, nor has there been
any effort made in regard to style. My sole aim has been to
present the facts and principles relating to the subject
correctly, and in plain, simple language; and, as will be
observed, I have not hesitated to quote extensively whenever
it could be done to advantage. In preparing the work for
the press I have also availed myself of competent assistance,
in order that the subject matter might be presented to the
public as forcibly as possible. Special care has been taken
to give credit to those whose ideas or language have been
adopted, but I am much indebted to the fugitive writings
above referred to, and I desire in a general way to express
my acknowledgments for the same, and especially to Hon. W.
D. Kelley, General Win. Brindle, Henry Carey Baird and
E. M. Davis, of Philadelphia; Peter Cooper and Pliny Free-
man, of New York City; John G. Drew, of New Jersey;
and to the Cincinnati Enquirer, the Chicago Industrial Age
and the Indianapolis Sun.
WILLIAM A. BEI1KEY.
GRAND RAPID?, MICH.. >
Mav 20th, 1870. J
CONTENTS.
CHAPTER I. — Tin: WKAI.TH AND KK>OIK< KS OF TIIK
UNITED STATES. — WHY THE AMERICAN PEOPLE IK>
NOT ENJOY GENERAL PROSPERITY.
CHAPTER II. — MONEY AND ITS FUNCTION-
The Nature of Money 26
The Intrinsic Value of Money 30
The Uses of Money 37
Systems of Money 48
The Power to Make Money a Governmental Function.. 53
How Paper Money issued by the Government Repre-
sents Value 70
CHAPTER III.— BANKS AND BANKING. 75
CHAPTER IV.— BANKS OF THE OLD WORLD. 80
The Bank of Venice 80
The Bank of Genoa 87
The Bank of Amsterdam 87
The Bank of Hamburg : 88
The Bank of England 88
The Banks of Scotland 97
The French System of Finance.' 100
CHAPTER V.— PAPER MONEY AND BANKS OF THE
UNITED STATES. 100
Early Colonial Currency 109
Continental Money 112
State Banks of Issue 117
The First Bank of the United States 119
The Money Panic of 1809 I •_> I
The Money Panic of 1814 125
The Second Bank of the United States 120
The Money Panic of 1819 l-_'7
The Money Panic of 1825 133
The War with the United States Bank 133
The Money Panic of 1837-1839-1841 150
The Money Panic of 1857 !">:>
The Suspension of 180 1 154
State Banks of Issue Supplanted by National Banks... 153
Vlll. • 0 NTKNTS.
•
( IIAITKU' VI.— HlSTOEY OF nn; PAI-KI: MONKY
l-->n i> DriMMi nn; KKHELLION. 161
Tin- First Loan Acts ............................... J r,4
Treasury Note hearing interest and not a Legal Tender. 171
Full Legal Tender Treasury Not^ not bearing interest. 172
Secretary Chafe's First Annual Report ............... 173
The First Le-al Tender Bill ........................ 175
The lircenback ................................... ]!><>
Temporary Deposits in the Sub-Treasury ............. 203
Certificates of Indebtedness ........................ 2o:i
The Second Lcu'al Trmlrr Act ..................... 204
The Second Annual Kcport of Secretary Chase ....... Jo 4.
Tin- Third Le-al Tender Act— %900,000,000 Loan Act. 200
The National Bank Hill ........................... 209
Public Del »t Statement, 1863 ........................ 210
Amount and kiixl of Paper Circulation, June 30, 1*04.. 215
Bonds Fxcnipted from Taxation ..................... 216
(ireenhacks Limited to $400,000,000 ................. 216
iden Appointed Secretary of the Treasury ....... 216
McCulloch Appointed Secretary of the Treasury ....... 217
Deht and Circulation of the United States, isr.5 ....... 210
McCullocli*> Contraction Policy ..................... 210
Amount Contracted, .July, 1868 ..................... 222
Act of Conirrc» Suspendin«r Contraction of (ireenhacks 223
An Act to Strengthen the Public Credit ............. 2&I
KcfundinLT the Public Debt ......................... 230
Public Debt Statement, November, 1875 ............. 231
( IIAITFK VII.— THE NATIONAL P>ANKIN«. SYSTEM, 244
• try Chase Recommends a National Banking La\\
National IJank Hill Reported in the Senate 245
The National Bankinir Law 240
Of the Orirani/ation of National Banks 247
The Protitx of National Banks 2-",o
The Panic of 1873
The ( 'ovt of Bank Currency
Failure^ in the Country since Is«:i 264
K\travairane< — ()\ i-r !'i-oduction 266
An Act to L'fMinie Specie Payments and Make Bank-
ing Fn-c to Bondholders 270
The Little Tariff Bill— an Act to Enable the National
to Monopoli/e the Currency 271
ro N i i. N i 8, ix-
CHAPTER VIII.— RKSIMITK.N OF SF» n: PAYMKXTS. 27$
How Interest mi Government Bonds is Paid 27 J
The Specie Resumption Ad 279
The Aiiumnt of Gold in the Country 281
I {cMimption Impossible 2821
The Consequences of Korced Resumption 289
The Kxperience of Great Britain in 1819 — 182:} 290
The Consequences of Forced Resumption in the United
States 30O
CHAPTER IX. A MOXETAHY SVSTKM Forxi.KD
UPON Soi.ND Plil. \CIPLE8. 305
The I teal Issue in the Impending Crisis 311
An Analysis of the Specie Basis or Bank Currency Sys-
tem of Money ..'... 312
The Cost of the Credit System :J24
Commercial Crashes and Money Panics 326-
An Analysis of the Lejj^al Tender Paper Money Svstem. 33O
What is a Dollar? .* 333
Money of Account 334
The Legal Tender Question 341
How .Much Money a Nation Should Have 344
How Interest Should be Regulated 349
The 3.65 Bond Plan 352
How the Public Note is Put in Circulation 355
The National Debt 356
Conclusion 359
APPENDIX.
Horace Greeley's Famous Editorial on the 3.65 Bond
Plan 363
The Legal Tender Bill as it passed the House of Rep-
resentatives, Feb. 6, 18(52 367
The Legal Tender Act of February 25, 1862 37O
Speech of the Hon. Thaddeus Stevens in the House of
Representatives, December 19, 1862 37$
Table Showing the Monthly Range of the Gold Pre-
mium since 1862 381
The Frem-h As^ignats 382
CORRECTIONS.
The table given on page 231 exhibiting the amount and character of the public
debt, bearing interest, on the 30th day of November, 1875, is incomplete. By au
oversight the currency bonds issued to the Pacific Railroads were omitted. The
amount of thn currency bonds outstanding at that date was $64,623,512, which,
added to the amount given on page 231, would make the total public debt, bearing
interest, November 30, 1875, $1,758,874,812.
On pag«' ss for " out," tho last word on the page, read "about."
On page 17. In the <evcnth line from the bottom of the page, substitute '"April"
to "March."
THE MONEV QUESTION.
CHAPTER T.
THE WEALTH AND RESOURCES OF THE UNITED STATES. —
WHY THE AMERICAN PEOPLE DO NOT EX.TOY
<;K\KRAL PROSPERITY.
THE prosperity of a people depends chiefly on the use
which they are enabled to make of their natural resources.
It frequently happens that nations possessing great natural
advantages fail, through want of properly directed industry
6r defective laws, to attain even a reasonable degree of
prosperity; and, on the other hand, that nations possessing
but limited resources succeed, under wise laws and by means
of well directed energy, in achieving great wealth. History
abounds in instances illustrating the truth of this statement.
At the present time Ireland and Holland may be cited a>
cases in point. Ireland possesses a fertile soil, salubrious
climate, fine harbors, noble rivers, and a population naturally
brave, quick and capable of great labor; but her people, by
reason of unequal laws and bad government, are chained
to poverty and ignorance. Holland, a land reclaimed from
the ocean and held only by sleepless vigilance, was orig-
inally destitute of even ordinary advantages; but under
enlightened laws, industry and art have accomplished the
most marvelous results. " Below the level of the sea, and
the surface of adjacent rivers and canals, have been created
10 i:ix>i •];• i.- "}•• Till; IN 1 1 i.D M A i );•>.
l»y human art, fat pastures teeming with llocks and he
rich artilicial garden land, nourishing the industriou^ a
thriving population of innumerable cities, towns and \ illa_
Tin- \er\ j an artificial fortification against tin- ocean,
the ancient and natural monarch of the country, Here lie
is defied by leagues of artificial sea banks — there by mile- of
granite masonry. Ui\rr> an«l canals are made t<> run many
ahnvc the level of the cuimtry. Annie- ••!' indefatigable
wind mills are perpetually pumping and draining. AmMer-
dam and K"ttenl:mi, ]M>puh>u>, opulent and splendid c'r
• Irivcn into the mud."' Thu>, l»y well din-
indu>try, under wi>e law^, ha\c the people of Holland I-
enabled to achieve a wonderful victnry over the forces of
nature, and to clothe thcm>dvcs \\'ith general prosperity.
The people of the I'nited States are peculiarly r\( h in all
iM.untio of nature. They po-^c<s a land wlm>c area
4,000,000 of square miles. Within its Imundaries
•re embraced e\ery variety of >oil and climate; ine\hau>tible
minex «.f iron, coal, copper, lead, /'me, gold and silver; im-
men-i- : -rand lakes and mighty ri\ei>. A better
id.. eat extent may be formed by comparing &
..f the Si.it, v ,,f the Union with the kingdoms of Km
California, for example, u equal in si/.e to Kngland, Scotland,.
Ireland, Wale-, Ilelgium, Holland and I'ortugal; and T-
jiial to France, Holland, Jielgium and Denmark. The-
mineral reflOUTCefl of tlie country are alnio-t beyond conij»n-
tation. For example, it i> e-tiinated that coal enough ha-
already bi-.-u <!i-.-..\ i-red to Mipply a population of l.oooj
000 for • ( Mlier mineraU, comparatively sj.eak-
, an- equally abundant. Tlie gold ]»roducing region of
country COTen an area of o\er 1,000,000 of square miles,
• the di-.-.-\,'i-y of •_•-., Id in California in ] ^40, tlie
gold yield of the world did not exceed $20,000,000 a \
i:i -.'i i:< Bfl <»!•• TIM-: IM n:i> 81 ,\TE8. 1 1
\o\v tin1 I'nitcd States alone produce annually over
*7:),000,000 worth of bullion.
The agricultural roourees of the1 country are cijually
i'oundlcss. In almost every section the noil yields bounti-
fully, while in SOUK- regions, as in the great States of the
\Ve>t, its fertility is unsurpassed. The agricultural produc-
tions of that region alone have reached an almost fabulous
amount.
The gn-at natural advantages possessed by the country
have enabled its manufacturing interests to make great
progress, in spite of the ever changing and illy devised tariff
laws, which, for the greater part of the time, have disiigured
the statute books of the nation. While agriculture and
manufactures flourish side by side, in all parts of the country,
greatly to the advantage of both, it happens that the peculiar
facilities and advantages enjoyed by different sections of
the country have caused their industries to vary greatly in
character. Thus, the people of the Eastern States are
devoted chiefly to manufactures and commerce; the people
of the Middle States, although engaged largely in com-
merce, manufactures and agriculture, are also occupied
extensively in dealing in iron, coal, lumber, salt, petroleum,
etc.; the people of the Western and South Western States,
while po»es>cd of large mineral and other interests, as yet
find their chief profits in the vast agricultural resources
which they enjoy; the people of the Southern States are
engaged principally in tlve production of the valuable staples
common to that section, such as cotton, rice, sugar, tobacco,
etc.; and the people of the Pacific States, besides their
immense agricultural and commercial interests, find a wide
field for employment in developing the rich mines of gold,
-ilver, etc., which have rendered that region famous
throughout the world.
i; i.-«>! i:« j;> OK MIK i MTKI> STATES.
"
To glance briefly at a fe\v detail.% the a»e>sed value of
the farms and stock in the 1'nited States in 1870 wa* nearly
|1 1,000,000, ouo, and this sum did not cover one-half their
actual \alue. The following statement, gathered from the
CenMix Keport of 1870, gives a partial vie\\- of the airricul-
tural operations of the country during the preceding year:
Farm product*, including addition! to >t..ck. $2,500,000,000
Farm \sa-« •-, ineludinir value of board 310,000,000
Wheat 2^.<>oo,000
B 17,oon,ooi)
Indian <'<>rn 701,000,000
< >al - 2S2,000,000
Barley 30,000,000
Buckwheat 10,000,000
Flax Seed 1.700,000
Clover Seed l',OO,000
u 600,000
P"t .it.M"* 144,000,000
Sweet 21,000,000
I Means 5,500,000
( '"ft. .11 1,200,000,000 pound-.
Flax 27,000,000
Hemp 25,000,000
H..p> 25,000,000
74,000,000
\N '"-,] 100,000,000
T"bace«, 203,000,000
Butter 500,000,000
Cheese -JM,OOO,OOO
27,000,000 ton*.
And the following statement presents a general view of
the manufarturiiii; inteiwt^ «,f the country in 1H70:
Number of inanufacturiiig establishments... 252,148
Number of operati\c- :.!M<7
< 'apital in\extrd $2,118,000,000
Animal salaries paid 776,000,000
K'.iu material u-ed -J.lss.ooo.ooi ,
4,282,
BX8O1 i:« B8 OF TIIK t MII.I> > r \ i KS. 13
111 considering the resources and advantages of the coun-
try, it is proper to notice the labor saving machine ry, largely
the result oi' American ingenuity, which now performs such
an important part in all the departments of labor. In (ircat
Britain the power of the machinery of that country i> e-ti
mated as equal to that of 600,000,000 of -men. In this
country it probably does not reach that amount, but it is
MitHciently large to add enormously to the productions of
the country. In many sections one thousand acres of land
can now be cultivated with no more cost than was formerly
required to cultivate one hundred.
The great and varied industries of the country are rendered
vastly more useful and profitable by reason of the channels
of communication, natural and artificial, which extend in
everv pov.vihle direction. In addition to the many lakes and
riveis, which traverse the country, it is covered with a net-
work of railroads from ocean to ocean, affording ample
means of transportation to gather and distribute the products
of the nation.
From this outline of the wealth and resources of the
United States, it is apparent that the American people are
pn.s>e>si-d of vast advantages, such as are hardly possessed
by any other nation on the globe. It is»estimated that the
United States are capable of sustaining a population of
upwards of 350,000,000, while the population of the country
now scarcely exceeds 40,000,000. If enabled by wise laws
and well directed industry to make a proper use of their
advantages, the people of the United States ought to enjoy
general and uninterrupted prosperity. And, as the govern-
ment of the Unite* 1 States is republican in form — based upon
the theory that all power emanates from the people, the
responsibility of any failure on their part to a'ttain wealth
and prosperity must rest with the people themselves.
14 . > M.I: AI. IM:<>MM:KITY.
IMI TBS \\IKKK A.N PEOPLE KN.JOY GENERAL 1-iiospERITY?
•vithstandin^ their boasted industry, intelligence aii'l
enterprise, :in<l tin- vast resources which they possess, the
people of the 1'nited States, as a nation, have failed, utterly
and di-L:racefully, to attain anything like a reasonable
irencral prosperity. We sliall not resort to any
elaborately prepared statistics to establish tin- truth of the
a*-crtion, hut will simply call attention to a few important
the < -onvideration of which, we believe, cannot fail to
prodm-i* conviction.
TI;N IIMI- within the past sixty years has the country
IM-.-II visiti-d l>y coniniercial crashes and money panics,
accunijjanied or followed by general stagnation of business,
ruin ami bankruptcy. From '1814 to 1801 the country suf-
fered MM; JIMKS in this way, and only o//ce, from 1841 to
L857, did it c-cape a financial crash for a hinder period than
ff.n :/' ' • . At- the present time the country is suffering
f'rnni thi- crash of 1.^7:;, or rather from the same cauM-> that
|iro«lucrd that cra>h. The-e coniniercial crashes have
invariably paraly/ed all forms of productive industry, bank-
rupted huv'm<.vv im.n, >trij.pe<l the debtor cla>s of their
prop«-rt\, and occasioned want and distress amoii^-; nearly
all classes of peoph-. When we look back over the pa-;
half century, we find that, a> a matter of fact, the people at
lar-je have never had an opportunity, even between these
- of financial disturbance, to enjoy more than a
glimpse of prosperity. They have been kept hii^y, either
HtniirLTliii'-: to a\')id impendiiiLC ruin, in view of a commercial
crash, <>r laboring \<> rebuild their shattereil fortunes, after
:;ic had subsided. And now, the (i \II.\M\I. YI-:AI:.
1870,80011 to be celebrated with Lrreat pomp on the banks of
tiuylkill, under the auspice* of a irreat city writhinL'
under tlie heel «.f a corrupt K'inir. finds the people, in the.
.KNKKAI. IM:o>n.KI I '> .
midst of plenty, distressed, exlUNRftted and poor. And how
does this happen? Has nature frowned upon the husband-
man and refused to ropond t<> his toil? Has the earth
declined to yield up her precious stores? Has the hand of
the artisan or nu-chanic lost its cunning, or the arm of the
laborer its strength? Not at all. The graneries of the
Wot are bursting with the- products of the soil; the valuable
^taples of the South are as ready as ever to respond to the
touch of labor; the mineral wealth of the earth lies exposed
on every hand; the wheels of the workshop and the factory
are faithful as ever; and the mechanic and laborer are not
• nly able and willing, but anxious to work. The cause of
the whole trouble lies concealed in the simple word —
MONEY.
In civilized nations at the present day a circulating medium
•of exchange, called money, is as essential to the production
and distribution of wealth in all its forms as railroads and
wagons are to its transportation. In 1ST:* an epidemic
among the hordes, for a few weeks, seriously interfered with
trade and travel. Were all the railroads and canals of the
country to suspend operations for a single season, it is not
difficult to surmise the amount of disaster and distress that
would ensue. And the public might as well try to conduct
the affairs of life without railroads and wagons, or the far-
mer try to cultivate the soil without implements, as for a
nation to attempt to develop its producing forces, or carry
on successfully the operations of trade, without an adequate
amount of money in the channels of circulation.
The business affairs of the country during and after the
late war increased largely. The wealth of the nation, in
spite of the ravages of war, increased from $16,000,000,000
in 1*00 to $30,000,000,000 in 1870. All the money and
evidences of indebtedness of the government, which could
be uxrd a* a circulating medium of exchange, were actively
-employed. The people, for the n'rst time in their history,
16 N" -.I.NUIM. i'i:o.Ni'i-;i:iTY.
i an abundance of money in circulation and were enabled*
in develop tin- resources <>f tin- country and add to its wealth
in :i corresponding degree. The increased production in
« -MTV department of labor rendered the burdens of tax.r
liirht, and, at the same time, increased the revenues of the
irovernment to an enormous extent. The government, in
'•"ii-e<juence of its largely increased revenue, was enabled,
at the close of the war, to begin the reduction of the public
debt at a rapid rate. The people, notwithstanding the bur-
den .if taxation which they were compelled to bear, wen-.
individually, out of debt. But matters began to cha;
The -hannels of trade became stagnant or sluggish, bu-i-
nevs began to languish, factories and workshop?* \\
obliged to suspend or reduce labor and wages, real estate
fell in value, and enforced idleness began fa grow common;
and. as in times prior to the war, the climax was capped by a
financial panic. The cause of this astonishing change in
the Condition of the country — from activity and prosperity
to inactivity and distress — will be found in the following
statement. *akcn from the books of the Treasury Department
by I Inn. MOM-X \V. i-'ield, which exhibits the contraction of
the cin-iil-ituig medium of the country that took place from
September 1, 1865, to December 1, 1873:
Amount of money, currency, and circulating medium, Sep-
tember I, 1805, (exclusive of coin:)
I'nited State* Note* ...................... $433,160,
rYactional Currency ...................... 26,344,7 r_'
anal r.ank NotVs ..................... 180,000,000-
< 'ompoimd Interest LcLral-tender Notes ...... 217,024,160-
Temporary Loan ( Yrt'iticates, (lOnl^l,) ...... 107,148,71:;
of Indebtedlievx ................ H5,093.'
Treasury live per cent, legal tenders ........ 32,536,991
Tre:ivllrv Note-., p^r due, legal-lenders, and
not prevented ........................ 1,50:
Uank N-.Tev ........................ 78,867.-
Hiree year Treasury v .............. s:}u,ooo,ooo
Total Sept. i, i860 ................... $1,996,67^
17
•ulating medium, < \dusive of coin, 1 K-rember I, i
I'nited Stat. > Notes $367,001,
1'Yactional Currency 48,0<H>,
Certiiicat;- ..;' Indebtedness (bearing Interot) 678,000
National liank Currenev 850,000,000
Total December I, 1S73 $706,679,665
Contraction from Sept. 1, 1865, to Dec. 1,
l^7:i, (causiiiLT a money panic) $1. •_»:{< >,!»!»9,085
r'rom the foregoing statement it Appears that the circula-
ting medium of tlie country (or evidences of indebtedness
of the government, used as sucli) was contracted over
$1,200,000,000 in eight years. The greater part of this
amount consisted of the Three year Treasury Notes ($830,-
000,000.) These notes \\cre called in and bonds substituted
in their Mead prior to isr.s. The crash of 1873 followed as
an inevitable consequence. It won't do to say that it was
the result of the Avar, or of extravagance, or of over produc-
tion, or of anything of the kind, ('rashes and money panics
]U8t like it occurred before the war, on an average, crery
fire yr'/rx, and this <-ra>h did not occur until c'njht years
"ff> i' the war. The periodical money panics, Avhich
occurred before the war, were the natural results of the
specie basis system of money; and the panic of 1873 was
caused by enforcing the policy of contraction, which was
planned at the same time that the National Ranking system
was projected, in order that the specie basis system might
he re-estal .Fished. The act of Congress of March 1-J, 1SOO,
authorizing a contraction of the currency, A\as adopted on
the recommendation of Hugh McCullodi, Secretary of the
Treasury. It gave him unlimited control over the finances
of the country, and he did not fail to use the power placed
in his hands, to the fullest extent, in aiding the money
power, with which he was in league, to rob the country and
18
I: \I.
tin- people. When McCulIochV infan rayal of
high tru.-t ivpo^-d in him becomes fully understood, liis
name will be a l»y-wi»nl ami reproach throughout
tin- nation.
Apart from commercial crashes, or money pani
, idcnt thai there i> something radically wrong in the
-trm of the country — that then- i> some con-
'ly operating cause, which tends uto fcrtili/e tlie rich
man's iichl l»y the sweat of the ]»oor man's hr«»w." The
ma-M's toil, day after day and year after year, seeking to
ire a competency and scarcely succeed in obtaining a
The lictter chives may succeed in building up
hnim-s, l»ut t! never M-CUIV in their PO-M--MOH, until
they ha. --ed siitlicicnt proj>erty to at least enable
them to outl --in of financial depression. The pr
of labor tlow in a steady stream into the hands of non-
Lncera, who an- e!iLTa.Lri'd in manipulatiiiLC money. 1
not ditl'u-ult to di-c(»\cr the rea-on. .Money is c-oential to the
• lopnieiit of the producing forces of the country, and
to the diMribution of its products It is far more n
that money >!niuhl l>e abundant and cheap, than that t!
should be abundant and cheap means of transportation.
. tlM IM-CII the LTeneral rule since the
nstitutcil a nation. They imfortu-
• ly inherited the Uriti-h -\-tem of l>anks of i--ue. \\hicli
thefl the moneyed olawefl \\ith unlimited control OV6T the
••ilating medium «.f a country. "Money shoiihl 1)C tlie
•ervunt and not the ma-ter..f wealth, and then it will flow
in flie channels <•' in obedience to the natural la\\
demand; Imt the jtei.plc have permitted the
power to fmiii-h the i-irculating medium <»f the country to be
filched fnmi lh«- nation and gi\cn over to individuals and
corporations to 1 L ai a monopoly. At present money
NO <;I-:N 1.1: M. n;< >»ri:i:rrv. 19
has ceased to till tin- channels of trade, and, refusing to
perform its oilices, has taken refuge in the luniks in the
commercial centers. Statesmen, like Senator ( '?iristianc\ ,
may tell the £>eople atO gO tO work in any and c-very form
of ]•: •"'iiirtive induMries," and coniinand it, to return, and
imagine that they are uttering a great deal of wi>dom, lint
M here are the productive industries;' If Senator ( 'hristiaiicy
had been in .Moses's place, the .Irws. possibly, would have
heel! at in* h»>s In»\v to ''make bricks without straw:" lmt a-
sucli wisdom is not available in tliis country, it is to be
reu'retted that lie did not turn up in Kirypt a few thousand
years ap'. instead of in the I'nitcd States Senate at the
pi'i-seiit lime.
It is of course mere matter of speculation as to what,
would In- tlie condition of the country now if u'old and silver
had l>ecn its circulating medium in i'act as well as theory,
01- if a lcLr:il tender paper money had IK-CM adopted at an
early period) ftfl ur^ed l>y Franklin, Jeiferson, ('alhouu and
-•thers. With Mothinix out gold, and sil\ er the progress of the
eoiMitry Av»»uld undoiiMrdlv have oeen slow, ]>ut tlie people
generally would doubtless be better off than they are MOW.
With :i K-gal tender paper uioney, in the light of late expe-
rience, it. is more than prohul.lc that the Tinted States would
to-day l>e the- richest, most jio \verful and most prosperous
nation on the gl. •!»»-. Neither M->ICMI of u'loMcy, however,
was :idopt«Ml. The government allowed the circulating
medium to U- taken out of its hands and erected int<» a
giga.utic monop(»ly in tlie han<ls of individuals and corpora-
tions. The gold and silver of the country v.erc locked up
in l>ank Aaiilt>, as the p:-e:.-nde«l basis of bank notes, and the
people were compelled to pay an exorbitant price for a false,
iluctuating and unsafe currency, subject to the entire control
of those who issued iL
I:AI. PROSPER]
kg of itt :i :i fruitful source of disaster,
in (iiv.it IJritain an«l in tin Hike --mr-
agit .nt> and inflating their circulation they greatly
stimulate business of all kinds. As the process goes on,
168 inflated to an unlimited extent, until a turning
point, beymid which inflation cannot go without burstim
•hed. \Vhilsttheprocessof inflating the currency and
lit of the country is going on, great activity prevails in
all departments of industry, and everybody seems to be on
the high n»ad to wcaJth and prosperity. But it 1
in •« M -s>ary or desirable for the banks to put themselves in
funds, and they begin to convert their discounted bills into
money as rapidly as possible. They cease discounting and
call in their loans. "If by such means they do not actually
obtain specie, they redeem their notes, which might other-
\s i-e l,e presented for redemption in coin. Prices begin to
fall. Merchants, deprived of their accustomed facility for
borrowing, and with obligations coming round every day,
upon which they are liable as principals or cndor-
anxious to sell, while none of them want to buy. The
.ins in the great marts of foreign trade, and
iid- from them to the dealers in the interior. The latter
crowded for payment by their di>tr<— <d < !'« dit"!'-, and
crowd their debtors in turn. Property of all kinds depre-
ciates and becomes difficult to sell, when every body wants
-••11, and is an\imis to restrict his purchases to the kn\
practicable amount. Sale-, nevertheless, are made upon
the purpose of obtaining contracts to deliver
if, a future day, which can be Fold to Usurers, who
in their harvest Collections are enforced by
: at the expense of :i heavy toll to utMrneyv
and Sheriffs' officers, OUt of the pr.M-.cdv of i
~-»n«. uho-e pn.p, • t]M.
V
NO (.1 \ 1.1: \\. ri:osi'i;i:irv. 21
rates, t" the payment of their debts, become bankrupt from
tin- failure of their debtors to pay promptly. When the
<loors of a ban-king house arc closed in die' afternoon, and a
merchant's obligation is protested, his credit is gone, and he
Oeasefl the effort to maintain it by ruinous sacrifices. The
failure of one increases (lie embarrassment of his creditors,
and repeated failures spread general distrust. As one after
another goes down, however, there is one less engaged in
the scramble for money, and the survivors experience the
same sort of relief as men in a crowd do when some of them
faint and are carried out."* These financial crises invariably
involve a general suspension of specie payments. The
suspension is charged up to the people, who arc told that
they have been *• producing too much," or "living too
extravagantly;" and the banks are enabled to retain their
reserve of gold and silver, to repeat the operation as soon
as the Sheriffs services are no longer required, and "confi-
dence has been restored/1
The power which such a system confers upon those, to
whom the right to furnish the circulating medium of the
country has been delegated, is immense. The price which
the people are compelled to pay for their circulating medium
of exchange- is of itself sufficient to rob labor and industry
of their profits. The wealth of the country increases, a>
Statistics show, a little over three' per cent, a year, and with
money in circulation that costs from 6 to 25 per cent., it is
not difficult to see how it is that the wealth of the country
has a constant tendency to accumulate in the hands of the
few. The profits of industry are eaten it]) by interest on the
circulating medium of exchange — if not entirely, a commer-
cial crash will take what is left. How seldom do people,
when handling money, think of the great difference which
•Political Economy by E. Teshine Smith.
22 NO GENERAL
• tueen ;i 1'nited Slates legal tender note (greenback)
and ;i National bank bill. The greenback represents the
property of the people, on which it is a lien, and in the
performance of it> mission of usefulness, as it ilics from hand
to hand, feeding tlie hungry, clothing the naked, ministering
to the sick or distressed, or furthering the operations of
industry and trade, no keen eyed usurer marks its flight; it
is not burdened with interest. J Jut it is otherwise with the
National bank bill. Whether serving the purposes of money
in the channels of trade, or stowed away in the recesses of
a bank vault, it is perpetually drawing interest. That
intereM, although paid by individuals, is a tax upon the
community at larire. No one can hope to escape his share
of the tax by "keeping out of bank/' (tciiera! laws in the
economical world arc as universal and constant in their
elVecj as the law of gravit.ition is in the natural world.
The specie b:;sis system of money has existed in G
Britain for nearly two hundred years, and the result of its
workings there can be >een at a glance. The bulk of tin-
wealth and property of the kingdom is held by a small and
-tantly decreasing class, whilst, the masses are steeped in
poverty and ignorance. During the wars with France, from
!7'.»7 to l*ii:i, the people of (Jreat Uritain had an irn-deema-
lile jiaper cui-rency. For twenty-five years, notwithstanding
the drain of a great war, they enjoyed unparalleled prosper-
ity, by reason of the abundance of money in circulation.
l!ut the money power demanded a return to specie payments,
and in 1819 Ull act of 1'arliameiit was passed decreeii
return to specie payments in |sj:{. Fngland pO88e88ed
abundance of gold, had no fureign del»t, the balance of trade
TOM in hei- favor, and the difTerence between gold and paper
money was only three percent. Notwithstanding all tl
i-able circumstance-, the enforced return to specie pay-
NO <;;: M.i:\i, PROSPERITY. 23
ments prostrated the industries of the kingdom, ruined the
fanning, manufactaring and business interests, and plunged
the entire nation into bankruptcy. The masses of Great
Britain, whose labor and valor had just enabled the British
government to prosecute to a successful termination one of
the most gigantic Avars of modern times, wore hurled by an
act of Parliament, at the instance of the money power of
the kingdom, in the most heartless manner and without the
slightest grounds of excuse, from a state of prosperity into
the depths of ruin and poverty.
At the demands of the same power the people of the
United States are now being subjected to like treatment.
With but little gold, scarcely $100,000,000, in the country,
with tin1 balance of trade against the nation, with a large
public debt mostly held abroad, and with a difference
between gold and paper money of over twelve per cent.,
enforced resumption of specie payments has been decreed
to take place in 1879. In the light of English experience
umler vastly more favorable circumstances, the people of
the United States can look forward to nothing else but
continued and increasing prostration of all forms of industry,
and, when the fatal hour for resumption arrives, a general
crash, burying the entire nation in its ruins.
The people of the United States are a forbearing and long
suffering people, but it is scarcely possible that they would
continue to submit in silence to the exactions of the money
power, if they were fully apprised of the nature and extent of
the robbery to which they have been, and are still, subjected,
by reason of a false and corrupt monetary system. The
public debt of the United States in 1805 was $2,682,593,026;
on September 1, 1875, it was $2,127,393,836, showing a
reduction of $555,199,190. Besides this $555,199,190, the
people have paid in the past TEX YEAKS, for interest on the
.\<» (.KNKKAI. I'Kosl'KIMTY.
public debt, navy, war, civil service, pensions ami Indians,
. or in all tlic enormous sum of $3,879,759,-
1)75, which is .Hie-half more than the oriirinal amount of
the national debt, or a sum Creator than the national debt of
(Jrcat IJritain. This vast sum has been pa 'hi principally by
the producing classes for the bondholder ami moncv power
irem-rally hear no part of the expenses of ^«\ eminent. It is
hii^h time that the burdens of taxation should he more
equally distributed. This can be done only by the imposi-
tion of a -jTadiiated income tax, than which nothing can be
more just.
1'roident (irant siiifLrested in his last annual mcs^airc tliat
the ( 'cntennial year would be a tit time to inaugurate reforms.
\Ye agree with him. Let the people take a Icsvnn from
exjierience and reform their monetary system. AS it is the
year for the general elections, something mi.irht al-o be
done in the way of purifying the administration of public
a(Tair>. The ( Vntennial year can thus be i-i-ndi-retl d«>ubly
memorable in the annals of the country.
Tin- rclehratcd Junius said: -The ruin or prosperity <>f :i
State depends so much on the administration of the •_
iiient, that to be acquainted with the merit of ;i ministry we
need nnly uh«.iTvc tin1 condition of the people. If n
them <»bedieiit to the laws, prosperous in their industry,
united at home and respected abroad, we may iv.i^.nably
presume that their affairs are conducted by men «.f e\peri-
ability and \irtue. If on the eontrary \\ e
univcrx;d vpirii <.f <li-tru-t and di--;it i«.faction, :i rapid decay
of trade, dissensions in all parts of the empire, and a total
i re-p«-i-t iii the eyeN i,f forei-n p<«\\er-, we may pro-
nomi'-e. without he-it:iti<.n, that the --, ,\ ei-iimeiil <-f that
country i- \\ I:\K, DI8TRA< PED \M> • OBB1 n."
CHAPTER IT.
MONEY AM) ITS FUNCTION-.
IN :i state of civilization money performs an important
part in the production, distribution and accumulation of
wealth; it is necessary, therefore, that it should be based
on sound principles. A great deal of nonsense lias been
written about money and its " hidden power," partly through
ignorance and partly through design. So widely have
political economists diiTered in regard to its nature and
functions that it is not surprising that people have been
willing to ascribe to it some mysterious power, or that they
should have almost despaired of being able to comprehend
the principles on which it is founded and by which its
movements are governed. And this delusion has been
encouraged in every way possible by the moneyed and gov-
erning classes, who are thus enabled to found systems of
money on the false theory that money is the master and
not the servant of labor and property.
P>ut the age is characteri/ed by a, spirit of progress, and
old systems are rapidly yielding to new ones. The signs of
the times indicate that the hoary tyranny of the money
power, which has exercised despotic sway for ages over the
masses of mankind, will, sooner or later, be compelled to
succumb to the influences of an enlightened public senti-
ment. A distinguished Knglish writer,* in commenting on
the imperfect and rudimentary condition of the science of
political economy, says: '-The steam engine, steam naviga-
tion, railways, mechanical inventions, the electric telegraph,
*Sir John r,arn:ii-a I'.vles.
.MOM Y A MI ITS 11 S
mod< TII chemistry, have net appeared for nothing. A
science of political economy will yet dawn that shall perform
as well as promise — a science that will rain the rid
nature into the laps of the staning poor. Mm <lo not yet
dream of the prosperity M nidi is in store foi- ail or.!
the people." A large ami increasing number of leading
thinkers, state-men ami philanthropists of the day are calling
public attention to the unequal and unjust distrihuti' -n of
the products of industry that is constantly going on through
the agem-.y of a fal>e :ind corrupt nioni-tary sy^ti-m, ami
their views have already made a profound impiv»ion <>n
the public mind. Tlu- i_Lrm»rant nias>es of <iiH-a? liritnin
may In- deluded into liclicvinir, :is is tauifht liy the <li>mal
school of Kn^Tisli ])olitical economi>ts, "that it i-> natural,
and if natural, proper — though M c may i
that jMJverty and want and disease and misery should lie
I OOF neighbors of \\ealtli nn<l unbounded ]»ro^]»ei-ity;"!
but the intelliirent fanners, mechanics and laboi.
United States are not to easily convinced that the surplus
wealth, which their labor produces annually, should naturally
be owned at the end of the year by the financiering and
BOn-prodttcing classes of the country. When people find
themselves beiiiir robbed, they are apt t«» try to discover the
offender and the means by which it U accomplished. A
\ery moderate amount of in\ estimation, u c think, will -
ndid mind that the theory, that, the money p<,\
the robber, \\ hich dej»ri\ «-s labor of its ju-t r« u ard. and that,
a corrupt, monetary sxsteiu i- the instrumentality, by i
of which the robbery N perpetrated, i- ba^ed on sound
reason v.
i in ifOH M •
MOIICN. m iN ordinary si^niliration. i- ttl ;;ireiie\ of trade.
Civili/^ition has de\doped a --real \ariet\ «.f want< and
THK BTATUBE 0V HONEY.
industries, and labor has come to be divided into innumera-
ble forms, requiring a constant exchange "f commodities.
Individuals are dependent on their fellow men for every
thing, except the particular product of their own labor. One
class furnislies food, another the material for clothing,.
another builds houses, etc., etc., and each class is susceptible
«>f innumerable subdivisions. When we come to individ-
uals, each one has to give his labor, or the product of his
labor, or the product of the labor of others, for that which
he needs or desires. This exchange is effected through the
iiey of money. It is necessary, therefore, that money
should poxse-s a legal representative value. It must possess
representative value to be the equivalent of the commodity or
labor for which it is exchanged, and its representative value
must be established by law, otherwise its acceptance by a
creditor would be optional. As the value and power of
money depend on law, its institution and regulation are
duties which devolve upon the legislature or governing
power of a nation.
The adoption of money or a medium of exchange wa^
undoubtedly «ne of the first steps in civilization. In a simple
>tato of society, as in newly settled countries now, the
exchange of commodities took place by means of barter, but
the necessity of a medium of exchange becoming apparent,
different representatives of value were adopted, according to
the wants, taMcs and possessions of the communities or
nations concerned. Thus the Spartans adopted iron, the
ancient Romans bars of copper and cattle, the North Ameri-
can Indian beads, and the East Indian and African shells.
At an early age gold and silver came to be regarded as the
most suitable materials for the purposes of money for many
reasons, among others on account of their po-M-viiig large
value in a small and compact form. Coins or tokens made
28 Till-: NA'ITKK OF -Mo1.
of these metals next appeared, but originally -.1 no
other j.oucr llian tliat which they derive.! iV'.ni tin- intrinsic
value of the materials of which they were made, which wa>
determined by weight, as is the cast- now, when iiM-d in
commerce between different nations. (Governments next
assumed the ri^ht to make ami regulate the value <»f money,
in consequence of the necessity of establishing ;i common
representative of value to be used in the payment of debts
and taxes. As civili/ation progressed and wealth incr-
requir'niLT a more rapid and extensive exchange of commod-
ities, it. became Decenary that the medium iianire
shonld be increased in the same proportion. It \\a^ imp.»-
silile to obtain jjohl and silver in sufficient quanti:
answer the purposes of money, and it would scemiiiLrl;
been l»ut the part of wisdom to have adopted new systems of
money, )»ut history LT'IVCS but one or two instances wluxe
anything of the kind was attempted. The scarcity of money
led to the use <»f credit, wliich now j.lays such an important
part in the commerce of the world. IJills of exchaiiLr«-
invented, it !-> bclic\cd, hy the .Jews of Loinbardy in ti
century. In the l:uh, 14th and I."»ih ccniiii: reatcr
put of the Commerce of Kurope wa< accomj.lished at peri-
odical markets or fairs. Merchants and trader-, or their
brokers, would meet at these fairs with their account-* or
h'l/niix (balance) made out, and by tran-ferrinjj debl^ and
cn-d-N fnun one to another, effect a I \vith the u-e
more money than was re<|iiired to settle balanc.
many parts of Kim.pe ihese fairs arc still held, alt;
h»>t ninxt of their f.»nncr importance, \
other dev icefl t-» increase the circulating ine«lium ••;' e\.-JianLfc
liecn rc-o!-:ed to by dilVcrent nations, such as reducing
the amount of bullion in iheir coins from time to time, until
iin but a fraction of the \aluc \\hidi their
i HI: N.M i I:K OF HONEY. 29
names originally called for. In tin* days of William, tin-
Conqueror, tin- u pound" actually was a pound weight of
silver, and ;i shilling \\a> :i twentieth part of a pound, but at
the present time a pound of silver is coined into sixty-six
shillings. Tin.- legal money of England has been regulated
or altered in this way by the English government one hun-
dred and eighty-four times.
The specie basis system of Great IJritain, which was
adopted nearly two hundred years ago, owes its origin to
the same cause — the necessity of increasing the medium of
exchange. The effect of the system is to centralize wealth.
In Great I>ri(ain it has enabled the aristocratic and moneyed
classes to acquire enormous wealth, and lias reduced the
industrial classes t» ;i condition of abject poverty. In the
I'nited States it lias had the same tendency.
The only people- of former times, who seemed to fully
understand the nature of money, were the Venetians. In
the l-'th century they adopted a system of money, based on
the wealth and credit of the people, which lasted over 600
years. Inscriptions on the books of n bank, established by
the State, which were divisible to any desired amount and
transferable on the books of the bank from one to another,
formed the chief medium of exchange during the period
named. These inscriptions of credit were not redeemable
in coin, but, notwithstanding that, they commanded a high
premium over gold and silver. The Venetians were enabled,
principally through their enlightened system of money, to
attain great prosperity, which they enjoyed for centuries,
and commercial crashes and money panics were unknown
amongst them. (See Chap. IV.)
The French people manage their financial affairs with
more wisdom than any other nation of the present day.
When specie is scarce an irredeemable legal tender paper
30 THE NATURE OP MONEY.
money is UM-IJ uj 1. Great pains are taken l»y the
French g« '\crnmcnt to keep every section amply supplied
with a circulating medium of exchange, in order to develop
the producing forces of the country — a policy that has 1
crowned with marked success.
The American people have had some experience in r»
to the advantages of a legal tender paper money system
>ince ls(il,but the notes of the government (greenb:i<
were issued in such a mutilated form, and the workings of
the system have been so materially interfered with by the
money power, by means of corrupt legislation, that as yet
they have had no fair opportunity to judge of its real m«
From an early period, then, money came to derive its
power, as an agent to represent, measure and exch.v
value, from, public authority. Individuals and nati
to exchange and accumulate property and commodities, and
money is desirable only on account of the power, with
which it is clothed by public authority, to command prop.
ibor. It is not useful of itself, for it cannot be
food, or clothing, or shelter. It must be parted with be-
any service 01- value can be obtained from it. In an accumu-
lated form, as capital, it can bring no income until it i> put
to use — parted with. It is, therefore, the immaterial princi-
ple 01- po\\ ei- to represent value that is the •
and this it can only derive from law. *• M-mey i- then." in
the language of Kellogg, "a legal existence, bein
tilted a, national representative of property; con^ecjuently it
is a public lien on all property for sale in the nation, a public
medium for the exchange of products and a tender in
payment of debt-."
I III! IN! KIN -I. \
QOIkey i- a legal public medium of exchange, p-
ing representative value, it is not nece^ary that the mat
TIIK IN rancsie VALUI 01 KONBY, m
of which it is made should pOSSesi intrinsic or commercial
value. To usi' again the language of tin- author last quoted,
"The value of money perpetually depends upon its power t«>
represent value and not upon its material, bemuse money
ne\er reaches 8 point at which it can be used us an article
of actual value." Tin- value ol' the material can add nothing
to ils pi. wcr as money; it can only render its value more1
certain, ;;> when money is issued by a \\eak and irresponsible
L;-(>vernment, or l>y a nation possessing few or no products
for which it can be exchanged. When issued by a stable
aiul I'esponsible government, whose people j>os^ess ample
property and valuable products, its value corresponds to the
value of the products of the country for which it can be
exchanged. If money made of paper will procure the same
property or commodities, as if made of a material possessing
intrinsic value, like gold or silver, it possesses the same
power in one instance as in the other. If A. has a ten
dollar gold piece and 1>. has a ten dollar legal tender note,
and the gold piece and paper money will each purchase the
same article of value, in parting with them A. does not part
with anything more than K, although A's money pOSSCSSea
an intrinsic \alneand U's does not. And as long as the
gold piece is used as money, it is not possible for any one
to derive any more UM- or value from it, than that which
belongs to it in its representative capacity by \irtue of law.
Dr. Walker, a political economist of the bullionist school,
in speaking of money as an instrument of exchange, says:
-Anything which by general consent, or in obedience to
law, all receive in exchange will answer the purpose (of
money.) ^o far as this function N ' concerned, it is of no
consequence whether the article has value or not; safety
and convenience are the only considerations of importance.
Money in this respect is Dimply ;l counter, token or universal
equivalent."
:32 TIIK INTKINMC VALUE
The power of money, then, whether made of :i ma
possessing yalue or not, depends <Mi its ability to r-
value. How a piece of paper, posses-ing little or no intri-
value, can acquire tin- power 1o ivpiv-ent value, will
explained further on. In the meantime it will appear from
a slight examination that it is a disadvantage t«> money to
possess an intrinsic value1, and that gold ami silver, lm\\.
suitable they may be to adjust balances between nation-.
not the proper substances out of which to make the circula-
ting medium of a nation. If money p< an intrii
as well as a representative value, it is then a commodity
well as money, and is subject to two diiYcrent and often
antagonistic sets of laws. As money it seek- to perform the
functions of money and to fill the channels of trade, whii
a commodity il is compelled to obey the u uncontrollable !
apply and demand." In commerce gold and silver
commodities and are taken in exchange for product.-, when
they are preferable, in a business point of view, to other
products OF Commodities, OF in the settlement of balan
after an exchange of products ha- been made. They
thus liable to be taken at any time from the channel
circulation by the demands of commerce, and thi> can be
done nio-t readily when they an- stored in bank vault- a- tin-
basis of bank notes. In this way the amount of t!
lating medium in :i country is rendered dependent on
wants and whims of Other nations, and i-, OOfl86quei
uncertain in amount and fluctuating in value. It may be -;it'e]\
rteil that, there was scarcely e\ er a time in the hi-'
of the 1'nited States, \\lien the Specie bftSU §ystem \\.i- in
tence, that the Emperor of china could not ha-,
siojn-d :i commercial <-ra-h and money panic, by simply
decreeing that the idols and image- worshipped by
subjects shouhl 1 M.
Tin-: INI EUXrSIC V.M.I !•; OF MONET. 33
Gold and silver money are objectionable on account of
the inconvenience and \-\>k which attend their u>e, and for
many other reasons, but the chief objection to gold i-
scarcity, which also renders it expensive. There is not
sufficient gold money in circulation to answer the A\ ants of
any one of the leading commercial nations o!' the world,
and for all to seek to use it as an exclusive medium of
exchange is simply an absurdity. It is true the difficulty is
remedied in part in some countries by issuing paper notes
based on gold, but these notes are not legal representatives
of value, but merely representatives of the credit of those who
issue them, and constitute, as experience has proved, an
unsafe and unreliable medium of exchange, as will hereafter
more fully appear. As compared with the vast amount of
money required to pay interest on debts, national, state,
municipal and corporate, and the expenses of governments,
and to cany on the transactions of hundreds of millions of
people, the amount of gold in use as money is as a grain of
sand to a mountain.
.And when properly considered the intrinsic value of gold
and silver is comparatively trifling. These metals owe
their chief value to their use as money. If that use were
discontinued to any considerable extent, their value would
depreciate in a corresponding degree. Only recently Ger-
many demonetized silver, and it depreciated so rapidly in
value that it became a, matter of importance to the German
government to dispose of its supply at the earliest moment
possible. In 1704 the British Board of Trade objected to
the use of legal tender paper money in the colonies, doubt-
less because it rendered the. people of the colonies independ-
ent of the money power of Great Britain, on the ground
that " every medium of exchange should have an intrinsic
value, which paper money has not." To this Dr. Franklin
replied :
TI1K 1N'T1:1N>1< VAUK <>F .MuNKY.
"However fit a particular thing may IK- for a particular
purpoM-, A\hencver tliat tiling is not to he- had, or n»t to he
had in suilicicnt. quantity, it hrconics necessary to MM- some-
thing else, the fittest that can be got in lieu of it. * * JJank
hills and hankers1 notes are daily Used here [in Knuland]
medium of trade, and in lai'ire dealings perhaps the
Lrrcater part is transacted hy their means, ami yet tlu-y l:a\c
no intrin>ic value, hut re>t on the O'edit of tho>e that i»m-il
tlu-iii, a> pa[>er hills in the eolon'u'.s do on the eivdit. of tin-
dve setth-iiu-iits thei-e. These (hank hill>) heinir
j)ayal.le in ea>h upon si-'ht hy the drawers i>, indee<l, a
circuinstanee that cannot attend the colony hill>, f.-r the
reason, ju-t al.o\c mentioned, tlu-ir cash (hullion) hi-iiiir
di-a\vn from them hy the IJi'itish trade; hut the Iciral ten<U-r
l.i-in-_r suhstituted in its place, is rather a, greater sulvantagt*
to the pO88668Or, since he nerd not l.e at the trouhle of -..ing
• .articular hank or hanker to demand the money."
"At this very time t-ven the silver money in England is
•d lo ihe le-al tender for a part of its value; that part
which is the difference lu-t \\cen its real \\ciirht and denom-
ination. <Jr«at part of tin- shiHinirs ami si\-pen<-«-
current are, hy \\ earing, hecoine live, ten. . and some
of tlie si\-jteii«M •> even fifty, per cent, too liirlit. l''"i' this
difTerence het\\ fen tin- real and nominal you ha\ e no inti'insic
value; you ha\ c n«>J. so much us paper; you have nothing.
lender, with the kno\\ ledire that if can
[forth* ••'/<», that makes t/,,-,, />enny-
silver pa^s for BlX-pi
!d and siher are ii"t iutriiisirally of e«|iial value with
:i metal in itself ca] DUUiy inor.- lu-m-lits to
.iml. ThciT Value re«t§ chiefly in the e-timation tliey
happent..he in :inmn«r the generality of nations, ami the
credit Lfi\en to the opinion that the estimation will continue.
Till: INTlMNMi1 VAl.t'K OF MONEY. 85
Otherwise a pound of gold would not be a real equivalent
for even a bushel of wheat/1 [Franklin's Works: Duane's
edition, 1809; volume 4.]
Gold or silver, or Loth, however, are used for the pur-
poses of money by nearly all nations, and hence k is that
these metals have come to be used in the commerce of the
world, not as money, but as commodities, under the name of
bullion, possessing an established and universally recognized
value. Gold at the present time is a commonly accepted
equivalent for all other commodities. It will be borne
in mind, however, that this general recognition of the
value of gold depends chiefly upon the fact that gold is a
legal tender, when coined into money, in all nations where
it is used. No law exists compelling citizens of different
nations to receive from each other gold in payment of
debts, but people will always take that in payment of debts
which they can in turn apply to the same purpose. It is
incorrect, therefore, to speak of gold as the l> money of the
world." No such money has ever been established, nor can
be until all nations adopt a uniform unit of value as well as
of money. Different units of weight, length, value, etc.,
have grown up in different nations, in the same manner a->
different languages, manners and customs have grown up,
and it would be almost as ea>y to establish a universal
language &fl to induce the vari<»u> nations of the world to
adopts common system of money. A person who takes
$100 in gold, coined in the "Tinted States, to England, U
obliged to sell his coin, just as he would sell a bale of cotton,
in order to obtain money which will pass current in that
country; and if he cm^es over to France he is obliged to
sell English coin in the same way. And it may happen,
and frequently has happened, that a person may be unable
to obtain money for gold or silver. During the financial
36 ivnriNsif \ .M.t ; \ MY.
crisis in Knuland, in 1*47, it wis impossible in borrow a £5
note nn thousands <,f dollars worth nt' silver, because sti
not a le-'al tender I'm* an amount over forty shilii:
and was, therefore, practically useless for the purposes of
money; and in Calcutta, where silver money is the legal
tender of the country, during the stringency of 1S04, it
impossible to borrow money on gold. It is well authenti-
cated that, during that crisis, persons, with as much a<
$100,000 worth of gold in their possession, were obliged to
allow their notes to go protest, because they could not
borrow x i o in silver money on a bushel of gold.
.Another clap-trap name given to gold and silver, now in
common use, is " honest money." .Money is hones? or
honest according to the- uses it performs and the manner in
which it performs them. <Jn!d or silver may perform tin-
uses of money in an honest. manner — it is then Hi<
money;"1 lint it has been, and still is, the misfortune
these naturally honest metals to be made the basis of all
the rascally systems of money ever founded.
And it may be well, loo, to notice brietly aiiotl:
name .vhidi is nnu-h relied upon by the bullionlsts to dec<
and intluenee ;i hn-^e and intelligent class of people. In
the memorable fight between the people, under the tea
and patriotic leadership of President .Jarksmi, and the
money pi»wer, represented by the I'nitcd States IJank, the
tei'in "hard money" became deservedly popular. <Jnld and
silver <-oin \\ere then the people's niolie\ --the **hn;
money" of the country, a-> the greenback i- now; and the
of the controversy TOM then, preci-« ly as it. i- iii the pending
Straggle now, whether th< dmiihl retain the eonti-ol
of the circulating medium of the nation in their own hai
uhere ir is placed by the ( 'oiistifiition .,f the I'nited St.,
OF should permit individuals and corporate-: -urp
TIN: IN rBINSK v kLUB OF MONET. 37
the1 functions <>t' the general government, and, in its stead,
make* :ind regulate the- medium «•!' exchange of the- country.
(See Chapter V.)
If gold and silver were demoneti/cd by tin: principal
nations of the earth, they would owe their value as commod-
ities to the use that could be made of them for other pur-
poses, as for ornaments or in the arts; and as they could
then be had for such purposes in abundance, their value1
would doubtless diminish to but a fraction of what it is now.
THE USES OF MONEY.
The uses of money correspond to its powers or properties
viz: to represent value, to measure value, to accumulate
value and to exchange value.* Actual or real value belongs
to property or products, which are necessary or desirable',
and money is the legal medium by which it is represented,
measured and exchanged. In an accumulated form, as
capital, it represents accumulated property or labor, and is
capable of accumulating value1 in the same1 manner that the
property or labor which it represents could be used for that
purpose. It measure's value because it is the legal standard
of value established by law, just as weights and measures to
determine the weight, length and bulk of articles are' estab-
tablished; and if based on sound principles, it would prove
;is unvarying, as a standard of value-, as are- the' standards of
measurement of weight and quantity. The value of prop-
erty and products would the'ii rise' and fall in obedience to
the laws of supply and demand, but the standard of value,
money, would remain the same' as previously determined by
the law which instituted it, provided the law emanated from
a responsible source. This may be- illustrated in a measure
by the greenback now in use, though not with the same
degree of force and certainty that it could be done, if the
•See Kellogg, page 40.
THK 1 -1 - ->K MONEY.
ijrccnback iia«l n»>t been mutilated :iu«l depreciated by law.
\aiuc of property and commodities is now measured by
tin- ;. " the value of the i;rcei:back corres-
ponds to tlie idea of value carried in llie minds of the- people
of the United States. The unit of value in the United States
is the dollar, ami this unit of value is iixed in the mind, just
as the units of measurement expressed by a pound, a bushel,
a yard or a di irree, are fixed there, that i> by u>c ami eustoni.
Partial leiral tender paper money (the greenback) is now
the money or medium of exchange of the country, and cor-
responds to the idea of value iixed in the minds of the
p'-o pie. People think in irrecnhacks when cstima:'
value. If told that the price of a horse is x|nn, the amount
or value rly referred to the greenback standard of
measurement. The price of particular commodities. a> well
as the price of Lr<>ld, may change daily without anYctiiiLT the
j.i-ico of olher eommoditio, as mea>iiri-d by the ^rcenba-'k
lai'd, whirh could not be the ca>e if it were tli<
. that tliK-tiialed. Hence it may be inferred, anionLr
other thim_r-, that cditoi> ,,f u«-w^papcrv. \vln» miot<-
l>:u-ks as worth so many cent> on the dollar as eonijiarcd
with Lr«»ld, are cither «rr« »!•.>!%• ignorant «>f the nature of mo:
or ha\i' become- entangled in the toils of the money po\.
IJut it is of the u-cv of iiK.ney in a legfl technical
that we wish to speak. .Mom-y has come to be a vital
incut in production, in the operation-* «.f trade and in the
bu-i. '!' life. In a simjilc vta'< :\.a-in
ever now, indi\iduals and families ;nu for th«»
par: «eif-.npp.,rtinLr. 'I'hc farm su]»plicN fond and
'••rial for c|(, tiling, and the spinning wheel and loom are
found in e\ery household, lint whci-e the advan'
ization and a medium «»f exdian-jv ha\c once become
•lit ion of ail.
TIN: USES OF HONEY. 39
merchant, the tailor, the carpenter, the shoemaKer, the
blacksmith, the doctor, etc., etc., have made their appearance,
find individuals and families arc no longer self-support ing,
l>ut wholly dependent upon each other. M«»ncy is then a
necessity. Food, clothing, rent, fuel, light, taxes, insurance,
railroad fares, etc., etc., require cash, and a general scarcity
of money will occasion w-ant and suffering, even in the
midst of plenty. How dependent individuals are upon each
other in a state of civilization, is thust set forth by Kellogg:
"The necessity for the exchanye of commodities is gen-
erally acknowledged. Few, however, even among thinking
men, are a \varc how indispensable these exchanges are to the
subsistence and comfort of the human family. Men are
social beings, and mutually dependent. To appreciate this
important truth, we must, consider the inability of each man
to provide for the numerous wants of his nature; and the
ignorance and discomfort to which each would be exposed,
were lie not benefited by the labor of others. If every man
could build his own house, furnish his own food and cloth-
ing, and make all the instruments and utensils that he needs
to use: if the mate-rials for all these things were placed upon
eveiy acre of land, and every man, woman and child, were
endowed with sufficient skill and strength to produce them,
there might be no need of an exchange of commodities.
But all men are, in many, in most things, dependent on
the labor of their fellow men. For example, take the
farmer, who is acknowledged to be the least dependent of
men, and see for how many things even he is indebted to the
labor of others. He must have implements for the' cultiva-
tion of his farm, a plow, harrow, shovel, hoe, sickle, cradle,
scythes, a fan, or fanning mill, and a cart or wagon. The
farmer is dependent on the miner for the iron ore; on the
collier to dig the coal; on the furnace worker to smelt the
111.
:m«l tin- smith to make Iiiin his iron and
..-ii. lent -MI the wagon inak-
tin- maehinist f"i- his fanning mill; on tho
: on the nail maker for nails; on tho
glass manufa< - -; on the stone cutter and the
ma-oji w.»rk; on the brick maker for brie'*
for barrels, tubs and pails; on the saw maker for
: .MI the rolling mill to roll out the iron or
. on the tin-plate worker for kitchen utensils; on the
mouM of iron f,,r iron ]><>N; on the miner of
i <>n the copper :iml brass founder for bra»> ami
ttles; on tin- pump maker for a pump, etc., etc.
: the needle maker, the1 pin maker, the
maker, the ^ilk grower, the tanner, the shoemaker,
He ami harness maker, the cabinet maker,
ami t' er, type setter ami printer. Not one of
..Mending to his particular employment,
•o,l ami clothing; and all would be destitute
Of them, Unless Supplied with them by the labor of others.
all of hi- food, except salt, tea, •
nid the like; the^e, and the ships to
rheni, inn*? he furnished by others. These wants
rail into emi • ^dip earpcnter*, sailors, compass
i-hart maker-. «•!,-. The fanner must
ll :;.p or flax, or el>e be dependent Oil
ing. If the farmer, \\h«i is the leaM <le].end-
:M others so many supplies, how i- it
with r and shot-maker? The former mak-
the h. .id, the latter one to COT6T th-
: t!.e additional -upplie* of both muM be furnished by
• |.« nd upon each otlu-r
for the di!' I" tln-ir \\ork; the cotton mannfac-
-i*t<-,| by others to carry forward his maim-
Mo.NKY. 41
fact urc. Many articles, such as watch springs, are useless
unless they aiv combined with other jiarls. It is, thru, of
paramount importance that no obstacle's be thrown in the
way of :i ready exchange of commodities.
A certain quantity of one kind of produce is worth as
much as a certain quantity of another kind; and all civilized
nations have adopted sonic im.Jiirin. by means of which all
kinds of produce may be more easily exchanged than by
direct barter. We hear it sometimes asserted that there is
no need of a medium of exchange. But the articles of trade
could not be divided and distributed to supply the numerous
wants of a people without a representative of value through
which the distribution could be made. For example, a man
brings to market five hundred bushels of wheat. The pur-
chaser tenders corn in payment; and they agree that seven
hundred and fifty bushels of corn are worth as much as five
hundred bushels of wheat. The seller can use but a small
portion of the corn, and finds a purchaser, with whom he
exchanges the surplus for hams. He disposes of the hams
for hats and shoes. If he endeavor to divide the hats and
shoes, and exchange them for the articles that he needs, he
may spend two years before he can return to his farm to
raise a second crop of wheat. Yet he is fairly dealt with.
All those with whom he exchanges, give him, as nearly as
possible, an -equivalent of actual value for the actual value
that they receive; and all the articles are such as all need.
In fact, all trade is simply a barter of one useful thing for
another. A person who produces more of an article than
he needs for his own use, exchanges his surplus for the
surplus articles of others. If the farmer had sold the wheat
for money, the money would have been a tender for any
other article that he wished to purchase."
In the large operations of trade, as with foreign countries
HONEY,
and I" US of the country. \a>t sums of
stantly required. The foreign trade of the
Unite i :i ordinary times amounts ;.» nearly * 1,000,-
000,0" , ami tin- trade between the different sections
of the country amounts to probably live times that sum. It
that, in the tra<le with foreign nations and be*
"f tlie nation, the tra: i re-transfer of
:n one to the other is rendered unnecessary by the
• •hecks, ilrafts ami bi!N of exeliaiiLTe, except t<» settle
l»al:in- in the production, transportation, n-j
handling and distribution of the commodities, represented
by the \a>t sums r«-fen'e<l to, the amount of money required
I-'nr example, in the movement of the en
lh«- \Vrxti-ni States aim '-.-ish is recjuiivd eaeh year
tlian i an l>e had for the ]iur]io>e; an<l in the days of the
-rein the Western banks, as is well known,
i the habit at siieli i :nie> of issuing their notes witliout
any regard to Iriral limi;ati<»ns. I'n-ident (irant in liis
!' ^ember, 1^7::, aft( r the j.anie and l»efoiv lie
•1. bauehed by the money power, eallcd the
• the fact in the following language:
•eiit t(» the ino-t casual <»b>erver that much moi'e
Or money is required to transact the legitimate
the cnimiry during tin- fall and winter months,
when the \ ast crop«. are beiniT r<-iin»\ cd, than during tlie
balan A'ith our present system, the amount
in tin .ins the same throughout the entire year,
lesultitii: in a:i accumiilati«»n of all the surplus capital of the
country in a few centers, when not employed in moving
pti-d there by the offer (.f interest on eall loans.
: • paid, this surplus capital must earn the
id with a pr«.t!:. llei::^ sUb' .ill/ it can
'••••I, only in part : man-
TIN-: r*i-:s oi-1 MOM^ . 4&
ufactuivr, for u lixcd term. Hence, no matter how much
currency there might, be in the country, it would In- absorbed,,
prices keeping ]>acc with the volume, and panics, stringcii'-v
and disasters would ever be recurring with the autumn.
Elasticity in our monetary system, therefore, is the object to
be attained iirst, and next to that, as far as possible, a pre-
vention of the use of other people's money in stocks and
other species of speculation."
Money is also an important element of production. When
the channels of circulation are supplied with money, the
industries of the country are quick and active, and the entire
nation becomes engaged in adding to its wealth. It lias
been well said that u A nation, whether it consumes its own
products, or with them purchases from abroad, can have no
more value than it produces. The supreme policy of every
nation, therefore, is to develop the producing forces of its
own country. What are they? The workingmcn, the land,
the mines, the machinery, the water power, etc."* The
producing forces of a country can be developed only slowly
and laboriously without the aid of money. The productive
soil, the iron, the coal, the timber, the water power, the
machinery, the labor, etc., may all be at hand, but until
touched by the vitalizing current of money, as it circulates
in the channels of trade, they can give forth but a, feeble
spark of the life and power which they possess.
At an early day in the history of the colonies the inhabi-
tants were subjected to great drawbacks for the want of a
legal medium of exchange. Dr. Franklin, in 1764, stated to
the British J.oard of Trade that: "Tn 1723 Pennsylvania
was totally stripped of its gold and silver. * * * The
difficulties for want of cash were' accordingly very great,
the chief part of the trade being carried on by the extremely
'Sir John Barnard Byles.
t t B OF MONKY.
inconvenient method of barter, wlii'ii, in 1 7:M, paper money
there \\hich i;ave new life to business, promo-
ftlemcnt of new lands, whereby the
pro\i: •••atlv inc>v:iM-d in inhabitants that the
export from thence thither [to England] i< ii"\\- more than
-Id \\hat it then u
In I . liadly in need of money or a niedium
'i:m-_re. A paper money bottomed on a spe.-itir tax
:, \vhirh afTordc<l alumdant relief, and, as \ve learn
from.' > nerer depreciated a farthing in value. IJnt
a mi.n- marked instance' of tlie value of money as an dement
• dnetion is fiinii>lied hy the exj.erieiiee of Pennsylva-
iiirin^ the prenenl century. In 1841 the ]>eople of
mi the \er_re of lianknipley. The State
pay interest on tlie puhlic debt, or even ]tay
era for work done on the pnhlie works.
l»ankrnpt, and merehants were in nearly
•icition. Then- was no money, and consequently
nid production \\-cn- <-ompletely paraly/ed. The State
Jvania in thi^ rri-is issued $3,100,000 of what
• il!«'d nTief n-.tcv, ln-ariii;: simj>ly a promise* tliat tliey
would I..- red ived 1>\ ih«- Treasury of tlic State in payment
of all- obligations due to the State. uTliev(.
t.ik.-n -jreedily l>y the people. Hanks iiiM-rted in
•nt of their 1 bian :i'_fi-eement that the depo>itor
'.ii rheek the same kind of money he depox-
.ind then t(u,k these note-. 'I'hey dix-ounted paper
\\iflitin-m. The wbeeb of industry were Bel in motion hy
-, \\hidi promi^<-d nothing hut that tliey would
• aces, The State paid her
:md the-e lia-lciied to j.ay theirs or to
supply their wants l.y piuvhasr. Cn.ps, for which there
i: the hinin -ind the spindle were
Tin-: i 8ES OF .MMNKY. 45
again heard; labor, lifted from despair, found \\ »rk and
wages, and with tlio great resources of Pcnn.-ylvani:i under
full and free development, she was soon exporting m«>iv
than she iinj)oried. Gold and silver llo\ved in upon her;
and the broken banks resumed specie payments. We then
did," says the Hon. William D. Kelley, of Pennsylvania,
from whom wo quote, "what France does; we were wise
enough then to know that it is labor, not coin, that main-
tains the public credit and gives prosperity to the people."
But the people of the 1'nityd States have had ample proof,
during the past few years, of the great advantages to be
derived from an abundance of money. The activity in all
forms of productive industry during and immediately after
the war, which constituted an inexhaustible fountain of
strength to the Federal Government, and which, in spite of
the ravages of war, enabled the country to double its wealth
in ten years, from 1SGO to 1870, was attributable entirely to
the vast amount of money, or evidences of indebtedness of
the government used as such, that then filled the channels
of circulation. The condition of the country then, when
money was plenty, and now, under the policy of contraction,
which has withdrawn the circulating medium of exchange
from the channels of trade, is thus eloquently portrayed by
the distinguished statesman quoted above (Kelley), in a
recent address to the citi/.cns of Philadelphia:
"You have seen a strong man, full of life, rise in the morn-
ing as a lion shake^ the dew from his mane and go forward
to the battle of life, full of vigor, full of hope, full of energy,
full of enterprise. His brawny nether limbs bear his stout
body ably; his muscular arm and his cunning hand go glibly
and gladly to their duties, performing their functions. But
an accident happens, an artery is cut; the blood docs not
ooze, but flows from him. The surgeon comes just in time
TIII. MC>\KY.
his life, lie Maundies tin- wound and hinds it up.
Uut tin- man i> another heiiiu', IK- lies there pallid and
shrunken. His sturdy limbs will not even bear his wasted
His muscles art- tlaccid, and his lingers have lost
kill. II: >ne, and he dreams not of enter-
This is our condition to-day a- a people. In
•ind l^'if. every man in Anu-rica who had tin- skill and the
will to lalmr could <-arn ua^cs to support his family and lay
thing hv. All industries were (jiiic-k and active. I'ro-
dn<-ti(.n ran <«n. The American ]>e<»p!e waked up each new
iiiorni: ! that there were LTii-at duties hei'ore them;
that there were mines to he opened, forces and t'nrn:i<-e» t«»
•Aork the- iron, the copper, the silver and the
New h"iiM v \\-I-IT hnilt. Skill, energy, science and
\ed t-> «|nicken and cheapen productive pro-
. < >ur wealth Lrreu- as it, or that of any other people,
had D "Wii. \Vi- were moving onuai'd, when one
' ulloch tapi»e<l a irreat arteiy and let nearly all
ll<»\\- from the body politic. Diseased, paraly/ed,
shrinking fn»in day today, \\hat Ameriean has the rneriry
in dr\ eloping a lu-w mine:' IVmisvl vanians, who
:\ I" e.Hi-truct a new foi'LTe or a new furnace'/
building to-day? Your laborers—
.lien, in uant — are be'_:urinx the poor privih
'•ami; 1 by an h..ne-t day's labor. Their homes
nipped i,f e\ei-ythiii'_r tliey chc-rish. (Jo thr..u-li
,- city, halt before the houses when- of a
>mid \\ould, a few years air<>, ha\e found
.nily Lrathere.l about the melodeoii or the cheap piano.
Him \\lio had «_rivrii them tlu-ir lines
i" tin . All! the ln.u-e i^ silent now; the
iployiiieilt, the §OM are ill idleness, the
- , w..rk; the juel.Hleon or piano is L"'nc.
TIIK rsKs OK .MONKY. 47
Aye, WOI-M- than tliaf, tin1 most cherished mementoo, though
of little value measured in dollars and cenN— the cheap
jewelry — the trinket that the young lover toiled in over
hours tliat he might huy and see it grace the person of his
sweetheart, the amulet he hung upon the neck of his bride
—the silver cup that marked the birth or christening of their
first born — cherished by all, but they have gone, to the
pawnbroker or jeweler to bring them food. Courage gone,
hope gone, despair crushing him to the earth, and destroy-
ing all the pride that made the American mechanic the
boast and honor of his country, how many u man to-day,
longing for honest work but powerless to obtain it, creeps
and crawls from town to town, foot-sore, ragged, dusty, to
beg from strangers rather than from those who know him
and will remember it — to be denounced as a 'tramp' and
commended to the custody of the police!"
As the end and object of money are to exchange com-
modities and promote production, it should be increased in
amount in proportion to the increase of population and
trade. Bullionists assert the contrary, but they can furnish
no sound reason or proof upon which to base their theory.
They invariably rest their argument on the fact that nations
have increased in wealth and population without adding to
their monetary circulation, and most always cite Great Brit-
ain as a case in point. Properly considered the experience
of Great Britain docs not sustain their theory. How does
Great Britain manage to conduct its large and increasing
business without a corresponding increase of money? The
answer is by means of inflated bank credit. On account
of the want of a sufficient medium of exchange, the British
people are compelled to use and pay for the credit of banks
to an enormous extent. This is a heavy tax upon the indus-
trial classes of that kingdom, and explains why the wealth
48 VKY.
of tin- :i^tant!y flowing int;> the hands of the
\\ '«• tiii'l the following statement used 1,\- Dr. \Y
a polr the bullionist school, to shov,
• !e of Great Britain can iret along with but a
limited Amount of money. We submit that it shows much
more forcibly to what ;i desperate use of inflated, credit
that i. 11 driven by a false monetary M
'. an Ulastration in }>oint, Sir John Lulihock
in a paper read before the Statistical Society, in June,
1865, an analysis of £19,000,000 paid into his banking house
in a few <
^ and bills .............. £18,395,000, OH !'7 per cent.
Hank of Knirland notes ........ ' >00 }
Cmnitry note* ................ 79,000 V 3 per rent.
( ............... 1 I -.DIM) )
.1 which statement it ajipear> that «»ii!y th.vr p»-r cent.
!»ai<l in the form of money, i. e., notes and coin
of which a little mo:v than <nu-lt'ilf <>f one per
\* The bullionists pretend t«> DC
much of the evil COnsequenCCfl »f inflation; Imt when
:i ofT, it is apparent that they are only con-
I alt •• nt retaining the power to inflate in their own
hand-.
- 09 HO3S
J nation has it8 OWH peculiar s\-tem «»f linancc, the
in details than in principles.
;i <>f the I'nited States is nowcoini
Independent Tn-i-ury \\ the recei]
and dwbursemcnt of tiie n-vmu'--; of the Treasury proper,
which maintains an i>-nc of about $370,000,000 of Treasury
i, conxtii-; ;1 tender m
•itry, ami about % ! • »(' fractional currency;
of the National ] tin number, with a circulation
SYSTEMS OP MONEY. 49
of over #360,000,000; and :i number of Stale l>ank-, otab-
lished under Slate authority.
The medium of exchange of the United States, it will be
observed, is composed of Treasury notes (greenbacks) and
bank notes. It is important to notice the difference between
the Treasury note and the bank note, because they belong
to two entirely different and distinct systems of money; and
a clear perception of the difference is essential to a proper
understanding of the money question and of the political
issues, growing out of it, which now agitate the country.
A bank note is a bill of credit, promising payment in law-
ful money on demand, issued by and resting on the credit
of a private corporation established by law. Being payable
or redeemable in money on demand, it represents money
and circulates as such, and performs nearly all of its func-
tions. Private corporations, therefore, upon whom the
privilege or power to issue bank notes is conferred, are
practically invested with the authority and power to make
and put in circulation a medium of exchange. If the bank
note is secured by a deposit of stock or bonds to insure its
payment and maintain its value, as is the case with the
National Hank note, which is secured by a deposit of United
States bonds in the Treasury of the Federal Government, it
will form a perfectly safe, uniform and convenient medium of
exchange. But a bank note possesses two peculiar features,
which do not belong to money, (of any kind, whether made
of gold, silver, or paper) and which render it a costly
medium of exchange. One peculiarity of :i bank note is
that it enters into circulation encumbered with interest, and
constantly accumulates value, whether it is in use or not.
Its very existence, therefore, is a tax upon production and
trade. The other peculiarity, which grows out of the one
just mentioned, is that a bank note is not free to obey the
50 - *•
natural laws of trade, but is subject to tlie will and control
of the corporation which puts it in circulation. This can be
IK by supposing two notes, a greenback
and a National IJank note, to be put into circulation at the
same time and observing the c»ur-c taken l>y each. A
'•ark dollar is paid out by the United States govern-
• -juivalciit in labor or value. A. pays it
for a dollar's worth of commodities. 1>. lends it to ('.
for tli! per cent interest. C. pays it to P. for a
MS it ip hi> pov-cssion for three months and
then puts it in circulation again. It pusses from hand to
until finally it reaches Z., who pays it to a collector of
internal revenue, when it is returned to the Federal Treasury,
to be used over and over again in the same manner. While
:uing its use as a medium of exchange, it bore no
-t. When held by D. for three months in a state of
idlen< I no value for any one. It is true B.
lent it to ('. for thirty days at 0 per cent, interest, but that
was an individual transaction and extended no further than
M-t-rned. As soon as C'. put it in circulation
and unencumbered as
uhen it left the Trea-nry of the United State-. Hut it is
iiflferent with a bank note. The bank, which i^ues u.
!a\s at say 0 per cent, interest, and
A. puts it in circulation. At tin- expiration of sixty day-, A.,
unable to return the identical note which he borrowed, pays
the bank with a greenback or another bank note. This note
•• ly lent to 15., and the process goc- on
:ial bank n<>t,- thus constantly reali/es
M accumulates value for the bank, whether it
Circulate* in the channels of trade, or reposes in the vaults
b M a deport, ,,r lies rotting at the bottom of the
This interest comes out of the profits of production,
SYSTEMS OF MuNKV. 51
and is a tax upon the community at large. The tax thus
imposed upon the pul)lic for a medium of exchange is a
greater burden than industry can bear, and every few years
labor is driven to the wall and production, except of the
necessities of life, ceases. To promote production, or in
other words, to "develop the producing forces of a country,"
it is, as we have seen, more essential to have a cheap medium
of exchange, than it is to have cheap transportation; but a
bank note is the most expensive medium of exchange that
could possibly be devised, because it is accumulating value
all the time, whether it is performing the uses of money or
not. The bank note is subject to the will and control of
the corporation which issues it, because when the bank
ceases to discount paper, as it usually does whenever there
is a money stringency, and calls in its circulation,, it is
obliged to leave the channels of trade, no matter how much
its services are needed as a medium of exchange, and return
to the bank. But this is not all. The tax which banks are
thus authorized to impose on the medium of exchange
issued by them, enables them to control not only their own
notes, but the money of the country, whether coin or legal
tender [taper money, as will be more fully explained in
another chapter, and thus it happens, as at the present time,
that the circulating medium of the nation every few year*
becomes concentrated in the money centers of the country.
A bank note medium of exchange, whether redeemable in
coin, as in England, or in greenbacks, as in the United
States at the present time, it will, therefore, be observed,
constitutes a peculiar and distinct system of money, and one,
it may be added, that has proved an infinite source of dis-
aster and weakness in both England and America.
It was for these reasons, in days gone by, that Jefferson
insisted that "Bank paper must be suppressed and the circu-
to tin- nation to whom it belongs;" that John
Adaiu i'.-uik pa]> .:le freak of those who
i in T"rviMii and Ilritish idolatry; that Jackson
:iks of is MIC; that C'alhoun labored to
J tender paper money, to be i»ued by the
1 imient; ami it is for the same reasons that a
host of tin* foremost Matomen, political economists and
philanthropists nf tlir country are to-<lay urging the people
ft th'-ir rights and prevent the
• .in destroying the greenback, in order that
-nbvtitute tin- National Hank note in its stead, ami
thus secure tbc entire control of the medium of exchange of
nation.
A Treasury note issued 1>\ the Federal Government rej»re
'In- j.rojM ny and ]>roductions of the country to the
\alue invcribeil ,,n its face. It rests on the credit
government in the same manner that a bank note
rests on the credit of a corporation, and represents the
property and j)r«)ducti<.ns of the country (including gold
which it is exchangeable, just as a bank note
the « "in or Tivaxury m>te in which it is payable
'••emahlc. fl'1ie foundation <.f the Treasury D
[Jnited States bond, which secures the
p:i\im-nt and maintains the value of the bank note, and it,
therefore, possesses the highest and best security that a
.11 jM,sxii,ly liave.* A bank note is a
promise to pay immey, but a Treasury note, being a
«-f \alue (proprrty and product- », is money.
'//— it would be more
to receive. It is true
• ndi-p moiM-y of the Tnited S
(&• greenback) promi-. .vliich is a
•Sw note at tbo end of thl» chapter.
I KM-i OF Mn.N i:\ .
misfortune, becau-" it misleads people, even prof,
political economy,* but the promise is an empty phi
Wholly foreign tO the nature of the Treasury note and the
principles upon which it is based. It was spread on the face
of the greenback at the instance of the money power, which
was unwilling to recognize any other kind of money than
that based on bullion, and for the purpose of depreciating
its value as a medium of exchange.
It is apparent, therefore, that legal tender paper money or
Treasury notes and bank notes belong to two separate and
distinct systems of money, based on entirely different prin-
ciples. In the one case the medium of exchange is furnished
by the government and subject only to the natural laws
which govern trade1. Iii the other, it is furnished by private
corporations, who tax the public heavily for its use, and is
subject, not to the laws of trade, but to the control of the
corporations issuing it. In Great Britain, where the system
originated, the legal tender money of the country, in which
bank notes are payable, is gold and silver, as was the
case in the United States prior to the war, and hence
the system is commonly known, and is generally referred
to in these pages, as the specie basis system. When the
medium of exchange is limited to gold and silver, or paper
money based on gold and silver, the public is compelled, on
account of the scarcity of these metals, to use bank credit,
which explains why the money power is now striving to
force the American people to submit to a return to specie
payments, no matter at what sacrifice.
THE POWER TO MAKE MONEY A GOVERNMENTAL FUNCTION.
The power to make and regulate money lias long been
recognized as a governmental function, or, in the language
of Tooke, "Tn every civilized country supplying and regu-
*See Professor Newcomb's silly comments ou this point in Appendix.
54 POWER TO MAKI-: KQ]
.;vulatini£ iiii'iliiuiL is a function of sovereign
' The reason of this is obvious. Money to be
,Mic medium of exchange must pOMCSfl legal reprcsenta-
i-l this can be derived only from tlie sovereign
•\v making i»«. \\crof a nation. The bullionists do not
thi-, l»ut profevs to believe that the government is
-imply with the posver to coin gold and silver,
mse "the Stan- can do the work best, * * as no
atU-- iirhtand purity of coin) furnished by
private ] an compote in authority with the stamp
impo-. d bv the jjoverumcnt mint."* This view of the
mattei- gr«i\vs out of the peculiar ideas in regard to tin
•:' money held by those who advocate the specie
: i. r.onamy Price, Professor of political economy
in the t'nivcrsity of Oxford, England, say-: ^('oin, metallic
• money and nothing else is, unless it be a
mo.lity, as an ox, a cow, or a piece of salt," — preci>ely
the of money, it will be observed, as that held
by tin- ancient Romans, who u>ed bars of copper and cattle,
and by the American Indian of the present day.
< 'oii-titiition ,,f the United "lifers upon Con-
Lo wing, among Other, powers, \ix: 4-To lay and
, dutii-, imports and excises, to ]»ay the debts
the common defense and ^encKal welfare
1 ' * to borro\v inoiu-y on the
1 s * * to coin money, regulate
tlu-Nali; ; and of foreign coins; * * and to make
all la\\M \vhicli shall be n<'e,-v-ai-y and proper to carry into
i'orcgoing power-, efo." It also j.rohil.its the
• oinin-r nmncy, emitting bills of credit, or inak-
•'iiii'_j but t^old or silver coin a tender in payment of
•ti. Tlie e\<-lusivo ].o\ver to make and regulate the
rcncr «nd Banking, by Bonamy Price, pa.
A GOVEKNM i:\T.\I, I L \< TION. 55
medium of exi-hangi', therefore, devolves upon the Federal
Government At the time the Federal Constitution AV.-I^
framed the money question was one that had to be handled
\vith great delicacy. The money power, then as always in
fact, was on the alert, and care had to be taken not to incur
its hostility, lest it might prevent the ratification of the Con-
stitution by the several States. When it was proposed to
insert a clause in the Constitution empowering the Federal
Government " to emit bills of credit," it was boldly stated
on the floor of the Convention that " the moneyed interest
would oppose the plan of government if paper emissions
(bills of credit) be not prohibited," and the clause was
rejected by a vote of nine States against to two for. A*
"bills of credit" are promises to pay in lawful money and
belong to the specie basis system of money, it is fortunate
that no such provision was inserted in the Constitution. In
this respect its frame rs, perhaps, "builded better than they
knew." As the Federal Government is clothed with no
power "to emit bills of credit," and States are expressly
prohibited from doing so, it is a very pertinent question a^s
to how either the Federal or a State government can dele-
gate that power to a private corporation. Individuals can
issue promises to payMbecause they are in the nature of a
common contract, but when it comes to corporations issuing
promises to pay (bills of credit), under special authority
of law, which are clothed with the attributes of money, it is
a very different matter. The well known legal maxim
that what one "does through another he does himself,"
would seem to fit the case pretty closely. But the people
can not afford to waste time with constitutional quibbles.
They can compel their Representatives in Congress to
extinguish banks of issue and "restore the circulation to the
nation to whom it belongs,"* and if it is necessary to amend
•Thomas Jefferson.
r.r, mi: POWKK TO MAKI-: MOXKV
ill,- < in order to accomplish that purpose, they
•lo that.
Jjut the, • tO be no ditliculty so l';ir as the Constitu-
tion i< conCN rm-d. That the framers of the Constitution,
1 to empower the Federal Government "to
emit hills of credit/' <li<l not intend to prohibit paper money
or in any way curtail the legitimate functions of government
with n-Nj..-1-t to making ami regulating the medium of
tin- country, is apparent from CMtcmporaneous
h'iM< veil as tin- subsequent course of the govern-
ment. .Mr. Madison, who was ;i member of the Convention
which framed tlie Constitution, in speaking of his vote
airain-t empuwi-ring the Kedi-ral (Government "to emit hilN
<•!' credit.
"Tin- \"ic in the aHirmative by Virginia wa- nee:ixioiKMl
by the acqoleflOeBOe of Mr. Madison, who became satisfied
\vords ['to emit bills of credit'] would
not overnmcnt from the use of public, notes, a>
nld I..- safe and proper; and would only cut off
paper currency, and particularly for making
the bills [of credit currency) a tender either for public or
pri\ •• .Madi-on Papers."]
repeatedly urged that,bank^of issue should
i and that public note< issued by the Federal
should be Hib.xiituted for bank not.
. In a letter dated June 24, 181!
..-law Kppis, who \vasa member of the committee
IDS of the national House of 1 Jcproentat i \
iut. In- s.-,id:
var ..f 17.-,.-), our State availed itself of this fund,
paper currency, bottomed on a Bp for
its i-.-d.-!,,pti,,,,, :md to in>ure the creclii, bearing an interest
"f I- nt Within a very short time, not ;i bill of this
A <,OVKKNMK\TAL Ft\< n<>\. 57
emission was found in circulation. It was locked up in the
chests of executors, guardians, widows, farmers," etc.
"We then issued bills bottomed on a, redeeming tax, but
bearing no interest. Tliese were received, and never depre-
ciated a single farthing."
"In the revolutionary war, the old Congress, and the
States, issued bills, without interest and without tax. They
occupied the channels of circulation very freely, until those
channels were overflowed by an excess beyond the calls of
circulation. But although we have so improvidently suffered
the field of circulating medium to be filched from us by
private individuals, yet I think we may recover it, in part,
and even in the whole, if the States will co-operate with us/'
"If Treasury bills are emitted, on a tax appropriated for
their redemption in fifteen years, and (to insure preference
in the first moments of competition) bearing an interest of
six per cent., there is no one who would not take them in
preference to bank paper now afloat, on a principle of patri-
otism, as well as interest, and they would be withdrawn
from circulation into private hoards to a considerable
amount. Their credit once established, others might be
omitted, bottomed also on a tax, but not bearing interest;
and if ever their credit faltered, open public loans, on which
these bills alone should be received as sp.-cie. Tliese oper-
ating as a sinking fund, would reduce the quantity in circu-
lation, so as to maintain them in an equilibrium with specie.
It is not easy to estimate the obstacles which, in the begin-
ning, we should encounter in ousting the banks from the
possession of circulation."
Mr. Jefferson's plan, it Avill be observed, is identical in
principle with the much derided 3.65 inter-convertible bond
plan, so ably advocated by Pliny Freeman, Judge Kelley,
58 TIN-: i»o\vi:i: TO MAKI-: M<-
Hor. -cy* and a host of able ami earnest friends of
\merican ilia-
Tin- issue of Tn-a.xury notes under the Constitution aceonl-
invrlv he-_ra:i at an early day, though not \\ ithout meeting
witli fierce oj >j x >-it ion from the money power, and their
,ity has IMM-II sanctioned from the first by all depart-
inents of the government. The first issue of Treasury n<
made in pursuance of an act of Congress of June :i(),
Kurt! were authorized by the acts of Con-
U ot I-\hniary 25, 1813; 3Iarcli 4, and December 26r
1814; October 12, 1837; January 31, and August 31, 1842;
July L'-J, ls4»>; and January 28, 1857.
The validity and constitutionality of these acts were t
and affirmed in the Supreme Court of the United States, in
the caxf of Thorndike against the United States. Judur<
dt !i\ ( i in'_r the opinion of the court, said:
itcs of the United States, under which the
.xiiry notes have been issued, it is enacted that such
« ivaole in payment to the United States
3, and sales of public lands, to the full
amount of the principle! and intrre-t accruing, due on such
notrx. It follows, of course, [that they are a leiral tender
in payment of debts of this nature, due to the United St.:
. l.y tli- very terms of the acts, public officers are hound
oetve them."
Whcntheact of Congress of October 1J, 1 -::7, author-
an i-xM.- of TivaMiry not«-x, \Va> landing, Mr. Calhoun
the m«-a>uro m Ktrong terms. The following
h deliver, d by him September 10th,
prior to the passage of the bill, confirm the distinction which
made between public notcx and bills of credit, and
lain what was meant when wo stated that it would be
<•« Greeley's famous editorial on the C.CO Buud plau will be found in the
Append! k.
A GOVERNMENTAL FUNCTION.
more accurate to drscrilie ;i greenback :is :L promise to
receive than a promise to pay.* He said:
"It is, then, my impression, that in the present condition
of the world, a paper currency, in some form, is
almost indispensable in financial and commercial operations
of civilized and extensive communities. In many respect-
it has a vast superiority over a metallic currency, especially
in great and extended transactions, by its greater cheapness,
lightness, and the facility of determining the amount." * *
"It may throw some light on this subject to state, that
North Carolina, just after the revolution, issued a large
amount of paper, which was made receivable in dues to her;
it was also made a legal tender, but which, of course, was
not obligatory after the adoption of the Federal Constitu-
tion. A large amount, say between four and five hundred
thousand dollars, remained in circulation after that period,
and continued to circulate, for more than twenty years, at
par with gold and silver during the whole time, with no
other advantage than being received in the revenue of the
State, which was much less than one hundred thousand
dollars per annum."
"No one can doubt but that the government credit is
better than that of any bank; more reliable — more safe.
Why, then, should it mix it up with the less perfect credit
of those institutions? Why not use its own credit to the
amount of its own transactions? Why should it not be safe
in its own hands, while it shall be considered safe in the
1 lands of eight hundred private institutions, scattered all
over the country, and which have no other object but their
own private profit; to increase which they extend their
business to the most dangerous extremes. And why should
the community be compelled to give six per cent, discount
*See page 52.
»;i» POU KB TO M AKI: .MO.S i:v
;overnn:cnt credit, blended with that of the bank,
[1 the Superior Oredit of the government could bo fur-
nMicd separate, without discount, to the mutual advant:.
of tlit- irovernment and the community:''1
leving that there might bo a sound and safe paper
currency, founded on tlie credit of the government cxclu-
:y, I was desirous that tliose Avlio arc responsible, and
have the power, should have availed themselves of the
opportunity.91
*• We are told the form I MiiriTcsted is hut a repetition of
the 'old Continental money; a Lrhost that is ever conjured
up by all who wish to Liivc the banks an exclusive monopoly
"\ eminent credit. The assertion is not true; there N
not flu- least analogy between them. The one
ay, when there was no revenue; and the other a
to receive in the dues of ^ovc-rnment when there is abun-
dant reu'imc."
" We are told that there is no instance of a u«>veniment
er that did not depreciate. In reply, I aflirm, that then
one, assuming the form I propose, that ever did depre-
ciate. Whenever a paper, receivable in due- of -•( .venmienb
had anything like a fair trial, it has j 1. lu-tance
tlie case of North Carolina, ref«-rred to in my openiii--
n -in. irk-. The drafts of the Trea-ury, at this moment, with
all their iiirumhraiscc, are nearly at ]>ar with i^old an<l silver.
The (MM- of Ku>sia mi-lit al>o be mentioned. In
.' she had a lived paper circulation in the form of bank
;f \\hich were inconvertible, of upward of one hun-
dred and twenty million*, of dollars, otimated in the metallic
rouble, and which had for years remained without fluctua-
tion, having nothing to sustain it, but. that it \\ M received in
the dues of the government, and that too with a revenue of
"it ninety millions of dollars annually. I speak on
A «;oVKKN.MI-:.\TAL FUNCTION. 01
the authority of a respectable traveller. Other inMun
no doubt, might, be added, hut it needs no such .support."
"It has another striking advantage over brink circulation,
in its superior cheapness, as we'll as greater stability and
safety. JJauk paper is cheap to those who make it; but
deai-, very dear, to those who use it, fully as much as gold and
silver. It is the little cost of its manufacture, and the dear
rates at which it is furnished to the community, which gives
the great profit to those who have a monopoly of the article.
Some idea may be formed of the extent of the profit, by. the
splendid palaces which we see under the name of banking
houses, and the vast fortunes which have been accumu-
lated in this branch of business; all of which must ultimately
be derived from the productive powers of the community,
and of course adds so much to the cost of production. On
the other hand, the credit of government, while it would
greatly facilitate its financial operations, would cost nothing,
or next to nothing, both to it and to the people, and of
course would add nothing to the cost of production; which
would give to every branch of industry, agriculture, com-
merce and manufactures, as- far as circulation might extend,
great advantages, both at home and abroad."
Subsequently, March, 3838, Mr. Calhoun, in his speecli
on the Independent Treasury bill, said :
"I now undertake to affirm positively, and without the
least fear that I can be answered — what heretofore I have
but suggested — that a paper issued by government, with the
simple promise to receive it in all dues, leaving its creditors
to take it, or gold and silver, at its option, would, to the
extent to which it would circulate, form a perfect paper cir-
culation, which could not be abused by the government; that
would be as steady and uniform in value as the metals them-
selves. I shall not go into the discussion now, but on a
'62 THE POWER TO MAKE MOXEY
suable occasion I shall be able to make good every word I
have uttered. I will be able to do more — to prove that it is
within the constitutional power of Congress to use such a
paper, in the management of its finances, according to the
most rigid rule of construing the Constitution ; and that those
at least who think that Congress can authorize the no-
private corporations to be received in the public due- are
estopped from denying its right to receive its own paper."*
The United States Treasury notes, issue. 1 prior to the war
of 1861, had never been made a tender in payment of pri-
vate debts, nor had they been issued in u suitable form to use
as a circulating medium of exchange. But when the Re-
bellion broke out in 1861, the necessity for an incr
amount of money became imperative, and it became neces-
sary to issue public notes better adapted to the wants of the
times. The banks of Xew York, Boston, and Philadelphia,
soon after the war began, agreed to lend the Federal Gov-
ernment $150,000,000. After the loan had been negotiated,
the Secretary of the Treasury, unexpectedly to the banks,
required it to be paid in specie instead of bank notes, and
the result was that the banks throughout the country were
obliged to suspend sj.ccie payments.
The government stood in need of soldiers, ships, gun-
boats cannon, guns, ammunition, commissary stores, quarter-
ma-ter stores, transportation, etc. The people at large were
obliged to supply the wants of the- government, and fortu-
natelv p.,— e-sed both the ability and willingness to do so, but
it \\a-> impracticable to accomplish the ends desired except
through the inst rumentality of a medium of c\chair_rc -
money. Congres<, by virtue of the sovereign pivrMgativr
inherent in the people, and as their representative duly
authori/.ed by the Constitution, enacted a law authori/ing
and directing the Treasury Department of the I-Ydcral Gov-
A GOVKIiNMKNT.M. I-T M TIOX. 63
•eminent to issue public notes wl i'u-1 1 should ho a legal tender
for debts, hotli public and privato. As they were issued by
tin- jtoople ill their collcotivo capacity, and represented the
property and products of the nation, it was eminently just
and proper that they should declare that what they did in
their collective capacity should be binding upon them indi-
vidually. In fact, in no other way could the1 people all have
boon put upon the same platform Avith respect to the wants
of the government, in the exigency which then existed, than
by declaring their public notes a legal tender in payment of
debts. These notes, as we liave said, represented the prop-
erty and products of the nation, and by virtue of their legal
tender property they naturally and necessarily conformed to
the unit and standard of value of the country. They there-
fore possessed the power to measure and exchange, as well
as to represent value, and consequently possessed all the
attributes of money — in a- word were money, in every sense
of the term; and the American people found tliemselve>,
unexpectedly, it is true, in the enjoyment (to use the language
of President Grant) "of the best currency that was ever
devised."
When public notes were issued, the people in a collective
capacity in effect said to those who were able to supply the
wants of the government: "Give the government all the
guns, ships, food, transportation, etc., that is required, and
the rest of the people will make good to you whatever
amount you may contribute over and above your share out
of any other property or products which they may po-
that you need or desire." As it was a matter of compulsion
on the part of the people to supply the want* of the govern-
ment, it was an act of supreme' folly in them to encumber
their circulating medium with interest directly or indirectly,
.as was done, which can only be compared to a man paying
64 Tlli-: J'OW Mil
some-body else interest f<>r tin- privilege of using his own
money. Jt simply made it the prey of speculators and
money dealers, greatly to the disadvantage of the nation.
That it was imnere-ary appears from the fact that green-
backs to the amount of hundreds of millions of dollars cir-
culated in the channels of trade and performed all I
of money, as effectively as gold or silver could have done, for
more than a year before the United SfaUs hoiid>, hearing six
per cent, interest in gold, with which they were interchange-
able, were i»ued, and continued to do so after their inter-
changeability was taken away by act of Congrc— . Mr.
Spaulding, chairman of the sub-committee of Ways and
Means of the House of Representatives, in a speech on Jan-
nary !•_', isii3, said: "The Secretary has paid out nearly
x !'.">« ),oi)< i.niii) li.--.-il tender notes, bcingall that he was author-
i/ed to issue; and notwithstanding he has had authority for
the la^t ten months to sell N.500,000,000 of live-twent;.
per cent, bonds at the market price, he has only di>povd of
about $25,000,000, and has still authority to sell §475,000,000
at the market price, and take his pay for them in legal tender
notes. One of the reasons \\hymoreof these bonds have
not been disposed of is, that there has been no redundancy
of currency, and it has been difficult for the Secretary of
the Treasury to get legal tender notes on a sale of the bonds
and sevcn-threc-tenths notes that he has alread\ ' ne^olia;
In other words, the people needed greenbacks far w«ir>c than
anything e!>e, and could not spare them to invent in live-
twenty bonds, which have since been paid both principal and
interest in gold. At. this time gold ranged from 1 :M to 160.
Had Congress not yielded to the demands of the niom-y
power, but passed the legal tender act as originally framed
and offered in th«- House of Representative to -ay,
had made the greenback a full h-gal tend. able for
A '.oVKKNMKNT AI. l'T\< HON. 05
on import > as well as other public dues), and not made
tin- interest en tlu- bonds, with which it was intended io he
interchangeable, payable in gold; and resorted to a judicious
-\-tein of taxation, using tin- bonds only to sustain the
greenback in case its credit ever faltered, by receiving it
alone as specie i'nr lioinls, there is every reason to believe,
from the experience- of the country lit that time and since,
that the war could have been carried through successfully
without incurring but a fraction of the debt now owed by
the Federal Government, and that the debt, whatever it
might be, would be held mostly at home instead of abroad.
Hut no sooner had the legal tender act made its appearance in
Congress than the money power was up in arms against its
passage. Delegations of bankers from New York, Boston
and Philadelphia hurried to Washington; and formally
organi/ing, by selecting one of their number chairman, they
summoned the Finance Committee of the Senate, the Com-
mittee of Ways and Means of the House, and the1 Secretary
of the Treasury into their presence. In the end the money
power, although it, did not succeed in preventing the passage
of a legal tender act, secured a complete triumph. The
interest of the bonds was made payable in gold in order
to create a demand for gold, and then duties on
imports were made payable in gold in order to get the
gold to pay the interest on bonds. A premium on gold
was thus established, and the public notes of the gov-
ernment were dishonored by the government itself; and.a-
we have seen, the premium on gold was run up to 100 before
ever the gold interest bearing bonds of the <j<»'< mment
were issued. A National Hanking law was also enacted to
enable the money power to regain control of the monetary
affairs of the nation. This was the beginning of the most
stupendous robbery, boldly and openly planned and remorse-
66 THH 1'OWKH TO MAKE MOMiY
lessly executed, to be found in the annal> of any nation, of
either ancient .»r modern times, the details of which will 1m
accurately set forth in a coming chapter (Cliai ••
the end i> not yet.
The legal tender acts passed during the war not only
received the sanction of every department of the govern-
ment, Imt met with the universal approbation of the wealth
producing classes of the nation. Their validity and con-ti-
tutionality, which were of course contested by the money
power, have been affirmed by the Supreme Court of the
United States, and by the Supreme Court of fifteen St-
and only iii one instance has a State Court failed t<> endorse
their constitutionality. The Constitution of the United
States does not in express terms confer upon Congress the
authority to make anything a tender in payment of d«
the word tender being no where mentioned in that instru-
ment, except in the clause prohibiting States from making
anything but gold and silver a tender, but the right to d
i- so clearly an incident of the general powers of ('mi-
over the currency of the country, that it has never hesitated
to enact such laws upon the subject as the intercut- of the
nation required. The right to declare by law what shall be
a tender in payment of debt* has thus been . by
Congress in twenty-four statute- passed during the adminis-
trations of Washington, .b-lTcr>«»n, Madi-»n. M«>nroe..l
Tyler, Polk, Killmorc, Pierce, L;iM-,,ln and John-on.
Hut driven out of the Supreme Court, the money ]><>•
now busy striving to inculcate the doctrine tl:
could only make public notes a tender in payment <»f ]>ri
debts in time of war. A distinguished lawyer,* who li:m
made himself cons], iciious of late in i mislead
the public upon this subj. -That the only currency
•lion. Reverdy Johnson.
V i.oYKKN MKN 1 \l. K1MTION. 67
known to the Constitution is gold and silver, or paper con-
vertible into it on demand," and gi\es il as his opinion that,
the Sapreme Court did not intend to go BO far, in tin- legal
tender C:IM-> decided at the I )ecember term, 1870, as to
decide that Midi an aet would he Constitutional il' |»a»ed
in time of peace. As the framt rs of the Constitution, afl
has already heen explained, refused to authori/e Congress
"to emit bills of credit," (paper coin crlible into gold or
.silver on demand) it is evident that this distinguished advo-
cate of banks of issue, in asserting1 that such a eunvney i-
"known to the Constitution," lias allowed his y.eal to outrun
his judgment, and lie is no less in error in regard to the
opinion of the Supreme Court. I\Ir. Justice liradley, one of
the Judges of the Supreme Court, who read an opinion in
the cases referred to, says:
"Another ground of the power to issue Treasury notes or
bills is the necessity of providing a proper currency for the
country, and especially of providing for the failure or dis-
appearance of the ordinary currency in times of financial
pressure and threatened collapse of commercial credit.
Currency i> a national necessity. The operations of the gov-
ernment, as well as private transactions, are wholly depend-
ent upon it. The State governments are prohibited from
making money or issuing bills. Uniformity of money was
one of the objects of the Constitution. The coinage of
money and regulation of its value is conferred upon the
(Icneral ( Jovcrninent exclusively. That government ha-*
also the power to issue bills. It follows as a matter of
necessity, as a consequence of these various provisions, that
it is specially the duty of the General Government Co provide
a national currency. The States cannot do it, except by the
charter of local banks, and that remedy, if strictly legitimate
constitutional, is inadequate, fluctuating, uncertain and
nii: ro\\ i;u TO .MARK MOM.Y
insecmv, and operates with all the partiality to local intei
which it was the very object of tin; ('..n-titntion to avoid.
But regarded as a duty of the General < io\ eminent, it is
strictly in accordance with the spirit of the Constitutio:
well as in line with national necessities" ( 1 •_' Walla
Re-port N f,r,-_'.)
The necessities of peace may he as irreat, though of a dif-
ferent character, as those of war, as the- American people are
experiencing at the present time. Fur several years the
nation has been suffering a daily loss of millions of dollars,
by reasor of its inability to develop the producing fore.
the country, as they mi^ht be developed under wiser la\v>.
Nor need anyone indulge the hope that a times will chan
lie-cause there c;m be no change, except from bad to \\ •
until the cause \\hich has produced the present prostration
all form-- of productive industry is removed. Tin- repeal
of the :i<-t decreeing specie i-esumptioii .January 1, 1
which rcst^ as an incubus upon the industries of the com,
niiirht afford temporary relief, and would certainly avert the
ire M era 1 bankruj)tey, which is ine\ liable if its provisions are
can-led out, but to place the affairs of the nation on a sure
foundation soinethinir more is required, vi/.., the extinction of
banks or issue and the adoption of a monetary system based
on sound principles. Specie circulation would then come
naturally as soon a^ ;he nation produced a sufficient sin-plus
of products to caitM- its return. This was witnessed in
Prance after the late war with (ierman\. Stimulated by an
abundance of irredeemable h-iral lender paper money, the
nch pcoph- bent every eiier'j;y to\\ar«U producing wealth,
and in less than three years a-tonNied the world by paying
off the German indemnity of $1,000.000,000; and sp-
now cii-ciilatc-s thei'e >id« b\ ride at par with irredeemable
paper money. The immense sum paid by FIM
OVTtBB MI:N i \\. /i \. HON. 69
many \\.-IN not paid iii actual gold, but i:i bilU «•!' exchange,
etc., which rcprocnicd i!n- proceeds of l<Ycnch industry. :
a common error in the I'nited Slates to suppose that interest
on the public debt is paid in gold, and that therefore it ism
>arv to require duties on i in ports to ho paid in gold. 1 1. is :i more
iiction. The interest of American securities held abroad
paid in products, and products do not sell for :i farthing nx-iv
or los in foreign markets, on account of boing HR'asured
and exchanua'd in the United States by greenbacks instead
of gold. The premium, however, on gold, which oxi.sts by
reason of the law requiring duties on imports to be paid in
gold, is a disadvantage to all classes, except the bondholder
and money dealer, which should be remedied. It' the green-
back were made a full legal tender, and sustained by an
interest-bearing bond with which it was interchangeable,
there is c\ cry reason to believe that the premium on gold
would almost totally disappear. In 1861, by the acts of , July
17 and August.."), the Treasury .Department was authori/ed to
i>xiie *•"> ii, 01 1! >,<><)<) in what were1 commonly known then as de-
mand noto. An additional issueof $10,000,000 was author-
ized Feb. It), lxii-j. 'These notes were receivable for all public
dues, duties on imports inoluded, and were subsequently
made a legal tender for private debts, and the result \\a^
that they commanded the same premium o\ er the ordinary
greenback that gold did, and went up with gold, step by stop,
to the enormous premium of L'S.">. Could any better evidence
than this be required to prove that a greenback made a full
legal tender would circulate at par, or nearly so, with gold?
These " demand notes" were of course very obnoxious to the
bullionistS, because they gave the lie to all their theories
about paper money, and accordingly they were got out of
the way at the earliest moment possibh — all except about
$75,000, which are probably lost and, if such is the case,
constitute a gain of that amount to the people at large.
70 HOW i-Ai-KK MONKV i»i I:D i;v -j HE
HOW 1'AJ'KK MONKY isst KI> r,v TIN; <;OVKI:XMK.\T 1:1:1
-I:\TS VAI.I i:.
Tin- natmv of money has been BO constantly and generally
misrepresented that, as we have already suggested, it is not
surpri-ing that people find it difficult to understand how
:i piece of paper issued by tliG government represents value.
This can l)e fully understood by considering briefly the atti-
tude of the individual with respect to his duties and obliga-
tions to the government. In an organi/ed state of society
the Controlling power, or sovereignty, is exercised for the
common good through the agency of a government. A<
the sovereignty in the United States resides in the people at
large, the duties of the individual may be said to be self-
imposed. The powers with which the government, whether
Federal, State, or local. i- vested, imply a corresponding duty
on the part, of the individual. It is the duty of the Federal
( iovernment to provide for the. common defense and general
welfare. In time of peace it imposes taxes to defray the1
expenses of government and discharge its obligation-; and
in time of Avar it can demand the personal services of tin-
individual. Thus the entire wealth of the nation is held
subject to the need- of the State. Private property is taken
daily, no matter ho\v much it may be endeared to the indi-
vidual by a-.-ociation, for public uses, Bfl in the 0886 of rOftdt,
street-, etc., and the tax warrant takes precedence over all
other liens, without re.-pect to priority.
The expenses of the government are paid out of the earn-
ings of the people at large. When the government needs
money it has to look t-> the people for it; taxes are laid
and the people are obliged to re-pond. Hut if thcr-
no money in the country, people are unable, not only to cany
on private Iran-action-, but to supply the necrs-ities of the
government. They may pOOSeSfl property and products in
. .i:s MI.N i I;I.]-I;I;-I.N TS \ M.I i:. 7 I
abundance, but they can imt In- made available for the U
of the- government, except through the. instruiiiciitalily of a
medium of exchange, and it is necessary, therefore, that a
medium of exchange be deviled. The government might
borrow gold or silver, or the credit of corporations in t he-
shape of bank notes, by paying interest; but why should the
people bo compelled to pay interest for the use of a com-
modity like gold, when they have abundance of other
commodities at the service of the government, which only
require a medium of exchange to be made available, or for
the credit of corporations, when their own credit is much
better than that of any corporation? Through the agency
of the Federal Government, upon whom, under the Constitu-
tion, that duty devolves exclusively, the people in a collective
rapacity can issue their own notes, which cover the entire
property and wealth of the nation, including gold, silver —
•ythinir, in :i word, that can be reached by a tax warrant.
These notes represent property to the amount inscribed on
their face, which the government was entitled to demand in
the way of taxes at the time the notes were issued. It was
in this sense that. Calhoim declared that they were in reality
"promises to receive," and bore no analogy to notes prom-
ising payment in money. As between citi/en and govern-
ment they are the same as money, and, if the individual in
turn is not obliged to receive them as the representative of
property to the amount inscribed on their face, it is tanta-
mount to the people repudiating individually what they have
done collectively. It is, therefore, but a matter of simple
justice and equity that Congress should declare the public,
nntes of the government a legal tender. It is also a matter
of great advantage to the people, for when a public note
is made a legal tender it acquires all the functions and
serves all the purposes of money. The public note is
72 v,' r.u-Kii MOXKY js.srKn i;v Tin:
not, then, one tiling t<> the government and another to the
people, hut ils value- becomes iixcd and certain, as determined
by law. A dollar legal tender note of the government then
represents a dollar's worth of property — neither more mu-
lt consequently corresponds to the unit of value
in the minds of the people In- usage and education, and is a
mea.Mirc of value. It lias, therefore, representative value
and the power to ine.-'.surc and exchange property; in other
words, all the attributes or functions of money. As it rep-
resents a dollar's worth of property, it cannot vary as a
standard or measure of value, except as the unit of value may
vary in the minds of the people. This is not the case with
money possessing intrinsic value, because its power as
money then depends chietly upon the value of the material
of which it is made, and as that will fluctuate' according to
the laws of supply and demand, it cannot be used as a fixed
measure of value. Thus gold fluctuates in value, and is
itself, whether in coin or bullion, a thing to be measured.
That a measure of value must po»c» /////•///*/> yah,'
i of the schools, which men of science, out of a desire to
Distent perhaps, adhere to — notwithstanding t!i
that, they are furnished with abundant proof to the contrary
in almost, every transaction of daily life— with as much per-
tinaciiv, as the men of science and the churchmen <
17th century adhered to the opinion that it wa> the sun that
revolved around the earth and not the earth around the MIII.
When tin- Federal < lovernnient pays out a dollar legal
tender note for value received, it will be a.-kcd h<>\\, when
and where- is the ln.lder to obtain the property or \altie
which it. represents? The Federal < io\ eminent could say,
this note represent?- property, which the government is n..\v
entitled to reeeive, and a tax warrant can produce th:«
property any moment, if it takes the la-t dollar's worth
I VAI IK 73
in tin- country; but tin- government is constantly receiving
proper! v, or its equivalent, in the shape of revenue, and there
is no ncce»iiy to make :i special levy of taxes to pay this
particular dollar; nor is there any necessity to fix a time for
its redemption in property. -Being :i legal tender, every
individual in the nation will take it at the value inscribed on
its face, and in the natural course of events it will redeem
itself, in one sense, liy re-turning to the Federal Treasury in
the form of taxes or revenue. Tt was for this reason that,
in the ease of North Carolina, mentioned by Mr. Calhoim,
M-veral hundred thousand dollars of legal tender paper money,
issued l>y the government of that State, circulated for years at
par with gold and silver, with no other advantage than being
reeeived in the revenue of the State, which was less than
one hundred thousand dollars per annum.
The wealth of the United States is estimated at over
$40,000,000,000. The. annual expenditures of the Federal
Government amount to about $300,000,000, rcqui ring a corres-
ponding revenue. The amount of public notes, based on
sound principles, which the Federal Government, backed by
$40,000,000,000 of property, with a revenue of $300,000,000
:i year, could safely is.Mie, is a matter of opinion, arrhed at
in much the same way that the credit of an individual is mcas-
u red. The amount of money required by a nation is just
what can be used safely and profitably in carrying on its
affairs, public, and private. Tt will vary in different years
and at different seasons of the same year, through the
operation of causes existing in various parts of the world.
Hence the necessity of sustaining the legal tender note of
the government with :i bond, with which it may bo inter-
changeable in times of redundancy; and it might be possible,
if the government were out of debt, to accomplish the same
end by increasing or diminishing the rates of taxation as
occasion required.
74
GOVERNMENT BECURITf TIN-: s.\KF-:sT.
NOTE.— On ]>.-mv .vj we stated that "the foundation of tho
Treasury note (greenback) is the same as that of a I'nited
States bond, which secures the payment and sustains the
value of the bank note, ami it, therefore, ]> the
highest and be>t security that a medium of exchange can
•»ly have." Professor Bonamy Price, although lie
seems to think that notes issued by a government are not
as LCood as bank notes, because uthere are no means for
compelling a irovernment to ]>ay money, if il chose- to .vav
that it haa none," (Currency and Banking, page 45) never-
theless, is of the opinion that no guarantee for the solvency
of the notes of a bank is so natural and safe as a deposit oY
irovernment securities. lie says: U15ank notes circulate
largely amonic the poor and uneducated, and when the bank
breaks, the loss is severe and distressing. These facts supply
ample \varrant to the State to require of issuing bankers, not
only that they should pay their debts to the utmost extent of
their fortunes, as any other person, but further that they
shall lodire such security as shall al\vay> provide for the
payment of the debt acknowledged on the note. A guaran-
tee for the solvency of the notes may be obtained in various
ways, but none seems so natural and so simple as ;i deposit
<>t Lfveriimeiit securities with some ollicer of the State. It
combines two advantages — safety, and a natural and fitting
profit, for the banker from the interest accruing on the bonds
*ock. The old Exchequer bill of the KiiLrlish government
\\ :;s an excellent specimen of this kind of security. It could
always be paid in for taxes, bore a daily interest, and u;t-
thoroughly trusted, and with reason, by the whole commu-
nity/' (Currency and Banking, p It i- a bad <•:
that obl'iLTes a professor of politieal economy to* blow liot
and cold' in this manner.
CHAPTER HI.
BANKS AND BA\KIN«i.
BANKING h:ul its origin at an early period in the history of
commerce, and a banker originally was simply a dealer in
money. In the New Testament mention is made of a bank
in which money could be placed at interest, and only
recently the tablets of an ancient banker, with their inscrip-
tions uneffaced, were brought to light by the explorations
now being made amongst the ruins of Italy. In England,
until as late as the beginning of the 18th century, the busi-
ness of banking was carried on by goldsmiths. IJanking,
however, as it is n<»\v conducted, is an institution of modern
growth. The check, certificate and bill of exchange have
come to perform an important part in the work of exchange.
It is n<»L the intention to enter into a consideration of the
principles and details of banking further than is necessary
to a proper uiidcrManding of the question of money, with
which it is intimately connected. Money, as has been
explained, is an agency of trade, and, in an accumulated form
as capital, an instrument of production. The lir>t thought
of the possessor of money is safety and the next profit.
Money cannot accumulate value of itself, and consequently
has to be put to u>e in order to bring its owner a return.
When hoarded it is not only useless to the owner, but
society i* deprived of the advantage of an important agency
of exchange and of production. It is, therefore, a matter of
importance to FI> ',ety, as well as to the individual, that
money should be afforded every opportunity to occupy the
channels of trade and perform the uses for which it is
76 IJANK> AND I:ANKI\<-.
designed. Tin? interests of society, as we ha\e seen, arc
best promoted by a division of labor. OIK- class is devoted
to agriculture, another to manufactures, trade, education, <
etc., ami each class is again subdivided into innumerable
forms of industry. In this way it happens that a class ha-
grown U]> which is specially engaged in tlie collection,
custody ami investment of money, and in dealing in di-
and crcilits based on money. The banker offers reasonable
safety and re])ayment on demand, or moderate interest, and
in turn lends the money for the purposes of trade. The
offices of a bank are to receive money on deposit subject to
order, to collect money, to invest money, to lend money, ami
to buy and sell securities and exchange. The check and
bill of exchange are invaluable' aids to business and com-
merce, and for many purposes are preferable. to money.
The great, facilities which a bank affords for the transaction
of business, as well as its ability to promote the circulation
of money and foster enterprise, render it an agency of trade,
•ml in importance and usefulness only to money itself.
Like all other human institutions, banking is of course liable
toabuscs,but when legitimately ami properly Conducted then-
is no other institution so closely connected with the well
being of every individual, or One which is capable of ren-
dering so much service to soeiet\. It is, therefore, impor-
tant that banking, like money, should be ha-ed upon sound
principles. Hanking legitimately conducted is purely a
matter of private enterprise, as much so as dealing in grain
or lumber, ami the relation, which the banker sustains to
the community, differs in no n-speet. from that of an individ-
ual, following any other pursuit, or profession. Hanking
should, therefore, be free, and subject only to gei.-
laws, such as the laws under which partnerships
conducted. The generally rceogni/ed and ackiiuwled
AND BANKING. TV
importance ..!' hanks, however, have led individuals to -
and governments to bc>t«i\v upon them powers aii«l jirivi-
leges, snch as are bestowed upon tlir v(»ca!i<ui <»r no niln-r
class <>f society. \Ve refer more particularly to the power,
with which banks arc clothed by law, of isMiing promissory
notes, nominally payable on demand, to circulate as money.
There is no reason why bankers should be invested with
tins authority any inure than any other class of society.
The temporary relief which, by reason of this privilege,
they are enabled to afford to individuals, and from which
the community derives ;i henelit, has blinded society to the
far greater evils which flow from the custom. .V distin-
guished writer'" upon the subject of money and iinance, in
speaking of this feature of banking, says: "The bad pra<
which originated with the IJank of England was an agree-
ment to pay gold on demand for its inscriptions of credit.
This was to undertake to do an impossibility. The general
debts of a, bank are redeemed by its general rexmrccs, and
these consist mostly of loans and discounts which mature in
the future. A more flagrant violation of sound banking was
never conceived. It has repeatedly involved the banks of
the Tnited States in fatal embarrassments, and brought
ruin upon thousands of merchants who were otherwise able
to pay their debts and retain :i handsome surplus/' It is
not alone the excessive and unfair profits which this system
(banks of issue) enables those engaged in it to reap from
the public, but the periodical derangement, of business and
trade, so fruitful of disaster, which it, leads to, that renders
it so obnoxious. Jefferson, who never failed to warn hi*
countrymen against the evils of the >\st«-m, in a letter upon
the subject in l>!o,said: »• I Jut it will be asked, ' Are we to
have no banks? Are merchants and others to be deprived
•J. S. Gibbous, In Jobnsou's Universal Cyclopedia.
.78 HANKS AND BANKING.
of the resource of short accommodations found so conven-
ient;'' J answer, let us liave banks; but let them bo such M
an- alone to be found in any country on earth, except Great
Britain. * No one has a natural right to the trade of
a money-lender but he who lias the money to lend. Let
those, then, among us who have a moneyed capital, and who
•prefer employing it in loans rather than otherwise, set up
banks, and give cash, or national bills (United S;
Treasury notes) for the notes they discount. It is from
< ircat Britain we copy the idea of giving paper in exchange
for discounted bills; and while we have derived from that
country some good principles of government and legislation,
uc unfortunately run into the most servile imitation of all
her practices, ruinous as they are to her, and with the gulf
yawning before us into which these practices are precijnta-
ting her/'
The dependence of the government upon a medium of
exchange for its revenues lias contributed largely to the
abuses of the banking system, to which we refer, but since
the Treasury note, made a legal tender, has been found to
answer all the purposes of money, much better than gold,
silver, or the bank note, there is DO longer any reason for
tolerating banks of i^ue. That, this theory in substance
finds able advocates, even in Kngland. is manifest from
following extract from an article in the II
/;< oii >r of October, 1-7:',, entitled, "The Mint and the P.ank
of Kngland:''
"In breaking this monopoly of the bank, we should be
taking great Strides toward the attainment of that ideal
tern of currency which Sir II«»bert iVel mu>t have had in
heart when he passed his currency I n under
which the State shall be the sole fountain of issue; under
which no money shall circulate on credit, or if it does, shall
I;\NK-> \\i« r. \\KIN... 79
circulate on the credit of the State, all liank OOteS, U uell U
coins, bearing the image and siipcrscript'n ..... f tin- head of
tin- Staff, and under which all profits upon the issiio of
money shall form part of the imperial revenue. * The
power of issue, no\v exercised by the IJank of Kngland.
and by the English, Irish and Scotch hanks, [all private
corporations,] is a relio of feudalism. rrhe
manufacture of coin lias been suppressed long ago, but
the manufacture of paper money still remains, and the protiN
of this manufacture are allowed to remain in private hand-.
the State taking upon itself the manufacture of the only part
of the currency upon which there is, or can be, a lo>s. If jx
high time this state of things ceased; that all rights <>f i»ne
were gathered into the hands of the State; that the debt of
the Bank of England was paid off; that all notes but those
•of the State were suppressed; that the powers of issue, now
•exercised t>y the banks, were vested in the royal mint, * *
and that the profits upon paper currency were claimed by
the State, and appropriated * * * to the reduction
of taxation."
Public banks in the United States are conducted solely
for private gain, and are free from governmental connection
or control. They are, however, as we have already observed,
invested with extraordinary privileges and franrhi.M-s of a
public nature, intended for the public good. While they
are eminently successful in enabling their corporators and
stockholders to secure their own ends, they are far from
being beneficial to the public. The languishing condition
of the country at the present time demands that the right to
make :i circulating medium of exchange shall no longer be
suffered to remain in private hands, but shall be restored to
the nation, to whom it belongs, and by whom alone it can
<be exercised in a spirit of -equal and exact just ice .to -all.
CHAPTER IV.
BANKS OF THE OLD WORLD.
IMPORTANT lessons can "be learned from the teachings
of experience. A brief glance at, the banks of the old world
will be found useful at the present time, as well as interest-
ing. The first bank of which history gives an authentic,
account is the Bank of Venice, established in the year 11 71,
and which, strange to say, furnishes an example of success
that has never been equaled.
TIII-: HANK or VKM<
The JJaiik of Venice \vas established under peculiar
circumstances. The Venetian government, under the Duke
Vitale Michel II., was engaged in a war Avith the (Grecian
Emperor, on account of an outrage perpetrated in his empire
upon Venetian merchants, and also iii a war with the
Kmperor of the AVeM. Standing greatly in need of
means, the Venetian government reported to a forced loan,
and required its wealthier cili/.eiis to contribute to the
support of the government ac<-ording to their ability. A
chamber of loans was organ i/cd, of which the credi:
constituted the managers, bookfl were opened and an inscrip-
tion of credit entered for the amount paid in by each,
on which the State agreed to pay interest, at the rate
of four per cent. a. year. The^e inscriptions of credit \\
made transferable in whole or in part on the books of tin-
bank. The government entered into no obligation to repa\
the money, but, to quote from C'olwell, "reimbursement of
the loan ceased to be rega either necessary or desi-
I;A\KS OF TIM-: m.n woi;i.i>. 81
rable. Kvcry creditor was reimbursed when he tran-t'crn .i
his claim on thi' books of the bank. Fnun being convenient
and valuable as an investment readily obtained, juul as
readily disposed of, it became, by a natural proces-.
medium of payment, in transactions of commerce. That
fund, which was desirable to all seeking investment, would
be willingly, in many instances, accepted in payment of
debt* already existing, or for goods ju>t purcha>ed. There
is urood reason to believe that this fund was largely used in
tills way for centuries before the final arrangements were
made, of which our accounts are more clear, * * There
is no question, although we have not the details, that the
government had found it perfectly easy to enlarge the
amount of the original loan or stock of the bank, as the
demand for its funds generally exceeded the supply. All
money deposited for the purpose of obtaining a credit in
bank was accounted an addition to the original loan, and as
Mich taken into the public treasury as money lent the State.
Every such investment increased the stock of the bank, and
replenished the treasury of the republic. If individuals
could make purchases and pay debts by transfers in bank,
the public treasury could well afford to receive, in payment.
of its dues, credits in bank, as that would only be equivalent
to taking up its own obligations. Thus, the more these
credits were employed, the more the demand for them
increased, the more rapidly money flowed into the treasury,
and the more readily the government could afford to receive
payment of its revenues in the funds of the bank."
The history of the Bank of Venice is presented by Mr.
Colwell, in his abl? work entitled, "The Ways and Mean-
of Payment," in such a clear light, that we can do no better
than to continue to quote from him at length as follows:
" The way was opened, by the experience of two centuries
82 IJA.NKS OF TIII-: OLD WORLD.
and a half , for the next chief characteristic of the Bank of
Venice. In the year 1423, in the administration of the
Doge Thomas Moncenigo, it was decreed that all bill-
exchange payable in Venice, whether domestic, or f.>r '
should be paid, unless otlier\vi>e stipulated and so expressed,
ill the bank; and that all payments in gross, or in whole
transactions, should be effected also in bank. This at once
brought the mass of the payments of that great commercial
city to the bank. Whatever irregularities, and whatever
confusion had prevailed, this introduced a uniform and, from
long familiarity with the bank, an intelligible system. The
endless diversity, and bad condition of the coins circulating
in Venice were a, suflicient recommendation of the i
regulation to all who had not very special reasons, ind
for disliking it. This measure at once created a great
additional demand for the funds of the bank, and brought
large sums into the public coffers. The government, how-
ever, no longer paid interest for the sums received from the
bank. The funds obtained in this way were brought t«» the
bank for the payment of bills of exchange, and were paid in
for that purpose, and not with a view to interest. The rapid
succession of payments occurring at a point where all {In-
payments of Venetian commerce were accomplished, n
the intervals during which the funds remained in the hands
of any one merchant too short to make him solicitous at
interest on balances or deposits. As all payment* of the
kind above designated were, by law, to be made in hank,
unless otherwise agreed, and as that mode of payment
far more convenient, it became alni'.-t the exclusive Of
"f trade. All who had engagements to'mert, found 1l
in the bank: of conr-e, all such provided
py to meet them, «>r carried to the bank the amount
of coins renuUitc lor the purpose. The government con-
i: \\K> MI-' ! III! OLD W<>KM>. 83
tiiiiicil to take- nil money paid in as a consideration for
allowing an in>cription on the hooks of tin- bank to tin-
credit of tin- depositor. The1 sums which thus flowed through
(he bank into the treasury would, with the previous bank
funds, make up the quantity needful for the convenient
discharge of the commercial payments of Venice. As thU
amount fluctuated from year to year, and during each year,
with the course of commerce', a very effective modi- of
accommodating the supply of bank funds to the exigency of
the demand came obviously into use. AVhcn the payment^
in bank were heavy, and the bank funds in great demand,
money flowed freely into bank, and the credits were propor-
tionnbly increased. When an occasional demand for the
precious metals arose, the holders of bank funds could
readily dispose of them at a slight reduction for coins. The
purchasers of bank funds were sure of meeting soon a
demand for them; for the demand for a medium in which
the1 ever-recuning payments of debts were made so much
exceeded in intensity the occasional demand for specie for
exportation, or any other use, that during the whole existence
of the bank, with very slight exception, the bank fund was
at a large premium over coin^, so large that it was finally
fixed by law at 20 per cent."
"The republic could well afford to maintain a liberal
policy towards an institution so important, both as a fiscal
and commercial agent. That the inhabitants of Venice were
satisfied, we cannot doubt, as not an objection was ever
made to the bank, at least none is extant; neither book, nor
speech, nor pamphlet, have we found, in which any merchant
or dweller in Venice ever put forth any condemnation of
its theory, or its practice. There was no hesitation in
carrying money to the bank, so long as it was not doubted
that the bank funds would purchase specie without a loss,
BANKS OF THE OLD WoKLI).
whenever it might be needed; and the uniform premium of
kink funds settled tli:it point. Under such in, the
regular payments of trade would proceed with a rapidity
and economy previously unknown, so far as the history ..f
coiip-ieive informs us."
"It is worthy of remark, that this very etlicient mode of
adjustment discovered and used so largely at this early
period in the history of commerce, was not dependent for
its efficacy on the guarantee of the republic. That guarantee
sprung out of the mode in which the bank originated: this
convenient method of liquidation sprung from the u
this new substitute for money."
" The facility of payment furnished by the bank, which
made it the admiration of Europe, honorable at once to the
government and merchants of Venice, and a support to the
pride and power of its people, consisted in substituting,
medium of payment, the debt of the republic for current,
coin. * * * The government took the coin*
time for all, giving therefor a corresponding credit in the
bank; and allowed the depositor or lender to transfer his
claim upon the republic in payment of his debt, in pi.-,
transferring over the coin in each payment. \Vliat. -\ •
can employ in payment of debts, they will be willing to
receive in payment, and this independent of any legal com-
pulsion."'
"Experience soon evinced the power and convenience of
this mode of payment. These bank credits were divisible to
every desirable - and they could be transferred with
a readiness, speed and safety, beyond all comparison,
Superior tO any mode of paying in coin. Tin- same sum or
credit might be kept in such rapid circulation, as to
an amount of payments, in a specified time, far beyond any
;H nt of coin. This rapidity 1-
RAJS !(!•: oi. i> woiM.n.
ioiny, for :i mnch lc-s sum of credits \\a- made to c:
a given amount of payments with far greater speed than
could have b«'.-n attained with ruin. Imt this ceonomy
resulting front an increased speed aii'l power of circulation
\\ as still more important, arising from the fact that tin- coins
which were deposited as the basis <>f tin- crnl'it \\.
MM ui again ivstmv«l to the n^iial cliannrls of circulation
the payments of government. Thus the coin was nut with-
drawn from its proper functions, and the credits remained a
perpetual fund, to In- employed in larirc payments. ThN
tem of payments was so well adapted to the exigencies of
commerce, that it was maintained in full vigor, in t:
Commercial city of Venice, for almost four hnndrrd year<.
It was nil institution or device of the credit system, f«»r by
its aid payments Avere effected, and that to :i vast amount
annually, without any n>e of coins or bullion. It only
perished, when the city itself fell, at the conquest of Italy
by Napoleon; but the conqueror carried off no coin, no penny
of prey. The credits of the bank were crushed under the
rude touch of nu invading foe. They wen- l^t to the
proprietor, but no equivalent passed into the hands <.f the
destroyers. If the holders of thoe credits suffered, the
invaders were not enriched. In assuming the sovereignty
of Venice, the conqueror assumed the1 right and duty of
making good these bank credi
The Venetian government was careful at all tini
provide for the wants of the public. In course of tin
became necessary to establish in the bank a department for
the custody of coin or bullion, which the o\\ ner might desire
to use. Deposits of this kind were subject to the order of
the owner, who could reclaim them at pleasure, or transfer
them in the same manner as bank credits. This feature of
the bank prove eminently useful to the public, but did not
86
KANKS OF YIII-:
lead to any diminution in thv- i'niin if, as the
demand for inscriptions of credit was al\\ ;»-r than
tlie supply. The original capital of the hank was 2,000,000
ducats, but it rose to about 5,000,000 in the ]sth century,
and to over 14,000,000 (about 816,000,000) at the d
long and remarkable career.
The history of the bank of Venice establi>hes several
important facts of deep significance to the American pi
at the present time. The inscriptions of credit of the bank
were simply evidences of indebtedness of the government,
bearing no interest, which constituted a medium of excha:
The law which required nil bills of exd,
Venice t<> be paid at the bank, unless otherwi-
stipulated, was apparently an arbitrary requirement, but it
worked no* injustice; <>n the contrary it increased the
>lrength of the bank inscriptions, and resulted in greatly
promoting the facilities of commerce and in making
the commercial metropolis of the world for centuries. The
evidence of indebtedness, which the government in the
iirst instance required its creditors to take, it in efl'ect. made
•gal tender for private debts, which was no more than
ju>t. The large premium which these inscriptions hoiv W3£
ii(jt. dm; t«) any act of the government, but to the value
attached to them by the public. It, r 9 high as 30
per cent., when the gi.v«-rm< nt f-«und Li
a limitation, which was 1i\cd at 'JO per cent. This premium
on inscriptions of ere. lit in :i bank, which \ pede< in-
able or payal.le in gold, (mere *• rag money" they might be
• d) uliich e\i-tcd f..r centories, ifl inexplicable on any
i-y \\iiidi C;MI !••• advaj; 'lie bullioni-fs. The
ai .!--d, by the Use of their invdeemabl"
of credit, to achieve ;L decree of DOWCT :md
prosj»ei-ity, \\hi«-h they retaiix-,1 f,,r ccnturio, that proved a
OF 'Mir: < •; D \\ < >i;u >. 87
con-tai'l >oiirce o! rn\ y and wonder to the rcM ol llie world;
MIK! <luri.i ;_;' the A\ hole time they never once suflVivd fr«»m
commercial cra^i cs or money panics, such a i-rienrrd
in Kngland aiiu the United States e\cry six to t«
It lias been :i mallei- of sir.-prisc tliat other nations \\ iin.-
the j.i-osperity of Venice did Hot imitate her c\amj.le, l.nl
that is not liali' so jstrango us tlie fact that the people of the
CTnited States, having experienced the great advantag<
c-ven jKirtial le-'al tender paper money, should blindly cliiiLC
to the rotten and disastrous vpr.-ie l.a-is >\>tem of bank-
THE UAXK OF CKXOA.
Tlie Bank of Genoa was established early in the 1'Uh
century, and, like the Bank of Venice, had its origin in the
ncces>ities of the State. The loans upon which it \va^ l»a-cd
were not, however, forced, but were the spontaneous oll'ei ;
of the people. The creditors of the bank bccam.
powerful body. In the course of time the bank adopted
various new devices, and its system became greatly compli-
cated. According to C'olwell, the Bank of (ii-no.-t \\as the
first to originate the bank note, which has since played so
important a part in the affairs of the world. It met with the
same fate that befell the Bank of Venice at the time of the
French invasion under Napoleon.
Till-: HANK «»!•' AMSTKKDAM.
The Bank of Amsterdam was established in 1609 on the
theory that deposits once made could never be withdrawn.
For nearly two centuries it enjoyed great credit, and con-
tributed largely to the prosperity of Amsterdam. Coin and
bullion were also received on special deposit, and could be
reclaimed by the owner at pleasure. The fact that deport x
once made could not bo withdrawn, resulted in the bank
88 HANKS OF Tin-: oi.i* WOULD.
accumulating a vast amount of money, but how much was
kept a secret. "When tin- supply of credits based <
led the demand, the bought up bv the
bank, through brokers, at a premium of four per cent. In
1790 it was discovered that, during the preceding fifty years,
large loans lia<l been secretly made to the East India Com-
pany, the Provinces of Holland and the city of Amsterdam,
and that there was but little treasure left in the bank. It
consequently failed through the unfaithfulness of its officers.
Till: UAXK OF HAMBURG.
The Uank of Hamburg v\":is established in 1G19 on the
model of the Bank of Amsterdam. It, is still in existence,
and is a useful and flourishing institution.
THE BANK OF ENGLAND.
The next great bank established in the course of time was
the JJank of England, an institution which has exercised,
from its organization, a powerful influence in the commercial
and financial affairs of the world. Its charter was obtained
in ir.!»4, and it went into operation January ], 100.",. Its
eliarter conferred on it full authority to borrow or receive
money ami give security for the same under seal, buy or sell
bullion, gold or silver, etc., etc. No special power was
granted to issue bank notes, but the authority to do so was
assumed as an incident to the general powers -with which
the bank was invented. It was, in brief, chartered as a bank
of deposit, loan, discount, i>sue and circulation. The whole
amount of the capital stock originally subscribe. 1, £1,200,000,
was handed over to the government as a special loan, the
interest on which was secured by certain ta nated
for that purpose, and the sum of $20,000 a year was allowed
by the 'j-overnment to the bank for the management of
the loan. The capital stock of th c bank is HOW out
OF TIIK OIL \V<H:LD. 89
t,000,000, and the accruriulated profits about i.;,000,000
—in all about $88,000,000, It can i»iu- bank notes to the
amount of 870,000,0000, not under 1*5 (*2">) in denomination,
;iivt thai amount of government securities, and also to
the amount of gold and silver held in its vaults fur their
redemption,
At an curly period in the rareer of the bank, it took a
bold and dangerous step, which introduced a new feature in
banking. By its charter the bank was authorized to deal in
bills of exchange and promissory notes, and, as has been
mentioned, it also assumed the right to issue its own n>
1 Jills of exchange and promissory notes, then as now, enter- -d
largely into all commercial transactions, and usually had
some time to run before they were payable. In order to
acquire favor with the public, and increase its business, the
bank adopted the custom of giving its own notes, payable on
demand, for discounted paper, payable in the future. This
custom was adopted on the theory that the small bills of the
bank would pass into circulation, like money, and be dispersed
throughout the kingdom; that they would become indispen-
sable in business transactions, which would be greatly
increased by the number in circulation, and that consequently
they would not be returned suddenly, or in large amounts to
the bank for redemption.
The unsoundness of the principles of banking, adopted
.about this time by the Bank of England, and upon which
the specie basis system of banking has been built up, is fully
demonstrated by Colwell, from whom we again quote a^
follows: "Upon such considerations, the bank decided to
issue notes payable to bearer on demand, in exchange for
individual paper payable at a future day. The bank thus
undertook to do an impossibility, in the hope that it would
not be called upon to redeem the promise or make the
90 I IK OJ.D WORLD.
attempt. Wliat the 'bank could do was to give its own n
of convenient denominations for circulation in exchange for
individual paper and payable at the same time; and in d
tliis alone, the hank could have rendered ;i great service to
the public with small risk. The bank had not the
and could not, therefore, purchase the paper offered; the
notes offered by the hank were not, money, though a much
better subMitule for money than the notes of individuals,
which could only circulate to :i very limited extent as a me-
dium of payment. The hank issued notes payable to hearer,
without endorsement, and this certainly added to the facility
and convenience of their passing rapidly from hand to hand
currency. It, departed from sound principles when it,
made thoe notes payable on demand in gold or silver; for
it must be contr. >und principles to undertake to do
what cannot he done. The hank notes were nothing n
and should not have been held up to the public as anything
more, than the mere promissory notes of the bank, conven-
ient in form for circulation among all tho-e who chose to
them, not as money, but as promises to pay mo:
The promise should have been only such as the bank could
perform. Strictly speaking, the hank could only pay in coin
when it received in coin. It could c\a< t p-yment for the
note received of every individual only when the note ma-
tured and not before. The accommodation between the
bank and its customers was mutual in this exchange of li-
the hank iv«-eived a profit, and the cu-toiner received the
bank n< ' 'er medium of payment, one \\hich would
he received out of bank a- w«-ll as in it, in payment of d<
oi' in making of purchases. lint it should >een
imagined t'« >r a moment, that by t the
}>ank and its c iln-y manufactured money. *
This advantage, (notes payable <•:» demand.) which the
BANKS Of 'I UK OLD woi:i.i>. !H
IJank of I'ji^laml only ofl'ercd in the lirM in-taiice to attract
biiMiiess, and f«> p ve currency to tlu-ir notes, lias been paid
i'or' since l>y the people uf Kii^land, in :i scries of pressure-,
revulsions, and currency iliictuations, which have inflicted
injuries and losses upon the H'ON eminent and people of < Jrea:
Britain, in c.)iuparison with which the present, national debt
may he iiiMpiiiicant. *
M Bat the bank was stil] more daring; it discounted .notes
largely, and carried the- amount of the proceeds to the credit
of the party, as so much money deposited; that is, in the
same column in which' the bank ufave its customers credit
for gold and silver deposits, it LTave them credit for the'
amounts of notes and acceptances having months to run before
maturity, anil eniraiLvd to pay the amount of the^e securi-
ties on demand. It mingled :i process of credit with apn»
of cash, in a modi' as absurd in theory as it was dangerous
in practice. The men who had ^iven their notes on time
had provided i'or a regular progression of payments, accord-
ing to the movements of business and the demands of con-
sumption; but the Bank of England virtually abolished the
contract of deferred payment between the parties, and
became paymaster on demand of debts not due for months,
to an immense amount."'
"The bank had no warrant, in principle or practi«-e, }<>r
this hazardous eii'_ra^emcnt. Its only excuse was the same
which was -iven for the i>Mie of bank notes payable on
demand, Without the money, namely, that the bank would
not be asked to pay for them all at one time."
k*\Ye n-LTard this error of the Hank of Kn^land as the
parent of the uTeau-r portion of the mischief s and evils for
which banks in more modern times are answerable. The
banks from that day to this have continued to issue notes
payable on demand, and to u'rant credits so payable, in e\-
HANKS <>K Till; <H.). WOKI.Jt.
change !'<>r - payable in from '.',() to 120 days. They
do this, relying wholly on the forbearance of the public.
i'.ank of Fngland did at iirst. Sad experience ha-
shown, that there are times when the public is not only not
forbearing, but when men rush with frantic haste to demand
of the hank payment of both notes and deposits. Nearly
every bank in existence, conducted on this plan, has, at some
period of its history, felt the power and rashness of the public
iu seasons of commercial panic. The banks lose their power
and usefulness at the, very moment when the public mo>t
needs their assistance. Friends in sunshine, they beo
enemies in the storm/'
Tin- most notable event in the hi>tory of the Hank of
Knglaml was the suspension of specie payments in IT'.'T.
Thi> was catiM-d by the large advances made by the bank
to the government, to aid in the pn.-ecution of the wars with
France. The spe.-ic in tin- bank had been reduced to a little
.'too. (ion, when the directors of the bank became
alarmed and brought the matter to the attention of the Privy
Council. The council on the L'Tth of February, ]7'.'7,
determined k> that it is indispensably necessary for the public
service, that the .Direct. .rs of the Bank of Finland should
forbear is^uin^ any cash in payment, until the p
Parliament, can be taken on the subject." < hi the :;d of May
following, the ftUflpensioi] w:i^ sanctioned f-u-a limited time
by an a«'t of I 'aiTiament, and wa»i subseijuently continued
by repeated act-- of Parliament until is-jo, when an
pa-M-d pn,\ idiiiLT for the resumption of specie payments by
inning on the Nt of October, 1820, and reach-
ing full payment on the 1st of May, 1823. The people of
.1 r.ritain were obliged, theref." ry on tlx-ir
affairs for :i jicriod of twcnty-tive jean with an irredeemable
bank paper currency. During this period, notwithstanding
BANKS "! i in: OLD \\ <H:I.I>. 93
tin1 vast expenditures of war and the great burdens of taxa-
tion, (in-at IJritain increased in wealth and prosperity more
rapidly than at any other period in her liistory. The public
revenues were increased from £23,126,000 in 1707 to
672,210,000 in 1815, at the cl"M- of the Avar -with rYance,
and stood at £54,-Js-J,oou in is-JO. The amount raised by
loan and taxation, during the time referred to, was never
less in any one year than £47,362,000; during nine years it
was over £70,000,000 a year; and for the years 1813 and
1^14 it was respectively £108,397,000 and £105,698,000.
The loans negotiated by the bank for the government during
the suspension of specie payments amounted to £350,000,000.
During this period the Bank of England was a lower of
strength to the government. I>ut what after all enabled
Great IJritain to surmount all difficulties and eome off victo-
rious in one of the greatest contests of modern times, was
lli'- wonderful development of her producing forces, occa-
<-d by the abundance of money put in circulation by the
Avar, irredeemable though it was. During this time 3,000,000
<>t* acres of unimproved land were brought under cultivation,
:md the exportation of manufactured cotton goods increased
in amount from £7,000,000 in 1801 to £27,000,000 in 1822.
All classes of society participated in the general prosperity
which prevailed, and during the entire period the nation
never once Miil'ered from a commercial crash or money
panic.
The guns of Waterloo, however, had hardly ceased to
echo, until the money power became' clamorous, just as it is
in the United Siaies n,.\\, for a return to specie payments.
No one was so blind as not to be able to see that Great
Hritain was enabled, by her paper money alone, to carry on
her wars on the Continent, and that by it alone Avere the
people enabled to make such remarkable progress in com-
9-1 I ;. \.\K- OK TIIK OI.I> WOULD.
mcrce, agriculture and manufactures; but there were, m
llieles>, large JiiuiilKTs who Avcre bitterly hostile to paper
currency, and who seemed to imagine that they were bein'_r
subjected, in some way, to :i great wrong. Landlords, for
example, in many instance's, in contempt of tlie la\v which
gave tlieir tenants the right to pay in bank notes, compelled
them to pay their dues in gold. There were evidently fools
and rascals in th<>M- days, as we'll as at the present time.
The " political economists," backed by the ''cannibaN
change alley," were strong in Parliament, and the country
gentlemen were led to believe tliat a return to specie wa-
essential to their interc-sts and safety. Specie p:mi)
\\cjx- accordingly resumed in 1823, and the resumption
was accompanied by the most disastrous commercial crash
and money panic that ever visited any nation. The era of
general prosperity departed to return no more. Jlral otatc
depreciated largely in value, and the real estate owners of
the kingdom decreased in number from over 150,000 to ]
than 40,000; bu>inc>s men, merchant^, manufacturers^ <
were ruined by the thou>and; wages -\vero re«biced, and
laborers thrown out of employment, by the tens of thousand^:
and the public revenue fell oft' to such an extent that pay-
ments on the public debt, cea-ed, and have never practicably
been roumed.*
The bank act of ISM, by which the isMie department
separated from the general banking bu-ine-> of the institu-
tion, remedied T-omc of the defects of the sy-tem which the
bank had founded, but sii-pen-ioii> of j^perie payment are
still of frequent occurrence. In lv;7 another cra-h and
money panic, occurred in Kngland, which al-«» involved
this country. C'oiigre^, in ]^:'.L', had raided the pri«-e
gold, as compared with silver, to sixteen to one, and demon-
•See Chapter ou Specie Kesnmiitlon.
OK 'J UK out \voi:i.j». 95
eti/ed silver by making it a legal tender only for small Minis.
Gold thus became the basis of the currency, and when the
Hank of England called it away to supply the wants of
England, tin- banks of the I'nited States were obliged to
MisjK-nd. IMIHIIC-S in tin- United States was brought to a
-complete stand, and for three years the American people
•were left without any iiold basis, and uere e<»nse<]uently
obliged to use shinpla^tei>. In Kngland the looses were »>
enormous and the distress so threat, that Parliament at its
next session reorganized the bank by separating the issue
department from the general business department, as already
mentioned .
From September "7, ls44, -when the bank was reorganized,
to February 4, ls:>s, it altered its rate of interest n'fty-six
times, raising it, from time to time, from two to ten per
rent., in an effort to retain its specie in its vaults; this, in
the meantime, led to great linancial embarrassment, and a
panic was only averted by the bank suspending specie pay-
ments (October 2:*, 1847) and affording relief by issuing
irredeemable paper. In 1S57, having ruined the merchants
and business of England, it "\vas again obliged to suspend.
Eleven changes in the rate of interest were made between
April, 3857, and January, 1858. The bank again drew
upon the United States for gold, causing the banks to sus-
pend, involving thousands of people in ruin and bankruptcy.
In 1806 the ]>ank of England suffered another suspension
in consequence of the war on the Continent of Europe; but
this time the United States escaped. (Greenbacks were the
medium of exchange, and the nation was no longer at the
mercy of foreign banks. Gold was shipped abroad to the
amount of $45,000,000, and sold as a commodity at a Jiigli
price for the use of the Bank of England, without occasion-
ing the slightest ripple in the business affairs of the country.
96 l.ANKS OF TIIK OLD "WORLD.
A distinguished statesman,* in commenting on these facts,.
says:
"Thus, three times -within less tlian twenty years in tliis
generation, each time in violation of law and without right,
has the bank of England suspended, and acknowledged her
bankruptcy! "what a. 'marvel of financial strength ami credit'
sin- has been, to be sure! AVcll may the hullionists sing
jin ans to this destructionist of all values for their benefit.
True, each time her failure was sanctioned by a healing act
of Parliament, because her illegal suspensions \\ ere necessary
to save the credit of the government itself and to prevent
the widespread destruction of all values and the overthrow
of commerce and manufactures which was then going on."
"Neither of these suspensions took place until she had
refused all discount to her customers, even on the best sixty
day commercial bills secured by government securities. It
will be thus seen that gold was not the regulator of the
currency of England, but the price paid for money at her
bank, and having provided herself with a currency based on
gold, in order to retain that basis whenever it is wanted
foreign loans, or he-cause of a foreign war, slie i«* obliged to
increase the value of her unit by changing the rate of dis-
count, or the interest which her people were obliged to pay
for their mon
"This is a very important matter to be borne in mind.
Indeed it is the root of the ^hole matte)-, and in <li>< -n —
questions of finanrc has h< •< -n too ofien overlooked, i
it ahows that after all, a currency based on gold must have
its value determined by the rate of interest paid for it, and
not by the stability in value of gold itself. Because of thi>
necessity of keeping gold in her vaults, the Bank of England
could not maintain a steady and permanent rate of int.
«A<Mrr'« of Hon. 15. F. I'utltr. :it i t the Board of Trade of Sew
York City, Oct. II
BANKS OF THE OLD WORLD. 97
for money to which her business men could adjust their
affairs. Hence come fluctuations of trade, financial depres-
sion, ruin of commerce, the stoppage of manufacture. Who
can cany o? business requiring credit, successfully and
without failure, when the rate of interest which he must pay
for his accommodations and loans, alters day by day and
quintuples in a month, and especially when these changes
come from causes that he can neither foresee, guard against,
hinder or alleviate?"
"I challenge all the bullionists of the country to show any
disasters and losses in trade and commerce, traceable to
inconvertible paper, continental money and all, which shall
be equal in effect, either as to sums, amounts, disasters or
ruin to the business and people of a country, with these I
have sketched coining from a currency called 'honest money,'
based on gold in the vaults of a bank."
The average bank note circulation of the Bank of England
for the past twenty-eight years has been $100,000,000; its
average of bullion, $80,000,000; its average rate of discount,
4 per cent.; its average deposits, $100,000,000; its average
liabilities, $102,000,000; and its average reserve, $9,500,000.
BANKS OF SCOTLAND.
The first public bank in Scotland was established in 1695,
under a charter from the Scottish Parliament before the
union with England. The Scotch banking system is similar
to that of England, but is conducted very differently. With
a population of a little over 3,000,000, Scotland has nearly
400 banks. From C'ohvell we learn that, "Whilst the Bank
of England, from its first conception, was identified with the
government, the Bank of Scotland, and those which suc-
ceeded it, identified themselves with the whole body of the
people, from the laborer who could save five pounds to the
98 .KS OK THI-: OLD WOJU.D.
richest merchants and manufacturers. They became at once,
and have continued to be, tin- savings banks of the poor but
industrious clashes. The banks paid OIK- per cent, below the
current rate of interest for these deposits, and returned them
on demand, or according 1<> stipulation. The-e savl
the poor help largely to make up the vast sum of dep<
\vhieh characterize the banks of Scotland. One result ha-
been to give the benefits of those savings to the general
customers of tlie banks, instead (»f their being invested in
tlie ]»nblic debt, or lent upon mortgage, as in Kngland.
No doubt this has contributed greatly to that pro-
in weal tli and productive industry which has so much distin-
guished Scotland for more than a century. It had another
good effect in begetting that care, caution and prudent
management for which the banks of Scotland have so well
founded a reputation.*' Another peculiar feature of the
banking system of Scotland consists in the manner of
.irivini; cash credits. An applicant <lepo>its :ij»pn»ve«l secu-
rities with the bank and is allowed a standiiiLT credit on
book-. He then draws checks for this amount and makes
<lcpo>its in the ordinary way. An account is made- up e\
six months, the rate of interest charged on loan- I-
per cent, more than that allowed on dej»o>it>. In comment-
ing upon this feature of banking in Scotland, Colwell say-:
"•In Knirland, the bank which deals in promi^ory notes and
bills of exchang .iling in paper which repiv-
business transactions which are pa-t; in Scotland, the bank
ope: th rcb'i'ence to busi:
which 5^ i,, conic. Tn Scotland, th" bank-
me: : which helps their standing, and upon which
they can draw for the purpose of payment, whenever t'
need. The theory of the KnglMi banks \<, that the
mrrency mi;-t folh»\\ , and be. cditi-olled in quantity, by the
HANKS <>;•' TIIK Ol.Ii WoKl.H. 99
business transactions which go before. The theory of the
Scotch banks is, that, these business transactions being all
managed by nun of business, who decide according to the
exigencies c>f industry and trade what will promote their
private interest, and meet tlie wants of the people, it mu>t
prove an important aid to men thus engaged to supply them,
in advance of the progress of their business, with :i credit
upon which they can draw at pleasure. * In England,
they think this will lead to over-trading, by the stimulus it
affords to so largo :i class of dealers: in Scotland, long
experience has taught them that this Knglish apprehension
is wholly groundless. They know that the dealers who
enjoy these cash credits are so immediately brought under
the supervision of the banks, and their own sureties, that
they are, perhaps, the most prudent and safe men of business
in the world. There is a prevalent idea among
statesmen and writers upon money, that there should 1)0 a
broud basis of money or g«,hl coin, under and as a support
to the paper circulation; * * that a paper currency, to
be perfect, should fluctuate as a gold currency would do, if
it were the sole medium of payment. To the mind of a
Scotch hanker, a greater absurdity could not be presented
in as many words. He would say: 'What! when a demand
springs up for !_r-»M, in consequence of some foreign Avar,
must we so regulate the issues of our banks, as to reduce
the currency of notes in the same proportion that the
currency of gold is carried off! Rather should we increase
our issues, and supply the place of the currency that is
exported.' They km»\v that bank notes can fully discharge
the functions of money, for they see it every day; and not
only so, but they are certain that almost no business of
Scotland is carried on by means of a currency of gold.
The Scottish people can never be made to comprehend why
100 BANKS OF THE OLD WORLD.
their bank notes, hank deposits, and cash credits, should
fluctuate in amount as gold would fluctuate, it' exclusively
employed. These forms of currency do not come of gold;
they are not founded upon it, and they have nothing to do
with it. In Scotland they understand, as well as they do in
England, the use of gold as money; they know its value as
a commodity, but being a costly commodity, they do not
incline to employ it as a currency, except BO far as their bank
currency fails of its object; nor do they wish to purchase or
hold it as a commodity, except for such special purpose as
may promise adequate advantage. Their system of banking
enables them to dispense with it almost entirely. In this,
they are far from thinking themselves behind their neigh-
bors, in intelligence or financial skill." The hanks of
Scotland issue bank notes as low as £1, and the people of
Scotland are always amply supplied with a medium of
exchange.
THE FKKNril M'STKM OF FINANCE.
France enjoys a financial system superior to that of any
Other nation. The iiscal a flairs of the government are
conducted by a central administration, or Ministry of Final
and ei;_rhty-six branches located in different di>tricts. All
transactions between the LI'ON eminent and the people arc
carried on in the iWms ami methods of the tiva-ury depart-
ment, without, the intervention of banks. The government
has no connection with the Hank of France, but deals with
it as it does with individual.-, except that its QOtefl arc m
•_ral tender whenever the scarcity of specie ivnder< such
JSary. The tna-ury department of France in
many re-pec; fflkg, Ii : i«-d as a
duty by the French Lro\ eminent to afford tl • all the
facilities in the way of domestic exchange that banks could
TIM-: FI:I:N< ir SY-IIM OF ri\\\«i:. 101
give, instead of allowing it to be i'urmshcd exclusively by
the 1 tanks.
In each district there is a receiver general, in whose office
tlu- revenues of the district arc paid. AVhen once paid in
they are subject to the order of the central ad ministration
alone, and abundant precautions exist to insure strict
accountability and integrity. The treasury is managed with
special reference to the wants and requirements of the
public. The manner in which its operations in this respect
are conducted is thus set forth by Colwell: "Among its
numerous officials, is one in direct relations with the chief
minister of finance, who ha* special charge of the locality of
all money in the treasury. lie can neither receive nor pay
money; but he can transfer the public money from one
office of the treasury to another, and place it wherever the
exigencies of the government may require. It is in the
office of this functionary that is established a direct and
very important connection with the current business of the
day. Bis duty requires of him a careful and timely study
of the points of public expenditure; he must know not only
where the money will be wanted, but he must have it ready
when required. To accomplish this important, object, it
becomes his duty to study the domestic trade of the country,
that he may avail himself of the internal exchanges in the
necessary distribution of money in the treasury. It is very
rare, indeed, that the French treasury ever shifts the locality
of gold or silver. It may require many circuitous tran.xfers
to move the excess of revenue, in some departments, to the
points of expeniture, and to supply the deficiency in other
departments. To make these transfers, the officer who has
special charge of that duty relies almost wholly on the
domestic exchanges. lie is well informed where funds are
wanted for the purposes of industry or trade; he learns
102 THE I-'KKNCII sYsTKM OF FIXAN* i:.
where and when those "who reside in the vicinity of each
office of the treasury desire to remit funds; and lit; learns
whence and when they wish to draw them. His office
becomes the depository of this information, Because lie
intervenes in this biisinos of giving drafts upon the treasury,
payable at other points, and giving money at his own office
for money received at other offices. His intervention in the
transmission of funds assists in balancing the internal
exchanges of the country; for, of course, the office is only
applied to when the business of individuals requires such
accommodation. But this business is not confined to receiv-
ing money at an office of the treasury in one place, and
paying the amount as may be required at another oilice, in a
different place; that is, to a mere exchange of money between
the treasury and individuals at different places; it goes much
further. At times and places where large transfers of funds
become necessary, the proper officer of the treasury becomes
the receiver of commercial or individual paper to a large
amount."
"The receivers-general of the eighty-six departments, and
their subordinates, the recei\ers of the treasuries of the
aiTOiidissnicnts and communes, maintain reciprocal bu>ii.
relations by frequent exchanges of money, by drafts upon
each other, and by bills upon Paris and oilier place-. The
chief officers of the treasury become, by the constant report
of this business to them, intimately acquainted \\iih the
whole industrial and commercial movement of the popula-
tion. They regard it as extremely important to th-
. that, the money which is necessarily withdrawn from
private n 88 for public, purposes, should be retained in the
trea-ury as short a time as po>sibl«>. Out of 300,000,000 or
.000,000 of francs annually remitted from the country
treasuries to Paris, not more than ten per cent., or 30,000,000
Tin: I'KKNf n SYSTKM or FINANCI;. 103
or 40,000,000 of fr;tn<-<, arc ever at one time in the public
treasuries.* This shows thai disbursement follows so rapidly
upon receipt, that the money taken from the people for t;<
does not remain, on the average, more than a month or two
out of its proper channels, and that the government has
carefully reduced the inconvenience and disadvantage of
taxation to the lowest possible point. By this regular and
constant communication with men of capital and business,
by this constant association with them in the business of
transferring funds, the officers of the treasury are able at all
times to command, in advance of the regular receipts, large
sums of money, which are freely placed in the public treasury
at low rates of interest. Money is, in fact, frequently pressed
upon the various receivers by those who desire short but safe
investments, and by those who would secure, in good season,
the aid of the treasury in placing money at particular points.
The treasurers of the departments do not lend money,
though they receive it in the way of short loans; they
transfer money for individuals, and they purchase bills of
exchange ilpon such points as the exigencies of the public
may require. Upon one side, then, there are open relations
between the public treasuries and the movements of trade,
industry and currency; that is, upon the side of the domestic
exchanges of the country; the transactions of the treasury,
in relation to the distribution of its funds, are blended with
the movements of the internal exchanges as conducted by
the individuals concerned in it. This constitutes a very
broad field of contact between the business of the country,
from which the money is withdrawn by taxation, and the
public treasury. The public money being retained for the
shortest possible time, is so managed, nevertheless, as to
render an important service in aiding and regulating the
internal exchanges."1
*This was prior to I860.
104
\atiun having reached, in France, a point beyond
whi' •}• ' IK- increased without passing the ability of
,11 alleviation of the burden, like that we
'list mentioned, i- <»f n^nal advantage. According to
•-in of Francis the money remained
,ny months in the hands of the receivers, who merely
inces, on interest, to the government from time to
•Yd their accounts once a year. Now, all
money is held to be in the treasury from the moment it is
the ofhYe of any department; and it 5-
neral circulation airain with as little delay as posssihle.
Tin- . !V«»rded to the adjustment of the
'•eatly promotes ])unctuality in com-
•il ami industrial payments and remittances, by diinin-
e and the disturbances occasioned by
the internal trade. These features
of th« financial system, by which it is so ch)^ely
with the internal trade and exrhaMuv^. are
by an eminent French writer upon finance as
58ary in France than in other cnnntries,
••junrnt of credit in bankinir which is so prevalent
cNc\\ here."
in France, o\\ in-_r in the abundance «.f money
;.f in circulation, is dom* mainly with cash, and
in, \\hich has \\roim'ht so much evil in (ireat
Britain and the t'nited Mat. 8, haa never .irained a foothold
the prejudice nf the French peoj)le
tem, doubth->> because they aiv not blin.I Jo
••rkiiiL's ii d, that they cannot be indue.
ordinary hank aeenunN and use elieeks, in the
•i-iness. M. I'inard, .Mai; the Comptofa
be Fn-nch commission of
; '" 1865-8, that irreat etTort- had been made by that
THE FRENCH SYSTEM OF FINANCE. 105
institution to induce French merchants and shop-keepers to
adopt Ku-lish liabits in this respect, but in vain; " it was no
MM* reasoning with them," lie said, "they would not do it,
because they would not."
Gold and silver are the legal tender money of France,
but whenever occasion renders it necessary the notes of the
Bank of France are declared a tender in payment of debts;
and the channels of trade are thus always supplied with a
medium of exchange, to keep the producing forces of the
nation at work. The wisdom of this policy has been signally
illustrated twice within the past thirty years — in 1848 and in
1870. In 1848, after the revolution, the republic found
itself without revenue and the people out of employment.
.Matters were in a precarious situation, and the Bank of
France alone possessed any available money. Instead of
looking after its own interests alone, it united with the
government in a hearty effort to stimulate industry, by
supplying the arteries of trade with a fresh supply of money.
To accomplish this end, the government declared the notes
of the bank a legal tender — an act which was everywhere
denounced by the bullionists as suicidal. The marvelous
results of*this step are thus depicted by the London Times,
of February 16, 1849, although less than a year before it had
been loud in its denunciation of such a course:
'•As a mere commercial speculation, with the assets which
the bank held in its hands, it might then have stopped pay-
ment, and liquidated its affairs with every probability that a
very few weeks would enable it to clear off all of its liabili-
ties. But this idea was not for a moment entertained by
M. D'Argout, and he resolved to make every effort to keep
alive what may be termed the circulation of the life blood
of the community. The task was overwhelming. Money
was to be found to meet not only the demands of the bank
100 ; i;M ()
•!i public and private. «•!' every rank in
;iti:il to enable the manufacturers to
eir workmen, driven 1o desperation, should fl'mic
thci! :hc most violent enemies of public
II was c-scntial to provide money for the food of
• the pay of tlu- troops, and for the daily support of
tUc a '•''. A failure on any one point would
have led 1o a !Ve>li con vulsioii. I>ut the panic had I>een
followed bv BO -jTc.-it :' scarcity of tlie metallic currency, that
v day> la'er, out of a payment of 'JO millioiis fallen due,
onlv -IT.ooi) francs could be recovered in silver."*
'•In thi> extremity, when the bank alone retained any
available sums of money, the government came to the rescue,
and, on the- ni^lit of the l."»th of ^laix-h, the notes of the
ban'. decree made a le^al tender, the- i»ue <»f
iiein^ limited in all to :;."><) millions, but the
int of the lowest of them reduced for the public; con-
\enieii<-e to 10() francs. One of the irreat, difficulties men-
tioned in the report, was to print thcM- loo fi-am- note^ '
i-^h for the public consumption — in ten days the amount
•d in this form had reached 80 millions. Xo sooner was
the bank relieved from the necessity of paying :1way the
remnant of it-, coin, than it. made every exertion to inciv
it> metallic re-t. About 4n millions of silver wen- purchased
iirli prii-e. -Move than TOO millions wen- ma«le
• in dollars to the treasury and the executive departments
in Paris. In all, taking into account the branch banks, B
millions of five-franc pieces have been thrown by the' bank
titty since March, and her currency was thus
supplied to all the channels of the social >\ Mem."'
S the strictly monetary operations, the Hank of
1 >und means to furnish a scries of loans to the gov-
— "iO million he<juer l)ills on the 31st of*
THE FRENCH ^Wi-KM OF FINANCE. 107
March, 30 millions on the 5th of May, and <>n the 3d of June,
150 millions, to be paid up before the end of .March, 1849;
of this last sum only one-third has yet been re.tuiivd by the
State. The bank also took a part in the renewed loan of
250 millions, and made vast advances to the City of Paris,
to Marseilles, to the department of the Seine', and to the
hospitals, amounting in all to 260 millions more. But even
this was not all. To enable the manufacturing interests to
weather the storm, at a moment when all the sales were
interrupted, a decree of the National Assembly had directed
warehouses to be opened for the reception of all kinds of
good?*, and provided that the registered invoice of these
goods, so deposited, should be made negotiable by endorse-
ment. The Bank of France discounted these receipts. In
Havre alone, 18 millions were thus advanced on Colonial
produce4, and, in Paris, 14 millions on merchandise — in all,
GO millions were thus made available for the purposes of
trade. Thus, the great institution had placed itself, as it
were, in direct contact with every interest of the community,
from the Minister of the Treasury down to the trader in a
distant outport. Like a huge hydraulic machine, it employed
its colossal powers to pump a fresh stream into the exhausted
arteries of trade, to sustain credit, and to preserve the circu-
lation from complete collapse."
Again, in September, 1870, after France became involved
in the war with Germany, the Bank of France suspended
specie payments and issued legal tender notes to an immense
amount, with like marvelous results. In June, 1870, the
circulation of the bank was $275,000,000; in 1871, after the
termination of hostilities, it amounted to $420,000,000, and
in October, 1ST:], to ^602,000,000. When the first install-
ment of the indemnity of * 1,000,000, 000 to Germany fell
due, gold, for a short period, bore a premium of 2-J per cent.,
108 Tin: KI:I:\« H >VSTI-:M- OF FINANCE.
but with this exception the notes of the* hank circulated at
par with coin, and continue to do so to this day. The
amount of irredeemable bank notes in circulation iii France
at the present time is nearly $500,000,000. The only reason
that can possibly be given why French irredeemable bank
notes, to the amount of *o 00,000,000, circulate at par with coin,
while United States Treasury notes, less than $400,000,000
in amount, arc at a depreciation of over 12 per cent, is that
the Fivnch notes are a full legal tender for all debts and
duo, both public and private, while the "Tinted States
Treasury notes are only :i partial legal tender, not being
ivablc for duties on imports.
By the f: of irredeemable paper money, tlie French
people, like the people of the United States during the
Rebellion, were enabled to rally to the support of their
'•rnnient. !>ut there the parallel ends. After the German
war had ended, the circulation of irredeemable bank notes,
vc seen, was increased nearly §200,000,000, and the
producing forces of the French people were developed in
•v way possible, in order to repair the losses sustained
during the war, and to enable the government to pay the
indemnity to Germany. The wonderful success of this
policy IS known tO all the world. The German indemnity
of $1,000,000,000 was paid before it fell due, apparently
without an effort, and gold has flowed into France until
now tlie French people have, besides their legal tender bank
notes, a specie circulation estimated at $1,200,000,000. It
ha- been the lot of the French people to suffer, in common
with other nations, many evils resulting from bad govern-
ment, but they have great. C:IUM- to feel profoundly thankful
that they have never, in the administration of their finances
i cursed with a Hugh McCulloch.
CHAPTER V.
PAPER MONKY AM> I'.AMvS OF THE UNITED STATES.
THE trials and tribulations to which the American people
have been subjected from the earliest settlement of the
country, on account of the want of a proper and well settled
system of money, would form a sad but instructive chapter
in American history. The limits of this volume, ii..\\.
preclude more than a cursory view of the subject, but that
will be sufficient to establish the fact that when paper money
fails to perform the functions of money, it is because it is
not based on sound principles, and also that bank notes,
nominally redeemable in specie, constitute the worst form
of paper money ever devised.
For many generations after ihe first settlement of the
colonies the work of production was slow and labor!
and the surplus products, at least such as could tind their
way to foreign markets, were hardly sufficient to procure in
return the common necessaries of life. The small sums of
money brought to the country by the settlers were soon
exhausted — sent abroad for merchandise, and trade for the
most part had to be carried on by the inconvenient method
of barter. The Indians found along the shores of L
Island Sound were more advanced in civilization than tlic-e
further north, and used a circulating medium of exchange
consisting of beads of two kinds, one white, made out of the
end of a periwinkle shell, and the other black, made out of
the dark part of a clam shell. They were rubbed down and
polished, and, when artistically arranged in strings or 1><
formed objects of real beauty.* These beads circulated
4Professor Stunner's History of American Currency.
1 HI ,'i.y 4 OLOJH \i < !'KKI:\
tin- [ndians as money, one black bead beini.
tli tuo white one-, and were known as wampum or
wainpumpeair. The colonists came to use them, first in tlicir
\\ith tlu- Indians and then amongst themselves. Fn
Massachusetts they became by custom the common currency
of the- c«»lony, and were made a leiral tender for 1J pence.
IJarter currency was established at an early day in the
(ol-.nie^, and products of all kinds were made :i tender in
p.-ivnient ofdeliS. "In C'onnecticut there were four p
'money,1 an<l 'trustiiiLr.' The mei'-
cliant asked his customer how he would ]>ay before fixing
his price. 'Pay' was bailer at the government rates.
-finish t>i' New Knirland coin, also wampum
for clianLTc. i I 'ay as money' \\as barter cnrrrency at ]>rices
one-thii'd le^s than the government rates. 'Trusting' was
an enhanced price according to time. A six-penny knife
Jd. in pay, .^d. in pay as money, and Gd. in coin."*
About the middle of the 17th century the trade with the
lo briiiLC i" coin, and a mint was estab-
i!, thouirh an infraction of the prerogative of
>WIL Laws forbidding the exportation of coin were
passed, but it could not lie kept in the country. The first
i^ne of p:ip'T money made in the colonie- wa> made b
>:u-liu-efts in KJIM), before tin- establishment of the
Hank of I-jiLfland. An expedition h:»d been sent out against
:id, i-eturninLT without spoils and in a state of
re clamorous for thei:
X>m ~> shilling to f.3. The form of
follow B: "This indented bill of
due from (1i« UaSSachtlSettl colony to the
possessor, F!I all be in value e«jnal t<> money, and hliall be
:-urer and r
•rrofcMorSumncr'sllHtory of American Ciirr
COLONIAL CURRENCY, 111
dinate to him, in all public payments, and for any stock
(cattle) at any time in the treasury."" Then followed the
date and the signatures of the committee appointed to is>ue
them. They were not a legal tender, but were receivable
merely for taxes and property in the treasury. In 1692 it
was ordered that these bills be received at 5 percent, pre-
mium oxer coin in the treasury, and the result was that they
circulated at par with coin for twenty years, until redeemed,
and barter currency ceased for a time, or at least became
3 common. In 1703 another issue of bills in the same
form, for £15,000, was authorized by act of Parliament, but
they were not made a tender. A subsequent act passed in
1712, however, made them a tender for private debts. In
1710 another issue of bills to the amount of £150,000 was
authori/ed by an act of Parliament; to be distributed among
the different counties of the province; and to be put into
the hands of live trustees in each county, to be appointed by
the legislature, to be let out by the trustees on real estate
-ecurity in the county, in certain specified sums, for the
space of ten years, at five per cent, per annum. These bills
u ere not made a tender. Another act for £50,000 in bills
was passed in 1720, containing similar provisions. In 1773
Massachusetts was out of debt.
In 1720 bills were issued by the colony of Rhode Island
and were made a tender for all debts, except special ones;
and similar bills were authorized at different times subse-
quently, some a tender and others not.
The colony of Connecticut issued similar bills at various
times between 1709 and 1731. Xew York began to issue
bills in 1709; Pennsylvania, in 1723; Maryland, in 1733;
Delaware, in 1739; Virginia, in 1755; and South Carolina,
in 1703. The first emission of bills by Virginia bore
interest at 5 per cent., and, according to Jefferson, in a very
1 1 _' EARLY COLON l\L < I i
short time not one of them \vas to be found in circulation.
Thev were locked up in the chests of exeeutors, guardians,
widows, farmers, etc. "AYe then," says Jefferson, "issued
hills bottomed on a redeeming tax, hut hearing no inti •'
i ceived, an<l never depreciated a farthing."*
In 17'il J)r. Franklin bore testimony before llie .British
1 <>f Trade, as we have already mentioned,! to the value
and usefulness of the bills issued by Pennsylvania. Just
ili<- Revolution North Carolina issued a large amount
iper money, whieh was made receivable in dues to her;
it w adc a legal tender. Several hundred thousand
dollars of this paper money remained in circulation more
than twenty years, at par with gold and silver, with no other
advantage than bring received in the revenues of the State.J
In 17">1 Parliament passed an aet forbidding the issue of
any more paper money, save in the form of exchequer bills
.ble in a year, except in case of war, when they
made redeemable in four years; and in 1763 all
colonial arts for i>suing paper money AA ere declared by
:ment to be void. Dr. Franklin protested against
. but without avail. The Kngli>h had reached the
condition that nothing u ;>> money but gold and >il\er,and,
1 by that p<culiar spirit which has characteri/cd
'•iiiiinedi ndant.N in this country, wen- determined
that, ri-ht or \\r«»ng, e\ , i -\ body el>e should MibM-ribt- to the
same opinion. In 1773, however, Parliament allowed any
bills i^ued by the colonies to be- a tender to their treasury.
CON I IM.N 1A!. ICONZT.
During the Revolutionary war Congress issued nearly
$350,000,000 in bills of credit. The first i»ue \\a-in 177-"), and
redemption.
M follow-: "This bill entitle-; the
•See page M. tScc page 43. jscc page M.
COS i' IN I:\TAI, MOM-:Y. 113
bearer to receive. . ..Spanish milled dollars, or I ho value
thereof, in gold or silver, according to the resolutions <.f
Congre>«.." The last emission was in 1780 under the guar-
antee of Congrcs.v, ami was in the following I'-TIII: "The
posse»or of this bill shall be paid . . . .Spanish milled dollars
by the 31st of December, 1780, with interest, in like money,
at the rate of 5 per cent, per annum, by the State of. . . .
according to an act of the legislature of the State of....,
the day of. . . ., 1780." The endorsement by Congress
was: "The United States insure the payment of the within
bill, arid will draw bills of exchange, annually, if demanded,
according to a resolution of Congress of the 18th of March,
1780." The bills were required by Congress to issue upon
the responsibility of the several States, and the confederated
colonies pledged their faith for their payment. They were
not made a legal tender, doubtless because Congress did
not possess the authority to make them such. They circu-
lated at par with silver for over a year, but. after that they
began to depreciate rapidly in value, owing to the character
of the bills and the excessive amount put in circulation. In
March, 177s, they were depreciated to $1.75 for $1, and
before the end of the year to $4 for * 1 ; March, 1770, * 10 for
*1; September, 1779, $18 for $1; March, 1780, $40 for $1.
Congress then passed a resolution to fund the whole mass
at that rate, but the depreciation continued until it reached
$500 for $1, in 1781, and after that they ceased to circulate.
In 1791 they were still permitted to be funded at the rate of
$100 for $1. Continental money, according to .leil'erxm,
"expired without a single groan. Not a murmur was heard
among the people. On the contrary universal congratula-
tions took place on their seeing the gigantic mass, whose
dissolution had threatened convulsions which should shake
their infant confederacy to its center, quietly interred in its
1M . INKS I'M. MONKV.
gnti ire, indeed, who do not like tin- natives feel
indul'4< i - memory, :t^ of a bein^ which has vindi-
d their liberties and fallen in the moment of victory,
ha\ebe.-n I. .ud. and still are loud in their complaints. A
of them have reason; but the most noi>y .-ire not the
of tin-ill. They are persons who have become bankrupt
l»y unskillful attempt- at commerce with America. That
they may have s^me pretext to oll'er to their creditors, they
have bought up great masses of this detfd money of America,
when- it i- to be had at live thou-and for one, and they
show tin- certificates of their paper possessions. M if they had
died in their hands, and had been the cause of their bank-
rupt.
A- ( 'ontinental money is the "ghost conjured up by all who
wi-h to uise the bank> an exclusive monopoly of govern-
ment cn-dit,"* it may lie well to pau>e a moment to consider
Die paper money i>Mied by the several colonies
prior to the Revolution hail answered the purposes of money
admirably, thoiiirh not issued accordinij; to any well settled
policy. \Vlu-ne\i-r it had a fair trial, however, it never
fail- cd. lint Continental money \\a^ i^^iu'd
und- different circumstance-. The Colonies had been
ht together not ont of choice but by ncce-vit\. ('«»n-
assumed the powers which it exercised through in
irere acquiesced in by the people only out of
- . ( • had no power to lay and
col!- , and the confederation was without revenue.
\Vhate\ei- prM «J-nie, had to be done through the States.
it after the adoption of the Ailicles of ( kmfed< ration, in
17^ only the semblance of authority.
•Jii'i de-ei-ibex the situation at the time in the fol-
lowing lan-ua«^e: *• In the tir-t place there was an utter
•Calhoun, »ee page CO.
CON TIN i:\IAI. MoNK.V. 115
want of all coercive authority to carry into effect its own
<-on>titutioiial measures. This of itself was sufficient to
de:stroy its whole efficiency, as a superintending government,
if that mav he called a government which posscs>es no one
solid attribute of power. * * In truth, Congress possessed
only the power of recommendation. It depended altogether
upon the good will of the Stales whether a measure should
be carried into effect or not. * * Even during the
Revolution, while all hearts and hands A\erc engaged in the
common cause, many of the measures of Congress were
defeated by the inactivity of the States; and in some
instances the exercise of its powers was resisted. But after
the peace of 1783 such opposition became common, and
gradually extended its sphere of activity, until, in the
expressive language already quoted, 'the confederation
became a shadow without the substance.' * * But a still
more striking defect was the total want of power to lay
and levy taxes, or to raise revenue to defray the ordinary
expenses of government. The whole power confided to
Congress upon this head was the power to ascertain the
sums necessary to be raised for the service of the United
States, and to apportion the quota or proportion on each
State. But the power was expressly reserved to the States
to lay and levy the taxes, and of course the time, as well as
the mode of payment, was extremely Uncertain. The evils
resulting from this source, even during the Revolutionary
war were of incalculable extent; and but for the good
fortune of Congress in obtaining foreign loans, it i^ far from
being certain that they would not have been fatal. * *
Requisitions were to be made upon thirteen independent
States, and it depended upon the good will of the legislature
of each State, whether it would comply at all; or if it did
comply, at what time and in what manner. The very tardi-
DTKNTA1 \lo\i \.
,:ion, in tin* ordinary cour*e of things,
was Mill! involve tin- government in perpetual embar-
rassment, ami to defeat many of its best measures, even
the utmost good faith ami promptitade on
•he State*, in complying with the requisite
lint many n "iicurred to produce a total want of
f Toniptitude on the part of the States, ami, in numerous
instances, a total disregard of the requisitions. Indeed from
Mioment that the peace of 178.3 secured the country from
the distressing calamities of war, a general relaxation took
ml many of the States successively found apologies
their gross neglect in evils common to all, or complaints
listened to by all. Many solemn and affecting appeals were
from time to time made by Congress to the State*, but they
d with no salutary effect. Many measures \\
. .si-d to obviate the difficulties, nay the dangers which
ted the I'liion; but they failed to produce any
in the eonfederation. An attempt was made
. during the war, to procure from the States an
authority to h-\y an impost of live per cent, upon imported
and |.ii/ . I »ut the as-nit of all the States could not
procured."*
The population of the thirteen colonies u;i,- estimated in
177"> at L',44s.uoo,f and the entire property of the country at
than $600,000,0(10. That a paper currency, i^ued to-
ED < amount, by thirteen sparsely settled colm.'
;.elli«iii. Milder a revolutionary government
-easing only a vl,ad<>w ,,f authority, against t;
,! nation on the earth, should ha\e ein ulated at all,
trkahlc fact* connected with
1 on, and is t" -only by the patriotism
: in that memorai jh-. IJi;-
Vol. I. |>«K« 1"1.
tJ*ff*r»on'«. Work«, Vol. 9. pp..
MOHSY, 117
have seen, it circulated I'm- over :i year at par with silver,
and iii 177s, three years after tin- lirst emi-Mon, it depreci.
only to £1.75 for $1. Congress resorted to various measures
to sustain tin1 credit of Continental bills, l>ut, as ought t'»
have been expected, without success, Money, as lias been
fully explained, derives it power to represent value from law,
but there must be value in property or product*, for which
it can be exchanged, for it to represent, and the law must
emanate, from a roponsible source — from a government
possessing the right and power to command such property
for its uses, otherwise' it is only money in name. It is
worthy of note, too, that Continental bills were not issued
in the form of paper money, such as was iirst introduced by
Massachusetts, and subsequently adopted l»y many of the
other colonies, but in the form of promises to pay specie, at
certain specified times, which, under the circumstances, was
a. manifot impossibility. The gradual depreciation of Con-
tinental money, as it pa>scd from hand, inHicted a ]«••*> upon
each Mi<-cessive holder, which came to be regarded in the
nature of a tax or contribution towards the cause of inde-
pendence. The large sums held by individuals after it
'•i-.-oed to circulate' were taken at its greatest depreciation,
and no great h»s wa- Mi-stained. When, after it had seen
the liberties of the people \indicated, it sank, in the moment
of victory, quietly into it> grave, no commercial crash or
money panic attended its fall. Its ghost has troubled no
one since, except the advocates of the British system of
bank currency, which, perhap>. i> only in accordance with
the eternal titnc— ,,f thing-.
IJA.NKs OF TIIK I'MTKl) > TA TKS.
We come now to a new era in the history of American
currency. When the colonies entered the Federal Union,
in: r.M i
titution framed in 17*7. they surrendered all
<>r control over the question nt' money to the Federal
nment. The object of this was to secure to the pro pk-
;i luiifonu ami .stable medium of exchange, an«l hence it was
W*B inserted in the Constitution c.xprcvsly
prohibiting from coining money, emitting ''ills of
. eU'.* But this u i-e provision of tlie Constitution was
totally subverted by the money power, through tlie
instrumentality of banks of tone, modeled on the Hritish
: of bank currency: and practically the currency of
the country lias been subject to the control of th:,t power
ince.
About the close of the Revolution four banks of is>uc were
established in the United States; one in each of the States
!iis\lvania. New York, .Massachusetts and Maryland.
At the tin: leral Constitution was framed, then- WM
and formidable party, with aristocratic notions and
. under the leadership of Alexander Hamilton, a
"f undoubted patrioti.Mii and -.Teat ability, which
:!y in favor of the formation of what \va< termed
This policy urew out. of a want of
faith in the )>••., pi.-, and the belief that tic incapable
:'-i:overnment. In a speech on thi> -ul.j. -ct. June 1>.
Hamilton sai-1: "I believe the IJritish LT<»vernment
•lei the \\orld ever pr<»«luced, and such
haabt'Mi its pn . the minds of many, that this truth
Lrradually ^ains ^roiiml. Thi> .LT«»\ eminent h .. .bject,
ii-th and individual security. It i- s;,id uith us
to be unattainable. If it \\ rmed it would maintain
All communities divide themselves into the f<-\\- and
rich and \\cll born, the other
iss of the people. * * Can a democratic', assembly,
•»«• page i«.
I:.\\K< OF TIII: rvrn.i. VTA \ : 119
who annually revolve in the mass of the people, lie supposed
M lily to pursue the public good? Nothing hut a perma-
nent body can check the independence of democracy. Their
turbulent and uncontrolling disposition requires checks * *
Let one body of the legislature be constituted during good
behavior or life. Let one executive he appointed (for life)
who dare^ execute hi* powet-v. All State laws to be
absolutely void which contravene the general laws. An
officer to be appointed in'each State to have a negative on
all State laws. All the militia and the- appointment of
otlicci-v to be under the national government. The
people are gradually ripening in their opinions of govern-
ment; they begin to tire of an excess of democracy/'* This
policy of a strong government, based on an aristocracy of
wealth, was rejected by the convention; but it has never
been abandoned by the money power «.f (he country. In
1863, in :i speech, in the House of tteproentativcs, in support
of the National Hank Currency Bill, lion. E. G. Spaulding,
a banker of New York, boldly asserted that, "Tt is now
im»t apparent that the policy advocated by Alexander
Hamilton of a strong central government was the true
policy;'' and at the present time we "have the policy of a
third term openly and fearlessly advocated by the money
power and il> tools.
Hamilton, who was the lirM Secretary of the Treasury,
urged the establishment of a National Bank modeled upon
the IJriiish syMem, and upon his recommendation the lirst
Bank of the United States, with a capital of $10,000,000, was
chartered by Congress, February -~>* 17!»l.for a period of
twenty years. .Jefferson, who wa* then Secretary of State,
LTUVC a written opinion denying the power of Congress to
Incorporate a bank of issue, and ^Madison, who was in
*Vato-' Debate of the Coii-titutionai Convention (',:
HI: INI: i.i> BTA i
: it, in a powerful speeeh, as a violation of
the Constitution, fn 1M1 the bank applied to Congress for
wal of its charter, but it was not granted. Clay and
other lead' men opposed its re-charter on the ground
that if wa- "une. institutional, anti-American, and strictly a
KritMi institution."
In the meantime a mania to start banks had sprung up in
Kn-land, which siiloe.juently extended to the .Middle
. and finally all over the country. In 1815 Jefferson
•fie following statement of the number of banks which
had been established up to that time:
"In 17*1 we had 1 bank, capital $1,000,000
- 1 79 1 ' »» bank-, " 1 :*, 500,000
•J \ "' 20,472,000
1803 • 84 - u 29,112,000
iii; " amount of capital ii()t known.
ime (isl'i) we have probably one hundred
the eonstitntional prohibition a;_:
emitting bi!l> ».!' nvdit, chartt-i-s, incorporating jirivatu in>ti-
authorized t<> i-mit bills of credit (bank ii'
by tin- h"4Matmv> <.f the M-\rral States in larirr
, in utter di^n-ir:inl <•!' the ( 'mi-tit i;t ion, as well
i. In IN-nn-ylvaiiia, for example, twenty-live
incorporat - banks of iwu,., were
ed daring the flension of 1^1;;, but \ven-\et.M-d by the
1 At the i. ,11 of the leuri-latnre, in I
bill \\ .1- the Veto of the (io\rrnor rhartt-ring
, u ith a eaj.ital of $17,000,000. Thirt\
:i u.nt info operation at -e, and ^i\ nio:
-n-prinled specie payment The manner of obtaining
Was \ery simple. A petition .setting forth "the
of the pe. .),!,-" in the l...-alit\ where the bank \\a> (o
BARKS or Tin-: r\i n-:i> 8TATJ 121
be established wax all thai WM n-.jiiired; political inilucncc
and intrigue accomplished the re-t.
Specie basis banks arc always required by law to redeem
their notes in specie, but as they are, also, always authori/cd
to issue notes to three times the amount of their capital
Stock, their redemption in specie becomes an impossibility.
This feature in banking, as has been explained,* was
originally nothing more than a bold plan on the part of
certain ingenious financiers and schemers to acquire favor
with the public for the Bank of England and increase its
business. As the system in time was found to have a
tendency to concentrate wealtli in the hands of the few, it
commended itself to the aristocratic, or governing class, of
that kingdom, ami soon became an integral part of the
structure of British society. Transplanted to the free
atmosphere of America the system was afforded an oppor-
tunity to develop its latent evils, greatly to the disad-
vantage of American society. If banks were1 authorized to
isMie only a dollar of paper for a dollar of specie held for
its redemption, there would be no advantage in issuing notes;
they might as well lend the specie. Individuals obtain
charters to cany on the business of banking on the theory
that, they have capital to employ in that business, but under
the specie basis system they are not required to use their
capital at all. Bank notes arc issued and exchanged for
the notes of individuals. These bank notes are based on
the credit of the institution which JSMICS them, and represent
nothing more; if redeemed, they are good; if not, they are
as worthless as the note of an insolvent individual. A bank
of issue in effect simply substitutes its notes, of various
denominations and otherwise convenient for use in payments,
for the notes of its customers. As a large portion of the
*See page 89.
122 BANK- «•:•• i IM-: rvi : ID BTATi
community arc r..n>tanlly having payments to make in
hank, tin- notes of tin- bank an- BS u'ood to them as money,
and tlu-y thus come t«» perform not only tin- functions of
tlic individual note-, f,,r which they were substituted, but
.c function- of :i circulating medium. \Yhilst in reality
re nothing more than promises to pay, representing
• f the indebtedness of the bank.) they al
me time become substitutes lor money. In this \\-ay
a bank of i>>uc enables its corjiorators and stockhol.h-i-> to
their credit, or evidences of indebtedness, upon the
jtuldic, at a hi^h rate <•!' interest, and compel it< <!-•
circulating medium, \vhi-ther the public de-'nvs to u-e it or
The medium of exchange fhus foi'ceil upon the pulilic,
encuiuliered \\ith intercut, 1. B ta\ upon the commu-
nity at larire, because iu cc»-t enters into the price <»f coin-
bankii''' ' ntii-ely UJMHI private credit,
dcprcciatinii in value, which inip»M-- an
additional burden upon trade and production. It i-. as we
• •f the sped. <\ to treat dis-
c"imt' -1 p:!p«-i- a- deposits, and this furnishes flu- ba-i- f«.r
additional loai lit. I5y enCOOraglDg discounts and
lendi' , through the instrumentality of bank DOl
d capital, luisinevs l.e.-,,in<'s active, prices
iid -peculation bccoino rife. Intlatinn of bank
• and nut- M an-' a Inure slrueturt «.f credit i<
n in-i^'niticant )>a-i- «.f gpeoie, Mipj..,-, d to be
; in the \ault> of the hank, which is toppled OV< r l-\
the lir-t linaiicial brcc/.c that sj.riiiLTs up, and the puMic is
i in its ruins. When the bai,' . • ailed upon to
i" pay they arc of course unable in
. f«»r the uif of man ha d.-\i-cd a u
d-.llar- \\ith -_r"ld dollar. Like
•««• pave 49. tft
<n«' Tin: rxrn:i> M
123
individuals, banks can be thrown into bankruptcy and com-
pelled to go into Ii«jui«lali«Mi, but. Mich ;i stcp<»nly aggravates
the distress of the public, and is raivly adopted; and the
banks are permitted to escape, only to repeat the operation
as soon as confidence has been restored through the aid of
the Sin-riff.* The extent to which hanks are enabled to
lend their credit by means of the specie basis system of
banking will appear from an examination of the following
table, which is an abstract of the Commissioners' Report of
the banks of Connecticut for a period of twelve years, from
1837 to ls47 inclusive and the year 1840. The banks of
Connecticut, it should be mentioned, were conducted during
this period with as much safety to the public as those of any
other State in the Union:
Year.
Capital.
Circulation.
Total
Liabilities.
Specie.
Loans and
Discounts.
1888
1839
1840
1841
1842
1843
1844
1845
1846
1847
:,li97 50
8,754,41)7 ;')0
8,832,1
8,87!VJr- (i"
8,873,<'-7 MI
8,876,:} 17 f.T
8,580,393 50
st2'.«2.2.",s 00
8,359,748 00
8,475,630 00
$3,998,
l.'.i'JO,552 45
3,987,815 45
2,325.f>y 95
•J.7S 1,721 4.".
J..~>.V>,638 33
5359,947 02
3,490,%3 (1C.
4,102,444 (K)
3.565,947 0<>
4.i:;7.c.:;i (MI
$15,71
12,302
14,W:.
]2,it:)0,572 40
13,»W,373 45
\052 32
12.tilt,12t 60
14,472.c>l 82
15,24
r..v.i-j.«;s5 2:.
15,784,772 04
S415.386 10
535,447 86
.".112,180 15
499,0
154,2
171,23808
438,'
455. Tin 3d
45::.
481,3«i7 OH
462,165 5,3
$13,246,495 08
9,769.286 80
12,286,946 97
10,428,630 87
10,944,673 35
10,1)83,413 37
10,842,955 35
12,477,196 06
13,032,600 78
i-j.7-1,^ ;
1849
,629 57
/J17 00
,-.:.-) i:j,
4,:.il,f»7l oo
8157,5V
$5,168,957 95
575.676 00
$126,292.898 33
13,740. ••'! i"i
I".).--,
$5,744.633 95
$140.033.489 33
Average Capital, -
Average Liabilites, -
Average Specie, ...
Average Loans and Discounts, -
$8,688,295 55
13,129,239 37
478,719 50
11,669,457 44
Kellogg, who gives thi> table,f in commenting upon it,
BHj s: "By the fore-.. ing table it will be seen that the average
amount of the .specie held by the banks in the State of
Connecticut, for the twelve years, was $478,719, while the
average amount of their loans to the public, during the same
*See page 520. 1 KeHogp'^ New Monetary System, page 204.
i;\ in: rsi i 1:1. >i \ i
peri im-re than t wen ty-foiir and ono-
lliinl time- a- iniich money a- tin- l)anks had specie. The
:iiinu:il inlen-M on $11,661M -7 W&6 1700,167. If they could
ha\e loaned only tlicir specie, the interest would have
amounted to lint x-JS.7;.';;. The hanks Lrained from tlic juihlir
annually $671,444 above tin- mtrn-M <»n tlic'n- >.|iccic; am.l,
in the tu . They rullrrh-d thiv int<
in :»'l\ancc, :iinl in:nlf their divi<lcinls half yearly to their
i-x; then-tore, it is j»r<i|M-.- to (-oiMj.ouiid thi^
half yearly, which would swell their u'aiu^ 1<» nearly
$12.' that i- i" Bay, X|,<)<>I>,<HH) intrn^t annually.
Th' M-Hial u-ain-, as much reali/.ed l.y the^e liank
if they had produced and sold annually *7<Hijt;7 \\di-tli <»f
'•nltnral |n-odurtx." (The statements of the li:ink-
of the large cities pablished from time in time in the
neu>|.aj.ei v, will diseh».c a similar inflation of credit at the
jire-ent time. Tin- fact that the National Hanks do not
«-m their notex in sj»ecie makes no difference. They are
liank- of ix^iir .-ind ln-h.-n-j; t,. the >j.e<-ie l»asi- ^y»tc-m all the
The banks of the United Siat«^ have i- ijielh-d to
10 |.:i\menix :it \arioiis times as follow-, to wit:
in 1-0-.., 1814,1810,1 , ;. 1837, L839, 1841, 1857, 1861,
and in 1^7:; rurn-ney payment. Th- aaionfl ha\c
in\:ii-i.il- • i LTi'eat jml.lic « 1 i-t :•«•->, and in se\ei'al
in-tan. . > h.i\e in\..l\e.l the enliiv country in l>ankni|
and i uln, from \\hieli it. to.ik yeait \er. In .March,
S( ite «.f liliodc Nland
made an i-xaiiiinat ion into the affairs of the l-'anm -r-'
' : . and it \\ as f.nind that the
hank had *:>-o,oo<> of it- llOtea in circulation, and only
$8t>. r their redemplion. Ilcfore the end of
the ~;<.n «.f the liank- • 1 !ii'_rland
took .iid it \\a> di-e,. \eivd Jiiaf they were neai'ly all
in the - , iitioii — no hj.e. i« and nothing to show l>ut
the irorthlesi notea of >j.c< nlators.
BANK* <>!•' Till-: I \iii:i> 8TA1 !-•">
CKASII OF is I I.
In 1814 all the banks ..HIM,!,. ,,f \(-u Kn^'land, including
the forty-one banks chartered by the Pennsylvania legislature
in the early part of the year, were obliged to suspend specie
payment, occasioning great distress. The peoph- \vn-e help-
tan, and OOOld do no better than to use their depreciated
note's. This condition of affairs lasted for years. The
following table shows the4 depreciation of the notes of the
banks of the cities of Baltimore, New York and Philadelphia
during the suspension:
It.-iltimoro. Philadelphia. NVw York.
IVr cent. I'«T cent. 1'er cent.
1 s 1 l— September 20
October i:>
November 10
December 14
1815 — January 20 . . 15
February 5 . . 2
March 5 . . 5
April 10 .. 6i
May 14 5 5
June JG 9 11
July • 20 11 14
August 19 11 12£
September 20 15 13~
October 21-J- 15 10
November |:> 1(> 12
December 18 14 12£
is 10— January i:, \4 12.£
February 1:; 14 o"
March..' is 1-j.i, 12.J-
April 23 14]. 10J
May 20 14~ U I
June 20 U> li".
July 15 15 <j"
August 12 10 5
September 10 77, :*
October 8 94 2
November 0 7 1 $
Decembei- !) 7 *2j-
is 17 — January 2 -U 2.}-
Februai-y j \ 4 2|
126 BAKKfl 0* i ii K UNITED BTATBS.
On tin- tir>t of January, 1S17, tin- second Bank of the
United States In-Lean luisiness, and on the I'ntli uf February
following specie payments were nominally resumed. The
e\t<-nt ami character of the resumption that took plaec may
b 'hered from tin- following 0*86 cited by Simmer, i:i his
Hixi«'ry of American Currency: "In 1V17 a ca-e at Uidi-
mond, after >pcr'h' ].ayin<Mit> \\'r|-c i-oiinic'l, LT:»VC an insight
UltO the State of things. A man having jiiH-riit'-il ten onr
liiimlri'il «lollar not«-- f \t re Innjition \va< ivfii^r«l. IIv cuiihl
r a lau'yi-r to take a c-a-c a^ain^t the hank fora huii;
time. Finally having ohtained judirmcnt, the Sheritl \va-
sent to eolleet. The pn-vi-lciit of the hank was taken liefon-
i irt, 1'iit refnx-il t<> pay. The hank wa>-eh»s«-il hy the
SlieriiT, hut soon after opened and went on."
The >perie l»a-i- -\-tem had now heen in operation IOIIL^
i-ii'. iiuh t<> produce its legitimate fruits, and accordingly we
lind that here and there the people were hecominu: alarmed
neroaelmieiiN upon their rights, as well ax at the e\ iU
which it inflicted upon the pnhlie. The following i- an
extract from a report of a legislative committee of the State
i -irk in 1M B:
all ar'MiH-raeir-. none inon- <-, .mpletely en-!.'
people than that of money; and, in tin- opinion of \oiir
«'ommittee, no -\xji-i, i \\:lx «'\er hetter de\ i-ed BO ]»ei-fe<-tly
to enslave a oommunity as that of the present mode ••!' r<ni-
diiftin^ hanking establishments. Like the siren of the fahle,
• dexn-,,y. They hold the |»ui xc-vtrin
, and, l»y moiiM|Mili/inir the whole of the circulating
medium of the coiurtry, they form a preearioiix standard, hy
which all property in the country — home-, land-, del.N and
tS, per-omd ;m,l n-al . all .lc-cri].tioiix — are
1, thux i-end'-rin^ the whole community dependent
•hem; pr..x,-rihin^ exery man \\ ho dare- to CXpOSC their
BAKKfl <•!• i in: i MTKi> MA i 127
unlawful practice.-. It' lit- happens to be out of their reach,
-o a> to require no favors from them, his friends an- made
tlic victims; so no one dares complain. Tin- committee, on
taking a general view of our State, au<l comparing tli«^«-
parts where hanks have been, for some time, established \vith
those tliatliavo none, are astoiiishe<l at. the alarming disparity.
They see, in the one case, the desolation they have made in
societies that were before prosperous and happy; the ruin
they have brought on an immense number of the more
wealthy farmers, and they and their families suddenly hurled
from wealth and independence into the abyss of ruin and
despair. If the facts stated in the foregoing be true, (and
your committee have no doubt they are,) together with
others equally reprehensible and to be dreaded, such a>
that their influence too frequently, nay, often already, begins
to assume a species of dictation altogether alarming, and,
unless some judicious remedy is provided by legislative
wisdom, we shall soon witness attempts to control all selec-
tions to offices in our counties — nay, the elections to the
very Legislature; Senators and members of assembly will
be indebted to the banks for their seat in this capitol; and
thus the wise end of our civil institutions will be prostrated
in the dust of corporations of their own raising."
Tin: niAsii OF 1819.
In 1818 the bank of the United States had discounted to
the amount of $43,000,000, and had $2,000,000 in specie. It
had established eighteen branches, and its notes could not
be signed fast enough for the public. To increase its reserve
of specie it had bought $7,000,000 of bullion abroad, at a
cost of $800,000 for expenses, but it was exported as fast as
it was imp. uled. The Bank of England, which had been
in suspension since 1797, was preparing to resume specie
HE i- \n i:i» -TATES.
awing -pe.-ie from every source tliat
!:iiilc. Iii April, 1818, less than iil'teen months after
the Hank of the I'liilcd States started, it was believed to be
•mmittee, appointed by Congress to im
affairs, reported ;i resolution requiring the bank to
086 why its eharter should not be forfeited, but the
ution was lost, forty members of Congress being stock-
Icrs in the bank. The bank now resorted to vigorous
; Mires to save itself from bankruptcy, and in a little
; tuo months was once more solvent. It had, however,
ruined the country. The amount of bank note circulation
in is 13- 14 was about $45, 000,000; in 181 7-18, $100,000,000;
and in 1819 about $45,000,000. Contraction had done its
work, and the ruin which it had accomplished was deep and
widespread. In August, 1819, 20,000 persons were seeking
employment in Philadelphia, and a similar condition of affairs
prevailed in New York, Baltimore and other cities. The
dist least severe in Xew England. In the Western
was intense. In the South the banks still pretended
§pecie, but the following account of the manner in
•h they did bu>iness in some localities would hardly justify
j. retention; ( )ne who presented a bill had to make oath in
bank that the bill was his own and that he was not an
:.t for any one. He was required to make this oath
before the ea>hier and five directors, and had to pay *1.
"ii each bill.
•lafioii and distros hiMed throughout the year
Wl KO cent*, per bu>hel in Kentucky. At Pittsburgh
(lour was *i p,.r barrel, hoanU, x-j per thousand, etc., <•!«•.,
while imported goods remained at their old price-.. <
a half bushels of wheat would buy a pound of roflV.
f flour would buy a pound of tea, and twelve and a
•f flour would buy a yani dcloth.
I;A\K-> or MM: t MII:J> BTATB& 129
a better idea <>f tin* condition of affairs may be formed,
pcrh:i]>s, from a report of :i committee of the Senate of
Pennsylvania, of which the distinguished Condy Raguet
was chairman, made on the 20th of rYbruary, is-jo. It is
as follows:
"In ascertaining the extent of the public distress, your
committee lias had no difficulties to encounter. Members of
the legislature from various quarters of the State, have been
consulted in relation to this subject, and their written testi-
mony in answer to interrogatories submitted to them by the
committee, has agreed, with scarcely a single exception, on
all material points. With such respectable weight of evi-
dence, added to that which has been derived from the
prothonotaries, recorders and sheriffs of the different counties,
from intercourse witli numerous private citi/ens residing in
different parts of the state, as well as from the various peti-
tions presented to the legislature, your committee can safely
assert that a distress unexampled in our country since the
period of its independence, prevails throughout the common-
wealth. This distress exhibits itself under the various
forms of —
" 1. Ruinous sacrifices of landed property at sheriffs sales,
whereby, in many cases, lands and houses have been sold at
less than a half, a third, or a fourth of their former value,
thereby depriving of their homes, and of the fruits of labo-
rious years, a vast number of our industrious farmers, some
of whom have been driven to seek, in the uncultivated forests
of the West, that shelter of which they have been deprived
in their native State.
"2. Forced sales of merchandise, household goods, farming
stock and utensils, at prices far below the cost of production,
by which many families have been deprived of the common
necessaries of life, and of the implements of their trade.
I;\NK
Numerous bankruptcies and pecuniary embarrassments
v-eription, as well among the agricultural and
manufucturiBg as tlir mercantile classes.
neral scarcity of money throughout the country,
tarhich renders it almost impossible for the husbandman or
other owners of n-;il estate to borro\\- at :i usurious ii.
an<l \\ here landed security of the most indubitable character
! -ledge. A similar difficulty of procuring on
loan had existed in the metropolis previous to October last,
lint has since then been partially removed.
neral suspension of labor, the only legitimate
source of wealth, in our cities and towns, by which thousands
• ni«.-t useful citi/ens are rendered destitute of the
- of Mipj»ort, and are reduced to the extremity <•]'
|Hi\erly ami despair.
An almost entire cessation of the usual circulation of
oommodities, and a cnnsetjuent Btagnation of business, which
is limited to the mere ])urchase and sale of the necessaries of
iidof'snch arti<-lc> of c(»nsumpti<»n as are :ibsolutely
rcijuired l»y ihe season.
A iini\ cr>al suspension of all manufacturing 0
I'V which, in addition to the diMin^al of the numerous
!:ii»»ivr- Iier«-t«»fin-e eiiuraired therein, who can find
nt, the public lofiefl the revenue of the
Capital invested in machinery and buildings.
I'-mi'Mi- •!!-, whereby corporations in-!itutcd
,:ice and other purposes, in violat:
• Uevofthe products of industry without
ing an e.jiiivalent.
« >\ ci-tl«'\\ iug of our prisons with insolvent delitors,
"f wliom are r«.ntined f'»r tritling sum^, \\ hereby the
community loeei a j.oii'mn « .d is com-
i-v\K^ oi TIM-: i \m.:> >TATI>. 1 ••]
pelled {<» support families liy charity who have tints been
deprived of their protectors.
"10. Numerous law-suits upon the dockets of our courts
:iinl of our justices of the peace, which lead to extravagant
eoM< and loss of a great portion of valuable time.
"11. Vexatious losses arising from the depreciation and
fluctuation in the value of bank notes, the imposition of
brokers and the frauds of counterfeiters.
"12. A general inability in a community to meet with
punctuality the payment of debts even for family expenses,
which is experienced as well by those who are "wealthy in
property as by those who have hitherto relied upon their
current engagements. With such a mass of evils to oppiv-^
them, it cannot be wondered at that the people should be
dispirited, and that they should look to their representatives
I'm- relief. Their patient endurance of suffering, which can
only be imagined by those who have habitually intermingled
with them at their homes and by their firesides, merits the
commendation of the legislature and prefers a, powerful
claim to their interference."
The people of the United States had not been without
warning as to the evils and dangers of the specie basis system,
but they had supinely allowed the money power to gain
control of the monetary affairs of the country, precisely as they
are doing now. January 16, 1814, previous to the crisis of
that year, Jefferson wrote as follows: "Everything predicted
by the enemies of the hanks in the beginning is now com-
ing to pass. We are to be ruined by the deluge of bank
paper, as we were formerly by the old Continental paper.
It is cruel that such revolutions in private fortunes should
be at the mercy of avaricious adventurers, who, instead of
employing their capital, if any they have, in manufactures,
commerce, and other useful pursuits, make it an instrument
HANKS OF '\}ii: rvi i i:n BTA1
to burthen all the interchanges of property with their
-\\indliiiL; profit*, profits which arc the price of no useful
industry of theirs. * * I am an enemy to all banks dis-
counting bills or notes for anything but coin." And airain,
January G, 1816 he wrote as follows: "The American mind
is mm- in that state of fever which the world lias so often
seen in the history of other nations. We arc under the
bank bubble, as England was under the South Sea bubble,
France under the Mississippi bubble, and as every nation is
liable- to be, under whatever bubble, design or delusion may
puff up in moments when off ijuard. We arc now taught to
believe that legerdemain tricks upon paper can produce as
solid wealth as hard labor in the earth. It is vain for
eDSe to ui'LTc that notli'nuj can produce but
* * Not Quixot enouirh, however, to attempt to ;
Bedlam to rights, my anxieties are turned to the m<>-f practi-
tneanfl of withdrawing us from the ruin into which we
MII. Two hundred millions of paper in the hands of
the people, (and less cannot, be from the employment of a
banking capital known to exceed one hundred milli"
ul tax to fall at hap-ha/ard on their heads. * * And
what ha\e we purchased with this tax of two hundred
millions, which we are to pay by wholesale, but usury,
•windling and new forms of demoralization.'1 As we have
heel), the bubble hlllM, as predicted by Jefferson, ill 1819.
.iti-.ji and distress continued during 1-.M and
1822. In 1823 there was a large creation of banks in
'-mk of the I'liiicd States be^an to
expand. In I--JI all the banks hciran to expand. IVims-yl-
of I - M. Tn the Hprinc^ of 1825
'
t»ks ami insurance coinp :cky there
narchv. Alalian. \
or TIM: r\rn:i> STA i 133
discount. Indiana, Illinois and Missouri wen- still suffering
from the 'relief ' system (^t.-iy taws against the collection of
debts, etc.) Tin.1 Xc\v York and r>oMon banks were fighting
the country is-ucs. * * The bank of tlie United States
increased its issues over $3,000,000."*
CKASII OF IS I'.'.
Ill the hitter part of is-jl- and beginning of 1825 the JJank
of England found it necessary to curtail its discounts, in
order to check the outflow of bullion. This occasioned
another terrible crisis in that country. Seventy banks fuile-d
and nearly two thirds of the merchants and manufacturers
stopped payment, causing great distress among the working
classes. Gold begun to fio\vr from the United States, and
the banks were obliged to suspend specie payments. Fifty
failures occurred in Xew York befoi'O Deeember, and banks
went under all over the country. The crisis, however, was
BOt felt SO Severely in the rnited States as it was 'in Kng-
land, because the banks had not yet had sufficient time to
inflate their credit and circulation to the greatest extent.
Here and there throughout the country industrial activity
u as stimulated somewhat during the next few years by the
high tariff of 1824 and 1828, and by the building of railroads,
which began in 1830; but business generally continued to
suffer from the rotten monetary system which had been
fastened upon the country, and distress was more or less
common.
TIIK WAlt AV1TII Till-: VMTKI> sTATKS HANK.
The fight between President Jackson mid the United
States Bank, whh-h occupied the attention of the people- for
years, now began. The specie basis system had been in
operation for over a quarter of :i century, and during the
whole time the country had never once enjoyed the advan-
*Sumner's History of American Currency.
i:M r.ANK-; OF 'i in: r\r: KS.
md currency. Pecuniary distress, periodical
returns of e\pan>ion and contraction, deranged currency,
ruined exchanges, and panics and convulsions had charac-
teri/ed the entire period. TIio banks, although based on
"hard money/' and professing to pay coin, we're in a state
of chronic suspension. The press of the country was com-
pletely sub>idi/ed; Congress, as well as State legislatures,
i in abject submission to the mandates of the money
; aixl even the Supreme Court of the United States
did not ex-ape its contaminating influence. The people
perfectly helpless, and the outlook of American free-
dom and independence, was dark indeed. It is worthy of
mention that Pitt, in 1 70 1, when Hamilton brought forward
lii< funding and banking scheme, said: "Let. li:e Americans
adopt their funding system and go into their banking
institutions, and their boasted independence will be a mere
phantom/' J>nt fortunately for the country the election of
1828 resulted in the choice of Andrew Jack-on as President
of the Tinted States, and the people found in him a leader,
:-le>s as he was patriotic. In his 1ir>t message to-
Decembers, ISi'D, in lan^na^1 of extreme mod-
, he called ].ul)lic attention to the Unitc'«l States Rank,
and expressed himself ac unfavorable to ha continued exist-
'd:
'•The charter of the Hank of tin- ("niied States e\pi:
•ckholders will probably apply for a renewal
of their privileges. In order \<> avoid the evils resulting
precipitancy in a meastin* involving sii'-h important
principle, and such <leep pecuniary interests, I fed that
iot, in jnxti.-,. ; , .rties intere-t«-d, t«»>
f it to the delil.erafe c-oii-idrratioii of the legislature
and the pe«.plr. llnjli the coiKfiiutionality and «-\jiediency
of tlie la\v creating this bank are well questioned by a
BANKS OP Til!' UNITED -- 1 \ i
large portion of mi" fellow citi/ens; and it. must In- admitted
by all that, it. has f.iiled in the grout end of . Mablishing a
uniform am! sound currency."
The bank immediately began preparations for war.
Through its branches and its control over State banks, its
power extended into every part of the country. Millions of
dollars (belonging, as it subsequently appeared, to depositors
and stockholders) were squandered for the purpose of
corrupting the people. Statesmen, Congressmen, brawling
politicians, editors, all succumbed to Its influence, very much
in the same way as they are seen bowing to the power of
the National J>anks at the present day. After :i careful
survey of the field and a thorough canvass of Congress, it was
determined by the bank that :i renewal of its charter should
Le applied i'<;r during the session of Congress immediately
preceding the next general election in 1832. The bill passed
Congress by a majority of eight in the Senate and twenty-
two in the House. As was expected, it was returned with
the President's veto, on the 10th of July, 1832. The contest
was then transferred to a wider lield and carried on with
excessive virulence. The money power everywhere went to
work to defeat Jackson. In Philadelphia, for example,
"the bank would order the business men to hold public
meetings in its behalf in order that it might ascertain who
were its friends, and who were courageous enough to stand
by the government in its efforts to redeem the people, and
then, in turn, would appoint places for the assembling of
the different trades, in order that the employers might
who of their workmen had opinions which they dared
maintain."* The masses, however, rallied to the support of
the President, and the capacity of the American people for
self-government was triumphantly vindicated. President
*From Speech of liou. W. D. Kelley, at ludlanapolis, Aug., 1875.
OF 'i in-: UNITED >i 4.1
Jack ';i!'_: -Mi'. ( 228
>rul college. I'pon examination it will he
i-l dial the principles involved in the contest between
and tin- I'nited States Hank arc pivci-
Jiirh underlie the- impending eoi
.ic and tin- National Hanks. The subject
worthy of more than a passing notice. Il.-nton,
ill liis *'Thir:_ ;:i the Tinted States Senate," in coui-
,tiiiL,r upon some errors of MOMS, do Toe<jne\ille fc-in
tion to the Hank of the United States, the Pre-ident and
the peo] clear and coinjirelien sive analysis of
princij.les and jiurjM>^-s involved in the content, from
which we (jilote as f«»llo\\ N:
"Thi< ]••• uas tlie ufrand feature of the
ri>'n nt. and judicial decisions, going hack to
the Constitution and the foundation of party on principle;
and risking a contest at the commencement of his adminis-
tion, which a mere politician would have put off to the
Tiie Supreme Court had derided in favor of the
^tifutionality of th<- in-titution; a democratic (
in charterin'4 a second hank, had yielded the (jucstion, hoth
of censtitotion&lity and expediency. .Mr. .Ma-!i-«»n, in siirn-
the hank charter in ISlfi, yiel-Ied to the autliorities
without surrend. -rin^ hi- e«,n\ict • t tin- el:
the v;n,|(. in hclialf of the institution, and against th«- Coi
•v ..f party founded "n prinri-
| le. It thvr\v do\v!i t!ie'_T)'cat landmark of party, and yielded
.\ver of construction which nullified the limitation- "f
the ('oiivtitu:ion, and left ('.mirrcvx at lih'-rty to ]
uliich it d carry into
:ted p..v •'•^iiiiiriit for tlie bank turned
up. tted
•See P»K-
i; ANK- OF 'i in i \i i i:i» ST \i i>.
powers granted to CoDgreSSJ :in<l gave ri8€ to the
division of parties in Washington's time— tin- federal party
beiii"- for the consfrurtion which 'would aulhori/e a national
O
bank; the democratic party (republican, as then railed,)
being against it.
" It was not merely the bank which the democracy opposed,
but the latitudinarian construction which would authori/e
it, and wliicli would enable Congress to substitute its own
will in other cases for the won Is of the Constitution, and do
what it pleased tinder the plea of * necessary' — a plea under
which they would be left as much to their own will as under
the 'general welfare' clause. It was the turning point
between a strong and splendid government on one side,
<loing what it pleased, and a plain economical government
on the other, limited by a written Constitution. The con-
struction was the main point, because it made a gap in the
Constitution through which Congress could pass any other
measures which it deemed to be 'necessary;' still there were
great objections to the bank itself. Experience had shown
such an institution to be a political machine, adverse to free
government, mingling in the elections and legislation of the
country, corrupting the press, and exerting its influence in
thi> only way known to the moneyed power — by corruption.
General Jackson's objections reached both heads of tin-
case — the unconstitutionality of the bank and its inexpedi-
ency. It was a return to tlie .IelTer>onian ami Ilamiltonian
times of the early administration of (icneral Washington,
and went to tlu' words <»f the Constitution, and not to the
interpretations of the administrators for its meaning.
"Such a message, from such a man — a man not apt to look
back when lie had set his fare forward — elect rilied the
democratic spirit of the country. The old democracy felt
as if they were to see the Constitution restored before they
hi: ' \n i.i) BTA1
died — l! f they were suiiimnnril to the recon-
struction of the work of their fathers. It was evident that
uiing "", and the odds entirely against
tin- President. On tin- one side, the undivided ])liahuix of
the federal party (for they had not then taken the name of
whig); a large part of the democratic party, yielding to
preredent and judicial decision; the bank itself, with its
colossal money power — its arms in every State by means of
branches — its power over the State banks — its power over
the business community — over public men who should
become ii> debtors or retainers — its organization under a
single head, issuing its orders in secret, to be obeyed in all
places and by all subordinates at the same moment. Such
the formidable array on one side: on the other side a
divided democratic party, disheartened by division, with
nothing to rely upon but the goodness of their cause, the
/'';/< of Jackson's name, and the presidential power; —
j.-iinst anything less than two-thirds of Congress on
the final •jiiestiun of the re-charter; but the risk to rui
his noil-election before the final question came on.
••1'ndcr such oircumstances it required a strong sen
duty in the new President to commence hi> career by risking
-!; but he believed the institution to be uncon-
stitutional and dangerous, ami that it ought to <-ca-e t«» e
ami then- WM a clause in the Constitution — that Constitution
which he had sworn to siij»port — which commanded him to
>::iinend to ( 'oiigrcx.v, f,»r its consideration, such measures
as ||«- should deem expedient, and proper. Under th
duty, ami under the obligation of this oath, President
ommended to Congress the non-renewal of
the bank charter, and the subsfituti -m of a different fiscal
r tin- «.jM-i-ation> of the government — if any such
'•|uiied. And with 1 d frankness,
BANKS OP THE UNITED M \i 130
and the fairness of a man who has nothing but tin- public
good in view, and with a. disregard of self which |»cnnils no
personal consideration to stand in the way of a discharge of
a public duty, lie made the recommendation six years before
the expiration of the charter, and in the first message of hi*
lirst term; thereby taking upon his hands such an enemy as
the Bank of the United States, at the very commencement
of his administration. That such a recommendation against
such an institution should bring upon the President and his
supporters, violent attacks, both personal and political, with
arraignment of motives as well as of reasons, was naturally
to be expected; and that expectation was by no means
disappointed. Both he and they, during the seven years that.
the bank contest (in different forms) prevailed, received from
it — from the newspapers and periodical press in its interest,
and from the public speakers in its favor of every grade- —
an accumulation of obloquy, and even of accusation, only
lavished upon the oppressors and plunderers of nations — a
Verres, or a Hastings."
" lie impnnged neither the integrity nor the skill of the
institution, but repeated the objections of the political school
to which he belonged, and which were as old as Mr. Jeffer-
son's cabinet opinion to President Washington, in the year
1791, and Mr. Madison's great speech in the House of
Representatives in the same year. He, therefore, made no
attack upon the bank, either upon its existence, its character,
or any one of its rights. On the other hand, the bank did
attack President Jackson, under the lead of politicians, and
for the purpose of breaking him down. The facts were
these: President Jackson had communicated his opinion to
Congress in December, 1829, against the renewal of the
charter; near three years afterwards, on the 9th of January,
1832, while the charier had yet above three years to run.
140 i:\' i UK rvn
Mini :i new ' elected before its expiration, and
ntial election impending — (Ciencrul Juekson and
Mr. Clay the. candidates) — the memorial of tlie pn
and directors of the bank was suddenly presented in the
of tin* Vnitcd States, for renewal of its charter,
w, how came that memorial to be presented at a time
>o inopportune? so premature, so inevitably mixing
with tlio presidential election, and so encroaching upon the
of the ptople, in snatching the question out of their
hand-, ami having it decided by a Congress not elected for
the purpose — and to the usurpation of the rights of the
: for the purpose? IIow came all these
.lies? al] these violations of right, decency and propri-
16 thus: tlie bank and its leading nnti-J;'
friends believed that the institution was stronger than -the
lent — that it could beat him in the election — that it
could beat him in Congress (as it then stood), and curry the
charter — driving him upon the v<tn power, and rendering
him odious if 1,,. nM-d it, and disgracing him if (after what
1) lie did m»t. This was the opinion of the leading
pol!t;<-i.i!i> frit ndly to tlie bank, and inimical to the Presi-
dent. Iliif the bank had :i class; of friends in Conirn -s aN«>
-'•n; and between these two classes
vehement opposition of opinion on the point of
•_C f'-r the new charter. Tt, was found impossible, in
coinmnmcations l»ct\\ t-.-n Wushingt«m and Philadelphia,
-\»\v and Uncertain, 10 Mage coach conveyances, over
miry roads and fro/en waters, to come to conclusions on the
difficult point. Mr. Middle and the director^ were in doubt,
nould not do to move in the matter, unless all the
tlie bank in ' '. Tn this
••f nneertaint;.. ' .'Iwallader, of Philadelphia,
i and confidant of Mr. Middle, and his usual envoy in
BANKS OP Tin-: UNITED STATES. 141
all the delicate bank negotiations or troubles, was sent to-
Washington to obt:iin a ivsult; and the union of both wing*
of the bank party in favor of the desired movement. lie
came, and the mode of operation was through the machinery
of caucus — that contrivance1 by which a few govern many.
The two wings being of different politics, sat separately, one
headed by Mr. Clay, the other by Gen. Samuel Smith of
.Maryland. The two caucuses disagreed, but the democratic
being the smaller, and Mr. Clay's strong will dominating
the other, the resolution was taken to proceed, and all bound
to go together."
"The prudential counsels of such men as Mr. Dallas did
not prevail; political counsels governed; the bank charter
was pushed — was carried through both Houses of Congrc^
— dared the veto of Jackson — received it — roused the people
— and the bank and all of its friends were1 crushed. Then
it affected to have been attacked by Jackson; and Mons. de
Tocqueville has carried that h'ction into history, with all the
imaginary reasons for a groundless accusation, which the
bank had invented.
"The remainder of this quotation from Mons. de Tocque-
ville is profoundly erroneous, and deserves to be exposed, to
prevent the mischiefs which his book might do in Europe,
and even in America, among that class of our people who
look to European writers for information upon their own
country. lie speaks of the well informed classes who rallied
round the bank; and the common people who had formed
no rational opinion upon the subject, and who had joined
General Jackson. Certainly the great business community,
with few exceptions, comprising wealth, ability and educa-
tion, went for the bank, and the masses for General Jackson;
but which had formed the rational opinion is seen by the
event. The 'well informed' classes have bowed not merely
P. A ! UK t'NITKI) STAT
to the decision, Inn to the intelligence of tin- masses. They
..dopted their opinion of the institution — condemned it
—repudiated it 18 an 'oh>olcte idea;' and of :ill of is former
advocate*, not one now exists. All liave yielded to that
instinctixe sagacity of the people, whieli is an overmatch for
book-learning; and which being the result of common -
is u-iially right; and being disinterested, i< always ],.
I adduce this instance — a grand national one — of the suc-
cumbing of the well informed classes to the instinctive
sagacity of the people, not merely to correct Mon*. de
Toc<|ueville, but for the higher purpose of showing the
capacity of the people for self-government. The rest of the
^notation, 'the independent existence — the people accus-
tomed to make and unmake — startled at this obstacle —
irritated at a permanent institution — attack in order to shake1
and control;' all this is fancy, or as the old English wrote
it. fantasy — enlivened by French vivacity into witty theory,
as fallacious as witty/1
u Now, while Minis, de Tocqueville was arranging all this
line ecominm upon the bank, and all this censure upon its
adversaries, the whole of which is nothing but a French
translation of the bank publications of the day, fov
and a-_rain^t IVc-ident Jackson — during all this time there
•.foiug on in the Congress of the United Stales.
by which it wa» proved that the bank was then insolvent,
and living from day 1o day upon expedients and getting
hold of property and money by contrivances which the law
would qualify as swindling — plundering it- own M"ckh..lder<
—and bribing individuals, institutions, and meinb.
itive bodiex, -\\here\er it, could be done. ThoM- line
notes, of which he speak<, were then without solid value.
The salutary restraint attributed to its control over local
banks was noon exemplified in its forcing many of them into
BANKS oF TI1K r.MTKM STATES,
•complicity in its crimes, ami all int<> t\v<> general
of specie payments, headed )>y it>elf. Its solidity and it-
honor \\ • • h"\\ ii 'i open bankruptcy — in the dishonor
of its notes — the violation of sacred deposits— (he disap-
pearance of its capital— the destruction of institutions con-
nected with it — the extinction of lil'iy-.-.ix millinns of capital
(its own, and that of others drawn into its vortex); — and the
ruin or damage of families, both foreign and American, who
had been induced by its name, and by its delusive exhibi-
tions of credit, to invest their money in its stock. Placing
the opposition of President Jackson to such an institution
to the account of base and personal motives — to feelings of
revenge because lie had been unable to seduce it into hi-
support — is an error of fact manifested by all the history of
the case; to say nothing of his own personal character. II«
was a senator in Congress during the existence of the1 iirst
national bank, and was against it; and on the same grounds
of unconstitutionality and of inexpediency. lie delivered
Jiis opinion against this second one before it had manifested
any hostility to him. His first opposition was abstract —
against the institution — without reference to its conduct; he
knew nothing against it then, and neither said, or insinuated
anything against it. Subsequently, when misconduct was
discovered, he charged it; and openly and responsibly.
Equally unfounded is the insinuation in another place, of
subserviency to local banks. He, the instrument of local
banks! he who could not be made the friend, even, of the
great bank itself; who was all his life a. hard money man -
an opposer of all banks — the denouncer of delinquent banks
in his own State; who, with one stroke of his pen, in the
recess of Congress, and against its will, in the summer of
1836, struck all their notes from the lisl of land office pay-
ments! and whose last message to Congress, and in his
144 BANKS OP THE VXITKD STATES.
farewell address to the people, admonished them earnestly
and affectionately against the whole system of paper money
:.k currency) — the evils of which he feelingly described
! filing heaviest upon the most meritorious part of the
community, and the part least able to bear them — the
productive classes."
The United States Bank continued its war upon the
administration until the last moment of its existence. It>
charter expired by limitation in 1836, but it was entitled to
years in which to wind up its affairs. Instead of prepar-
ing to cl<»v' up its Intsinc.vs it resorted to new and desperate
measures to prolong its powers. In Januan. . bill
"snaked" through the legislature of Pennsylvania, by
•;' bribery and corruption, entitled "An Act to repeal
., and to continue the improvement of the State
by railmads and canals, and for other purpo.xcs;" and under
He generality of "other purposes," was found a.
charter for the United States Bank, adopting it as a State
liank. Thf people of Pennsylvania were astounded, and
denounce the act and demand its rep
and at the next, S'-^ioii of the legislature an investigation
ordered, but, as is iiMial in such cases, it came to nothing.
ii and corrupt as the institution subsequently proved to
be, it went on for se\,-ral year*, and exerted great influence
iu the commercial and political affairs of the country. Th*
two general sii-peii-i- uis . ,f Bpecie payment-., headed by tin-
I'nited Slates Hank, referred to in the foregoing extracts
Bton, were th<- suspensions , I -, in the
latter of which the bank cloM-d its doors upon its creditors
October full, 1839, never really to open them again. A report
•s affairs was ma*! 'inmittee of Stockholders, and
I, to (jiiotc again from Ilenton, •• such an exhibition of
waste and destruction, and of downright plundering and
n A\k> <>\' i in: i MI I:D -
Criminal misconduct, as was n<-\cr smi bel'oiv in the annals
of banking. Fifty-six and three-quarter millions of capital
out of eighty-two and one-quarter millions, (including its
own of thirty-live,) wore Mink in the limits of Philadelphia
alone; for the great monster, in going down, had carried
many others along with her; and, like the strong man in
scripture, slew more in her death than in her life. Vast was
her Held of destruction — extending all over the United
States — and reaching to Europe, where four millions sterling
of her stock was he-Id, and large loans had been contracted.
Universally on all classes the ruin fell — foreigners as well as
citixens — peers and peeresses, as well as the ploughman and
the wash-woman — merchants, tradesmen, lawyers, wards and
guardians; confiding friends who came to the rescue; de-
ceived stockholders who held on to their stock, or purchased
more: the credulous masses who believed in the safety of
their deposits, and in the security of the notes they held —
all — all saw themselves the victims of indiscriminate ruin.
An hundred millions of dollars was the lowest at which the
destruction was estimated; and how such ruin could be
worked, and such blind confidence kept up for so 'long a
time, is the instructive lesson for history; and that lesson the
report of the stockholders' committee enables history to give.
From this authentic report it appears that from the year 1830
to 1836 — the period of its struggles for a re-charter — the
loans and discounts of the bank were about doubled — iis
expenses trebled. Near thirty millions of these loans were
not of a mercantile character — neither made to persons in
trade or business. * To whom were they made?
To members of Congress, to editors of newspapers, to brawl-
ing politicians, to brokers and jobbers, to favorites and
connections; and all with a view to purchase a re-charter, or
to enrich connections and exalt himself, (Nicholas Kiddle,
140 i:\Mv> (>K Till: UNITED STATES.
President of the Bank.) The importance of the destruction
of the United States Bank cannot be overestimated. In
no other wav could the government have la-en rescued from
the domination of the money power, which was sparing no
pains to subvert the liberties of the people. John Randolph
warningly said: "Charter a bank with thirty-five millions of
capital; let it establish and learn its power; and then find, if
you can, means to * bell the cat.' It will be beyond your
power; it will overawe your Congress, and laugh at your
1 1 i s w ( ) rd s were fully verified. Even Clay, who had
said, in 1811, "I conceive the establishment of this bank
(National Bank) as dangerous to the safety and welfare of
this republic," and Webster, who had declared his hostility
to bank currency repeatedly, as "one of the great*
political evils," and "a contrivance for cheating the laboring
> of mankind,9' were both dragooned into the support of
;iited States Bank, in its application for a renewal of
its charter; and all this power over the monetary and political
- of the country was developed by the bank while it
yet in its infancy and rotten, financially, to the c<
We have dwelt at some length upon the subject of the
Unite.; i.ank, because' the country is now undergoing
a similar ordeal. The money power i-
Secure control ,,f ii,t. monetary and political affairs
country through the instrumentality of the National Banks.
The monger is n-»w hydra-headed. fa p--litical tooN of
both partie>, in and out of Congress, pretend to be in
of specie circulation — of "hard money,*' Hiom •-! money,"
etc. It is a UK iae, If they were honestly for "hard
.-id opposed to "paper money," their first step
would IM- i , >:; per money of the tanks, because,
of all forms of paper money, that is t1 and most
dangerous. Benton, the great champion of hard money,
BANKS OP THE UNITED STATES. 147
could tolerate United States Treasury notes, and even voted
for a bill authorizing their issue; but, unlike these hypocrit-
ical champions of hard money of the present day, lie left no
one in doubt in regard to his views upon the question of
banks of issue. In his speech, on the Divorce of Bank and
State, in 1837, he said: "Banks of circulation are banks of
ha/ard and of failure. It is an incident of their nature.
Those without circulation rarely fail. That of Venice has
stood seven hundred years; those of Hamburg, Amsterdam,
and others, have stood for centuries. The Bank of England,
the great mother of banks of circulation, besides an actual
stoppage of a quarter of a century, has had her crisis and
convulsion in average periods of seven or eight years, for
the last half century— in 1783, '93, '97, 1814, '19, '25, '36—
and has only been saved from repeated failure by the pow-
erful support of the British government, and profuse supplies
of exchequer bills. Her numerous progeny of private and
joint stock banks of circulation have had the same convul-
sions; and not being supported by the government, have
sunk by hundreds at a time. All the banks of the United
States are banks of circulation; they are all subject to the
inherent dangers of that class of banks, and are, besides,
subject to new dangers peculiar to themselves. From the
quantity of their stock held by foreigners, the quantity of
other stocks in their hands, and the current foreign balance
against the United States, our paper system (bank currency)
has become an appendage of that of England. * * The
power of a few banks over the whole presents a new feature of
danger in our system. It consolidates the banks of the whole
Union into one mass, and subjects them to one fate, and that
fate to be decided by a few, without even knowledge of the
rest. (This was strikingly illustrated by the almost general
suspension of the National Banks in 1873.) An unknown
148 BANKS OF TIN-: L:MTKJ> STATES.
div:in of bankers sends forth an edict which sweeps over
the empire, orO006fl tin- lines of States with the facility of a
finnan, pros! rating all State institutions, breaking up all
engagements, and leveling all laws before it. This is a kind
b£ Consolidation which the genius of Patrick Henry had not
even c.meeived. But while this firman is thus potent and
irresistible for prostration, it is impotent and powerh-
resurrection. It goes out in vain, bidding the prostrate
lianks to rise. A veto power intervenes. One voice is
sufficient to keep all down; and thus we have seen one word
from Philadelphia* annihilate the New York proposition for
resumption and condemn the many solvent hank- to the
continuation of a condition as mortifying to their feelings
as if is injurious to their future interests. Again from the
mode of doing business among our banks — using r:n-h
others notes to bank upon, instead of holding each other to
weekly settlements, and liquidation of balances in specie,
our banks have all become links of one chain, the
strength of the whole being dependent on tin- strength of
eaeh. A few govern all. Whether it U to fail, MI- to resume,
the f«-w govern; and not only the few but the weak. A few
il; a panic ensues, and the rest shut up; many
strong onei ire ready to roume; the weak are not ready,
ami the strong must wait. Thus the principles «,{' safety,
and the rules of government, arc reversed. The weak
ii the strong; the bad govern the good; and the
gOTOri] the solvent. This jx our sy>tem.
I-- ealled, which lias no feature of OOllSUrteney, no
principle • . and which is 'nothing but the floating
appen .1 f.. reign and overpowering system." Who
can d-.ul.t U tO whew : and IJciiton would stand
., if they were alive, in regard to the i — ue now
;r_r, whether the government and peoph- ..f tin- United
i; \NKS en-1 nil-: r\i i i:i» BT \
beg shall use I'nited States Treasury notes, or National
JJank notes, nominally redeemable in gold, for their
Circulating medium? It was impossible in Jackson's time
for the administration to suppress State banks of is.-iie,
deeply liad they become rooted in the structure of
American society, but, everything possible was done t<>
curtail their power for mischief. The lirst step taken in
this direction was the publication, July 11, J^'.r., of the
famous *• specie circular,*' ordering agents for the sale of
public lands to take nothing in payment but specie. This
circular was based on a law passed in 1816, requiring the
Secretory of the Treasury to take- nothing but specie, Treasury
notes, or the notes of specie paying banks. The notes of
eastern banks at this time' were sent West for :i ugood circu-
lation," and "coon-box banks"' were set up in the Western
States, which issued notes in easy loans to land speculators.*
The title to land was passing rapidly to speculators, and the
treasury was being filled with worthless paper. Ten millions
of bank currency of this sort was arrested by the. circular on
its way to the land ollicc at Washington. The money power
was highly indignant, and Congress, then as now its suppli-
ant tool, at its next session parsed a bill rescinding the
circular, but it was not signed by the President and failed
to become a law. This led to the establishment of the
Independent Treasury system, of which more will be said
hereafter. The number of specie basis banks in existence
during this period were as follows:
Years, Number, Years, Number. Years. Number,
IS20 1835. . . . i--- 0(i:J
1830 330 ls:5t; :.<;? 1839 slu
1834 500 1837 (i:'» t 1840 1)01
The country was flooded wi'li a. depreciated currency,
based on "hard money,"1 and commercial crashes and money
•History of American Currency.
150 I;ANKS OF THK UNITED STATES.
panics occurred with almost as much regularity as the ebb
ami flow of the tides.
THE CRASH OF 1837.
Iii the latter part of 1836 several large failures occurred
in < .real Britain. This was the beginning of a crisis which
eonvul>ed both Europe and America. Early in May one
bank in New York City and three in Buffalo failed. On
the 10th of May all the banks in New York suspended
payments, under a law passed by the legislature
allowing tin-in to suspend for one year. The banks through-
out the (•• .nut ry soon followed their example. The <li>:
of the year were aggravated by a failure of the wheat crop.
The New York hanks being required by law to resume M :y
10, 1838, contracted their circulation as rapidly as possible.
It was reduced over $12,000,000, or one-half, during the
year 1S:}7. The banks of New England were in a had
condition, the best of them having only $1 in specie to
redeem $11 iii notes. A meeting of bank delegates in New
York was called for November 27, 1837, to confer in regard
to resumption, but the United States Bank refusing, the
convention did not meet. The New York Banks resumed
on the loth of .May, 1 838, and nearly all the banks through out
the country soon followed, at least nominal! iho^e
of Philadelphia. Towards the end of the year the Bank of
Knirland again became involved in trouble, producing the
usual effect 'm America.
CRASH OP 1839.
on the Huh of October, 1839, the Bank of the United
el.. sed its doors, and was followed by nearly all the
- -nth and WeM. The banks in New York and
Kii'jl.md made a show of holding out, but to no pur-
pose. According to Sunnier, 343 out of 850 banks closed
BANKS OP TIII-3 UNITED STATES. 151
1'iitiivly, ;ui<l 02 p-irtially, and the government l»st over
$2,000,000 in deposit <.
« KASII OF 1841.
An attempt was made to resume specie payments in 1841.
But a run was made on tlie United States Bank, which had
again opened, and it was compelled to finally close February
4, 1841. This led to another general suspension, followed
by great distress.* Specie payments were not again resumed
until March, 1842.
During all these years of banking on the specie basis
system, banking operations had been carried on in the most
reckless manner, without regard to personal integrity, or the
laws of banking. Every possible device was resorted to by
banks to put their notes in circulation, in such a way as
would prevent their speedy return for redemption. Judge
Kelley, in an able speech on the subject of banking,
delivered at Indianapolis, in August, 1875, thus felicitously
describes the manner in which this was frequently done:
"Do you know where the phrase 'carpet-bagger' came
from? The younger men of our day think it was invented
to describe a man from the North who went South and got
an office. Oh, no; not at all. The older members of my
audience will attest the truth of what I say when I state that
the phrase ' carpet-bagger ' arose from the fact that nearly
every specie basis bank had its carpet-bagger — a fellow it
sent with notes by the carpet-bag full into some distant State
to get them into circulation there. If he could not buy
cattle, corn, hogs or something else in which there might
be a profit, he was to enter into a treaty with the carpet-
bagger or other officer of some bank out there for an
exchange of notes. For instance: The Frogtown bank —
for I am. told there were banks located occasionally in
*How tills distress was relieved iu Pennsylvania, see page 44.
152
ulin np>, ami in those days, you must
Lember, there were no telegraphs and but- few railn.
— the fellow from Frogtown would get way out into Skunk-
,i, another almost Inaccessible place, and lie \vonld efl
an < • of ten, twenty, or thirty thousand dollar-
I u l)ank nou-s for a like amount of Skunktown bank
;d the SkunktOWB bankers would put off t!
town noics on their customers, and the Frogtown ban
would put oft' the Skunktown bank notes on theirs, and thu*.
they would go on with this legitimate business to tlieir
common advantage. I am giving you a histori> hen
I tell you that I iirst became acquainted with that term in
fellows who were traveling from on<- «mt-
M'-way place to .-mother with a. carpet-bag full of not,
exchange, so tliat tiie notes put, in circulation in Skunktown
couldn't find their way back to Frogtown, because the
people in Skunktown didn't know where Frogtown wa>. and
the people in Frogtown didn't know where Skunktown
— and if they did they couldn't get there-; the people in one
: to the other to get the- specie on which
the nntcN were based. Then after the bank at Frogtown
had paid out the Skunktown notes, the- bank ;ii Fn>gt«»\vii
would refuse to receive the Sknnktown note>, but it would
I the holder, \vho wax it* debtor, around the corner :
broker, uho would buy them at seven or nine per cent,
di-coiiut, :md then the bmkcr and the bank would di
the proceeds of thU gold i».i-i> t:-an>action. That la
-• <HI all over the- < oiintn ."
In referring to this period, in tip
''oreibly say-: "It, is u-ual to >|>cak <•!' l
;7, but f 16 unbr.
f individual sulTering, roulling from the alternating
ins and coutr | ; on
HANKS <>F TIIK L'.NITKD STATUS.
what it could not get, and could not. have retained if it had
-gold coupled with permission to issue notes and lend
mom-}' deposited for safe keeping."
In 1S40 the Independent Treasury act was passed, which
took from the. hanks the custody of the funds of the govern-
ment. This act excited great indignation amount the hanks
and their tools, and the next year, :i new administration
coming into power, Harrison having been elected President,
the iirst step taken by Congress was to repeal it. It was
re-enacted, however, in 1846, and remained in force until
1861, when it was suspended to enable the Secretary of the
Treasury to deposit the funds of the government with ''specie
paying banks." (The Secretary of the Treasury was about
to negotiate a loan of $150,000,000 from the banks ot New
York, Boston and Philadelphia, and the Independent Trea-
ury act was suspended at their instance, so as to enable them
to retain their gold and pay the government in bank cur-
rency; but the Secretary of the Treasury1 unexpectedly
required the loan to be paid in specie, and, after that, there
were no "specie paying banks1' left in which to deposit
eminent funds.)
The stimulus of the tariff of 1842, a great demand for
breadst tiffs from abroad, the introduction of foreign capital,
the discovery of gold in California, and other causes com-
bined fo carry the country through from 1841 to 1857
without a commercial crash or money panic.
< KASII OF I So 7.
In is/37, however, the people of (Ireat IJritain were over-
taken by another of their periodical crises, which, as usual,
involved the banks of the United States. The Ohio Life
and Trust Company failed AIUTIM -24, is/37, with liabilities
to the amount of $7,000,000. Sumner says, "at this period
154 BANKS OP THE UNITED STATES.
no rule M-ems to have governed issues save to keep one-third
of the* circulation in specie, and in some States even this
dwindled down to one-tenth or one-twelfth. Such a, rule,
however, 5^ entirely fallacious, as any other arbitrary rule of
reserve must be, and it proved in the time of trial that there
\va< no strength to endure any shock." The New York
banks, as an example of the contraction which followed,
curtailed their loans from $116,000,000, August 29, 1857, to
$94,500,000, November 28, 1857. The banks of Philadel-
phia, Washington, Baltimore, and interior towns, suspended
in September, and those of New York, Boston and of the
country generally, in October. Stocks fell 40 or 50 per
cent., and 20,000 persons were thrown out of employment
s York City within a fortnight.* But it is unnec-
to go into details. It was the same old story over again.
The people \\ere accused of " extravagance," "over produc-
tion," etc., and after "confidence" had been restored by the
Sheriff, the banks started afresh.
-(-PENSION OP 1861.
Iii the beginning of 1861, when the great Rebellion broke
out, the number of hanks in the United States was about
1,600, with a circulation of over $200,000,000. Of this circu-
lation, about three-fourths belonged to the Northern States.
The Specie reserve of the banks of the Northern States, kept
on hand for the purposes of redemption, amounted to proba-
bly some $60,000,000. The necessities of the government
Ymg urgent, tvo loan acts were pa»ed by Congress,
during the extra session of 1861, one approved July 17th
and the other August /ith. By the act of July 17th Con
authori/cd loans to the amount of two hundred and fifty
millions of dollars, in bonds running twenf;. at not
, per cent, interest; in 7-30 notes runnning three year-;
•Sumner, page 183.
I5ANKS OF TIM-: IMTKI) MAM,-. 155
or fifty millions of the amount could, at the discretion of
the Secretary, be issued in the form of Treasury notes,
I >:iy:ible on demand, without interest* The act of Congress
t»t' August 5th authorized the Secretary of the Treasury to
issue 6 per cent, bonds, running twenty years, for the purpose
of funding the Treasury notes, etc., and also suspended the
provision of the sub-Treasury act of 1846, "so far as to
allow the Secretary of the Treasury to deposit any of the
moneys obtained on any of the loans now authorized by law,
to the credit of the United States, in such solvent specie
paying banks as he may select." Then, to quote from
Spaulding's Financial History of the War, " the banks in
New York, Boston and Philadelphia most patriotically cai no
forward and made arrangements in several negotiations
with Secretary Chase to loan the government 8150,000,000
under the provisions of the two loan acts passed at the extra
session. Of this sum $105,000,000 was apportioned to the
.^-ociated banks of New York, payable in installments.
The banks were in good condition, * * and the loan to the
government was made with the expectation that the money
would be checked out under the direction of the Secretary, in
pursuance of the sixth section (suspending the sub-Treasury
act) above referred to. The Secretary of the Treasury
refused to use the discretionary power conferred upon him
by that section, and would not check on the banks for the
expenses of the war, so that current bank notes could be
paid or balances settled through the clearing house, but
insisted that the banks should pay the money loaned into
the sub-Treasury in gold or gold Treasury notes. * * The
banks having been committed to making the loans, and
having made partial advances on account of the same, were
obliged, to complete the loan, notwithstanding the Secretary
*The«e notes (known aftorwards as old demand notes) were subsequently
u lull legal tender aud circulated at pur with gold. See Chapter VI.
15G U' >TA I :
iMiry deemed it ineMiiipatible with hi>
duty, and the tradition- <>f the sub-Treasury i
tin- government, oven under the
rdinary exigency under which the loan* were i..
;his it appears that when the banks " most patriot
forward"' to lend the government, tlie sum <>1
000,000, they confidently expected that they would be per-
mitted to exchange l»auk currency for the bonds of the
.incut, and in eil'ect to i>ecome factor- bet \\ven the
:nnent and tlie people, in exchanging the bond- ot' the
:iiiu-iit for the products of industry. I lad this ai :
iiinit. IM- n carried out, it is not, difficult, in the light of sixty
rien< <• with the specie basis banking sy>U-m, to
conjecture what would have been the result. Tlie banks
would have taken the loans of tlie government a^ :
they were offered, and inllatcd their circulation to a corres-
ponding d> er or later tlie inflation would have
ended in a commercial crash and money panic; the hanks
wouhl have Mispnidrd specie paymentfl U usual, and the
found themselves with some hund:>
millions of dollars of worthless nr depreciated paper on their
hamN -in M' bankruptcy. .ry Chase undoubt-
edly Ijecamc entangled in the toils of the ni,.ney j»ower, but
his action in this particular, in refusing to take anything but
sj.crie from the banks on account of their loan of ^150,000^-
000, was a foi'tunate circumstance, which led to imj)«»rtant.
result.-. When nr-ed to check upon the banks, in>1-
re(jiiiring them to j , he said, '• however harm!
•ial it might be, it' <• .nt'mcd to the Ne\v Y..rk b -inks,
i!d inevitably result in :d payment :ind receipt
for public dnes or bank - . hi« -h in turn \\"uld 1
••uld terminate in >fl and
:id bank
•Lett«T ..r .1 . l . William* lo Hoi.. B. !».<
IN: i M i I:D MA i 157
Tin- banks accu&ed ii ry of the Treasury of acting
in bad faith with them, in »t only in the mailer of requiring
tin-in to pay specie, l>ut in rout inning to issue Treasury notes
(demand notes under the act of July 17, 1861) after he had
given assiuraces to the contrary, and a general suspension
of specie payments took place on the 28th of Dec-ember,
1861. A prominent banker* iu speaking of this period say>:
'* Kven with all these unfavorable circumstances surrounding
them (the banks), it was an encouraging fact observed by
those who were anxiously watching the practical operation
of this great and novel experiment, that while the circula-
ting notes in the country were restricted, the disbursements
of the government l'<»r the war were so rapid, and the con-
sequent internal trade movement was so intense, that the
coin paid out upon each installment 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 to quicken its flow. After
taking the third amount of fifty millions by the associated
hanks, those in New York who had at that time paid in of
their proportion over eighty millions in all found themselves
in this position:
Their aggregate coin, which on the I7tli of August, before
the first payment into the Treasury, was $49,733,990
Was on December 7th 42,318,610
A reduction of only $7,415,380
and the other two cities in like proportion."
In the latter part of isui gold began to 1low towards
Europe. This, together with the issue of demand notes,
caused the specie reserve of the banks to diminish rapidly.
The drain upon the Xew York banks in December went
on at the following rate:
•Letter of Geo. S. Coe to E. G. Spauldlng, Financial History of the War.
158 BANKS OP THE UNITED STATES.
•iber 7, 1861, the banks had in specie $42,300,000
14, " " 39,000,000
" 21, " " " 36,800,000
" 28, u " " 29,300,000
After a final conference with Secretary Chase, in which
he refused to abandon the course he had thus far pursued,
the banks decided that it was expedient to suspend
payment-, and accordingly, as already mentioned, a general
suspension took place on December 28, 1861. From this
time on the specie in the New York banks began to in«
i, and March 8, 1862, was $30,000,000.
The State banks continued to circulate their notes until
after the National Banks were put in operation, when they
were driven out of circulation by taxation. The National
Banking bill became a law on the 25th of February, 1863,
and (.n the 3d of March following an act of Congress w;i-
passed imposing a tax of one per cent, each half year, on a
graduated scale, of State bank circulation, according to the
capital stock of each bank. This was dime for the purpose
of getting the E :iks of issue out of the way of the
:ial Banks, and proved successful. Thus, af:
eventful career of n\er half a century, during which they
had inflicted incalculable injury and suffering upon the
American people, the s; is banks of is>ue. Ofg
onder State authority, passed away, not in a merited
of public indignation, but. quietly and stealthily at the
mand of the money p. .\\i-r, to enable it to erect in their
:•• powerful and dangerous development •
same system of l»anki:
N \TI"N M I' '
Tlie National Hanking sy-fem was ]»lanned shortly after
ChaM- entered upon tin- duties of his nflicc, and
was recommended by him in his first annual report to Con-
BANKS OP THE UNITED STATES. 159
gress, December 10, 1801. It was found impossible to put
tin- system into operation soon enough to meet the necessities
of the government, and it became necessary to issue Treas-
ury notes (greenbacks.) There is abundant reason to believe
that the instigators of the National Banking system were in
no particular hurry to have it put into operation. As the
circulation of the National Banks was to be based on gov-
ernment bonds, it became an object to these conspirators,
chief among whom was the Hon. John Sherman, United
States Senator from Ohio, to so shape legislation as to
depreciate the paper of the government and enable them to
secure the bonds necessary to establish the National Banking
system at the lowest possible figure. The National Banking
bill, therefore, was not pressed until 1863. It was then foisted
upon the country at a time when National Banks could render
no possible service to either government or people — in fact,
were :i disadvantage, for their circulation differs in no
material respect from the circulation of specie basis banks
of issue, and is a breeder of inflation. The National Banking
system was conceived in fraud, and its promoters, who
found it to their advantage to first depreciate by legislation
and then decry, as they are still doing, the paper of the
government, were more dangerous, because more subtle
enemies of the government, than Jefferson Davis and all his
hosts. The last step in the scheme, p'..i:med by Secretary
Chase and certain capitalists and politicians, is now in-
process of consummation. TVo refer to the retirement of
the greenback and tho resumption of specie payments,
January 1, 18 TO. "When this is accomplished the National
Banks will hold the purse strings of society, and, by monop-
olizing tho whole of tho circulating medium of the country,
by which all property in the country — homes, lands, debts
and credits, personal and real estate of all descriptions — are
160 I IIH I'MTKI) STA'I i
valued, will render tin- whole community dependent upon
them. John Randolph predicted, and his prediction ua^
v« niicd, that if a National Bank was established with :i
capital of $35,000,000, it would '-overawe Congress and
laugh at its laws." Now we have 2,<K)0 National Banks
with a capital of -nearly #400,000,000. Benton characteri/.ed
the unity of interest of the old State bank* of i--i;e as "a
,-olidation of a kind which the genius of Patrick Henry
had not even conceived." The National Hanking system con-
stitutes "a consolidation"' besides which the one denoun
by Ben!< -n is a mere pigmy. Hamilton when he son
to found a strong government, based on an aristocracy of
i!h,aiid to that end urged the establishment of a 1'ir
States Bank modeled on the British system, never dreamed
of such a consolidated power as that now constituted by
2,000 National Banks, modeled on that (the British) system.
But, apart from the dangerous power over the property
and political affairs of the country, which such a system
fera upon :i comparatively small class of people, why
ild all other classes be compelled to pay the hanking
clu^ interest on £400,000,000, more or less, of paper money
1 on bonds of the government, for which the people arc
• nsible, when they can have a better circulating medium,
without inferexf, based on precisely the same Becori
The history of the National Hanking svMrm can be more-
rtfa in connection with the hi>tory «.f the le.
.ring tlie war, and with that will form
the subject of the next chapter. The details of the system
will be duly explained in a. subse«|iient cha]>ter (Chapter VII.)
CHAPTER VI.
HISTORY OF Till: IVUM-M! M«»M;y [g&UBD DUKING
THE KEHELUON.
MONEY, as has been fully explained, is an important
clement in the production and distribution of wealth in all
its forms. Without it production is slow and laborious, aiM
the distribution of the products of industry difficult and
expensive. Hence the necessity of an abundance of money
based on sound principles — that is money that is free to
obey the natural laws of trade, and not subject to the control
of private corporations, as is the ease with bank currency— -
to fill the channels of circulation. With a sound currency
in circulation the production and accumulation of wealth
would go on gradually and steadily, and coimnereial crashes
and money panics would be unknown. Individuals would
Mieeeed or fail, as now, but it would be through natural
eauses. That a people can carry on coimnereial operations
of great magnitude for centuries, by means of an enlightened
M -tern of money, without being visited once by such crises
and convulsions as have marked the history of Great Britain
and the United States, since the adoption of the specie basis
(banks of issue) system of money, is fully demonstrated by
tin- history of the Venetians,* and the experience of other
European nations in more recent times. The weakness of
the specie basis system lias been nu»t signally illustrated,
however, in times of war, when great activity in both
production and distribution became absolutely imperative.
In the war with France, from IT 93 to 1815, Great Britain
was obliged to abandon a medium of exchange based on
*See Chapter IV.
162 IIISTOIIY or TIII-: PAIM-II: M«»\KY
'her. P>y means of irredeemable paper money
slit- \\.-i- enabled to carry on succe>>i'iilly OIK- of the i.
tremendous wars of modern times, and at its <-l«><e tlie
people c- 1' (Jival Britain were, individually ami collectively.
OS. Ignoring the teachings of experience she waded
Lack through individual bankruptcy and ruin to tin- old
and lias had her commercial crashes and money
panics since with the same regularity as before. If paper
money is found to be so invaluable in the production and
distribution of the products of industry, under the n
disadvantageous circumstances, in time of war, what is to
hinder it from being equally invaluable in time of pe
when no uncertainty in regard to its ability to represent
value can attend its use? That the use of paper money
durinLr war is a matter of compulsion, is the merest sophistry.
During the Revolutionary war, when Continental money,
which ran hardly be said to have been based on anything,
in to #row worthless, Congress declared that th»>e who
refuse. 1 to take it should be regarded as public eneii;
The public, smiled, and barbel's papered their shops with it.*
1'aper money, however, undoubtedly becomes an acknowl-
edged m-ci-xxity during war especially in countries \\i.
lium of exchaiiire lielongs to the specie b
In(ln-at Ilritain lnisiness affairs in tin.
irted almoxt entirely, as we h:i ; by mean
-tern, on account of the limited
• nut of money in circulation, and when an emergency
quiring great rapidity of production and distrilni-
tion, both government and people iind then^ehcs without
B l«-.|iiate -mplish the ends .
n tho TJelH-Hion broke out in 1SG1, the p( -,,plo of the
P6 in the enjoyment of unusual prosperity.
•Simmer's History of American Currency. 1£cc page 47.
ISSUED nri:i\«; TIM: I:KI:I-:I.UON. !»;:;
The crop> li;ul been moiv than ordinarily gund, and the coun-
try generally Mas rapidly rccnxcring iVnin the cra-h of 1857.
Tin- cotton crop of 1SOO had reached the enormous amount
of 5,387,052 halos (of 400 Ihs. each.)
The state of the hanks ami the currency from 1857 to 1863
\va* a> follows:
Circulation, Deposits. Loans, Specie,
1857— 1214,700,000 $230,309,000 $684,400,000 $58,300,000
1858 — 155,200,000 185,900,000 583,100,000 74,400,000
1859 — 193,300,000 259,500,000 657,100,000 104,500,000
ls,;o_ 207,100,000 253,800,000 691,900,000 83,500,000
1861— 202,000,000 257,200,000 696,700,000 87,600,000
1862— 183,700,000 296,300,000 646,300,000 102,100,000
1863— 238,600,000 393,600,000 648,600,000 101,200,000
Preparations for war were begun hy the Federal Govern-
ment on a scale of great magnitude, with an empty Treasury.
The real and personal property of the country, according to
the census report of 1860, amounted to $16,159,616,068, or,
leaving out the States in rebellion, to $10,957,450,961. The
people of the States which sustained the Federal Govern-
ment possessed ample resources and were inspired hy a
sincere feeling of patriotism. The only question, therefore,
was as to the means hy which the resources of the people
could he rendered available to the government. It could
of course he done -only through the instrumentality of a
medium of exchange.* Taxation was impracticable at the
ouNet, becau-e the government did not possess the ma-
chinery for laying and collecting taxes, and funds were
required at once; and besides the amount of money in
circulation w is insignificant as compared with the wants of
the government. There was manifestly but one of two
eoursv-s- to p::vsue. Either to adopt the machinery of the
hanks and through them exchange the credit of the govern-
ment for the products of industry, or deal directly with the
"Head ia this connection page C2, also pages TO, 71, 72 and 73.
-TORY OP 'illi: I'APKK MOXEY
l.y issuing legal tender Treasury notes, based on and
-••nting tin- wealth of the country and redeemable in
venues of tin- government. Neither course, hov
!<iirsued, or rather the Secretary of the Treasury
attempted to u>e both ]>lans in part, :ind with the mo<t
iicd results.
THE FIRST LOAN ACTS.
During the extra session of Congress in July and August,
1861, two important loan acts were passed, which are
, ing of special notice, one approved July 17th and the
other August 5th. By the act of July 17th the Secretary of
the Treasury was authorized to borrow $250,000,000, for
which he was authori/ed to issue coupon bonds or registered
bonds or Treasury notes in such proportions of each as he
might deem advisable. The bonds were to bear interest n<»t
exceeding seven per cent, per annum, payable semi-annually,
and to run for twenty years, when they would be redeemable
,;t the pleasure of the United States; and the Treasury notes
•ued in denominations of not less than $50,
payable three years after date, with interest at 7 3-10 per
cent., payable semi-annually, and exchangeable at any time
for twenty years six per cent, bonds. Or, at his option, the
tary of the Treasury might issue $50,000,000 of the
loan in Treasury notes, payable on demand, in denom-
inations of not less than ten dollars each, without in:
payable' for salaries and other dues from the
1'nite (afn-rwards known as old demand
l;e miirht i — ue Treasury notes, payable ill one
from date, bearing interest at 3 65-100 per cent, per
annum, ••\changeablc at any time in sums of $100, or
upwards, for three year Treasury notes bearing 7 :;-IO in'
l»y the act of August 5th, which was supplementary to the act
of July 17th, ti ary of the Treasury was authorized
[SSUED i.iKiv; TIIK i:i:i;i:i.i.iON'.
tO iSSUe bonds bearing interest at six }»er cent. per annum,
payable after twenty years from date-, which, in denomina-
tions not less than $500, might lie exchanged for Treasury
nok's bearing 7 3-10 per cent, interest. Tin- act of July 17th,
fixing the denomination of the Treasury notes without
interest (demand notes) at not less than ten dollars Avas
modified so as to fix the limit at not less than five dollars,
and these notes (demand notes) were made receivable 'in
payment of public dues. By the sixth section of this act
the Sub-Treasury act of 1846 was "suspended so far as to
allow the Secretary of the Treasury to deposit any of the
moneys obtained on any of the loans now authorized by
law, to tin- credit of the Treasurer of the United State--.
such solvent specie payiny banks as he may select?
By an act of Congress approved February 12, 1862, the
Secretary of the Treasury was authorized to issue $10,000,000
of Treasury notes, payable on demand, not bearing interest,
in addition to the $50,000,000 of like notes authorized by
acts of July 17th and August 5th, 1861, which should be
deemed part of the loan of $250,000,000 authori/cd by said
acts. And by the act of March 17, 1802, it was enacted
that these demand notes ($60,000,000 in all) shall, in, addi-
tion to beiny receivable in payment of duties on im-
ports, be receivable, and shall be lawful money and </
I' Ii<i1 fender, in like manner and for the same purp««M->
and to the same extent as the notes (^reenbarks) authorized
by the act approved lu-bniary '_'."), is «;•_'. These demand
notes were the only notes issued during the war that wen-
made a full legal tender, that is, receivable- for all public
• lues (including duties on imports) and a tender for private
debts. After they were made a full legal tender they
circulated at par and went up with gold to a premium of
$2.85, or in other words it cost $2.85 in greenbacks to buy
a dollar in gold or demand notes.
HISTORY OF Till: I'.M'KK M"\I y
of Congress it appears that Secretary
9 clothed with the most ample powers to borrow
money. He immediately proceeded to New York ami,
<»n the 9th of Aii'_:u-t, 1801, held :i consultation with a
miml.er of leading hankers ami capitalists of the cities
;k. I Jo-ton and Philadelphia, wlioin he met there
by appointment. It wa - Ited on the part of tlie hanks,
that the hanks of the North should form an "or^ani/ation
that would combine them into an efficient and inseparable
lor the purpose of advancing the capital of the country
upon LTuvernmcnt bonds in lar^e amounts, and through their
clcariiiir house facilities and other well known expedients,
to distribute- them in smaller sums amon^ the people in a
manm-r that would secure active co-operation amoiiLr the
meinln-rs in thi> special work, while in all other n-
»-ach bank could pursue its independent business. This
tion," say> Mr. C'oc'. iVom whom we (juotc.* iv met the
approbation of the assembled company, and ai
rnot attention of the Secretary. At his rr«jue>t it
was pn-( nted to the consideration of the banks at a mectiiiLT
called fm- that purpose at the American Exchange IJank on
016 foUowing day, and WM 80 far entertained ;i^ I..
tin- appointment of a committee of ten bank <>fliccr>, to
it form and coherence. The committee convened at the
Dank of Comim ivr, whose officers /calously united in the
effort, and a plan was reported unanimously. It may be
found, with the names of the committee, in the P,anker>'
•! ^••ptemhcr, ISIJL Thi> n-p«»rt was cordially
accepted and adopted by the bankfl in New 5Tork,tho
i and Philadelphia bein^ i-epresi-nted at the meeting
and a> y..-:d«»u>ly and cordinlly united in the ori;ani/.ati..n.
' itly de>in-d to include also the bank> of the \Ve-t,
•Lf tur of Gco. 8. Coe, Esq. : Spaaldltig's Financial History of the War. Apx. p. 90.
[88UED DUKING TIN-: i:!:isi-;i.i.i. >.N. 107
but it was found impracticahle to secure the co-operation of
;l«- hanks of Ohio and In. liana, and the Slate hanks
(.!' Mi — ouri, tin- only other or^ani/ation under a compacted
-y-tcin, were Mil-rounded hy conihatanis. It \v:is at once
unanimously agreed that tin- associated hanks of the three
rities would take lii'ty niillioiis of 7 3-10 notes at par, witli
the privilege of an additional fifty millions in sixty days,
and a further amount of tit'ty millions in sixty more, making
$150,000,000 in all, and offer thorn to the people of the
country at the same pricv, without change."
The amount of specie held by the banks of the three cities
at this time was as follows :
Banks of Xe\v York ........................ 840,7:
J'hiladeljihia
:, lGo,039
The Treasury notes could not be delivered at once, as time
was required for their preparation and execution. It A\ as
manifestly impossible, therefore, for the banks to advance
the several amounts of the loan, in specie, without danger of
exhausting their reserve. The Sub-Treasury act, as ^ve have
seen, however, had been suspended, evidently at the instance
of the banks, with a vic\v to enabling them to handle the
bonds and securities of the government, in return for bank
currency. "Accordingly," says Mr. Coe, from AV!: m we
have just quoted, "it was at once proposed to t: S tary
that he should suspend the operations of the Sub-Treasury act
in respect to these transactions, and following the course of
commercial business, that he should draw checks upon some
one bank in each city representing the association, in small
sums as required, in disbursing the money thus advanced.
By this means his checks would serve the purpose of a circu-
168 HISTORY OF TMK PA1 ::v
lating medium, continually redeemed, ami the- exchai
capital ami imliistry be he>t promoted. To the
astonishment of tin- committee, Mr. Chase refused/' It was
iir-c.l by the bankers tliat the Sub-Treasury act had
suspended for tliis very purpose, but Mr. Chase thought
differently, declaring that it had no sueh meaning or intent.
Another subject of discussion between the banks and the
Secretary was the issue of demand notes. A small amount
of thcM- notes had already been emitted, and a resolution
requesting the Secretary to refrain from issuing any more,
until all other means had been exhausted, had been adopted
by the associated banks. Mr. Coe says that the Secretary
<_rave :;s-iiranres of his acquiescence in this suggestion, but
refu>ed "to openly pledge himself not to exercise a power
conferred by law," ami "that with this understanding the
banks began their work, paying into the treasury in coin
$150,000,oon, in sums at the rate of about $5,000,000 at inter-
vaN,,f six day-."' The rapid disbursements by the govern-
ment, and the intense activity of the movements of trade, as
we ha\e sren,* brought the coin nearly all back to the banks
within a \\ (•••'<. after it. \\as issued, so that in December the
banks <»f New York, after paying to the government over
$80,000,000, found their specie reserve reduced only from
149,733,090, August 17th, to $42,:M8,Ol -, I ><
The banks Undoubtedly expected th I
tary ( M b«- induced to accede to their plan, '
tinned to issue the demand n<>;.-^it b circnt
in the latter part «•!' DeC( nbcr, l-'il, after the banks had
paid in a 1 <•!' their loan, that the Secretary wa<
niiied to adhere to his ciwn c««urse; find after :i confer-
in which he expre'-M'd himself t-> that effect, the banks
t it was expedient t<> suspend S] nients
*S«« pago
nriMNt; Tin: i:::i;i:u.io\. 109
forthwith, and did so on the 28th of the month. The l>;i! r
of tin- l<>;m was paid by the kinks principally in Treasury
notes, and was finally closed on the 3rd of February, 1862.
The patriotism of the banks oo/ed out as soon as they
found that They could not control Secretary Chase in their
interests. After they had succeeded in paying the greater
part of their loan without any material diminution of their
specie, there was manifestly no good reasor why they should
suspend specie payments, other than on account of the
inherent weakness of the specie basis system. Their circu-
lation did not exceed $140,000,000, and their specie reserve
was unusually large, about $60,000,000. The suspension
complicated matters greatly. With irredeemable bank paper
and demand notes of the government promising to pay specie,
when it had no specie, tilling the channels of circulation,
gold of cour>e began to command a premium.* Had Secre-
tary Chase adopted the plan of the banks, the securities of
the government could unquestionably have been handled by
them during the first part of the war with advantage to the
government. In that event the government should have issued
no paper currency. Hut the result would undoubtedly have
been dis-ist-rou< in the end. The expenses of the government
soon reached $2,000,000 a day. To meet the necessities of
the government, the banks would have been obliged to inflate
their circulation to an alarming extent. The first financial
bree/.e that sprung up would have occasioned a panic; the
banks would ha\e b.-i-n obliged to suspend, as they had done
nine times before during their brief existence, and most
probal.lv, too, ;it a. critical period of the war, which could
not fail to have resulted in great distress and general
demoralization, to the great peril of the government. Se<--
rctary Chase seemed to apprehend the danger of adopting
vv t.ibh- -liowing the monthly range of gold, from 1862 to 1876, will be found in
the Appendix.
170 HisToKY *>i' TIN-: I-AI-KK MOVFV
the jilan suggested by the- associated hanks, hut in ail other
respectfl he proved himself utterly incompetent as a Minister
\Vheu he renounced the machinery of the
banking system, instead of urging upon Congress the neces-
sity of adopting at once the full legal tender money system,
ami devising a judicious system of taxation, he
the • xtuftlixltim 'nt <>f flic. X'ifio.Ki
.V//N/' ///. The inconsistency of his action in this re-pee?
cannot fail to strike the reader, when it is considered that the
National Hanking system differs in no essential particular
from the Slate Hanking system, which he had just re'
BXCepI that its notes instead of being secured by State bond-,
as in the case of the banks of New York, were to he -eciired
by bonds of the Federal (Government.
^Yhen Congress convened, December -J, ls<il,the para-
mount <juestii»n was that relating to the finances of the
Federal (Government. The people of the Northern Males
-ed un!:iiiited resources, were animated by t'celii
devoted patriotism, and were willing to assume any burdens
in the shape of taxation, or otherwise, thai Cmigre^ might
deem necessary to impose for the legitimate prosecution
of the \\ar for the preservation of the I'liion. It simply
de\ol\ed upon Congress to devise the ways and means to
render the resources of the nation available to the govern-
ment. As this could be done only through the instrumen-
tality of a medium of exchange, it was- the tir-t duty of
Congress to see that the channels of trade wen- supplied
with a HiHicicnt amount of money to develop the producing
<•!' the nation to their utmost capacity, and enable the
people to re-pond to the requirements of the government.
I manifest, that the banks could not be relied upon for
that purpox,. with any degree of certainty or sat', ty. There
iicrcfore, HO other alternative but for Congress, by
fflSTTED i.i !M\«. Tin: KKHKI.I.ION. 171
virtue of the x'vnvign prerogative inherent in the people,
and as thi-ir representative duly authori/cd by tin- ('insti-
tution, to ivsiic full legal tender Treasury notes, not bearing
interest. The reason of this is obvious. The chief end
desired was to create <i <•>,•<• nl <itt ,i <j medium of exchange,
and this end could be accomplished only by issuing Trcas-
ury notes in a form that, would enable them to perform the
functions and serve the purposes of money.
TREASURY NOTE BEARING INTEREST AND NOT A
LEGAL TKNDKII.
And here it is proper to call attention to the difference
between an ordinary Treasury note, bearing interest and not
a legal tender, and a full legal tender Treasury note, not
bearing interest. They are both based on the wealth and
credit of the nation, but there the similitude ends. A
Treasury note, bearing interest and not a legal tender, is
simply an evidence or security of indebtedness, and differs
from a bond only in form. It does not possess the attributes,
nor can it perform the functions, of money. A creditor
of the government may be obliged to take it at its face value
or wait an indelinite time for his money; but, as it is not a
legal tender, no one else is obliged to receive it at the value
inscribed on its face. By its nature it is nothing more than
a security in which to invest money, and is not designed or
'•ainilated to serve the purposes of a medium of exchange.
The fact that it bears interest is a disadvantage to it as a
medium of exchange, because in the ordinary transactions
of life people cannot stop to reckon interest every time it
changes hands; and the fact that it is a partial legal tender
(payable for certain dues or taxes to the government) leads
those who have such duties to pay to decry its value in order
that they may purchase it at a depreciation. It is on the
17-J HISToKY OF TIIK CAI'F.I: MON'KY
same principle that the greenback i> decried by tlio bullion-
. because they have gold to sell, and it i> to tlieir advan-
tO lniy greenbacks (with gold) as cheaply as po:ssible.
FII.I. I.K'iAl. TKNDKIi TKKA^UKY NoTK, NOT
I;I-:AI:I\«; I\TKKK> i.
On the other hand a Treasury note, not bearing interest,
cannot be used as a security in which to invest money.
Like money (made of gold or silver) it is of no use to the
pov-essor until it is parted with.* If only a partial legal
tender (receivable for certain dues to the government), it i-
to the interest of many, as already mentioned, to decry its
value, in order to obtain it as cheaply as possible. If the
Lfvernme'it obliges i:s creditors to take it at its face value,
and it is not a le^al tender in payment of debts, no one
••bliged to receive it at the >ame value, or indeed to
ive it at all. While it is then the same as mone\
between the government and its creditor, it is quite a differ-
ent thing between the creditor and the public. This U
manifestly unjust. TivaMiry notes are i»ued by the people
in their collective capacity, through the agency of the gov-
ernment, and, unlevs simply intended a» an interest bearing
irity, not doiirned to pel-form the functions of nm
oii'_rht clearly to be made a h-jfal tender for private debts as
well as public duo, otherwise it |. laces it in the power of
tin- public to repudiate individually what they have done
collectively, and the people do not all stand on the same
platform with respect to the government or to each other.
The Treasury note, therefore, in this form (a l«"_ral tender
and not bearing interest) constitute^ a peculiar form
indebtednrxx or credit, which serves all the purpo^o of a
medium of exchange and enable-, the government to draw
upon the resources of the people in advance of t<>
•See page 30.
i>ti:i\i, TIM: REBELLION. 1T;>-
bearing equally upon every individual in tin- nation. The
bllllionisls and their organs, in their efforts to decry the
legal tender Treasury note and deceive the public, are
constantly asserting that it costs tin- government nothing
more tfian the expense of printing, and is, therefore, worth-
K -xv. 'This is not a mere fallacy — it is a, willful perversion
of the truth. Kvery dollar of legal tender paper money
i>Mied by the government costs the people precisely one
dollar's worth of property or labor. A dollar greenback is
put in circulation by the government for value received in
property or services; it passes from hand to hand, com-
manding a dollar's worth of property or services every time
it is used as a medium of exchange; until finally it is
returned to the Federal Treasury in the shape of taxation or
revenue.
On the 5th of December, 1861, the Committee of Ways
and Means was organized as follows:
THADDEUS STEVENS, of Penn., Chairman.
JUSTIN S. MOKIHLL, of Vt. JOHN S. PHELPS, of Mo.
E. G. SPAULDING, of N. Y. V. B. HOUTON, of Ohio.
Ki: ASTUS CORNING, of N. Y. SAMUEL HOOPER, of Mass.
HORACE MAYNARD, of Tenn. J. L. X. SHATTON, of N. Y.
M:< I:I:TAI:V (HASH'S REPORT.
On the 10th of December, ls<j 1, the Secretary of the Treas-
ury submitted his annual report to Congress. He set forth
in strong terms the weakness and disadvantages of the
banking system of the country, and expressed the belief that
the emission of bills of credit by state hanks was in violation
of the spirit, if not the letter, of the Constitution. He said:
"It has been well questioned by the most eminent Statesmen
whether a currency of bank notes, i^ued by local institutions
under State laws, is not in fact prohibited by the national
Constitution. Such emission certainly falls within the spirit,
171 HisiuKY OK TIN: I-APKI: MOXKY
if nut within tin- letter, of the constitutional i»rohibition of
the enii>-iuii of -1. ills of credit' by the States and of the
making by them of anything except gold and silver coin a
il tender in payment of debts. However this may be,
it i< too clear to be reasonably disputed, that Congress, under
iN constitutional power to lay taxes, to regulate commerce,
and to regulate the value of coin, p ample authority
to control the credit circulation which enter- BO largely into
the transactions of commerce, and affects in >o many u
the value of coin. In the judgment of the Secretary, the
time has arrived when Congress should exercise this power.
Two plans for effecting this object are Miggt M< -d.
The tirst contemplates the gradual withdrawal from circula-
tion of the notes of private corporations, and for the issue, in
their stead, of United States notes, payable in coin on demand,
in amounts sufficient for the useful ends of a representative
currency. The second contemplates the preparation and
delivery, to institutions and associations, of notes prepared
for circulation under national direction, and tube secured, as
to prompt convertibility into coin, by the pledge of United
States bunds and other needful regulations."
The Secretary then proceeds to say, that the fir-4 of the<e
plan- WM partially adopted by Congress during the .
ion in July and August, iu authori/ing the i>su.
$50,000,000 of demand notes, and atV 'ing ><>n
the advantage- and disadvantage "f the plan, concludes l.y
;hat he fccK him-elf con-trained t.. furbi-ar
'•inineniling its adoption." The principal features of the
•nd plan are presented by the Secretary ta foli
"•l-'ir-t, a circulation of M» Lng a <-«,!umon impress ion
and authenticated by a common authority: 9
aption of these notes by th iations and institution^
to which they may be delivered for i--ue; and, third, the
ESStTXD i>t -I:IN»; TIM: i:i:r.i:i.i.io\. 175
security of that redemption by tlie pledge of United Stat<->
Stocks, ami an adequate provision of specie." After eulogi-
zing tin' plan,* lie adds: "The Secretary entertains the
opinion that if a credit circulation in any form l>c desirable,
it is most desirable in this."
TIM-: LBOAL TENDER ACTS.
The Committee of Ways and Means appointed a sub-
committee, consisting of Messrs. Spaulding, Hooper and
Corning, on the proposed National Bank currency, the issue
of Treasury notes and bonds, and the mode of raising means
to carry on the war. The chairman of the sub-committee,
.Mr. Spaulding, prepared a National IJank currency bill by
the end of the month (December), and also drafted a legal
tender Treasury note section, to be added to the bank bill,
for the issue of Treasury notes to be used while the bank
bill was being put in operation throughout the country.
In his Financial History of the War, Mr. Spaulding says
that, "upon more mature consideration and further examin-
ation, he came to the conclusion that the bank bill, contain-
ing sixty sections, could not, with the State .Hanks opposed
to it, be pawed through both Houses of Congress for several
months, and that so long a delay would be fatal to the
Union cause. * * lie, therefore, changed the legal
tender section intended originally to accompany the bank
bill into a separate bill, with alterations and additions, and
on his <>\vn motion introduced it into the House by unani-
mous consent on the 30th of December, 1861." The bill
was duly considered by the Committee of AVays and .Mean-,
and, on the 7th of January, 1862, was reported from the
committee to the lions.-.
The original bill oil'ered by [Mr. Spaulding authorized the
Secretary of the Treasury "to issue on the credit of the
*£ee Chapter VII. ou National Banks.
170
Tinted Stales 8100,000,000 of Treasury notes, not bearing
~t, payable generally, without specifying any pi.
time <»!' payment, and of such denominations as lie inav
. -\ :pe« lient, not less than live dollars each; and
. and all other Treasury notes payable on demand, inn
bearing interest, that liave been heretofore authori/ed
issued, shall be receivable for all debts and demands due t«»
the United States, and for all salaries, duo, debts and
demands owing by the United States to individuals,,
rations and associations within the United States; and shall
also be lawful money, and a legal tender in payment of all
debts, public and private, within the United States, and
shall be exchangeable in sums not less than one hundred
dollars, at any time, at their par value, at the Trca-ury of
the United States, * * for j;:;y of the six per cent,
twenty years coupon or registered bonds which the Secretary
of the Treasury is now, or may hereafter be, authori/ed to
i-Mie; and such Treasury notes shall be received the saun-
as coin at their par value, in payment for any bonds that
may be hereafter negotiated by the Secretary of the Treas-
nd such Treasury notes may be n-i»ue«l from time to
time, as the exigency of the public nay require."
Thi> bill was no sooner made public, than delegate •:
bankers from New York, r>«»>f«»n and Philadelphia hurried
to Wa-liiii_rt<>M to oppii>i> it. They organi/.rd in a t
manner by the >eleeii<.u of a chairman (S. A. Men
Philadelphia), and invited the Finance Committee ««f the
Senate, and the Committee of Ways and Mean-* of the
meet them at the ofhYe of th- ;ry of the
Treasury, January 11, 1862, The invitat' .'pted.
At the meeting which followed, the bankers sp.»kc in oppo-
sition to the bill, and submitted the following plan for
raising money:
Tin; J.K<;.M. TENDEB ACTS. 177
"1. A tax bill to raise $125,000,000 over and ab<»\e duties
on imports by taxation.
'2. Not t<> isMie anv demand Treasury notes, except those
authori/.ed at the extra session in .July last.
'•'•. 1-Mie £100,000,000 Treasury notes at two years, in sums
of live dollars and upwards, to lie receivable for public dues
to the Lroveninieiit, except duties on imports.
4. A suspension of the Sub-Treasury act, so as to allow
the banks to become depositories of the u'ovcrnmenl of all
loans, and to check on the banks from time t<» time as the
LToveriiinent may want money.
5. Issue six per cent, twenty year b.»mU, to be negotiated
by the Secretary of the Treasury, and v/'////o//f <in;/ //////'///-
(nut <(* to the prict /"' in";/ ohtn'in for tin-in in the
nKd'ket.
(». That the Secretary of the Treasury be empowered to
make temporary loans to the extent of any portion of the
funded stock authori/ed by Congress, with power to hypoth-
ec-ate such stock, and if such loans are not paid at maturity,
to sell tJie .s7of/- It t/],<.fl,< <'<it, it f,,,- tli, !>, f<f i,,fii'k> t />rl<;t
.Mr. S]»auldinu: sav> that "'tliese proposition^ ha\ IIILC been
read, the Secretary and Finance Committees of the Senate
awd House expressed themselvefl favorable to the iiiM proj)-
osition to raise by taxation £125,000,000 :i year, over ami
above duties on imports. It will be ol»er\ed that this plan
did not include the national currencv bank bill recommended
by the Secretary of the1 Treasury in his annual report, and
was not, therefore, in this respect satisfactorv to him. The
meeting was somewhat conversational in character, but
there appeared to be a ireneral dNM'iit by the Secretary and
committeee from all other propositions. * * The only
remarks that I (Mr. SpauldinLr) fan 1ind reported as being
TIIK U:<;AI, TK.VDKK A
made l»y any member of the committees of the Senate and
Hou-r .-ire in tin- New York 7V//,, /,,,/, Januan J, in
follows:
Sub-Committee of Ways and Means, through Mr.
tiding, objected t(» any and every form of "shinning" by
'•rnmeiit through Wall or State streets, to begin with;
ol)jecfed to the knocking down of government stock-
nty-tive or sixty cent* on the dollar, the ine\ -'liable result
of throwing a new and large loan on the market, tritium*
/iiiiif'ififm a$ t<> i>,'n-, ; claimed for Treasury n<>tc> a-
much virtue of par value as the notes of banks which have
su-jieiided x|M.,-i,. payments, l>ut which yet circulated in the
trade of the North; and finished with lirmly refusing to
nt to any .scheme which should permit a speculation
by broker^, bankers, and others, in the government securi-
ties and particularly any scheme which should double the
public debt of the country, and double the expenses, by
damaging the credit of the g<»\ -eminent to the extent of
ling it to "shin" through the shaving shops of New York,
•on and Philadelphia. lie atlirmed his conviction a- a
banker and IcgMatnr. that it was the lawful policy, as well
S8 the manife-t duty of the government in the pre-cnt
e\iirrncy, to h-irali/c a-> tender it> iifty million i>Mie of
demand Treasury notcN anthori/.ed at the extra .se»ion
in July last, and to add to this stock of legal tender
immediat' The conference adjourned without
I ii|»on any plan <»• arrangement. The bank <lele-
••\\r\cr, remaincil in \Va>hingl«»n, and held further
-ultations with Secretary ('ha-»e. extending through
. which n-Milted in an arrangement with him to
the eHY | i-tlier thing-, that Congn-.-s should be
• ]'-t-- the National JJank bill, and tliat the amount
Of tlie demand i be incn- -nd the
! K.. \i. TKM> 179
$50,000,000 authori/ed by tin- art of July, 1861, and aliso
that Congros should 1K' urired to extend the provisions of
the existing loan acts, so as to enable tlu- Secretary of the
Treasury to exchange intercut hearing Treasury notes for
the demand notes, not bearing interest, ami get them out of
the way.
Tli us while the masses were exerting every energy to sus-
tain the government, the money power was plotting to get
control of its finances, in order that it might be enabled to
prey upon the people in the hour of their extremity. How
well it succeeded will duly appear.
On the 22d of January the legal tender bill was again
reported from the Committee of Ways and Means, with an
additional section authorizing the Secretary of the Treasury
to issue, on the credit of the United States, coupon bonds or
registered bonds to an amount not exceeding $500,000,000,
and redeemable at the pleasure of the government, after
twenty years from date, and bearing interest at six per cent.
per annum, payable semi-annually, to enable the Secretary
of the Treasury to fund the Treasury notes and floating debt
of the United State's; and it was made the special order for
the 28th day of the month. The debate on the bill accord-
ingly began on that, day, and was opened by Mr. Spaulding
in an able argument in its favor. The debate, which contin-
ued until the Oth day of February, when the hill passed the
House, with some slight modifications, was characterixed by
unusual ability. If had never before, in the history of the
government, been deemed necessary to issue Treasury notes,
in the legal tender form, not bearing interest, to enable them
to circulate as a, medium of exchange and perform the func-
tions of money, and there was naturally a great diversity of
opinion upon the subject. Several substitutes and amend-
ments were offered, most of them in the interest of the
1M< THE LEGAL TENDER X
money power. Tin- views held by those who advocated the
Treasury notes, but honestly opposed the legal tender
feature, as an infraction of the Constitution, were embodied
,b>titute offered by -Mr. Vallandigham, and were sup-
ported by ablr speeche-, « -pecially that delivered by Mr.
Pendleton,of Ohio. Mr.Vallandigham'fl substitute provided
for the same issue of notes ax the original bill, but not made
:; legal tender, and instead of making them payable in coin
on demand, they were to be simply receivable for all public
In this particular (making them receivable for public
dues instead of payable in coin on demand), the substitute
wav preferable to the original bill. A Treasury note, properly
understood, is "a promise to receive" and not "a promise to
and making it redeemable in coin could add nothing
value, but under the circumstance's was calculated only
to depreciate i-t> value, because it misled the public, especially
jaora of political economy. The following extracts
from the speech of the Hon. Thaddeus Stevens in support of
the bill, will sufficiently explain the nature and character of
- and amendments offered, and, also, of the
arguments employed for and against them, as well as the
bill itself. Mr. >• id:
UT! - ii-y of the Treasury, in his report, n
im-nded a scheme to produce a uniform national currency,
and furnish a market for government bonds. It pro poses
that the banks ^hall receive their circulation from the gov-
< nnii' amount of government bonds pledged, with
[YeMOiy for their security; and that n«» more notes
should be ivxiied than the par value of such bonds, and
'. be n-deemed by the bank-.
kinking in ordinary tin* • ry useful in rciru-
the cm i 1 l,y the -ale of bonds the govern-
Hee pages 62 it ».
T1IK l.K'.AI. ! 181
ment might command coin. IJut while tin- l>:inks are in
suspension, it is not easy to see how it would relieve the
government. If the notes were procured it must he by
accepting payment by the government in depreciated circu-
lation. How would that he any better than the government's
own notes? The security of the government is equal to that
of the banks, and would give as much currency. To the
banks I can see its advantage. They would have the whole
benefit of the circulation without interest, and at the same
time would draw interest on the government bonds from the
time they «j;"t the notes. Now, it is very plain, that it' the
United State* i^iied tlm^e notes direct, they would have the
benefit of the whole circulation. In other words, it would
be equal to a loan, without interest, to the full amount of
the circulation. This project, therefore, however desirable
as a banking system, could afford no immediate relief,
especially as it would afford no sale for additional bond-
the banks ha\e already as many as would form the basis of
their operations. Having, as I think, shown the impossibility
of carrying on the government in any other way, let u*
briefly notice some of the objections to it. First, is it con-
stitutional:'
"The power to emit bills of credit and make them a legal
tender is nowhere expressly given in the Constitution; but
it is known that but few of the a<-N which government can
perform are specified in that instrument. It would require
a volume larger than the Pandects of Justinian or the Code
of Napoleon to make such enumeration, whereas our Con-
stitution has but a few pages. Hut everything necessary to
carry out the granted powers of the government is not only
implied but expressly given to Congress. If nothing could
be done by Congress except what is enumerated in the
Constitution, the government could not live a week.
182 \i. i KM.KI: A( is.
4*Ti arc prohibited from making anything but
.•I and silver coin u tender in the payment of debts;' but
such jirnliiliitii.n does not extend to Congress. The Consti-
tution is sill-lit as to the- power of Congress over that subject
The wln.li- question of the right to emit bills of credit by
38 was considered in the convention that, framed the
-titution. It was reported as a part of the power to
4 borrow money.' It was objected to as tending to make a
paj.er currency with legal tender, and a motion was made
to strike it out and insert an express j>rohil>ition. This was
-ted, IM -cause, as .Mr. Mason said, * it could not be 1
. what the necessities of the government might at some
require.' 'The late war,' he said, * could not have been
led on had such prohibition existed.' It was finally
ed to strike out the express power, and not insert the
prohibition, leaving it to the exigencies of the times to
:;iilie its necessity."
"If constitutional, is it expedient? It is objected by the
•leinaii from Ohio that the legal tender clause would
depreciate the notes. All admit the necr»ity of the issue.
jed to their being made money, ll \< '.
to pei-ceive how QOtea N-ued without being made immedi-
cable in specie can be made any wor-e by making
i a legal t'-ndcr. And yet that is the whole argument.
*O far as expediency is concerned. Other gentlemen argued
this would impair contracts by making a debt payable
ther money than that which existed at the time of the
contract, and would BO b.- unconstitutional. Where do
•lenien find any prohibition on Con- UWl pa — ing
i impairing contracts f There is none, though it would
be unjust to do it. Hut this impairs n-. contract. All con-
.•!«• not only with a \it-w to present laws, but
subject to the future legislation of die country. We have
•j 111: LBGAL i ENDEB \- tS, 183
more than once changed the value of coin. Neither our
gold nor silver coin "IN as valuable as it was lil'l y years ago.
Congress in 1853, 1 believe, regulated the Weight and value
of silver. They debased it over seven j>er cent, ami made
it a legal tender. AVho ever pretended tliaL that, was uncon-
stitutional? The gentlemen from Vermont [Mr. Morrill|
and Ohio [Mr. lYndlcton] think it an ex post facto law. It
is not wonderful that my distinguished colleague, not being
a professional lawyer, should not be aware that the < .'• />o«t
j'tn'to laws prohibited by the Constitution refer only to
crimes and misdemeanors, and not to civil contracts. The
gentleman from Ohio no doubt knew but forgot it."
"I know the danger of granting to irresponsible institu-
tions or individuals the right to issue paper currency not
immediately Convertible, because their avarice would always
abuse the privilege and over issue. ]>ut when the govern-
ment thus issues, the fault and the crime is theirs if they do
not restrain it within proper bounds. Is the proposed i-
of $150,000,000 too much? It is believed that the ordinary
business of the country, especially now, requires a circulation
of $400,000,000. The bank circulation has been about
$200,000,000, with coin to the amount of $250,000,000.
The bank paper, now in suspension, would largely disappear
before this par paper; and during suspension, which means
during the war, there will be but little coin circulation. If
the whole $150,000,000 of United States notes c<>uld be
kept circulating, I do not think the surviving bank paper
would furnish a sufficient currency for commercial purposes
— some coin must be added. But it is not probable that it
could all bo kept out; much would rest in banks, in the
pockets of private individuals, or await, investment tempo-
rarily, at least, for a while.
"I>ut my distinguished c<>ll<-a'_nie from Vermont fears that.
1- t TIIK i I:«;AI. TKMU-:!: A« rs.
mormons issues would follow to supply tin- expenses of the
war. I do not think any nmiv would be needed than the
$150,000,000. The notes hear no interest. No one would
>n-k tin-in I'm- investment. In the rapi<l circulation of
monrv, xjnu in a year is turned so often as to purrha-
time> it-s \.-ilur. This money would soon lodge jn large
quantities with the capitalists ami banks, who •///"*/ take
them. JJut the instinct of gain, perhaps I may call it
a\arice, \voiihl not allow tlieni to keep it long unproductive.
A dollar in a miner's safe unproductive is a sore disturbanrr.
\Vherecouldtheyin\e-t ii'/ In I'nited States loans at six
lit, redeemable in gold in twenty years, the l»est. and
moet valuable permanent investment that could be de-ircd.
The L;-O\ eminent would thus again ]»n^>ess sucli notes in
i.\rhanu-r t'..i- bond-, and again rri^ur them. I have no
doubt, that thus the 8500,000,000 of bonds authori/rd \\ould
-orhrd in lr>s time than would be needed by the
nment; and thus £150,000,000 would do the work of
$500,000,000 of bonds. When further loans are wanted,
you nerd only authori/.e the sale of IIUMV bonds; the same
•'•,000,000 of notes will be ready to take them.
u I ruiitcnd that this curn-ncy will be better than any this
country ran produce. Hank note- are merely local. The
holder of them in St. l.ouiv, wisliin^ t«> transmit t<
V«»rk, must pay a discount, of from one to ten per cent. If
he has gold, the ro-t of t raiis]M>rtation is considerable. If
hetra\el,it. is cumbersome. \\\\\ if he has Tinted States
par not,-, he ran send them without cost all o\ er the T'nion.
iillemen are clamorous in favor of those \\ ho have
dur them, h-t the debtor should tin- inure easily piy
bi. I -lo net much syinpalhi/e A\ith such importunate
J li-mlrrs. lint widows and orphans are
and in tear* lest their estate should br badly i i
TIIK 1 K'.AI. TK.NI' 185
pity no one who has his money in\es!ed in United S:
bonds, payable in gold in twenty years, witli iiitcrc-t semi-
annually.
'• Hut while these iiH-n have- agonized bowels over the rich
man's cau>e, they ha\c no pity for the poor widow, the
sulYeriii-j; soldier, the wounded martyr to liis country's good,
who must receive these notes without legal tender or noth-
iiiLS all(l who must give half of it to the Sliylock- to get the
necessaries of life. Sir, I \visli no injury to any, nor with
our bill could any happen; but it' any must lose, let it not be
the soldier, the mechanic, the laborer, and the farmer.
"Lot me restate the various projects. Ours proposes
United States notes, secured at the end of twenty year-
be paid in coin, and the interest raised by taxation, semi-
anuuully; such notc> to be money, and of uniform value
throughout the Union. No better investment, in my judg-
ment, can be had; no better currency can be invented.
"The amendment of the gentleman from Ohio [Mr. Val-
landigham] proposes the same issue of notes, but objects to
a legal tender; but does not provide for their redemption on
demand in coin. lie fears our notes would depreciate.
Let him who is sharp enough to see it instruct me how notes
that every man must take are worth less than the same n
that no man need take-, and few would, being irredeemable
on demand. J>ut he doubts its constitutionality. He who
admits our power to emit bills of credit, nowhere e\pre^ly
authori/ed by the Constitution, is a sharp and unreasonable
doubter when he denies the power to make them a 1
lender.
"The proposition of the gentleman from Ne\v York [Mr.
Ko>eoe Conkling] authorizes the issuing of seven per cent.
bonds, payable in thirty one years, to be sold ($250,000,000
180
Tin: I.KI.AI. 1
OF exchanged forthe'-///Vfc/«-y of the banks of \\
New York and Philadelphia.
, tlii- proposition seems to :;ir to lack every (.•lenient.
10 legislation. -.Make a loan payable in irredeemable
« urrcncy, ami pay that in its depreciated condition to our
contractors, soldiers, and creditors generally! Tin- banks
would issue unlimited amounts of what would become trash,
and buy good hard money bonds of the nation. Was there
< \ i T such a tempation to swindle?
44 He further proposes to issue ¥200,000,000 United States
redeemable in eoin in one year. Does not the gentle-
man know that such notes must be dishonored, and the
plighted faith of the government broken;* No one believes
That we could then pay them, ami it would run down at
If we are to use suspended note< to pay oiire.\j«
why not u-e our own? Are they not a* safe as bank notes?
During the suspension the government would have the
benfit of the whoh- cireulation, without interot, until they
'iinded — that is, the interest of all we c»uld keep out
would accrue to the government. If the ^^50,000,000 wi-re
ntly afloat, it would be a loan to the ir»vernment,
without interest, to that amount, $0,000,0(ni a \<ar. IJut if
• 1 tin- Mispended paper of the )>anks our bonds would
Qteresf from the inxtaiit, we .u«'t their notes — a good
for tin- suspended bank-. Be6ld< -.government would
the bem-fit of all the lost and destroyed notOfl — a
ici-al.lc item.
" La-: comet the Mibxtimte of the minority of the commit-
I look upon it ax a eurio>iiy. It j.r..j.o-i - t-» i->ue
-, not :• l.-Lral teiide)-, bearing an ii
of three and si\ty-ti\e hundred* -rut., and fundable
into He ven and three-tenths per eent. b,.nd-, but not payable
:uand, but at the pica-lire ,,f the United States.
•i i IK ).):., AI. '1 i M.I i: \« TS. 187
. s one and three-tenths per cent, higher interest than our
loan, an. 1 n««t being redeemable <m demand, would fare the
fate of all non-specie paying notes not a legal tender. But.
the ingenious minority ha\e invented :i kind of currcncx
never before known — a cn-<-nt(it;<,,i, £/•//,•///// interest.
Honda or notes intended for investments bear interest, but
no one expects they will be used as currency; whether in
the shape of bonds or notes they will be used only as invest-
ments, or as pledges on which to procure loans. Suppose a
tailor, shoemaker, or other mechanic or laborer, were to
take one of these bills, and in a week he should wish to UM-
it in market, or store, or elsewhere, he must sit down and
calculate the interest on the days lie has had it to find its
value. This would be rather inconvenient in a frosty day.
This currency would make it ntM-r-^n-y for every man to
carry an arithmetic or interest table A\ ith which to «r:uiLre
the value of the circulating medium. Gentlemen must see
how ridiculous, if not impracticable, this scheme is.
"Here, then, in a fe\v words lies your choice. Throw
bond* at six or seven per cent, on the market between this
and December, enough to raise at lea-t $600,000,000 — about
this sum is already appropriated, $557,000,000 — or issue
Tinted States notes, not redeemable in coin, but fundable in
specie paying bonds at twenty years; such notes either to l>e
made a legal tender, or to take their chance of circulation
by the voluntary act of the people.
"I maintain that the highest, sum you could sell your
bonds at would be seventy-live per cent., payable in currency
itself at a discount. That, A\ould pro.iuce a loss which no
nation or individual doing a large business could stand a year.
"I contend that I have shown that such issue, without
being made money, must immediately depreciate, and would
go on from bad to worse. I flatter myself that I have dem-
188 'M I KM'
i, both from reason and undoubted authority, that
notes, made :i lc-_ral tender and n«»t i--ucd in (
tin- demand, \viil remain at jiar and pa-^ in all transaction-.
at ami small, at tin* full value of their face; that we shall
have one currency for nil sections of tho country and for
t-very class of people, tin- poor as well as the rich.
ae irentlcmen an- a>v Jiiuch frightened as if this were
an unwonted apparition, for the iirst time prowling forth to
BWallow the rich Creditor and nurse the poor debtor. No
nation, it is said, has ever tried anything like it."
"Mr. Chairman, lei me say in conclusion that nnlos this
bill is t«» pass with the Iciral tender clause in it, it i> not
desirable to its friends or to the administration that it should
pass at all, and those who think as I do will have to vote
ins! it if it shall be thus mutilated and emasculated. If
it i» to be defeated, I should be v;lad if we had tlu- power
which they have in the Uritish Parliament — to rc-iu'ii OUT
places On the Committee of Ways and Mean-* and lca\
to tho^e who oppo>e this bill to mature some other measure.
Far a- I am concerned, I shall be inodcM enough »Ot to
attempt any other scheme. The Committee of Ways and
M'-an* have labored in the p reparation of this measure
anxiously and to the be>i of their jmor abilitic-. We
not inialliblc. \\'<- d» not < onie near it. I am but poo.-ly
qualified for anything of this kind. Hut we ha\c ui\cn it
our ni"-t aiixiniis consideration, and ha\e con>ulted ti
whom \\ ( beliex ed to be the la-^t (jiialitied to a-l\ i-e u-. We
ha\<- v,,ii'_'iit to harmonize conflicting yiewa in the .substitute
which the majority of the co.mniltcc have prepared, tnd we
hope it \\ill pass. W«- believe that the credit of the country
will be sustained by it, that under it all classes will be paid
in money \\hich all ch-»es ean Ose, and that it \\ill CO1
HO advantage on tin- capitalist o\ er the p • laboring man.
Tin; ii... \i. '1 I:\IH.I: A.CT8. Ibtt
If this bill shall pa-.-, I -hall hail it as the mo.-t aii>pieious
measure of this Commas it' it should fail, tin- n-Milt will be
more deplorable than any disaster which could befall n.-."1
Mr. Stevens' speech closed the debate, and the bill came
up for final action in the House, February 6, 1862, and \\ it-
adopted by a vote of 93 to 59.
TIN-: LEGAL TENDER BILL IN TIN-: >KNAli:.
On the 10th day of February, 1802, Mr. Fessenden, C 'hair-
man of the Committee on Finance in the Senate* reported
tlie House bill from the Finance Committee with amend-
ments. The important amendments were as follow-:
1. That the legal tender notes should be receivable for all
claims and demands against the United States of every kind
whatever, " except for interest on bond* <in<! //o^-x, irhick
shall be paid in coin"
2. That the Secretary might dispose of United States
bonds "at the market value thereof, for coin or Treas-
ury notes"
3. A new section, No. 4, authorizing deposits in the Sub-
Treasuries at tive per cent., for not less than thirty days, to
the amount of $25,000,000, for which certificates of deposit
might be issued.
4. An additional section, No. 5, "that all duties on im-
ported goods, and proceeds of the sale of public lands,'' etc.,
should be set apart to pay coin iutere-t on the debt of the
I/nited State-; and one per cent, for a sinking fund, etc.
On the 1-Jth day of February, 1862, the debate in the
Senate was opened by .Mr. Fe>senden in a lengthy speech.
A motion was made by .Mr. Collamer to strike out the legal
tender clause, which was lost. On the 14th inst. the bill,
.mended, pa<scd the Senate by a vote of 30 to 7, and was
returned to the Huu-e.
100 I.K<; \\. YKM»I:I: \
TIIK r.n.i. A«;AI.Y i.v TMI-: ii«"
On the istli, .Mr. Stc\eiix reported tin- bill, as amended by
the Senate, from (lie Committee of \Va\> :unl .Means to the
HOUM-, and said, tkT have no purpose of considering the bill at
this time. I desire that it shall be referred to the Comm>
of the Whole, and be made the special order for to-inorro\v
at one o'clock. I hope «rentlemen of the House1 will read
the amendments. Tin-;/ «,'< very 'nn]>»,'t <i ,,t , <i,t<l, in ,,n/
judgment, very pernicious, hut I hope the Hi HIM.- will
examine them."
On Wednesday, the L 9th, Mr. Spaul ding Opened the debate
in opposition to some of the amendmets of the Senate. \Ve
• jilote as follows :
"Mr. Chairman, I de>ire especially to oppo>e the amend-
ments of the Senate which require the interest on bonds an 1
notes to be paid in mi,, semi-annually, and which authori/.e>
the Secretary of the Treasury to sell six per cent, bond-
the market price for coin to pay the interest.
k-The Treasury note bill, as reported first from the*
mitter of \Vay> and Means as a ni-cessary war measmv. wa-
simple and perspiciiou> in its terms, and ea>ily understood.
It \\a^ so plain that everybody could understand that it
authori/ed the is>ue of $150,000,000 of h-iral tender demand
note-, to circiilat Jioiial currency ainon_!J tlie people
in all parts of the I'nited State-, and that they miirht, at any
time, be funded in six per cent, twenty year-' hoinU. The
of the mea-ure in this hou^e wa> hailed with Bfl
faction by the iireat mass of the people all over the country.
It ivcrixed the hearty endon-riiM-nt of such bodies a- the
mben «-f ( '..iiiinerce of New ^'..|•k, ( "mcinnati, St. L..ui-.
Chicago. UufTalo, Mil waiikee. and other pla<-cs. I havt- nrvci
known any im-a^urc nMi-i\«- a more hearty approval from the
people.
THK 1. K»,. VI. Tr.M>i:K A 191
every amendment to tin- l>ill since it was matured
has rendered it more complex and diffiooll of execution. I
regret to >av that some of tlu* amendments of tin- 8
render tin1 bill incongruous and tend to defeat its great
object, namely — to prevent all forcing of the Governmentto
sell its bonds in tlui market to the highest bidder for coin.
It might be very pleasant for the holders of the seven ami
three-tenths Treasury notes and six percent* bonds, to receive
their interest in coin semi-annually, but very disastrous to
the government to In- compelled to sell its bonds, at ruinous
rates of discount, every six months to pay them gold and
silver, while it would pay only Treasury notes to the soldier,
sailor, and all other creditors of the government.
w* 1 am opposed to all those1 amendments of the Senate
which make unjust discriminations between the creditors of
the government. A soldier or sailor who performs service
in the army or navy is a creditor of the government. The
man who sells food, clothing, and the material of war, for
the use of the army and navy, is a creditor of the govern-
ment. The capitalist who holds your seven and three-tent h>
Treasury notes or your six per cent, coupon bonds, is a cred-
itor of the government. All are creditors of the government
on an equal footing, and all are equally entitled to their pay
in gold and silver.
"lam opposed to all those amendments of the Senate
which discriminate in favor of the holders of bonds and
liotes by compelling the government to go into the streets
every six months to sell bonds at the -market pi-ice,' to
purchase gold and silver in order to pay the interest lin coin'
to the capitalists who now hold United States stocks and
Treasury notes heretofore issued, or that may hold bonds
and notes hereafter to be issue* 1; while all persons in the
United States (including the army and navy and all who
LEGAL TENDER ACTS.
them with food and clothing) are compelled to
tender Treasury notes in payment of demands
due tliem from the LTovernment.
•• Why make this discrimination ^ Who a>k> to liave one
creditors placed on a better foutinir than another
.•la^? Do the people of New Knu'land, the Middle St.
or the people of the Wot and Xorthwest, or anywhere else
in the rural districts, ask to have any such discrimination
made in their favor;' Does the soldier, the farmer, the
mechanic, or the merchant ask to have any such discrimina-
tion made in his favor;' No. sir; no such unjust preference
-ked for by this class of men. They ask for the legal
ier note hill pure and simple. They ask for a national
currency which shall be of e«jual value in all parts of the
'•ountry. They want a currency that shall pass from hand
to hand amoiiLT all the people in every State, county, city,
town ami village in the United States. They want a cur-
rency -.M-iired l>y adequate taxation upon the whole property
of the country, which will pay the soldier, the farmer, the
mechanic, and the banker alike for all debt due. They ask
that the •rovenmieiil shall stand upon its own responsibility,
•un rights, and exert its vast power-, piv-- <\\n
lit, and Cany IU safely through this Lri^antic rebellion,
in the shortest time, and with the least possible sacril:
y intend d. f,.«,t all the bills, and ultimately pay the
whole amount, principal and interest, in -_rold and silver.
" \Vh<>, then, are they that a-k to have a preference ^iven
tD them Over Other On ••vernmcnt;' Sir. i
•labl.- claM of Lfentlemen, but a «-la-- of men
very sharp in all inom-y transactions. Tiiey are not
the producing classefl — not amoii'_r th
their labor ill, make the wealth of the
but a class of im-n that i. -dth.
•nn: LEG LL 'i RHDEB A,< PS. 103
men who arc willing to lend money to the government if
you will make the security beyond all question, gi\e them a
high rate of interest, ami make it payable in coin. Yes, sir,
the men Avho are asking these extravagant terms, who want
to be preferred creditors, are perfectly willing to lend money
to the government in her present embarrassments, it' you will
only make them perfectly secure, give them extra interest,
and put your bonds on the market at the ' market price,' to
purchase gold and silver to pay them interest every six
months. Yes, sir, entirely willing to loan money on these
terms! Safe, no hazard, secure, and the interest payable
'in coin!' Who would not be willing to loan money on such
terms? Sir, the legal tender Treasury note bill was intended
to avoid all such financiering and protect the government,
and people who pay the taxes, from all such hard bargains.
It was intended as a shield in the hands of the patriotic
people of the country against all forced sales of bonds, and
all extravagant rates of interest.
"The legal tender note bill is a great measure of equality.
It proposes a currency for the people which is based upon
the great faith of the people and all their taxable property.
All are obliged to receive- ami pass it as money, and all are
obliged to submit to heavy taxation to provide for its ulti-
mate redemption in gold and silver. Every attempt on the
part of any class of citi/ens to create distinctions and secure
a legal preference, mars the simplicity and success of the
whole plan. The very discrimination proposed carries on its
face notice to everybody, that although the notes are declared
to be 'lawful money and a legal tender in payment of debts,'
yet that there is something of higher value, that must be
sought after at a sacrifice to the government, to pay a pecu-
liar class of creditors to whom it owes money — a kind of
absurdity and self-stultification which docs not appear well
194 THE I.K'.AL T7:\I.
on thr face of the bill. Il is an unjust discrimination which
do<-> n.it appear well now, ami will not look well in history.
i will, if tho Senate's amendment is adopted, depreciate,
by your ou n act-., your own bonds and notes, and effectually
destroy the symmetry and harmonious workings of the
whole plan.''
* (Mr. Spaiilding, in his Financial History of the War, calls
iition to the fact that "at the time the abo\e remarks
were made by him the duties on import* were, as the bill
then stood, payable in legal tender notes; but this was after-
wards changed in the committee of conference, making
thoM- duties payable in ro/'y/, so that the interest might be
paid in coin, without being obliged to force the bonds on the
market to obtain coin for that purpose.")
During the discussion in the Committee of the Whole an
•ndment to the Senate amendment requiring interest on
bonds and notes to be paid in coin, was offered by ]NIi. IVn-
dleton to the effect, "that the officers, soldiers, seamen and
marines, cn^a^ed in the military service of the United
should also be paid in coin, which was not agreed to.
On the L'Oth the House resumed consideration of tho
Senate amendments. Mr. Stevens closed the debate. We
quote from hi- speed) as follows
"Mr. Speaker, I have a \t-ry few words to say. I approach
the subject with inoiv depre--i«»n of spirits than I «
before approached any <jue-tion. No p. TV, ,nal motive or
feeling influences me. [hope not, at Ica^t. I have a mel-
anrlmly foreboding that. NSC are about to consummate a
cunningly de\i><d scheme, which will carry great injury
-s to all clasps of the per,ph» throughout this
I ].t one. With in- ie, T belii-ve that no
of legislation of t i-nment wa^ ever hailed with
as much delight throughout the whole length and breadth
THK LKiiAL TEN'DKK A< P8, 195
of this Union, by every class of people, witliout any excep-
tion, as the bill we passed and sent to the Senate. Congrat-
ulations from all classes — merchants, traders, manufacturers,
mechanic* and laborers — poured in upon us from all quarter^.
The Hoard of Trade from Boston, New York, Philadelphia,
Cincinnati, Louisville, St. Louis, Chicago and Milwaukee
approved its provisions, and urged its passage as it was.
"I have a dispatch from the Chamber of Commerce of
Cincinnati, sent to the Secretary of the Treasury, and by
him to me, urging the speedy passage of the bill as it passed
the House. It is true there was a doleful sound came up
from the caverns of bullion brokers, and from the saloons df
the associated banks. Their cashiers and agents were soon
on the ground, and persuaded the Senate, with but little
deliberation, to mangle and destroy what it had cost the
House months to digest, consider, and pass. They fell up« »n
the bill in hot haste, and so disfigured and deformed it, that
its very father would not know it. Instead of being a
beneficent and invigorating measure, it is now positively
mischievous. It has all the bad qualities which its enemies
charged on the original bill, and none of its benefits. It
now creates money, and by its very terms declares it a
depreciated currency, ft makes two classes of money — one
for the banks and brokers, and another for the people. It
discriminates between the rights of different classes of
creditors, allowing the rich capitalist to demand gold, and
compelling the ordinary lender of money on individual
security to receive notes which the government had pur-
posely discredited.
"Let us examine the principal amendments separately,
and see their effect. The first important one (being the
fifth) makes the notes issued under the law of July 17th a
legal tender, equally with those authorized by this bill.
100 TIIK LI:<;AL 'IK.\J»KI: ACTS.
There can be 1ml little wisdom in putting these two classes
nn an equality. The notes of July bear seven and threc-
tcnths per cent, interest, and are payable in three years.
rl'li is gives them a sufficient advantage over notes bearing
no interest and payable virtually in twenty years, with six
per rent, interest. Why give them this additional advan-
tage? Simply because the $100,000,000 issued are all held
by the associated banks, and this is their amended bill.
They would displace $100,000,000 of this money in the
( -ire-illation, and render it impossible to use any considerable
amount of these [ ~ni ted States notes as a currency. These
notes have served their purpose. Why allow them to block
up the market against further relief to the government?
''The banks took $50,000,000 of six per cent, bonds, and
shaved the government $5,500,000 on them, and now ask
to shave the government fifteen or twenty per cent, half
yt-arly, to pay themselves the interest on these very bon«l-.
They paid for the $50,000,000 in demand notes, not sj*t-ie,
and now demand the specie for them. Vet, gentlemen talk
about our making other loans in these times. They are cra/y
or sleeping, one or the other, I do not know which." *
"The notes, by another amendment, are authorized to
be invested in notes or bonds payable in two years, and
bearing an interest of seven and three-tenths. One of the
•_'!•• at objects was to induce capitalists to invest in six pel-
cent, bonds «>r IOM- their interest, and thus to furnish a
continually recurring currency by the sale of tlu^c six per-
cent, bonds. This provision would effectually prevent the
funding a dollar in tlm>e bonds. They would all go in
preference int., M-ven and three-tenths bonds, due ill tWO
• •1) no ..IK- believes We call pay tllClll.
1 tlii- is not the worst. The tenth amendment pro-
vides that any holder of the I'nited States legal tender notes,
Tin: I.KI; M. THNHKI: \ 197
if lie have $100 and upwards, shall draw five or six per cent,
interest <»ii tin-in until lie choM-s to u>e them. The p.i.»r
who have lexs thanv$100 shall draw no interest. It, is plain
that, by these two contrivances, not one <!<>llar of tlu->e
United States notes will ever be funded in six per cent.
bond-.
"But now comes tlie main clause. All da»es of people
shall take these notes at par for every article of trade or
contract unless they have money enough to buy United
States bonds, and then they shall be paid in gold. AVho N
that favored class? The banks and brokers, and nobody
else. They have already $250,000,000 of State debt, and
their commissioners would soon take all the rest that might
be issued.
"But how is this gold to be raised? The duties and public
lands are to be paid for in United States notes, and they or
bonds are to be put up at auction to get coin for these very
brokers who would furnish the coin to pay themselves, by
getting twent\ per cent, discount on the notes thus bought.
"Now, in less than a year, taking the public debt at what
my colleague makes it — I make it more — $1,200,000,000,
what will the interest be upon it at seven and throe-tent h>
per cent, for it will all center in that rate of interest? It will
be $87,000,000, and one-half of that amount, $43,500,000,
must be raised every six months for the paying of thi>
interot, and is to be raised in coin, which nobody holds but
the large capitalists. Does anybody suppose that they are
going to give that coin for such notes as we are now about
to issue, at par? They will sell the gold for what their
conscience will allow, and they will compel the government
to give anything they choose, unless the government, con-
sents to become dishonored. The first purchase of gold by
the government will h'x the value of these notes which we
198 THE I.KtiAl, TKNDKK ACTS.
issue and declare to be a legal tender. That sale- will fix
their value at ten, fifteen, or twenty-five per cent. di>eounl ,
and then every poor man, when he buys his beef, his ]>..rk,
and his Supplies, must submit to this fifteen or twenty-five
per cent. discount, because* you have said that that shall Le-
the value of the very notes which you have ina«le a legal
tender to him, but not a legal tender to thoM- \\ho fix the
value of these very notes. DI-CS any one believe that any-
Lody l)iit l)ankers and brokers fixes the, depreciation of
currency:* So you will thus have fixed the market value of
your notes at seventy-live or eighty per cent., and yet they
are a legal tender to the poor of the country, while they an-
no legal tender to those who hold the coin of the country.
*• Ily the original bill the Secretary of the Treasury w:i*
allowed to sell these bonds at their value for lawful money
— that is, for these le--al tender notes. J>ut now, by the
provisions of this bill, after the market value has Leen fixed
and they are depreciated, the Secretary of the Treasury i~
authorixed to go into the market and sell them for coin, not
at par, hut at the market value; therefor. Was then- ever
a more convenient contrivance ijot up, into which Llin«l mi«-e
run, to catch them;' Was c\ cr before sm-h a machine LT"1
op for swindling the g^overnment and making the fortunes
of the gold bullionists in one single year'^
*' Hut as if this ai-cumulateil folly were not quite enough,
another amendment, provides that the-e notes, ^hen piv-
•••d in sums n<»t h-^s tlian ^K'l), may be transferred ii.;,>
n and three-tenths noti-x payable in two year-. I *a
may buy these notes at a discount and jmt them into note*
payaLle in bullion at, tuo year-, at, se\cu and thiv.-tenths
interot, for that, is a part of the whoh; system.
• w, sir, <b.(.s any man In-iv Lelie\c thai, notu it h-tan-l-
ing the vietorirs u.- an? gaining, the government, will be
Tin: I.I:».AL 'i i M>I K A« T8. 199
able to redeem thrse notes in two years? If not, they will
be shoved U|M,H tic- market aiul sold for coin at whatever
discount may be demanded."
Mr. Storms also offered an amendment to ]»ay the anny
ami navv in specie, tin- same as the bondholders1 ink-rest in
coin, which was \oied down. Tin; Senate; amendments
were concurred in only in part, which rendered the appoint-
ment of a committee of conference necessary. The confer-
ence committee appointed by the Senate consisted of Mes-r-.
rYvM-nden, Sherman and Carlisle, and the conference com-
mittee of the House of Messrs. Stevens, Norton and Sedg-
wick. The conference committee were in seoioii two or
three days, and finally reported the bill with several altera-
tions, the most important of which Mas that the duties on
inijKn'tti alum/it /><>, jKti'l in. coin* so as to do away with
the necessity of forcing the bomK on the market to procure
coin to pat/ intercut, /'// '••////, »n- the bonded debt of the
government.
On the 24th of February, lsU>;j, tin* action of the confer-
ence committee was agreed to by the House by a vote of
97 to 22. On the 25th the Senate concurred in the action
of tin' conference committee, and the same day the legal
tender act was approved by the President^
TIIK c.KKKNHA' K.
Thus were the mo.M. sacred interests of the people, espe-
cially of the producing classes — the farmer, the mechanic,
the manufacturer and the laboring man, i^ro^ly and wickedly
betrayed into the hands of the money ] x» we r by the Senate
of the Tinted States. The Senate at that time was a small
body, but twenty-four States beiiiLC represented, with but
three or four members who^e ability I-OM- above mediocrity.
:i Dt" Mini. Tli:i<Mt'ii^ St.-vriis in tli(> A|tp<-iiili \.
tThe Legal Tender Act a- tiuallj j>a— «•<! will be found in the Appendix.
•joo 'i UK I.KCAI. "i i.\i>i:i: A. i 8.
Tin- occupants ,,C geatl once tillc«l by statesmen, whose ability
.-UK! eloquence had made the Senate of the I'nited States
famous throughout the world, they became puffed up with
lf-importance, which, with the venality of the Sher-
man-, of tin1 body, rendered tlu-m easy prey lor the sharks of
Wall street. It will be observed that the points contended for,
so strennoiixly ami successfully, by the conference committee
of the Senate, which rej»resente<l the sentiment of the
majority of that body, were', in substance and effect, the
same a> those c< .ntained in the plan of the bankers, offered at
their meetinir, which convcm-d in Washington immediately
after the introduction of the le^al tender bill in the House.*
That the Senate was controlled, in its action in regard to
the leiral tender bill, by improper influences is not a matter
of conjecture, bat of history. In his speech at Philadelphia,
January !•">, 1*70, Jud_ire Kclley says: kil remember the
errand 'Old Commoner'' (ThaddeUfl Steven*-) with liis hat in
his hand and his cane under his arm, when he returned to
the IIoiiv,. after the final conference, and shedding hitter
Over the i-e<ult. ' Ve<," said he, 'we have had to yield;
the Senale wa*. stubborn. We did not yield until we found
tjnit fl» ,-,,« ,,t ,-ij must be ?n#t or tji* ftunk* ?>< ///'"'
and we have sought to save the country in spite of the
cupidity of its wealthier citi/en^."
Men- bf/iiix one of the darkest chapters in American
hi-t-.i-y. It will be found that every ^tcp taken by Coir_rre->
IV.. m tliis on, in matter^ pertaining to the finances of the
nation, has been dictated by the money power. Korean
capitalists, such as the Hothsehild-, became deeply intere-t. d
in the scheme of robbery inaugurated by the ]>a— a-_r'- of the
first |«-Lr;il tender act, and through their agents, such as
Aniriist r>elmont, banker and whilom chairman of the Dein-
• \::.
TIIK i.i:<; u. TKNDKI: A< T8, 201
ocratic National Committee, have aided tin- money power
linv materially in controlling the policy of botb of ilia
great political parties. The amount stolen from the people
during tin- war by the financial policy then adopted, ami which
now encumbers the nation in the shape of ;i bonded debt,
payable principal and interest in gold, is estimated by MK h
writers upon the subject of finance as .1. S. (iibbons (contrib-
utor to Johnson's Universal Cyclopaedia) at over one thou-
sand millions of dollars,* to say nothing of the thousands of
millions of which the people have been robbed indirectly,
by means of the pernicious monetary system then foisted
upon the country.
The first legal tender notes (greenbacks) issued under the
act of Congress of February 25, ISH'J, were issued bearing
<late 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."
Notwithstanding the mutilated form in which the green-
backs were sent out by the Treasury department, they per-
formed a marvellous work. The producing forces of the
nation were set at work, and there was no longer any diffi-
culty in rendering the resources of the people available- t<>
the government. In speaking of this period, Judge Kelley,
in his Philadelphia speech of January last, thus graphically
and eloquently pictures the wonderful change which followed
the passage of this legal tender act. He says: "Hut the
patriots, (Lincoln, Stevens, etc.,) to whom I have referred,
had studied the Constitution of the United States. They
'Letter of J. S. Gibbon?: Spaulding's Fiiiaucial History oj the War.
202 THE I.KiiAI. TKMiKR A- f s.
knew that it imposed upon them tlni duty of saving the
nation. They knew that money is the sinew of war, and
that it must he ha«l. They knew that tin* ( '"limitation
uuthorixrd the coining of the puhlic credit into money.
They 'smote the- rock of puhlic credit," and power and pros-
perity irushed forth. 'Smote the rock of puhlic credit!'
What docs that mean ? Why, they called into i xistence
'the raur-baby !' They said to every man that would work —
'Here are waives for you; this rajjf-hahy will pay you." They
said to ship-owners, 'unfurl your rotting sails and open vow
hatchways; we have brought you grain from the farm, carry
it ahroad to buy us clothing and arms; for our industries
ha\e hecn stricken, and we cannot provide Mothiim' or arms
for the army that is to sustain the l"nion." The ' rag-baby '
hhowered greenbacks upon them, and the >hip-> spread their
sails, and carried rich cargoes to foreign lands, which were
exchanged for clothing, anna and munitions of war. Indus-
try was rife throughout the land. The farmers, wlu» had
Keen without an adequate or remunerative market for years,
jetting good prices for their grain, were paying their
to the local merchant, who in turn paid his to those of
the Lrivaf cities. A marvellous child was that 'raiT-hahy.'
While not yet a month old, its name, * LTreenhack,1 n
familiar to the people, it lighted the fires in every for-e and
furnace of the country; it hired ships, and bought oth.
blockaded the whole x,mthern const; it rallied an army of
7:/. 'MM. men, and we soon after heard rimr'niLT through the
the shout of well paid and well clad soldiers, 'we're
comiiiLr, Father Abraham, three hundred thousand more!
The 'rair-baby ' was welcomed by every commi--»ary, «juart«-r-
:• and paymaster. It furnished transportation; it met
all demands, and the American people — at least those of the
-with the -j-rcat war on their hands, were pi
Tin: LEGAL T r\M i: 203
OUH as they had i:rv< r been before, thanks to the marvellou.-
power of the * rag-baby.' * * [name it not the 'rag-baby;1
I take (lie dcri.xixe term from the door of the Presidential
mansion. I cannot imply a want of respect for the constitu-
tional IcLral tender money of the country, the Treasury note,
which did all that I have attributed M the k
The premium on Lr<'ld, which was :{£ JUT eent. when the
leiral tender act, was passed, February L'-"), I *»'>•_>, immediately
bewail to decline, and did not LI'<> np a^ain until the latter part
of May. United States bonds immediately went up from
90 to loj.
TKMI'OKAllY DHPOSITS IN THK SUK-TKKASURY.
I>y the fourth seetion of the h-iral tender act, the Secretary
of the Treasury was authorized to receive deposits in the
Sub-Treasury to the amount of $25,000,000, in sums of not
less than $100, at five per cent, interest, Avith the privilege
of drawiiiLC it out a^ain on ten days' notice after thirty days.
On the 17th day of .March, 1SG2, the authority to receive
these deposits was increased to $50,000,000. On the llth
of July, 1862, it was still further extended to $100,000,000;
and by the act of January 30, 1864, to $150,000,000, and the
Secretary was authori/.cd to pay as hi^h as six per cent.
interest. These deposits reached the sum of $120,176,196.
< Kirnri' A 1 1:> <>K IM>KHTI:I>M.--~.
By the act of March K ls<',2, the Secretary of the Treasury
was authorized to issne to public, creditors "who may be
desirous to receive the same in satisfaction of audited and
settled demands against the Tinted State-," certificates of
indebtedness in sums not less than $1,000 each, payable in
one year, with interest at six per cent. And by the act of
March 17, 1862, this power was enlarged, so as to embrace
checks drawn in favor of creditors by disbursing officers
._'"! rm; i.i:<,.\i, TKNDKI: ACTS.
upon sums placed to their credit on tlic books of the Tr
urcr. These certilicates wen- issued in the form of bank
notes ami circulated to :i larire extent as currency. The
amount of certificates <>f indebtedness in circulation Novem-
ber, Mil, W .M3,000.
TIII-: SKI-ON i> I.I;<;AL TKNDKI: A« r.
On the 7th <lay of June, 1862, Secretary Chase sent :v
ei •nun iin irat ion to the Committee of Ways and Means of the
ll«»u>e a>kin<x for autliority to issue ^150,000,000 more leLfal
temler Treasury notes, ami that $35,000,000 of this sum
should be of a less denomination than five dollars. On the
1 1th of June a bill was reported to the House from the
Committee of Ways and Means. The bill was made the
special order for the 17th inst. On that day the debate \vas
opened by Mr. Spauldinir in a speech in favor of the bill.
A vote was reached June iMth, when the bill passed, sub-
stantially as recommended by the Secretary, by a vote of 76
to 47.
On the i»stli of June the Finance Committee of the Senate
reported it to that body with amendments. On the 2d of July
it passed the Senate, as amended, by a vote of L'2 to l:?. The
Iloii-e rrfu.-ed to a-_rree to the amendments; the farce of a con-
ference committee was airain i^one through with; the report
of the conference committee was agreed to mi the 8th of
July, and on the 1 1th the bill was approved by the President.
o\i) ANM u. i;i;i-oi:r OK >K«-I;I: r \i: v CHA8B,
Congress Convened in regular vr>s5on December 1, 1862.
On the 4th Secretary Chase submitted his second annual
report. After an elaborate review of the revenues and
< \pciidilui-cs of the LTovcrnment, he di-cu—ed the tinancial
affairs of the nation at lai-j-c. lie reiterated his objections
to the State banks and declared that, M between a eurreney
TIIK I.K<;AL TKM»F-:I: A. is. -jn.-
furnished by numerous ami unconnected banks in various
Stales and a currency furnished by the government, he
unhesitatingly gave his "preference i'or a circulation author-
ized and issued by national authority."
He took issue with those who entertained the opinion that
the rise in the price of gold was due to the redundancy of
the currency, and supported his views with great force,* but
it did not occur to him to suggest the true reason, viz:
because coin was the only currency that, was a- full legal
tender. He again took occasion to renew his recommenda-
tion of the National Banking system. lie said:
"While the Secretary thus repeats the preference he ha*
heretofore expressed for a United States note circulation,
even when issued directly by the government and dependent
on the action of the government for regulation and final
redemption, over the note circulation of the numerous and
variously organized and variously responsible banks now
existing in the country; and while he now sets forth, more
fully than heretofore, the grounds ©f that preference, he
still adheres to the opinion expressed in his last report, that
u circulation furnished by the government, but ism" •!
by banking associations organi/ed under a general act of
Congress, is to be preferred to either."
The amount to be provided for by Congress for the current
year he estimated at about $300,000,000, and for the next
fiscal year, (beginning July 1st,) $600,000,000, and recom-
mended that the chief dependence ot the government to
secure that amount be placed on the negotiation of bonds.
Congress was then urged by the Secretary to repeal that
portion of the act of Congress of February 25, 1862, which
restricted the sale <>f ?>»n<7* to fhc'ir market price, and
•See Report of the Secretary of the Treasury : Appendix to the Congressional
Globe, ISftJ-'GU.
206 THE I.K<;AI, TKXHKB A
also the clause providing for the convertibility > •
<I,K/, Treasury -jtnfe*, (yreenbackx.) In conclusion lie
said: "The gene-nil views of the Secretary may, there:
l»c thus briefly summed: He recommends that whatever
amount may be needed beyond the sums supplied by revenue
ami through other indicated mode-, 1K. obtained by loan-,
without increasing the issue of United States notes beyond
the amount fixed by law, unless a clear public exigency shall
demand it. lie recommends, also, theorganizat ion of banking
ociutions for the improvement of the public credit, and
for the supply to the people of a safe and uniform currency.
And he recommends no change in the law providing for the
negotiation of bonds except the necessary increase of amount.
and the repeal of the absolute rexf ?><''>>»> f<> imirket
vahie and of the clauses authorizing convertibility
THE THIRD LEGAL TKXDKIE ACT - $900,000,000 I. "AN A« L
Karly in the session the Hon. Thaddeus Stevens intro-
duced a bill "to provide means t«> defray the e\pcn>e-
the government," which, in his own language-, fc- product-
howl among the money changers as hideou^ as that sent up
by their Jewish cousins when they were kicked out of
temple." This bill was in substance the same as the !••
tender bill, as it originally passed the House and bcfo-
WEB mutilated by the Senate in the manner above explained.
It was intended to bring the government back to the full
legal tender money system, "the simplicity and harmony
of which had been mangled and dcMroyed by the Senate/1
In a brief, but powerful speech, ( December L':*, 1862) M
ens pointed out the injustice and danger of the financial
policy which was then being pursued, and closed with this
prophetic warning: "Hut T ought perhap- i-efore I
96, to my country banking friends that they need not
TIIK l.Kt.M. TKNDKK \ 207
alarmed. There is IK. L,nvat prospect, that we shall return
to the .system I have indicated, nor do much to protect the
people fniin tlu-ir own ca^cr speculations. When a few
years /«'//>•, ^ the people shall have been brought to
'funeral ban/cnrj,f<->/ by their mm -ITU luted enterprise, I
shall have the satisfaction to know that I attempted to
previ-nt it." (Mr. Stevens' speech will be found in full in
the Appendix.)
On the 8th of January, 1863, the Committee of Ways and
Means reported a bill entitled, "A bill to provide Ways and
Means for the Support of the Government," afterwards
known as the $900,000,000 loan act. The bill reported
•contained no provision for the repeal of the clause in the
ad of February 25, 1862, restricting the Secretary of the
Treasury in the sale of bonds to their "market value," or of
the clause allowing the holders of legal tender notes to
convert them at any time into 5-20 six per cent, bonds.
On the 12th of January the bill was taken up in the
House, and Mr. Spaulding opened the debate in a lengthy
speech in support of the bill, in which he discussed the
National Hanking scheme, recommended by the Secretary,
arguing in its favor. On the 17th of January, 186:3, a joint
resolution was passed "to provide for the immediate pay-
ment of the army and navy of the United States," authori/-
ing the Secretary of the Treasury to issue $100,000,000 legal
tender Treasury notes, to be covered by the bill then pend-
ing ($900,000,000 loan act.) On the 26th of January, 1863,
the bill was passed — a substitute offered by Mr. Hooper, and
one by Mr. Stevens, having been first decided in the nega-
tive— without a division. On the 13th of February, 1863,
the bill, after being amended, passed the Senate by a vote of
32 to 4. The usual routine of a conference committee was
gone through with, with the usual result, and the bill was
208 TIM-: I.KiiAL TENDER ACTS.
finally agreed to as amended by the Senate, and approved
by the President March 3, 18G3. The following is a synop-
sis of tin- bill as given by Mr. Spaulding:*
"1. The first section authorizes a loan of $300,000,000 for
tin- then current year, and $600,000,000 for the then next
fiscal year, and to issue bonds therefor at not less than ten
nor more than forty years, at not exceeding six per cent*
interest, in coin, not exceeding in all $900,000,000.
"2. By section second of the same act the Secretary, in
lieu of an equal amount of said bonds, was authorized to
issue $400,000,000 of Treasury notes, bearing interest not
< \< •eeding six per cent., payable in lawful money, which
notes, payable at periods expressed on their face, might be
in 1 1 >le a legal tender at their face value.
"3. By the third section $150,000,000 in amount of United
States notes, made a legal tender, might be issued. The
restriction in the sale of bonds to 'market value was re-
pealed. ''And the holders of United States notes issued
under former acts, shall present the same for the pur-
]»mQ of exchanging them for bonds as therein provided,
on or before the first of July, 1863, and thereafter the
rig lit t» exchange the same shall cease and determine?
"4. This section imposed a tax of one per cent, each half
year, on a graduated, scale of State bank circulation^
according to the capital stock of each bank."
Making the interest of the bonds payable in gold and
declaring that the legal tender Treasury note (greenback)
should not be receivable for duties on imports, was a Lrr«»-s
betrayal of the interests of the people by the Senate of the
United States. But that body was capable of still greater
perfidy. It will be olocrved by the synopsis of the $900,-
000,000 ],,an a«-t, given above, that the convertibility of the
•Financial History of llic War, page ISO.
Tin: I.KC.M. TENDjRB ACTS. 209
greenback with Knitrd Si.itr- >i\ JUT rent, bond:-, .-is provi-
dcd by the act of February 25, 1862, was repealed
By the terms of the act of February 25, 1862, under which
the greenback was issued, the right to exchange it for United
Suites bonds was distinctly guaranteed, and was in the na-
ture of a contract, made by the government with the holder,
and to abrogate this right was an act of repudiation. The
motive which inspired the act, was to still further depiv< iate
the paper of the government. It is a fact worthy of note,
that when Congress perpetrated this act of repudiation, "no
doleful sound came up from the caverns of the bullion
brokers or the saloons of the associated banks," nor was
there any howl heard from the gentlemen of the press, who
were so quick to detect repudiation in Mr. Stevens' bill to
restore the legal tender act to the condition in which it first
the House.*"
NATIONAL r.AN'K 15ILL.
Oil the 2d of February, 1863, the National Bank bill,
a>- prepared by Mr. Spaulding in December, 1861, was
reported, with alterations ami amendments, from the Finance
Committee to the Senate by Mr. Sherman. The debate upon
it began in the Senate on the 9th, and on the 12th (three
days after) the bill passed by a vote of 23 to 21. It was
taken up in the House on the 19th, and passed the next day
by a vote of 78 to 64; and received the President's signature
March 25, 1863. (See Chapter on National Banks.)
The money power now had matters all its own way, and
was in a situation to prey upon the government and people
at its pleasure. Duties on imports were payable in gold;
interest on the bonds of the Tinted States were payable in
gold; the exchangeability of the greenback with bonds had
*Seo Speech of Tlon. Tlinddpiis Stevens in the Appendix.
210 TIIK I.i:(,AL TF.NDKU .
been abrogated; the country waa flooded with e\M
indebtedness of tlic <rovernment in all forms ami shapes,
such as demand notes, Treasury notes bearing inte
mutilate. 1 leLTal tender note-, eertitieates of deposit, certifi-
cates of indebtedness, etc.; and a bunking bill, authorizing
the issue of $300,000,000 in bank notes bad been passed.
The following statement of the public debt (January 2,
1863) will show exactly the amount and character of the
indebtedness of the government at this time:
Loan of 1842 $2,883,364 1 1
1847 9,415,250 00
" 1 -' IS 8,908,34 !
" 1858 20,000,000 00
« 1860 7,022,000 no
1861, act of February 8, 1860 18,415,000 00
1861, act of July 18, 1861 50,002,000 00
" 1862, five-twenty six per cent 25,050,850 no
is indemnity 3,401,000 00
Oregon war debt I,OL'»;,I;OO 00
>debt 112,01)2 «;:•
Old funded and unfunded debt 1 It, I UJ
Trcasiirv notes under acts prior to 1857. . . . 104, ~><'< I
" " subsequent 2,750,350 00
Treasury note* seven-thirty per cent, interest 139,998,000 00
Temporary deposits at four per cent 38,458,00*
live per cent 41,777,<52H Hi
United State- note*, le^al tender and receiv-
able, for customs 1 l.'.'i
Tinted State's notes, leu-al tender 223,108,000 00
I'.-tal currency less than one dollar »;.S.H, «»;>,<> 00
Certificates of indebtedness, six per cent... 110,321,241
uisitions: (,n the Treasurer for soldiers'
pay and other creditors, due but not paid 51),! 17,r>07 46
Total funded and unfunded debt to January
2, I "!'•:'>, according to the books in the
asury Department $783,804,252
The time had now arrived to put the $500,000,000 of
TIM: LEGAL TI:M>I:I: ACTS. 211
United States bonds authm -i/.rd by the act of February 25,
1862, on the market. Notwithstanding tin; urgent need of
the government during this time, Secretary Ch:ise had licld
these bonds back for over a year on tho pretence that the
restriction to a sale at "market value" prevented him from
negotiating their sale to any considerable amount. Mr.
<jrurley, of Ohio, effectually disposed of this plea in the
course of his speech on the nine hundred million loan act.
He said: "He did not agree with the Secretary in several
things contained in his report; the banking scheme, which
the Secretary admits would not afford any immediate relief,
should be rejected; we need a sensible, practicable plan
that will furnish immediate means to pay the army and
navy. lie insisted that Congress, by the act of February
•25, 1862, authorized the Secretary to sell $500,000,000 six
per cent. 5-20 bonds at 'the market value thereof,' which he
Jutd not done, as intended by Congress, and the conse-
quence was that the soldiers and sailors were not paid, as
they ought to have been before this time. * * The words
* market value' do not mean par value, nor any specified
time or sums. The market value was the price they would
bring when offered in the market. There has been no
business day or week since the law was passed, when any of
the many agents of the Secretary in New York could not
have placed one million, or several millions, in the market,
and sold them H>mewlu>ro near par, to raise money to pay
the army and navy."
In May, 1863, Jay Cooke, "an enterprising banker" of
Philadelphia, was employed to dispose of the five-twenty
bonds. The Secretary of the Treasury, up to this time, had
put out only about $25,000,000, leaving $475,000,000 yet to
be sold. 3sTo effort was made by Mr. Cooke to negotiate
these bonds with bankers or capitalists, but (to quote from
212 TIIK I.K»;.\I. TKNDKi: ACTS.
Spaulding), "the editors of newspapers and others wen*
enlisted to bring the advantages of the loan before the
people, in order to make it a great popular loan, to bo taken
by them in large and small sums in all the loyal States. Mr.
Cooko succeeded admirably in this undertaking. The loan
became very popular, and was taken extensively by farm
mechanics and laboring people, in all the towns, villages and
cities over the country. By the first of July, 1 803, the amount
of $1 68,880,250 of these bonds were taken; and by the Hi
October following, $278,511,500 had been taken uj>; and by
the 21st of January following the whole sum of 8500,000,000
had been taken at par, and the rush was so great near tin-
closing out of the loan, that nearly $11,000,000 extra had
D subscribed and paid for before notice could be given
to sulKigents that the amount authori/ed by that act had
been taken uj>. Congress, however, BOOH after authorized
this extra sum to be issued."
Hugh McCulloch also bears testimony as to what elas>
of people took the 5-20 bond*. In a letter to the New York
7V//////M , .lateil -it, T,< •)<!• n in September last, lie said: ii 1
recollect the time when suovribers lor Tinted States bond-
were regarded as patriot*, and I happen to know to what
class they belonged. With rare exception they were not
capitali>ts. * * The purchasers of our bonds were the
patriotic men of all parties, chiefly men of moderate means.
who were iv>ohrd that the Union should be saved, no-
matter at what cost of money or blood.'' It may h«
interesting to state that Mr. McCulloch was not one of ti.
who were n <olved that the t'nioii should be BEVed,
matter at what D iie time lie refers to, he w
:»try banker "of moderate in- in the
elk-ve, by the Sub-
-[•HI: LEGAL i KNDKI: ACTS. 213
Treasurer of the United States, Mr. Cisco, to have his bank
take and dispose of some of " our bonds." lie treated the
request with -contempt. This matter was so well known at
the time of his appointment as Secretary of the Treasury,
as to be talked of on the streets of Washington, and was
hushed up by ms friends only v.ith great difficulty.
The partial legal tender Treasury note (greenback), issued
by the government, now constituted the medium of exchange
of the nation. Its legal tender property gave it the power and
functions of money, to measure and exchange values. The
legal tender money of a country is the measure of all values
and the basis of all money contracts among its people; conse-
quently prices in the Tinted States came to be regulated by
the greenback and not by gold. Any one can satisfy him-
self on this point by comparing the market prices of any of
the leading products of the country for a given time with
the fluctuations in the price of gold. Secretary Chase
referred to this fact in his second annual report, in which
he said: uThat such is the case (no redundancy of the cur-
rency) may he reasonably inferred from the fact that the
prices of many of the most important articles of consumption
have declined or not materially advanced during the year.
Wheat, quoted at xi.:;s to $1.45 per bushel on the first of
November, 1861, was quoted at $1.45 to $1.50 on the first of
November, 1802. Prime mess pork on the first of Novem-
ber, 1861, was quoted at & 1 ~> to $15.50 per barrel, and on
the first of November, 1862, at $12.50 to $13. Corn sold on
the first of November, 1861, at 62 to 63 cents per bushel,
and on the first of November, 1862, at 71 to 73 cents. A
comparison between the prices of hay, beef, and some other
staples of domestic produce, at the two dates, exhibits
similar conditions of actual depression in price or moderate
214 THE I.Er.AL TEXDET5 ACTS.
rise." Products rise and fall in price according to the
laws of supply and demand. Foreign goods, however, the
duties on which have to be paid in gold, are subject to a
different standard of payment, and are governed in price
•ly by the price of gold. The price of gold is reirulated
by the laws of supply and demand, supplemented by the arts
and efforts of speculators and gold gamblers. As long as
the greenback was convertible at the will of the holder into
a six per cent, gold interest bond, there was no danger of
its becoming redundant, or in any way affecting the price
of domestic products. But, as we have seen, this converti-
bility was taken away, in the face of the plighted faith of the
government, after July 1, 1863.
On March 3, 1864, an act of Congress was passed giving
Secretary Chase still further discretionary power. It author-
ize-1 him to issue $200,000,000 of bonds, bearing date March 1,
1864, or any subsequent date, redeemable after five years and
payable in forty years, in coin, bearing interest not exceeding
per cent., subsequently known as 10-40 bonds. Un
authority of this act, Secretary Chase, immediately after the
5-20 bonds bearing six per cent, interest had been di>j>
of, put 10-40 bonds bearing only Jive per cent, inu -iv>t mi
the market. Very naturally the loan did not prove a suc-
. and by the 1st of July, 1864, the sum reali/ed from
10-40 bonds amounted to only $73,337,750. In order to
defray tin- expenses of the Lro\ eminent, the Secretary OOD-
tinn e evidence* of indebtedness of the government
in various forms calculated to circulate as a eurrency. By
this lime National Bank notes he^an to swell the volume of
the currency. The following statement shows the amount
and kinds of paper in circulation June 30, 1864:
Tin: i.Kt-.M. TENDER A- i -. J 1 5-
U. S. not,-, greenbacks *4:) 1,1 78,070 84
iWal, fractional currency 2i',s!) 4,*77 25
Interest bearing legal tender Treasury notes 1 (is,:,; 1,150 00
Certificates .,f Indebtedness 100,720,00000
National liank notes 25,825,095 00
State liank circulation about 135,000,00000
Seven-thirty Treasury notes 100,350,15000
Temporary deposits 1'or which certificate*
were issued 72,330,101 44
$1,125,877,034 53
From the above table it will be seen that the country was
flooded with paper securities of the government of every
description, mostly bearing interest and issued in a form to
circulate as currency. Now take into consideration the
fact that over 'S700,000,000 of bonds bearing interest payable
•in [i old had just been issued, and also that the military
situation was very critical, and no one can fail to see into
what a wretched condition the finances of the country had
been brought. The ''bulls'" and "bears" of Wall street fairly
rioted in the speculation and gold gambling which ensued.
The premium on gold began to go up. On the 15th of
January, 1804, it was 1.55; on the 15th of February, 1.59;
on the loth of April, I.7S; on the- 15th of June, 1.79; on the-
30th of June, 2.50; and on the llth of July, 2.85£. The
business affairs of the country were of course greatly
deranged, and distrust became general. The credit of the
government suffered enormously — worse than if it, had BUS?
taincd a do/en defeats in the field. P»ut the iraine had been
carried too far, and it was no longer possible to deceive the
public, so something had to be done to allay public feeling
and restore confidence. Secretary Chase was compelled to
resign June 30, 1804. No change, however, was made in
216 TIIK LK(iAL T KM> F.i: ACTS.
the policy of the Treasury Department, and matters went
on from bad to worse.
BONDS, ETC., EXEMPTED Fl'oM TAXATION. GREENBACKS
LIMITED TO 8400,000,000.
By the act of June 30, 1864, the amount of greenbacks
issued or to be issued, was limited to 8400,000,000, and "such
additional sum, not exceeding $50,000,000, as may be tem-
porarily required for the redemption of temporary loans."
The Secretary was authorized to issue $200,000,000 legal
tender Treasury notes bearing interest, payable in three years.
By the same act all bonds, coupons, national currency, United
States notes, Treasury notes, fractional notes, certificates of
indebtedness, certificates of deposit, etc., were declared to
be exempt from taxation by or under State or municipal
authority.
SENATOR FESSENDK.V A I'POIXTKD SECRETARY OP
THE TKEASl UV.
William P. Fessenden, United States Senator from Maine,
was appointed to succeed Secretary Chase, and entered upon
the duties of his office July 5, 1864. Secretary Fessenden
raided tlie means to carry on the government to March 4,
1865, by issuing greenbacks, 7-30 Treasury notes, interest
bearing Treasury not« •-, eutificates of indebtedness, 5-20
bonds, etc. Secretary Fessenden, while in the United States
Senate, had played a conspicuous part in mutilating the
greenback, and the following paragraph from his annual
1 ier, 1 MM, in view of his course, cannot fail
to strike the reader as n, singular admission. lie said: "Tke
o of the past few months cannot have failed to
convince the most careless observer that, whatever may be
lundant circulation upon the price of coin,
other causes have ext greater and more deleterious
THE LE<;AL TI:M 217
influence. In tin.- course of :i few days the price of this
article n»e fn.ni *l.f>t) to x-J.sri in paper 1'or $1.00 in spe«-i«-,
and subsequently fell, in as short a period, to $1.87, mill
then again rose us rapidly to $2.50; and all irifhont any
tuifsiy nable cause, traceable to an i> <>r decrease
in circulation of paper money, or an expansion or con-
traction of credit or other similar influence <»n the market,
tending to occasion a fluctuation so violent. It is quite
apparent that the solution of tlic problem may be found
in the unpatriotic and criminal efforts of 8jn:culator89
and probably of secret enemies, to raise the price of coin,
regardless of the injury inflicted upon the country, — or
desiring to inflict it." No man living, except John Sherman
•of Ohio, was better able to explain how and through whoso
instrumentality these rascally speculators were enabled to
prosecute their " unpatriotic and criminal efforts" than Mr.
Feesenden himself. Under the circumstances Mr. Fesscn-
den did not iind the position of Secretary of the Treasury
.a very comfortable one; and at the beginning of Mr.
Lincoln's second term he surrendered it with feelings of
great relief.
AITOI.NTKI) SKt KllTAKY OF THE TREASURY.
Immediately afler I 'resident Lincoln entered upon his
•second term of office Hugh McCulloch, a banker, of the
State of Indiana, was appointed Secretary of the Treasury.
Mr. Me('ulloch was unknown to the public, but it was
hoped that, being a banker and of course familiar with the
manner in which the government and people were being
robbed by the money power, and not identified with the
corrupt political ring at Washington through which it
operated, he would endeavor to restore the finances of the
•country to a more healthy condition. Never were a people
218 THE I.I:<;AL TKNDKI: A« TS.
• loomed t-> be more bitterly disappointed. McCulloeh not
<»nly entered into tin- de-i^ns of the money power, but
became its most subservient tool, and retired with tlie repu-
;ig tlie iirst Secretary of the Treasury of the
Uni- 9 who had ever prostituted hb high olliee for tlie
purpose of enriching himself and his associates. Henry C.
CM ivy, wh-> had a conversation with him immediately after
his accession to office, says that lie expressed himself then
i favorable to contraction, and quotes him us saving that
he ^.should gladly see it (gold) at 1.75," meaning that he
would not favor contraction for the purpose of reducing the
premium on gold. "Three months later," says 31 r. (.'a.
k>he was instructing his representatives abroad to give-
assurances that we should have resumed specie payments-
before the 7-30\s became due. Two months yet later came
the destructive Fort Wayne decree (a letter from McCulloch
in which he expressed himself in favor of the policy of con-
traction), ami from that hour did the Secretary persist in
the ab>urd and injurious policy therein announced."
Mr. McCulloch, at the same time that lie was giving
instructions to his representatives abroad that we should
have r.->umcd specie payments before- the 7-HO's became due,,
was issuing 7-:50 Treasury jioles and compound inte.
bearing Treasury notes-, made :i tender at their face value,
to an enormous amount. The payment of the army, which
inu.stcivd out of service during this period, alone
re.juircd an iimnen.se sum, which was obtained by selling
i-ury noles through the agency of Jay Cooke. The
amount of 7-:;i) Treasury QOteS ouMaiiding October, 1SG5,,
which were, convertible in ]e-> than thi into 5-'Jo
nt. bonds, was $830,000,000.
The following -it of the debt and circulation!
Of tlie United Stato, Us it stood October 31, lb<
Tin: LEGAL TI:M»I.I: .-. 219
Bonds, HMO'S, live per cent., due in 1 On t . . *i T-J, 770,100 00
IJonds, I'a.-itic U. U., o percent, duein i i^:.s"oooo
Bonds, 5-20X0 per cent, due in 1882/84/85 Ofi ) 00
Bonds, C. per cent., dub in 18S1 .......... 265,947,400 00
I'x.nds :> per (-nil., due in isso .......... is.i i.-,,nno 00
ISonds, :> JUT cent., due in 1S74 .......... 2i.»,«>0«uii»0 00
Bonds, 5 per cent, due in 1*71 .......... "> 00
Uonds, 0 percent., due in |s<;s .......... U 80
Bonds, 6 per cent, dne in 1*07 .......... 9,415,25
llnnds, Texas indemnity, jiart <liR' ........ " ><) ()<>
s. Trc-asury notes, etc., part due- ...... oi
Total IJ.nids .................... Ul, 103,769,611 8&
Compound interest notes,
.tui- in 1SU7-'08 ....... ^173,012,141 OO
7-30 Treasury notes, duo
in ISO? and isos ...... 830,000,000 00
'IVmiiorary loans, 1(» da\ -'
notice. ' ........... .. 90,107,745 4G
Certificates of indel»ted-
ni-x. due in 1800 ...... 55,905,00000
Tre-isurv notes,.") percent.,
I )ec. 'l, 1865 ......... 32,536,901 00
United States notes ..... 4'js,h;i»,r,o«) 00
Fractional currency ..... 20,057,409 20— 1,044, 77D,s-J5 66
Total debt October :J1, 1805 ...... x-J.-o-.:- I1.'. 437 55
National Uank notes issued ............. $185,000,000 00
State Bunk notes issued ................ 65,000,000 00
Treasury notes, greenbacks, etc .......... l,044,779,s-j:,
Total circulation* ............... $1,894,779,825 66
Secretary McCulloch, in his lir>t annual n-port, Dec-eiiibt,-!
4, 1865, argued that the legal tender acts were war measures
and only temporary in character, and "ought not to remain
in force a day longer than would be necessary to enable the
people to prepare for a return to the gold standard; and that
•See table of circulation, Sept. 1, isco, yax'e 16.
220 TIIK 1KGAL TKN'DKi: I
the work of retiring the notes which have been issued should
bo commenced without delay, iind carefully and persistently
continued until all are retired." On the 18th of December,
1 865, Congress adopted a resolution " cordially concurring
in the views of the Secretary of the Treasury, in relation to a
contraction of the currency," by a vote of 144 to G. This was
followed by an act of Congress, approved April 12, 1866,
authorizing the Secretary to sell 5-20 bonds, and with the
proceeds to retire six per cent, compound interest notes and
legal tender notes (greenbacks), and other evidences of
indebtedness of the government, but not to retire more than
four millions of dollars of greenbacks a month, or forty-eight
millions of dollars in a year, but without restriction as to the
amount of compound sixes and seven-thirties. This net gave
Secretary McCulloch unlimited control over the monetary
affairs of the country.
The banks and sharks of Wall street and their kind, at
home and abroad, held hundreds of millions of securities of
the government, which they had purchased at various prices
ranging from thirty-five cents on the dollar upwards. During
the war whilst these securities were being emitted, it was the
policy of the money power to depreciate their value in every
way possible, in order that they might be bought in ata sac-
rifice. Hence it was that interest on the bonds and duties
on imports were made payable in gold, and Subsequently,
that the convertibility of legal tender notes into bonds \V;LS
abrogated. It was for the same reason, too, that Congt
instead of adopting a plain, simple system, easily understood
by the public, SUCh as tli»- Iciral tender Treasury note sus-
tained by an interest bearing bond, JM i authorizing
the S"i-ivt-i.ry of the Treasury to issue government securi'
bearing interest, and mostly payable in three years, in all
.sorts of forms and shape-. G . • nnnent obligations were
•i in; LEGAL 1 BNDXB ACTS. ii-J 1
issued during tin? w:ir by the Treasury Department in fifteen
different forms. It wa> of course impossible for the general
public to keep the run of, much less t<> understand, all t!
various forms of indebtedness, nor was it designed that they
should. It need scarcely bo added, that issuing the securi-
ties of the government in these peculiar forms furnished the
banks an additional opportunity to prey upon the people.
As soon as the last batch of 7-30 Treasury not, >
disposed of by McCulloch to raise means to pay off the ai my
oil the eve of its disbandment, the money power changed
its policy. It was now to the advantage of the holders of
government securities to do everything in their power to
enhance their value. Accordingly from this time on the
efforts of the money power will be found turned in that
direction. Secretary MeCulloch, who had informed Mr.
Carey that he would like to see gold stay at $1.75, as we
have seen, was soon brought to terms, and was now a xcaloiis
champion of contraction, for the purpose of bringing the
country back to "honest money." The Treasury n
purposely made payable in three years, and which wen*
convertible into 5-20 bonds, constituted the greater part of
the public debt held at home. These notes were payable in
lawful money (greenbacks), and it became an important
object to have them converted into long time bond-,
that the money power might have ample time to secure such
legislation as would result in the principal as well as the
interest being paid in gold. Mr. MoCulloch entered into
this method of liquidating the outstanding obligations of the
government with great zeal. The following items taken
from his report of December, 1866, exhibit the ehara
and extent of the contraction which took place (by Mil»ti-
tuting 5-20 bonds for Treasury notes, etc.,) from August 31,
1865, to October 31, 1866:
222 THE I.KC.AL TI;M>I-;U ACTS.
Temporary l«i.-m, •!,."> and G per cent., arN • >{'
February 25, I 862, and June 30, 1804. . . $502,140,714 27
C'crtilirates of indebtedness, 0 per cent., acts
of March 1, 1802, mid March 3, 1803 84,911,000 00
Treasury notes, 5 per cent., one and two
years," art of March 3, 1863 31,000,000 00
Treasury notes, 7-:w, act of July 17, 1861 . . 295,100 00
Compound interest notes, 0 per cent., act of
July 30, 1864 68,512,020 00
Treasury notes, 7-30, acts of June 30, 1864,
and March 3, 1865 105,985,700 00
United States notes, acts of July 17,1861,
and Fein-nary 12, 1862 134,610 00
United States notes (greenbacks), acts of
February 25, 1802, and March 3, 1863. . . U^::"J74_00
Amount retired first year *;ii)5,.S15,318 27
This policy was persisted in until all evidences of indebt-
edness of the government bearing currency interest, and
having hut a short time to run, "were converted into gold
interest long bonds. The following synopsis of the public
debt statement contained in Secretary McCulloch's annual
report of December 1, 1868, will exhibit the progress made
by him on the 1st day of July, 180*:
DEBT HKAKINf^ riU.V IXTKKEST.
r> per cent, bonds $221,588,400 00
0 per cent, bonds 1,848,415,24 1 so
Navy IVn.Mon fund 13,000,000 00 — $2,083,003,641 80
J>I:I;T r,r..\i:i\i; <TI:I:ENCY INTKKI
6 per cent, bond*. $29,089,000 00
:; yearcomp'nd int. notes 21,604,890 00
• 7-::i) not.- 25,534,90000
:; "per cent, eertiiicates. . 50,000,000 00 — $126,228,790 00
MA n i:n> DEBT BTOT P&B8EN1 i:i» F«»I: ]-.\^ M i
Treasury notes, com pound int'st n..t. •>,<•!<-. . j »;t
DEBT BEABHTG NO IN I 11:1 8T.
reenbacks) -s;;;,«;j \ 1.723 oo
tional currency. ; i 75
Gold oertific'sof deposit 1 7,678,740 00— $406,447,414 75
Total debt XL>}ij:;o,207,149 19
Tin: pBG \i. TKXDEB A< i >. 223
In thi' meantime contraction lia.l d«»ne IN work. IIu
men began to suil'er ami the induM rics of the country to
•decline. "Hugh McCulloeh had tapped a great, artery ami
let nearly all the Mood How from the body politic.*' Ue>idcs
the hundreds of millions of evidences of indebtedness of the
.government, used as currency, taken from the channels of
trade, the greenback circulation was contracted from August*
1865, to July, 1868, $70,730,630.76. The public began to
realize, though only partially, the cause of the great ch mge
that was going on in the business a flairs of the country, ami
•called a halt. Mr. J. A. Stevens President of the Chamber
of Commerce of New York City, in a letter to the New
York Times in 1873, thus refers to this period: '-The
•country at large had felt the pressure of the screw, but had
not been able to discover precisely from what quarter the'
pinch came, the contraction being confined to those outside
forms of Treasury obligations which, though not currency
in the strict acceptation of the \\ord, were still used as such
in the larger transactions of trade and financial exchange.
"When, in a time of general pressure, the currency itself
became the subject of the pruning knife, the country not
•only felt the knife, but saw how it was handled, and refused
to submit to the * heroic treatment.'"
Congress was compelled, in January, 1868, by the force
•of public sentiment, to pass a law declaring "that from and
after its passage, the authority of the Secretary of the
'Treasury to make any reduction of the currency by retiring
or cancelling United States notes (greenbacks) shall be and
is hereby suspended/' But the mischief had already 1
•done. The greenback, however, was saved to the people.
In 1865 and 1SOO, after the termination of the war, indus-
try, by reason of the abundance of money in circulation, was
rife throughout the country, and production went on as it
224
TIN-: l.Kt.AL TKNDKIi ACTS.
hail never done In-fore. During the years 1863, '64, '65 ana'
66 the failures throughout the country, as reporter! in Hunt's
Magazine, averaged only 545 a year. In 1807 they run
up to 2,386, and continued above that number until 1ST:',,
when they reached 5,181, with liabilities to the, amount of
$228,490,000.
In 1865 general prosperity prevailed, and as McCulloch
himself lias since admitted, the people were individually out
of debt. Business then was done for cask. But as money
grew scarce business men were obliged, as in days before the
war, to resort to the banks and borrow bank credit, i Business
was no longer done on cash principles. As like causes pro-
duce like effects, so the use of bank credit, rendered necessary
by the scarcity of money, brought the business affairs of the
nation back to the same condition in which they had been
for sixty years prior to the war. A commercial crash was only
a question of time, and accordingly it came in 1873.
AN \< r TO STI:KN-<;TIIK.V TIIK runi.ir UIEHIT OF TIIK
TMT]:i> STATKS.
Every ;ict of Con - . ig to the financial measures
of the government «U. war was passed with a viewto-
depreciating the public credit. So, now, after the war wa-
over, and the money power had obtained possession of pll
the outstanding obligations of the government, every act
that was passed was pa-scd with :i view to increasing their
value. The 5-20 bonds Of the government were payable in
lawful money of the Tinted States. It will be remembered
that when the first, legal tender act wa^ l-Vhruary
.', the ch'n I' 1> 'Mention lielweeii the Senate and
II<«iiM> was the payment of tin- I "ii the bonds in
ader notes were made a tender for "all
as and demands . x • ' cs of every
THJ: I.KI.AI. TI MX i: A«TS. 225
kind whatsoever, except f <>i- interest »/">K i>«n<(.-< dud
note*, which shall be paid in coin, and shall also In- lawful
money and :i legal tender in payment of all debts, public
and private, within the United States, except duties on
imports and interest as aforesaid/' This language is per-
fectly plain and explicit and leaves no room for doubt.
When the bill was pending in the Senate, Mr. Collamer, of
Vermont, offered an amendment depriving the greenback
of its legal tender quality so far as the public debt was
concerned, and, at the same time, said that if the bill did
not mean that bonds were payable in greenbacks, it meant.
nothing. His amendment was voted down. Senator Wilson,
of Massachusetts, declared that greenbacks ought to be a legal
tender for the payment of the public debt, and that if they
were not lie would vote against the bill. The Hon. Thaddeus
Stevens subsequently declared, that "when the bill was on
its final passage, the question was cxpiv^ly asked of the
chairman of the Committee on Ways and Means, and as
expressly answered by him, that only the interest was pay-
able in coin. If I knew," he added, "that any party in this
country would g<» for paying in coin that which is payable in
money, thus enhancing it one-half; if I knew then- was such
a platform, and such a determination on the part of any
party, I would vote on the other side. I would vote for no
such swindle upon the tax payers of this country; I would
rote for no such speculation in favor of the large bondhold-
ers— the millionaires who took advantage of our folly in
granting them coin payment of interest."
The first mo\e made by the bullionists and bondholders
was to educate public sentiment, through the press, in regard
to the "sacrcdncss of the public, faith." The leading new-
papers of the principal cities took up the song, and before a
great while the gentlemen of the country prc»<, who are
L'_'t; I.Kti.M. TKXI»K1I '.
quick t«> Irani which way the wind lilu\\>, were heard,
together with the demagogues of both parties, joining in the
chorus. In many (A' the Western States, whose peopk- arc
not so completely en-laved by tlie money power as their
brethren of the east, public opinion manifested a disposi-
tion to demand tliat the five-twenty bonds should be paid
agreeably to the terms of the acts providing for their issue —
in greenbacks. This was not confined to any particular
party. Accordingly we find Senator Sherman, in a speech
in the Senate, February -7, 1S08, uttering the following sen-
timents. He said: ul say that equity and justice are amply
•v'ltistied if we redeem these bonds at the end of fi\ e year-.
in the same kind of money, of the same intrinsic! value it
bore at the time they were issued. Gentlemen may reason
about the matter over and over again, and they cannot come
to any other conclusion; at least, that has been my conclu-
sion after the most careful deliberation. Senators are some-
times in the habit, in order to defeat the argument of an
antagonist, tO Say that this is repudiation. Why, sir, every
citi/en of the I'nited States ha> conformed his business to
the legal tender clan- Kvery State in the I'ni.m,
without exception, has made its contract-, MM,-.- jhe legal
J'-nder claii-e, in currency and paid them in currency." And
itor Morton declared that, t% we should do foul injustice
to the government and the people of the Tinted States, after
we have sold these homN on an average for not more than
-i\ly cents on the dollar, now to propose to make a new
contract for the benelit of the bondholder."
The Presidential campaign of |si;.s was impending, and
it became neces>ary for the money power to report to extra-
Miary efforts to obtain the direction of political affair-..
The JiotliM-hilds were in pO8fe881OH of several hundred
of 5-20 bonds, purchased at about sixty cents on
TIIK LEGAL F I.M.I i: A. TS. 227
the dollar or lex>, :md were particularly interotc.i. Their
agent, August Belmont, who had secured the position of
chairman of the Democratic National Committee, was
instructed by l>aron .lames Rothschild as early as March 13,
1868, that unless the Democratic party went in for paying
the .r>-'jo bonds in gold, it must be defeated. The fir>t step
\vas to have the national convention held in New York City.
It accordingly convened there on the 4th of July, 1808.
IJelmont and his satellites were unable to control the con-
\ention, at least in the matter of the platform. After a
Monny session the platform was promulgated on the 7th of
July, and contained the following plank: "Resolved, Third:
When the obligations of the government do not expressly
Mate upi.ii their face,' or the law under which they were
issued does not provide that they shall be paid in coin, they
ought in right i«» be paid in the lawful money of the United
States." This resolution doomed the party to defeat. At
this time Mr. Ilclmont owned a large interest in the New
York H '"/•///, generally regarded as the leading Democratic
newspaper in the country. About the first of October this
interest is believed to have been transferred to Man ton
Marble, editor and part proprietor of the paper. On the
l."ith day of October, a few weeks before the general election,
the ir<//-A/, to the consternation of the democracy through-
out the country, came out in a leading editorial denouncing
Horatio Seymour, the candidate of the party for the I'IVM-
dcncy, as unfit and unavailable, and advising his withdrawal.
This act of treachery has ne\er been equaled in the unnaK
of politics; and, strange to say. the W<>r!<l, under the same
corrupt influence, continues to occupy the position of a
leading Democratic newspaper. The money power was
more successful with the leaders of the Republican party.
Through its aid (4rant was triumphantly elected. President
228 TIM-: i.i-:«; AI. 'i ) \i>i i: AITS.
(ii-:mt wax duly inaugurated on tin? -it!) of March, 1869,
and in pursuance of the programme marked out for him,
thus alluded to'-the sacrcdness of the public faith'' in his
inaugural message, lie said: "Let it be understood that no
repudiator of one farthing of our public debt will be trusted
in public place, aiwl it will go far toward strengthening a
credit which ought to be the best in the world, and will
ultimately enable us to replace the debt with bonds bearing
less interest than we now pay." This was intended as a
warning to all those who might desire to stand well with
the administration.
On the 12th of March a bill was introduced in the House
by Mr. Schenck, of Ohio, entitled " An act to strengthen the
public credit of the United States*" Indue tinw it pas^-d
both branches of Congress, and was approved by the 1'rc-i-
dent March IS, JHOO. It was the first act of Congress that
received his official sanction. This act provides as follows:
• ///; it enacted, etc.. That, in order to remove any doubt
a^ to the purpose of the government to diseharge all its
obligation-* to the public creditors, and to settle conflicting
<|ii«'stions and interpretations of the law, by virtue of which
such obligations have Keen contracted, it is hereby pro\ ided
and declared that, the faith of the I'nited States is solemnly
pledged to the payment in coin, or its equivalent, of all tin;
obligations of the 1'iiitcd States not bearing interest, known
as Tinted States notes, and of all the interest bearing obli-
gations, except in 0*061 where the law authorizing the issue
of any such obligations has expressly provided that the sam«-
may be paid in lawful money, or in other currency than gold
and Ml\er; but none of the said interest bearing obligations,
not already due, shall be redeemed or paid before maturity,
unlessatsuch tinn-sa* Tnited States note- shall be convertible
> coin at the option of the holder, or unless at such time
LOTS. 229
bonds of the United States, bearing ;i lower rate of interest
than the bonds t«> lie redeemed, can be sold al par in coin.
And the United States al><> solemn! v pledges its 1'aith to
make provision at the earliest, practicable period for the
redemption of the United States notes in coin."
To show conclusively that the 5--JO six per cent, bonds of
the1 United States were not regarded either at home or
abroad as payable in coin, Mr. Lawrence, of Ohio, called
attention to the fact that, "on the 30th day of November,
1867, (over two years after the war was over) «»iir five-twenty
six percent, bonds sold in London at To;- cents, while New
Brunswick and Cape of (iood Hope six per cents sold at
i <)•"> ; Russian five per cents at 86 :iud Brazilian live per cents
at 75."
Congress and the President had done everything in their
power to make the 5-L'n's payable in gold, but the Roths-
childs and the money power generally were apprehensive as
to the future, inasmuch as the act of Congress of March 18,
1869, was in violation of the terms of the contract under
which the bonds had been issued, and might be repealed.
No time was lost, therefore, in inducing the Secretary of the
Treasury to pay off these bonds in gold. By means best
known to themselves, .McCulloch had been induced to redeem
about $150,000,000 of these bonds, during his administration
of the Treasury, and the process t?as continued under llout-
well and his successor^, until the 5-%JO bonds, issued under
the original act of February 'J.~>, lsr»-_', were all redeemed in
gold or its equivalent.* This single act of robbery, for it is
only one of the manv acts of robbery which have been
perpetrated by the money power during the past few years
under the guise of law, will foot up about as follows:
'See public debt statement, p.-uro _v:i.
230 TIII-: I.K«;AI. TKNDKR ACTS.
Amount of 5-20 six per cent, bonds $500,000,000 00
Interest in gold at six JHT cent., compounded
semi-annually, fur ten years 403,096,1
Total §903,090,132 7 1
Cost of $500,000,000 bonds at say sixty cents
on the dollar 300,000,000 00
Net profit in ten years, in gold $603,096,1::-' 71
KI;I TMH.M; THE PUBLK I»KI;I.
The next move of the money power was to have the public
debt refunded, in order to place its payment in coin beyond
all question. Accordingly an act entitled "An act to author-
ize the refunding of the national debt," was passed and
approved July 14, 1870. This act provided, uThat the Sec-
retary of the Treasury is hereby authori/ed to is-ue, in a -un:
or sums not exceeding in the aggregate $200,000,000, coupon
or registered bonds of the United States, in such forms a^
he may prescribe, and of denominations of fifty dollars, or
some multiple of that sum, redeemable in coin of the
present standard value, at the pleasure of the Tinted St ,
after ten years from the date of their issue, and hearing
interest, payable semi-annually in such coin, at the rate of
five per cent, per annum." $300,000,000 of like bonds,
bearing four and a half per cent, interest, redeemable after
fifteen years, and also a sum of bonds bearing f«>»r |«'i' <^''»t-
interest, redeemable after thirty year — in all not t«. exceed
$1,000,000,000, were also authori/ed. The Secretary of the
Treasury was authori/ed to sell the>c bonds at par for coin,
and with the proceeds to redeem any of the bonds of the
United States outstanding, known :t> live-twenty bonds, "or
/" ///"// exchange the same •/ < j>>-< firenty bonds^
par for par."
. IJy t lie act of January 20, 1*71, the act last n-cited was
THE LK(iAL TEXDKR A« 18, 231
amended go a* to incrcaM- tin- amount of ti\e per eent. gold
bonds authori/ed t.> be iwiied to *.~>nn,()00,000, and to make
the interest «ni tin- bonds payable, at the discretion of the
Secretary, "
Under these two acts gold IMUI.U to the amount of $465,-
558,450 wore issued up to Novi-iulu-r, is;:,; and :i liill,
of ;i like c-liaractc-r, introduced l»y Sherman in the Senate, is
now pending iu Con^rex, to coinpK'te the job. When it
shall have pasvd ( 'oii^rr«-», the c-ntire jiuhlie deht, contracte.i
in lawful money at a time when it was ^ivatly de|>ivciated
as eomparud with i^old, will be transformed into a debt
payable, principal and interest, in gold.
The following table exhibits the amount and eharart
the public debt, bearing interest, on the 30th day of Novem-
ber, 1875. It will be observed that the ^reater part of the
debt of the United States, incurred during the war, is now
represented by bonds issued since the war:
Loan of 1858, act of June 14, 1858, 5 per cent. $260,000
Loan of February, 1861, (M*-) a. i of 1-Ybni'y
8, 1861, 0 per Vent. ..................... 18,415,000
Oregon War Debt, act of March 2, '6 1, 6 per c. 945,000
Loan of July and August, 1861, (81's) act of
July 17, aiid Aug. 5, 1861, 6 per cent ...... 189,321,350
Loan of 1863, (Si's), act of March 3, '63, 6 p. c. 75,000,000
Ten-forties of 1864, act of .March :*, '64, 5 p. c. 194,566,300
Five-twenties of June, 1804, act of June 30,
1864, 6 per cent ........................ 46,891,100
Five-twenties of 1865, a. -t of March 3, '65, 6 p. c. 152,534,250
( ousels of 1865, act of March 3, 1865, 6 p. c. 202,663,100
Consols of 1867, act ot March 3, 1865, 6 p. c. 310,622,750
Consols of 1S6S, act of March 3, 1865, 6 p. c. :*7,474,000
Funded Loan of 18SI, actfl of July 14, 1870,
and January 20, I87la '• per cent* ......... 465,558,450
Total ........................ $1,694,251,300
TIIK I.K«;.V1. TKNDKR ACTS.
SPEriK i;i:>l MI'TIOX.
It now only remains i'<»r the money power to bring about
sumption of specie payments and it will have accom-
plished all its ends; and the American people will once
again be completely under its domination. From the day
that the old State banks suspended specie payments until the
present, time, that object has never been lost sight of for a
moment. No system of money lias ever been devised that
confers such absolute control over the currency, and through
it over the property and business affairs of a nation, upon the
money power, as banks of issue; and hence the adoption of
the National Banking scheme. But the greenback intern
very materially with the workings of the system, and it is
important that it should be got out of the way. There is
also another great incentive to cause the money power to
seek a return to specie payments. By a single stroke the
bondholding and creditor class will be enriched to the
amount of hundreds of millions of dollars.
In January, 1875, the bullionists found themselves strong
enough in Congress to pass a law decreeing spent- resump-
tion .January 1, 1879. The composition of the House of
UepreM-ntatives, at this time, is worthy of note, and should
open the eyes of the people to the necessity of sending a,
different class of men to represent them in that body. The
Hon. Moses VY. Field, of .Michigan, in a recent speech Ljives
a detailed statement of the professions and railings of the
members of the 4:Jrd 1 louse, of which he was a member,
a.s follow>: "Tin- forty-third Congress, t<» which I belonged,
was e.unpi.M'd of :;7!» members. In this number there u
-i\ lumbermen, thirteen manufacturers, seven doctors, foiir-
i men-hunts, thirteen fanners, three millers, one land
. one priest, one pn.fewnr of latin, one doctor of
ft, One barber, ..ne iiiech;inic, ninety-nine lawyers, and one
Tin-: i BO M i I:M'( i: \< i -.
hundred and eight\ -nine bankers. \\hirh includes -mckhold-
ers in National I>ank>." Almost ;l ,-lear majority of member^
were either hankers or interested in National lianks. The
specie resumption act then passed restfl like an incubus upon
the industrial interests «,f the country. Kver\ tiling, li«»\v«-\ t-r.
is working to tin1 satisfaction of the luillionixix and the bond-
holder-. As industry and production laiiLruMi. property
of all kindd depreciates in value, and when rt-xinnptioii takt-x
place, the money power will he enahlcd to gather it in, to the
amount of hundreds of millions more, on it- own tcrmv It
seems hard indeed that the farmer, the mechanic, the manu-
facturer, and the producing clasM-s LTenerally, who hear
almost the entire hurden of taxation, should thn<- he oppressed
by legislation, and millions of industrious people \n- dejin\ ed
of the opportunity of even earning their bread, for no other
purpose than to further enrich a single cla-s, whi<-h contril>-
utes not one iota to the LTeneral wealth of the country. But
the masses, as lonu: :»s they sink the duties and privile;:v«> p|
freemen in a blind partisanship, and permit themselves to be
manipulated bv demagogues through tlu- instrumentality of
party machinery, can expect no better fate. The «jue»ti"n
of re-uinption is one of such vital importance that it is
dexervin^ of more than a passing notice. It, will, therefore,
receive more particular attention in a separate chapter,
(Chapter VIII.)
V IlKIl.l UKIUOSI'ECT.
Ill 1SH1, whc-ii the 1-Vderal ( iovernment, unable t.. borrow
money at home or abroad, uax obliged to ap]>eal to the
masses, who wc-re l)0th able and willing to respond, the
great question was :,s to how the reaonroefl «»f the people
were to be rendered available to the «_rm crnnient. Taxation
was impracticable in the begiiminir, because the iroverinnent
did not possess the machinery for laying and collectinvr
L'34 Tin: I.KU \i. TKNDKK A.< i B.
Taxes, ami, moreover, there was not a sufficient amount of
money in circulation at that time to enable the peopi.
meet the extraordinary demands of the occasion. I'rud1
and labor the people possessed in abundance, but they could
be rendered availably only through the instrumentality o
medium of exchange. Besides it was necessary to establish
new forms of production, requiring capital to a large amount
in the form of money. The first requisite, therefore,
manifestly :i medium of exchange. This t-mhl he supplied
only by the Federal Government; for all power over tin-
currency of the nation is vested in the Federal ( Tovcrnment
by the Constitution.
The Federal (rovernment wanted guns, ships, food, ••loth-
ing, transportation, etc. The farmer could furnish fond;
the manufacturer, guns, wagons, etc.; and the ship builder.*
ships. Other classes did not possess such things as the
government required, but they did possess property
various; kinds and labor, which were wanted by the ship
builder, the gun-maker and the farmer. The people collec-
tively desired the gun-maker, the ship builder and tin- farmer
to forniBh the Federal Government with such article- as ir
required and they were able to supply, and were willing in
turn to supply the gun-maker. The ship builder and the
farmer with sii'-h property or labor as they might desire. to
whatever amount they might be entitled, IJut how could
this interchange he effected:' In no betler uay than by a
medium of exchange representing the property of the nation.
The people in their collective capacity, through the Li"Vern-
Jnent, could issue public note-, repi-cM-nting the entire prop-
erty of the nation, including gold, silver— e\ erything in I
word that could be reached by a tax warrant. The public.
note, of the value of say one dollar, if paid by the u<^ -eminent
to the gun-maker, would entitle him to receive one do]!
UN: LEG \i. i IMT.I: \. i-. 235-
worth of property, neither more nor less, iiut -nppose lh:it
the people, after they had nade this anangOBQUt with the
gun-maker, tin- farmer and the ship builder, in their collec-
tive capacity, through the agency of tlie government, should
refuse individually to rccei\e this paper dollar, representing
the property of the nation on which it is a lien, what then:'
This would clearly he acting in had faith with the gun-
inaker, the fanner ami the ship builder, and would lie tanta-
mount to the people repudiating individually what they hail
done collectively. Hence it is nothing more than a matter
of equity and fair dealing that the public note should be
made a legal tender; in fact in no other way could the
farmer, the gun-maker and the ship builder be reimbursed
from the property of the rest of the people for the guns,
food, etc., furnished to the government. A> N generally
understood by lawyers, if not by political economists, the
legal tender money of a country is the basix of all money
contracts among its people and the measure of all value-:
and necessarily conforms to the unit of value fixed in the
minds of the people by usage and education. By making
the public note a legal tender, it is clothed with all the
functions of money. It possesses value (the value of the
property which it represents), and by virtue of its legal
tender quality the power to measure and exchange value.
A public note, based on sound principles, it will be observed,
therefore, is capable of pel-forming a two-fold ser\ ice.
In the first place it enables the government which i>-iir- it
to draw upon the resources of the people in advance
taxation. The government pays it out for property or
services, and receives it again for taxes. In the second
place, whilst in circulation, it performs all the functions of
money, and in the end furnishes the mean- for the tax payer
,to meet his obligations to the government. The amount of
236 THK I.KG.VL TKMtKi; A.CTB.
greenbacks now in circulation is over $360,000,000. The
annual revenues of the government amount to about $300,-
000,000. It is apparent, therefore, that the greenback circu-
lation could all be redeemed in the revenues of the govern-
ment in a little over a year. From this it is evident that the
clamor of the bullionists for the redemption of greenbacks
in gold, or the funding of them in bonds payable in gold, is
only for the purpose of enabling them to swindle the gov-
ernment and people to the extent of the premium which tke
government would be obliged to pay to obtain gold for that
purpose.
It is clear, then, that the iirst step for the government to
take at the breaking <-ut. of the rebellion, to enable it r«> draw
upon the resources of the people, was to issue a legal tender
public, or Treasury note, lint no more money can be u-ed
by a people than is required by the legitimate operations of
trade. Professor Bonamy Price, whom we are glad to find
right occasionally, illustrates the point in this way: u Carts
and money are both tools — instruments of conveyanre,
endowed with the same nature and subject to the same
general laws. The question for each is the sanu — how
many are wanted for the work which they were invented
to do. In the ea>e of money, how much gold (or legal tender
paper money) can a nation use? How much can it find
employment for? The answer, as with earts, must be sought
from the special work money has to perform — that is, from
fchc amount of exchanging which calls for the agency of this
tool, the quantity of property of which the ownership has to
b,- transferred l>y this instrument. A cart tran-fcr- \\ciglit;
money, owner-hip; and all tin- world knows that the cartage
t" be done determines the number of cart-. In the same
way. tin- ownership of property which requires to be trans-
ferred by the actual employment of money iNclf, determines
THE J.t '.Al. 'I KM.KK Ar'is. 237
bow much money theiv «.u-lit t<> !»«• in :i nation. No other
answer is possible, unless it is denied that, money is only a
tool; if BO, another explanation of the nature of money must
be produced." For the government to issue legal tender
notes in return for property to an indefinite amount after the
channels of circulation had been supplied, would be contrary
to all sound principles of finance, as well as political economy.
The next step for the government to have pui>m<l was to
draw upon the resources of the people by taxation. But as
it was manifest at the time that the extraordinary expenses
of the war could not be wholly defrayed by taxation — in other
words, that the government could not, under the circum-
stances, act upon the principle — "pay as you go" — without
causing oppression and interfering materially with the
producing ability of the nation, the third and last step was
to issue a bond bearing interest, in order that the govern-
mernt might avail itself of the surplus capital of individuals.
No more perfect system of money or finance than this has
ever been devised. It is, moreover, simple and easily under-
stood by the people. This system was embodied in the
original legal tender act, as framed by the Hon. E. G. Spaul-
ding, an able financier and statesman. It was ardently
supported by the Hon. Thaddeus Stevens, who had thor-
oughly acquainted himself with all the systems of money and
finance of ancient and modern times, with all his powerful
ability. It met with the hearty endorsement of the Boards
of Trade and Chambers of Commerce of all the principal
cities of the North and AVest. Its adoption by the House
of Representatives was hailed with marks of approbation
and satisfaction by the intelligent classes every where through-
out the country. That it would have worked admirably in
practice is abundantly demonstrated by the performances of
the greenback in the most trying period of the nation's his-
•238 THE I.K<;AI, TKMH-:I: A- C8,
tory, and by tin- manner in which the people took the loan
of $500,000,000 of five-twenty bonds.
But through the machinations of the money power, and
the weakness and venality of the United States Senate, a full
legal tender money system was rejected, and in its stead ua>
.adopted a policy, which would have bankrupted, in a short
time, any nation not possessing the boundless resource-
the United States.
During the war every act and measure relating to finances
was calculated to depreciate the public credit; but as soon
.as the war was over an entire change of policy ensued, cal-
culated to render the burdens of the people doubly oppress! \ e.
That this may be seen at a glance, we give below a recapitu-
lation of the leading incidents and measures which marked
the two periods — during and after the war, as follow- :
FIRST PERIOD DURING THE AVAR.
1. The banks of New York, Boston and Philadelphia pro-
cured the suspension of the Sub-Treasury act, Aug. ~>. I ^»; i .
•2. The banks of Xew York, Boston and Philadelphia com-
bined to prevent lh<' passage of the legal tender act, and
sent delegates i«» Washington City for that purposr. .Jan-
uary, 1862.
3. The representatives <>f the banks of \cw York, IJnsti.n
and Philadelphia effected an arrangement with the S
tary of the Treasury and leading members of the Senate
to oppose a full legal tender bill, and to urge the p.-.
of a National Banking 1 ••«"'.
4. The legal tender act parsed in a mutilated form — int«-
on bonds and duties on import^ made payable in g.«ld,
February 25, 1862.
&. Paper emissions authnri/ed by CoDgrett and i-- lied by
the Secretary of the Treasury, to an enormous amount,
in fifteen different forms.
Tin: i EG vi. i i \ i»: i: \« Rg, 239
€. The $500,000,000 of 5-20 six per cent. bonds held l.\
tin- Secretary of tin- Treasury for over :i year, until the
country uas flooded \\ith paper cmU-ions of all kind-,
and then jmt out as a popular loan at par amount the
pe-.plc, to be bought iii by the hullionixt* at lit'ty cents or
less on the dollar.
7. Legal tender Treasury notes (greenbacks) further mutila-
ted (March 3, 1863) by repealing the clause in the original
act which made them interchangeable with ">-20 bonds.
8. Immense sums of Treasury notes, bearing interest, pa\a
ble in one, two and three years, issued, when it was well
known that the Treasury Department was unable to make
any provision for their payment at maturity.
0. A bill passed (I-YbYy 42f>, 1S03,) authorizing the establish-
ment. of National J>anks, which could render no aid t..
the government, and whose currency tended to swell the
volume of paper in circulation.
10. The $500,000,000 loan of si\ per cent, bonds no sooner
taken than the Secretary attempted j,, put out a new loan
bearing only live per cent, interest.
11. Tht; failure to float the live per cent, bonds made an
excuse for emitting additional sums of Treasury notes,
bearing interest, and other forms of paper suitable for
a circulating medium.
12. The emission at the close of the war of immense sums
of 7-30 Treasury notes, payable in three \ cars, and con-
vertible at the option of the holder into long bonds bear-
ing gold interest.
BE< <>M> I'KKIOD — -AFTKi: TIM-: V, \l:.
1. "All bonds, Treasury not » - and other obligations of the
government shall be exempt from taxation by or under
State or municipal authority." (Act of June 30, 1864.
240 Till: I.K..AL TKNDKK A- 1 <.
Although parsed before tin- termination of the war, this
act belongs to tliis period. Like the* National Banking
law, it simply anticipated events.)
2. McCulloch issued his Fort Wayne decree, announcing
his determination to contract the currency.
3. McCulloch submitted his annual report, December, 1865,
in which he recommended contraction.
4. Congress passed a resolution, December 18, 1865, con-
curring in the views of the Secretary of the Treasury
in relation to the necessity of contracting the currency.
5. Congress passed an act, April 12, 1866, authorizing a
contraction of the currency.
0. McCulloch began to pay off the .5-20 bonds in gold or its
equivalent
7. .McCulloch substituted long bon. Is hearing gold interest for
Treasury note.-, etc., to the amount, of about $1,200,000,000,
which operated as :i contraction of the medium of
exchange of the country to that amount, occasioning grc.-n
financial derangement. Also retire-. 1 over $70,000,000 of
ureeiib.-icks between August, 1 s<;f>, ;,nd July, 1868.
s. COII-JTC — , compelled by public, sentiment, repealed (Jan-
uary, l-'J-j so much of the act of April 12, ISO*',, M
provided for the retirement of greenbacks, but took no
note of the contraction in other forms of the currency.
!). The people of both political parties began to protest
against the payment of the 5-20 bonds in gold, as a viola-
tion of the spirit and letter of the act under which they
\v«-rc i>xued.
10. The money power selected a President of the I'nited
tea i L86
11. The I'rexident of the Cnite.l State*., in his inaugural
message, March t, l^'i'.», notilied the public that he would
-.i-d all who did not fax or the payment of 5-20 bonds
Tin: I.K«;AI. TKNDI.I: li 241
in gold as repndiators, who need expert no f':ivi>rs from
his administration.
12. Congress passed a credit strengthening ,l( r, March l\
1869, the first act which received President ( Want's official
sanction.
13. The original loan of 5-L'o bonds paid <>tY in full in gold
or its equivalent.
14. Congrexx passed a law, July 14, 187", authorizing the
Secretary of the Treasury to refund x500,OOU,Ono of the
public del)t in bonds payable, principal and interest, in gold.
15. McCulloch's contraction policy bore its legitimate fruits,
and the country was visited by an old fashioned .•..mmer-
cial crash and money panic, September, 1873,
10. The people demanded relief, and Coiigro*, at it* ne\t
session, passed a bill authorizing the reissue of the -_ri« • n
backs which had been retired (44,000,000), and fixing the
amount of the greenback circulation at $400,000,000.
This bill was denounced by the money power a* an
"inflation" measure, and accordingly was vetoed by IVe-.-
ident (Jrant, April 'Jii, 1874.
17. The people rebuked the action of the I'rexidcnt by
electing, at the ne\l general election, in the fall of
a Democratic. IIou<e of lJ»-|»re>entati\ *•-.
18. At its next session, Congress (the old Congre»), under
the pretense of affording relief to the oppiv»ed industries
of the country, made National Uanking free to bond-
holders, by act of January 1 I, 1*7 ">.
19. And at the same time decree. I -peeie resumption, to
take place January 1, ls70.
20. An act to complete the refunding of the public debt in
gold bonds is now pending before ( 'oii^re**.
21. Bonds of the Tinted State-, which during the \\ar were
bought and sold at a* low a* thirtv-ti\ e cent* on the dollar
LQ
"242 THK I.Kii.YL TKXDKit ACTS.
in gold, now sell for over Si. 18, or at a premium of over
live- per cent, in gold.
In 1865, when the Rebellion terminated, the producing
forces of the Northern and Western States, the workingincn,
the land, the machinery, the mines, the water power, etc.,
were developing wealth in every possible direction, and the
people, individually free from debt, were in the enjoyment
of unparalleled prosperity. The wealth of the nation, in
spite of the ravages of war, had increased a* it had never
done before. The assessed valuation of the property of the
nation in 1870, notwithstanding the ruined condition of the
South, was over $30,000,000,000, as against * 16,000,000,000
in 1860. Out of the abundance of their productions the
people were enabled to meet all the demands <>l' tin- govern-
ment with ease. The Federal Government, indeed, began
to pay off the public debt rapidly. But in carrying out the
policy of the money power, it first paid off, by substituting
bonds, all those forms of indebtedness of the government
which served the purposes of money, thus depriving the
producing forces of the nation of their most important tool.
At this time the South, with all her magnificent resources,
lia< I been restored to the Union. Money was m •< -esaary to
set the producing forces of that section at work. Instead of
wisely taking this fact into consideration, and making some
provision that would enable the people of that section to
ivenve r from the disasters of the war, and contribute their
share towards bearing the burdens of governmental! entirely
opposite policy was purMicd. The production of cotton,
the chief Maple of the South, in 1870 amounted to only
3,011,990 bales, or a little over 50 per cent, of the amount
raised in 1860.
Now tin- American people are poor and in debt. Nearly
all forms of productive industry are paralyzed, and the
TIIK i.i... \i. 'i i:\i-i.i: A« rs. i>43
channels of trade are stagnant or sluggish. Real estate is
rapidly depreciating in value, which \\\\\ inevitably
in a general foreclosure of mortgages and transfer of
erty from the debtor to the creditor class throughout the
country. Instead of a million of non-producers carrying
muskets, as was the case during the war, there are now
several millions of people, who would gladly work for a
mere subsistence, in a state of enforced idleness, living on
the bitter bread of public or private charity. In a country
possessing boundless natural wealth, tramps and paupers
have become common. The nation is scarcely producing
more now than the necessities of life. And yet the j
are told that the present condition of affairs is due to over
production and like causes. The only over production
troubling the nation just now is an over production of fools
and rascals — rascals who teach such nonsense, to divert
the public mind from the true source of the trouble, and
fools who believe it. Since the attempt to re-establish a
false monetary system by means of contraction has worked
such wide spread ruin, it would seem to be but the part of
common wisdom, on the part of the people, to demand a
different policy, if not from conviction, at least as an experi-
ment It certainly could not make matters worse.
CHAPTER Vil.
THK .NATIONAL BANKING SYSTEM.
SECRETARY ('MASK, soon after lie entered upon the dis-
charge of the duties of Secretary of the Treasury, became
enlisted in a scheme to destroy the old State banks an<l rivet
in their stead a system of National Banks whose circulation
would be uniform throughout the country. In his first report
to Congress, in December, 1861, he recommended the pas-
sage of a law to accomplish this end. A bill was immedi-
ately prepared by the Hon. E. <J. Spaulding, chairman of
the Sub-Committee of Ways and Means, but it became
manifest that the machinery of such a system could not be
put. into operation in time to meet the demands upon the
government, and Congress was obliged to pass a law author-
izing the Seeretary of tho Treasury to issue Treasury notes
[greenbacks.)
The admirable manner in which the greenback per-
formed the1 uses of a medium of exchange aud its great
popularity rendered it tolerably certain that the people
would never willingly abandon it to return to the u-e of
State bank currency. The money power Mas <juick to
perceive this, and also that in no other way than through
the instrumentality of such a scheme as that proposed by
Secretary Chase and his advisers could it hope to again
obtain its former control over the currency of the country.
The National Hanking scheme, therefore, which at first,
excited .-onie opposition on the part of the old State banks,
MM, n came to be regarded by the majority of them as of the
IHK \\llo\\l. i:\NKIN-. BYHTiCIf, 245
highest importance. In December, L86S ,ry Chase,
in his second annual report, again urged tin- pa-*age of a
National Hanking law, for the purpose .,t e-taMi»hing "one
sound, uniform circulation of equal value throughout tin*
country, upon the foundation of national credit, combined
with private capital." There was no expectation <.;
pretense that the system could aid the government in any
way in the war then pending.
On the 2d of February, 1803, Senator Sherman n ;
a National Currency Bank bill from the Finance Committee
to the Senate. It was taken up in the Senate on the Oth,
and passed on the 12th by a vote of 22 to 21. On the 1.1th
it was sent to the House, but was not referred to the Com-
mittee on Ways and Means. On the 19th it was taken up
for consideration in the House, and was passed on the 20th
by a vote of 78 to 64. It was approved by the Piv>i -lent
and became a law February 25, 1863.
The brief time given to the consideration of this important
act, establishing a consolidation in the interest of the money
power, compared with which the monster that .Jackson slew
(the United States Hank) was a mere pigmy, cannot escape
notice. The people were absorbed in the war, and the
money power had full sway in Congress. The lion. W. P.
Noble, one of the few members who protested against the
passage of the act, alluded to this fact in the opening of hi*
speech against the bill in these terms: "Mr. Speaker, it is
not because I expect, by anything I ran say, to change a
single vote upon this bill, that I now claim the attention of
the House. On the contrary I am (satisfied, from the
and untiring efforts that are being made by the Secretary of
the Treasury in its favor, that the passage of this bill is a
foregone conclusion; not because it, or anything like it, is
246 TFIB NATIONAL BANKING SYSTEM.
demanded by the people, but simply because it is a pet
measure of the present head of that department."
THE NATIONAL BANKING LAW.
The National Banking law provides: First: That any
number of persons not less than five may form an association
for carrying on the business of banking.
Second: That any such association shall have corporate
power, to have succession for the period of twenty years, to
make contracts, to sue and be sued, etc.
Third: The capital of such associations shall be not less
than 850,000 in places whose population does not exceed
six thousand; not less than $100,000 in places whose popu-
lation exceeds six thousand; and not less than $200,000 in
places whose population exceeds fifty thousand.
Fourth:* The aggregate amount of circulation is fixed at
$354,000,000, to be apportioned as follows: $150,000,000
among the several States and territories according to repre-
sentative population; $150,000,000 to be distributed by the
Secretary of the Treasury according to his discretion; and
the remaining $54,000,000f to such States and territories,
having less than their share, as may make application prior
to July 12, 1871.
Fifth: No association is authorized to commence business
until it shall have deposited United States bonds to the
amount of £30,000 with the Treasurer of' the United State>.
Sixth: Kvery such association is entitled to receive from
the Comptroller of the Currency circulating notes to the
amount of ninety per cent, of the capital stock, if it does not
••••d *500,000; eighty per cent, if it exceeds $500,000,
but do«-s n«.t rxoeed £1,000,000; seventy-five per cent, if it
•00,000, but does not c\cced $3,000,000; and
per n nt. it' it exceeds $3,000,000.
•Mv Mir :i'-t nf.l:mtl.trv II. 1ST.'.. Hli^ M-rtioi) \v;i< rrj.rnlrd.
t*54,000,000 additional bank note* werp authorized by the act of July. 1870.
Tin: \\IION\I. u \SKIN.. BTBTm. 247
No National Hank currency was i^ued until about tin*
beginning of IW4. It will he remembered that the #.V
000,000 of 5-LM) bonds were not sold until tin- latter part of
ist;:t; consequently matters were not yet ripe for the 1ml-
lionists an«l hankers. In 1SG4, ho\s«-\er, their plans W(
sufficiently matured to enahle them t<> run gold up to an
enormous pivmium, in what .Mr. Ke^rii-leii, A\ ho was thru
Secretary of the Treasury, considered a very v-nnpan-i"
manner. For more than :i yi-ar -<'M lluctuate.l Lrtween
ahout 1.50 and 2.50, at-ronlin^ to the suerrx which attended
the efforts of the gold operators in controlliiiLC the market.
.Bonds of the government were bought during this period at
as low a price as thirty-five cents on the dollar in Lfold.
This gave the bullionists and bankers an excellent opportu-
nity to lay in, at low tiiritro, all the bonds that wen- needed
to establish National Hanks.
The amount of National Hank notes in circulation on
January 1, 1804, was $280,000; on July 1, l*t)4, it \\a-
$31,234,420; and on July 1, 1805, it wa- x| »«;.:::>.rs030.
Shortly after this the whole amount authori/.ed by law
was taken, and National JJank stock beiran to command a
premium. Thus was the National Hanking sy>ten,
upon the country at a time when it \\.i- neither ncedrd nor
desired, solely for the purpose of enabling the money po\\rr
to again usurp the right of supplying the na'iou with a
medium of exchange. It only remains now to retire the
greenback and resume .specie payments, and the money
power of the Tinted States will be clothed with a more
absolute control o\er the monetary alTair> of the country
than it ever had before.
OP TIIIC OK<,.\M/ATIO.\ or \MI"N\!. I'.ANKS.
National Hanks are established on the theory of combining
private capital with public credit. It will be found on
248 THE NATIONAL HANKING S\STKM.
examination, however, that this is purely a delusion. Private
capital is not an essential element in the establishment of a
National Bank; private credit will do as well. This may be
illustrated in various ways. Suppose A. owns #100,000 in
<> per cent Tinted States bonds. B., C'., I)., E. and K, five
persons, jointly 1>orrow these bonds from A., agreeing to
pay liim the interest regularly as it malure>, and return the
>ame or like bonds at some specified time, say in five or ten
years. \\.. ('.. I)., K. and I«\ organize a National Bank,
deposit the bonds with the Treasurer of the 1'nited States,
and obtain £90,000 of National Bank currency from the
Comptroller. So far as the bank or its currency is con-
cerned, there is no element of private capital involved in
the- matter. Its corporators or Stockholders have not paid in
a dollar for the capital stock of the concern. A.'s bonds are
not capital, because the people have already borrowed A.'>
capital and are paying him six per cent, interest in gold for it
('poll what capital then is the bank established? Upon no
<»thcr capital clearly than the public credit represented by
the $90,000 of bank currency lent to B., C., D., K. and I-'.,
without interest, on the strength of what the government
owes A.
Tin-re are of course innumerable ways in which individu-
als can utili/e their capital or credit in the establishment of
National Hanks. The lion. S. S. Marshall, of Illinois, in :i
sp.-rch on the iloor of Congress, .July 21, 1868, mentioned
the following instance: "An association of gentlemen (in an
Ka-t.-ni State) raised $300,000 in currency. They went to
the office of the Uegistcr of the Treasury and exchan
their currency for $300,000 in SIX. per cent, gold bearing
bomK They then went to the otlice of the Comptroller of
the Currency, in the same building, organi/.ed a National
mi: NATIONAL IJANKIM; M -i 249
Hank, deposited their $:iOO,000 in bonds ami received for
their hank #270,000 in national currency. They had let
(he government have $30,000 in cunvney IIK.IC than they
received fur hanking purposes, and ha«l on deposit *:{no,000,
4111 which they reeei\ ed as interest from tlie government
$ 18,000 :i year in gold (ami exempt from taxation.) Thi>
wa- pretty good financiering for these bankers to receive
1518,000 a year in gold on the $:JO,000 in eurrcney wliich they
had thus loaned to the- «roverniiient. J>tit this is not the whole
story. Tliey had their hank made a puhlic ih-positury.
Tlu-y so<»n discovered that then- \va*« x-an-i-ly ever le-s than
^51,000,000 of irovernment money deposited within their
vaults. They did not like to see thix Va*i *um lie idle.
They, then-fore, took X!,(KMI.(MM» of this u,.\ ernment mom-y
and bought $1,000,000 of live-twenty homU with it. In
other words they loaned * 1,000,000 of the u'o\ enuneiifs ,,\vn
money to the government, and deposited the ImmU rei-ei\e.|
in the vaults of their bank, on which they received from the
same «rovernment $00,000 :i year in «;ohl as interest. Thu>
for the $30,000 in currency, which they oriirinallv loaned the
irovernment, they received annually in all $78,000 in Lrold."
15ut this was by no means the limit to the le<_rali/ed rohberv
which these gentlemen were capable of perpetrating nmh-r
the National Hanking law. Since they had no seruple^ about
investing the- •government deposit of $1,000, (inn in ">-•.'(» bonds
and appropriating the interest to their own UM-, it iv not at
all likely that they would stop there, when, hv simplv dep.»>-
iting the $1,000,000 in 5-20 bonds with the Comptroller of
the Currency, instead of in their bank vaults, they could
draw eighty per cent, more currency, or by starting two
new banks of $500,000 each, they could draw ninety pel-
cent, more currency, to substitute for that amount of the
original deposit of the government iiM-d by them.
TIIK \.VIIo\.M. ISANKINt; SYSTKW.
The following table exhibits the number, nominal capital,
etc., of the- National Hanks in existence September 1,
together with the amount of their earnings, from March,
. to September, is;:t:
Ho. Banks. Capital. Surplus. Hot Earnings.
New England States, -196 $157,014,832 $38,303,887 $10,103,7: n*.
Mi.I.ll..- States, .'.'1 192,234,009 53,431,089 12,565,331
Southern State?, Irtl 33,259,530 3,600,607 .t>>,024
Western States, 707 10V>92,5SO 22,778,26-> 8,206,900
Total*, 11)53 8488,100,951 $118,113,848 188422,000
At this time, September, 1873, the National Bank circula-
tion was as follows:
Amount nf «'in-u1atioi»
Circulation. j>er r:ipit:i.
New Knirland States $110,489,996
Middh- States 124,008,139 12.82
Southern States 38,160,308 'J.!H
Western States 78,785,148
Pacific Slate> and Territories 1,924,688 L.82
Total for States ami Territories.. .$353,968,279 459. is
The protit.s of tlie National Banks, according to their own
rcpoi-T M>rth in the foregoing tables, are enormous.
This will appear from the following:
Nominal capital of National Hanks in 1873.. .$488,1!
IJank note circulation furnished by the govern-
ment, without interest :r>
i: -a! capital *134.1::-J.
Surplus earnings 1 Is. I I 3,fi 1 -
Total real capilal and Mirplus earnings x-J.~--.VJ t»;.:.jo
Net rarning.s from March \lt September, Is73, (si\ mouths)
-J,'xio. Tin* net carniiiLT- «-on<e(|Uently amounted to
25J per cent., .,r :>\ per 06ttt a year on the real capital
: or l:{ per cent., or JU per cent, a year on the
ij.ital and Mirplus earning ad«led to'_rrther ($252,246,-
C en..rmous proiits oj.erate ai a tax on the me<lium
TIM: NATIONAL HANKIMi tTSTBL 251
of exchange of the nation, :in<l enter into the price of :ill
commodities. They also enable the bunks to control the
circulating nicdiuin of the country, ami explain \vliy it is
that periodically money leaves the channels of trade and
becomes concentrated in the vaults of the banks.
THK PANIC OF 1873.
The enormous contraction of the circulating medium of
exchange and evidences of indebtedness of the government,
which were used as such, inaugurated and carried on by
McCulloch, together with the operations of the National
Banking system, began to affect the industries of the coun-
try injuriously as early as 1807. Mr. Spanieling estimated
the amount of paper issues which served the purposes of
currency, on the 30th of January, 1804, at $1,125,877,0:54',
and to this amount is to be added several hundred millions
of 7-30 Treasury notes issued in 1804 and 1805. The greater
part, of this vast sum was called in by the government prior
to 1808, and its place supplied in part by bank note currency
and bank credit. Business could no longer be done for
cash, as was the case when the channels of trade were fully
supplied with a medium of exchange, and business men were
compelled, by reason of the growing scarcity of money, to
resort, as in days before the1 war, to the banks and borrow
bank credit. During the year 1SGO the banks increased
their loans (inflated their credit) $107,000,000. As contrac-
tion went on, bank loans increased, and it was only a question
<>f time as to when the bubble of inflated bank credit would
burst.*
That McCulloch and the bankers generally anticipated
financial distress amongst the people, and probably a com-
mercial crash and money panic, is dear from the conv<-
pondence between Mr. Spauldin<_c and Secretary McCulloch,
•See pajje 20.
L'.VJ TIIK NATION* \i. J;ANKIN«.
in December, 1800, from which we take the following
extracts: Mr. Spaulding, in a letter dated at his banking
house in JiufTalo, December 4, 1860, to McCuUoeh, says:
'• V«»u have no doubt no\v, to a large extent, control of the
finances of the country (by virtue of the contraction act of
April 12, 1866), and I think that you will, of iieees.Mt \
tract moderately, so as to preserve a tolerably easy money
market, in order to be able to fund the compound G's and
7-30's into long gold bearing bonds between this and the
15th of July, 1868. There may be occasional spasms and
tightness for money with the speculators, but generally I
shall look for plenty of money for legitimate business /,,/•
at least a year to come? To this McCulloch replied,
December 7, 1866: "What we need is an increase of labor.
If we could have the productive industry of the country in
full exercise, we could return to specie payments without
any very large curtailment of United State** notes. My
object has been to keep the market steady, and to work
back to specie payments without a financial collapse"
Whilst thus prating about "having the productive industry
of the country in full exercise/' McCulloch was straining
his authority as Secretary of the Treasury to deprive the
productive industry of the country of its most essential tool,
a medium of exchange, and give to the banks the entire
control of its monetary affairs. That a financial collap-c <T
commercial crash did not immediately follow the Midden and
complete retirement of the various forms of indebtedness of
• vernment n-ed as :i currency, was due, lii^t, to the pro-
ductive strength of the country which had been enormously
developed during and after the war, by reason of the abun-
danci-of money in circulation; second, to the large increase
of bank note circulation, and the great inflation of bank
credit which followed; and, third, to the large volume of
TIN: \MI«.\AI, itA\Ki\<; SYSTEM, 253
greenback money in the hunds of the people, which, not
being burdened with interest, was as yet beyond the control
of the hanks.
In isw; the best 00 day paper ruled in New York City at.
5 to 7 per cent. In .January, 1807, the same paper rated at
K to 10 per cent., and during the following summer a great
many failures occurred. The effects of McCulIoclfs policy
of contraction began to he seriously felt throughout the
country. In obedience to public sentiment, Congress was
compelled, in January, istjs, to suspend the law authorizing
the retirement of the legal tender notes (greenbacks.) The
amount of greenbacks outstanding at this time was $356,-
000,000. Congress, however, took no action in reference to
the enormous contraction of paper emissions in other forms.
The amount of paper emissions of the government which
were actively employed as a tool of industry in the produc-
tion and distribution of wealth in 1865 and 1806 was about
* 1,800,000,000. When McCulloch, under the flimsy pre-
tense of bringing the country back to "honest money," set
out to retire this va^t volume of currency, what provision
had been, made by the government to supply its place?
JVoite whatever^ except the establishment of National
/>V///,-.v, authorised to issue bank currency to the amount of
$300,000,000. The practical effect of McCulloch's policy,
t he re lore, was >imply to deprive the nation of any other
circulating medium than bank currency. In view of these
circumstances it is impossible to arrive at any other conclu-
sion than that MeCulloch had deliberately conspired with
the money power to enrich the bondholders and to give the
National IJanks control of tlie monetary affairs of the nation.
The history of the world furnishes no parallel to this gigan-
tic scheme, having for its object the robbery of a nation
under cover of law, so successfully carried out by McCulloch
and his associates.
2."»4 TIIK X ATI OX AT. BANKING sY.xTKM.
The policy of contraction and the National Hanking sys-
tem together soon wrought a complete revolution in the
business affairs of the country. In 1865-66 the producing
- of the nation were in active operation, producing
wealth as it had never been produced before. "The Amen
can people waked up each new morning to feel that there
irreat duties before them.'' Labor was fully employed
at the very time that McCulloch was hypocritically prating
about "the need of an increase of labor"* and the necessity
of having "the productive industry of the country in full
exercise." Business was everywhere done cheaply, because
it was done for cash, and, as McCulloch himself lias since
admitted, the people, " individually, wero free from debt.''
The enormous productive strength of the country was in
full exei-ci.se, and the immense burden of taxation imposed
by the war was scarcely felt. Indeed, the revenues of the
government were so large during this period that the public
debt was extinguished to the amount of about $500,000,000.
\Ye now turn to what followed. All evidences of indebt-
edness of the government used as a currency, except the
greenback, had been retired — paid off or converted into
long bonds bearing gold interest. The National Hanking
ii was in the full tide of successful operation. By
the act of July, 1870, an additional i>Mie of bank notes,
to the amount of $54,000,000, was authori/ed, making in all
$354,000,000. The entire issue authori/ed by law A
active employment, and bank stock commanded a high
premium. The circulating medium of the country in 1869
consisted of lawful money and hank currency as follows:
I.eL'al tender note! $356,000,000
National Bank Currency 300,000,000
Kractional Currency about
To this add amount of National Bank currency
authorized by act of July, 1870 '. 54,000,000
$747,000,000
mi: s \ noN \i. I;ANKIN«; BTWWBt 255
The National Hanks of the principal cities were required
by law to keep on hand in lawful money of the I'liiled
States an amount equal to at least twenty-five per cent,
of the aggregate amount of their notes in circulation and
their deposits; and other associations fifteen per cent. As
bank deposits and loans increased, requiring a proportionate
increase of tin- reserve of lawful money, it is manifest that
a further contraction of the circulating medium followed.
The following table exhibits the inflation of bank credit that
took place from 1866 to 1873:
UATK. CIRCULATION. DEPOSITS. LOANS.
Jan. 1, 1866 $213, 00,000 $513,600,000 $498^00,000
" 1867 291,000,000 555,100.000 608,400,000
" 1868 294,300,000 531,800,000 616,600,000
July 1, 1868 294 900,000 575,800,000 655,700,000
Jan. 1 1869 294.400.00U 568,500,000 644,900,000
1869 292,700,000 574,300,000 686,300,000
1870 292,800,000 546,200,000 688,800,000
1870 291,100,000 542,100,000 719,300,000
1871 302,200,000 561,900,000 768,300,000
July 1
Jan.
July
Jan.
July
net.
1871 307,700,000 602,100,000 789,400,000
1872 333,400,000 625,700,000 872,500,000
Sep. 12, 1873 339,000,000 622,600,000 940,200,009
Instead of $1,800,000,000 of paper currency, a large por-
tion of which bore interest in the hands of the holders,
filling the channels of trade', the business of the country was
now carried on with bank currency and bank credit (about
$1,000,000,000), involving the payment of an enormous
tribute to the National Hanks for its use. The business of
the country was no longer done for cash. Money became
scarce and commanded a high price, and the price of prop-
erty fell in a corresponding ratio. New business enterprises
were no longer thought of. Those already established, yield-
ing small profits and requiring ready money for their suc-
cessful operation, were obliged to succumb. The ability of
the nation to produce wealth was enormously diminished.
Taxes, which before were scarcely felt, now became a great
256 TIIK NATIONAL KAN KINO SYSTEM.
burden. Merchants and manufacturers who were obliged
to pay interest lor money and bank credit added the amount
to the cost of their goods. The retail dealer was obliged to
do the same, and the cost of bank currency and bank credit,
..•ml times multiplied, had to be paid in the end by the
consumer, whose ability to pay had, for the same reasons,
been greatly diminished. Such is the natural course of
affairs under a system of currency furnished and controlled
by banks of issue. The same system had been tried for
over sixty years prior to the war and had proved utterly
unsound. It had inflicted upon the country a commercial
crash on an average every six years. And the marvelous
thing is, that notwithstanding all their bitter experience, the
people of the United States should suffer such a system ta
be re-established in a more powerful and dangerous form
than ever. During this period the industries of the country
were sustained and buoyed up in a manner that is worthy
of special mention. Congress had granted a large number
of subsidies in the shape of lands to aid in the construction
of railroads. Uonds secured by mortgages on the lands
granted by Congress had been negotiated, mostly abroad,
to the amount of many hundreds of millions of dollar-.
The funds thus acquired contributed largely to the support
of many industries, which otherwise would have been
obliged to succumb to McCuIlorh's policy. Among other
corporations thus suhsidi/ed was the Northern I'acitic. Kail-
'1 Company, owned and controlled by the banking house
of.IayCooke and Company. Ft was confidently expected
by .lay <'«H»keand Company that the bonds of the Northern
ific Kailroad ( 'mnpany could be negotiated abroad. Tli<
Austrian and (ierman bankers, to whom they were offered,
r, sent 0\ xpertx to examine the road and the
country through which it extended. They reported adversely
•i 111 RATIONAL BANKING 5Y8TOI, 257
to taking the bonds. .lay Cooke ami Company then
attempted to dispose of their bonds to tin- American public,
through the aid of the1 religions pre<s and tin- clergy of the
country. Their plan was only partially surro-ful. The
times had become too stringent, and on the 18th of Septem-
ber, 1873, the banking house of Jay Cookc and Company
failed. The country had been ripe for a commercial crash
for some time, and this brought matters to a crisis. The
failure of .Fay Cooke and Company was immediately fol-
lowed by the failure of a number of leading banks in New
York City. The Stock Exchange of that city also closed
its doors for a period of ten days. The premium on gold
began to decline, and fell during the month to 7;j per (rent.
Greenbacks commanded a premium over certified checks of
from :{• to rt per cent. The suspension of payments by the
banks of New York soon extended to all the principal cities
and towns throughout the country. Exchange on New
York, which usually commanded a premium, was at a dis-
count, if not entirely unavailable. The su>pension lasted
about forty days, and the industrial interests of the country
received a shock from which they have not yet recovered.
To the great mass of the people, who judge of the pros-
perity of the country by the activity observable in its busine»
affairs, the panic of 1S7:> was wholly unexpected and came
like a clap of thunder from a cloudless sky. The harvest
of the year was about over, and the crops were good. Tlu-
mining and manufacturing interests seemed to be flourishing,
and to all external appearances there was abundant evidence
of general prosperity. But, beneath the surface, matters
presented a very different appearance. The industries of
the country had been laboring from year to year since 1866
under an increasing burden imposed by the banks. Busi-
ness had ceased' to be done for cash, and business men
17
TIM-: \.\TIo\.\l. BANKING >YSTEM.
<'\erywhcre were carrying a load, more or less, of credit —
struggling <>n from year to year in tlie hope that the coming
spring or the coming fall would in some way bring a cha;
that would afford relief. A temporary spurt in busii
might relieve an individual here and there; but under such
a system of money there eould he no general relief. A
commercial crash was inevitable. The reason of this i-
i-asily explained. The average growth of national wealth
is about three- and one-half per cent, per annum. Individual
wealth cannot increase more rapidly than that. The higher
gains of some are counterbalanced by the lower gain
absolute losses of others. As money is an essential tool in
the production and distribution of wealth, it is important
that it should be abundant and rule at low rates of interest.
But under .1 s\-tcm of banks of issue money scarcely circu-
lates ;,i .-ill. Jt is lurked up in bank vaults, and in its >teud
the public is obliged to use bank currency. I>ank currency
<-an only be obtained by the payment of a high rate of
interest. It i-, therefore, far more expensive than even gold
mid silver. ThcM- metals simply cost their equivalent in
labor or product-. When mice obtained they will circulate
in the rhanneN of trade, whilst they remain in the country,
unburdened with interest. Individuals may acquire a sur-
plus and lend it to others, but. this is an individual trans-
action. The gold or silver thus lent is put to n-c by the
horrouers and passes into the channels of circulation :
of intere-t. The same is true of leg-'d tender paper money
d by the government. It costs its face value in labor
or products to obtain it from the government. It enters into
circulation unencumbered by interest. Individuals may
acquire a surplus of legal tender paper money and lend it to
others. AH in the case of gold or silver, thi< is purely an
individual transaction. Neither gold nor legal tender paper
THE NATIONAL HANKING NYSTKM.
money can accumulate value except when employed. But
bank currency constitutes a peculiar medium of exchange
very different in its nature from gold money or legal tender
paper money. Bank currency is not money. Bank notes arc
simply evidences of indebtedness of the banks which is<u.-
them — promises to pay money. They enter into -/irculation
encumbered with interest, and continue to accumulate value
for the bank which issues them, whether they are performing
the uses of money or not For the sake of illustration, say
that A., a manufacturer, borrows a $100 bank note from a
National Bank for sixty days at six per cent, interest IIev
uses this note in the prosecution of his business, and adds
the interest which he is obliged to pay to the bank to the
cost of the article manufactured by him. At the expiration
of sixty days, A., unable to return the identical note bor-
rowed by him, pays the bank with a $100 greenback. Tliis
in turn is lent by the bank to B., and so on indefinitely.
The bank is thus enabled to realize compound interest
indefinitely on the original note lent to A., which was not
money but simply credit — no matter what becomes of it,
whether it is occupying the channels of circulation or rotting
ut the bottom of the ocean. It is apparent, therefore, that
when the nation uses a medium of exchange consisting of
bank currency it is obliged to pay compound interest for its
use. As must be manifest this is a great burden upon the
industries of the nation. The more this kind of currency is
inflated the heavier will be the burden imposed upon the
industries of the country. A great deal is said by the money-
power and their organs in regard to the evils of inflation,
whenever it is pi-op. -id to increase the issue of legal tender
paper money, but nothing is ever said about the real danger,
which invariably attends the inflation of bank currency and
bank credit. By reference to the table given on page 255,
260
Till; NATIONAL HANKING SYSTEM.
showing the deposit^ ami loans of the banks from 1866 to
1873, it will be seen that the banks inflated their credit from
$498,800,000 in 1866 to $940,200,000 in 1ST;]. This immense
sum of inflated credit, bearing compound interest, entered
into ami ramified all tin- industries of the country, and
added immensely to the cost of production.
The following table exhibits the discounts on nix mouths'
notes for a term of sixty years. We copy it, along with the
following explanatory remarks, from Kellogg "A thousand
dollars in money are taken, and with this sum a note payable
months is discounted. When the first note is paid, a-
M-rond note having six months to run is discounted with its
' <ls, and a third note with the proceeds of the second.
This calculation is continued on six months' notes for sixty
years. The table shows the accumulation on xi.noo for
sixty years, at the various rates of 1, 2, 3, 4, 5, 6, 7, s, 1 -J, is,
24 and 30 per cent, per annum, taking off the discount, as is
always done by banks and broker>.
1 PEB CKNT.
5 PKB CENT.
12 PKR CKXT.
10 years
$1,105 45
lOyenrs $1,65924
10 years.
. $3,417 1.:
'20 •'
: 02
20 "
2,753 06
20 " .
11.
30 "
1,350 87
30 " .
4.5(37 97
30 " .
40.
1.493 33
40 ••
• 33
40 " .
141.
50 ••
lAr>"
M "
12.575 87
50 " .
486.6 U <U
r" -
1,824 87
60 "
20,86635
60 " .
1,677.:
2 PER CBXT.
6PBBC
ENT.
IS i
R CKNT.
lOyears
81,22264
10 yean
$1.838 93
lOyear.-
$6,1
20 "
1,494 83
20 "
3.381 66 •
20 " .
43,485 4X
:to ••
1.827 63
30 "
6,218 65
30 " .
286.75S 62
40 "
2,23452
40 "
11.435 67
40 - .
I.KIW.'.IHS 71
2.732 00
50 "
21,029 39
50 *' .
«0 "
3,34023
60 ••
38,671 58
60 " .
82,230..
3 PKB CEXT.
7PEBC
BHT.
24P
B CEjrr.
lOyears
$1,352 93
10 yean
$2,03917
10 yean.
. $!•.'.-
20 "
1.H30 46
20 ••
4,158 22
20 " .
. I*'..
:?o ••
2,476 43
30 "
8,479 32
30 " .
3.35044
40 "
17,290 79
40 " .
fiO "
4.583 vi
50 "
35,258 90
50 " .
W6.231
U) "
6,132 73
60 "
71,898 92
60 " 4,592,819,317 8fl
4 PEB CEKT.
8 PEBC
rat.
30 PKR CKST.
10yeAr»
$1,497 89
lOyears
$2,262 43
10 years, $25,80011
20 "
2.24S 66
20 "
5,118 59
20 "
3,360 75
30 "
11,580 46
30 "
5,03401
40 M
26,199 97
40 " 443,084
W "
7,54036
1 GO
50 " ...t.
60 -
59,275 70
134,107 05
50 " 11,431,62<>.
60 •• 294,936,059,207 37
THK RATIONAL BAHKIHG -%wrEM. 261
"The highest rate calculated is thirty per cent. per annum,
or two and a half j>er month, a rate not nearly so high as
is often paid in Wall street.
"In the foregoing table it appears that interest atone per
cent, would transfer $824 worth of the products of labor to
the eapitalists t<> pay for the use of $1,000 for the sixty
years; at six per cent., 1537,671.58; at seven per cent.,
$70,898.92; and at thirty per cent., $294,950,058,207.37. In
any community the rise of the rate of interest on all the,
money used, whether for a longer or a shorter period, trans-
fers from producers to capitalists a sum proportioned to the
increase of the rate per cent., as demonstrated in this table."
The power of money at interest to aceiimulate value is not
fully understood or appreciated by the public. The follow-
ing extract, which will further serve to illustrate this point,
is taken from an able lecture delivered by Wallace P.
Groom, Ksq., editor and publisher of the New York Mer-
cantile Journal, on the subject of the ••( 'urrency Needs of
Commerce:"
"Many carelessly infer that the increase of money at six
per cent, is just, twice as rapid as at three per cent.; but in
reality the increase is vastly more rapid than this. In ono
hundred years, at six per cent., the increase on any given
»um is about eighteen times a,s much a.s at three per cent
**Tf one dollar be invested and the interest added to the
principal annually, at, the rates named, we, shall have the
following result as the accumulation of one hundred years:
One dollar. 100 years, »t 1 i»or iM-ut, fS'l4' One dollar. 100 r'rs, at 7 per cent., $ 88S
•: •• TX
IP,
: " MM
i - XH,
s - tjax
o B,^a
10 - 13,80»
1.17M
4.V. " US - LS,1*S,007
i * I31& SI »• 3^51,799,401
• - wo
262 THE NATIONAL BANKING SYSTEM.
" There are probably few, however familiar with the sub-
ject of the rapid increase of capital put out at interest, who
would not be startled at the statement that the cost of the
outfit of Cristopher Columbus in his lirst voyage of discov-
ery, put at interest at six per cent., would by this time have
amounted to more than the entire money value of this conti-
nent, together with the accumulations from the industry of
those who have lived on it. If any doubt this, let them
reckon the amount, estimating the entire outfit to have cost
only the small sum of five, thousand dollars, and remembering
that money doubles, at six per cent., in a little less than twelve
years — or accurately in eleven years, ten months and twenty-
one days. Allowing it to double every twelve years, this
five thousand dollars at interest at six per cent-, since 1402,
it will be found, will have amounted to $17,895,700,000,000;
which, estimating the population of the entire continent of
America (North and South) to be eighty-five millions, or
Kevcnteen million families (averaging five members each),
would give more than a million dollars as the possession of
every one of these. The interest upon a million of dollars
at MX percent, is sixty thousand dollars, which would n >\v
be the princely annual income of each of these seventeen
million families from the accumulations up to this time upon
M> Mnall a sum as that named for the outfit of the discoverer."
But it must not be forgotten that banks of issue do not
lend capital or money, but simply credit; and iu this con-
sists the, great injustice of the system. A hingle class is
clothed with authority to emit bills of credit, and compel
all other classes to use them as a circulating medium ami
pay compound interest for their u-e. The fact that the
government issues the National Hank notes to the banks
does not change their nature. It is simply equivalent to the
government guaranteeing their payment. The notes them-
•I I IK NATIONAL BANKING SYMKM. 263
selves represent the credit of the institutions which issue
them. There is no sound reason why the -o\ eminent
should confer this privilege uj»«.ii the b<»ndholdcr and the
banker, an<l not upon the fanner, the men-hunt or the man-
ufacturer. On the other hand it is in violation of the plainest
principles of equity, as well as public policy, for the govern-
ment to bestow such :i privilege upon any class.
How long it. takes the money power, through the ma-
chinery of banks of issue, to rob the people of their annual
increase of wealth (3.V per cent.) is not. a matter of specula-
tion. The experience of sixty years demonstrates that the
system will bring about a commercial crash on an average
every six years. A commercial crash is simply a general
settlement and a re-distribution of property rendered neces-
sary by the natural operations of the system — by the manner
in which the people are obliged to conduct their a flairs.
The enormous cost of a medium of exchange, consisting
of bank currency and bank credit, may be arrived at approx-
imately in several ways. On the 1st of September, 1875, there
were in operation 2,087 National Hanks. The net earnings
of the banks for the previous six months amounted to about
$30,000,000, or $60,000,000 for the year. The officers of the
banks, including presidents cashiers, tellers, bookkeepers,
clerks, attorneys, notaries, etc., constitute an army of non-
producers. Averaging the number at ten for each bank
would give 20,000 persons. The chief officers of a bank
are usually large stockholders, and the subordinate positions
are mostly filled by their relatives, and in no other busim — ,
perhaps, do salaries rate so high. Averaging the salaries at
$2,000 per year each for 20,000 persons will give a total of
$40,000,000, which, added to the net earnings, gives a grand
total of $100,000,000 a year. Or, again, the aggregate loans
and discounts of the National Banks on the first day of
October, 1875, amounted to $980,222,951. At ten per cent
interest the amount paid for this sum would be over
$98,000.000. To this add the interest paid by the people
264 THE NATIONAL BANKING SYSTEM.
on the bonds deposited with the Treasurer of the United
States — about $390,000,000 — at six per cent, in gold — about
$27,000,000, and it will give a grand total of $127,000,000.
From this it appears that the people are paying annually to
the banks the enormous sum of about $127,000,000, a sum
greater than the interest on the public debt, for the use of
some $350,000,000 of bank currency. This burden is entirely
unnecessary. A medium of exchange could and ought to
l>e furnished by the government; or, in the language of
Jefferson, "bank currency should be suppressed and tiie
circulation restored to the nation to whom it belongs." The
people would then have a medium of exchange unencum-
bered with interest, and, what is vastly more important, one
that would occupy the channels of circulation, subject only
to the natural laws of trade.
TIIK PROSTRATION OF INDUSTRY.
The prostration of all forms of industry which followed
the panic of 1873 still continues. Indeed, matters are grow-
ing worse. The following table exhibits the number of
failures, with the aggregate amount of liabilities, which have
taken place since 1863:
IN THE NORTHERN STATES.
Number <>f A srorrejrate
Year. Failure Liabilities.
1863 495 $7,899,000
1864 520 8,579,000
1805 530 17,625,000
1866 632 47,333,000
1867 2,386 86,218,000
1868 2,197 f>7,275,000
1869 2,411 05,246,000
IX TIIK WHOLE COUNTRY.
1870 3,5.-> l 88,242,000
187 1 2,915 85,252,000
1872 4,<M)'j 121,056,000
8 5,181 228,490,000
\ 5,695 151,689,000
7,404 195,289,000
1870 (first «,u;irtrr) 2,806 64,644,000
THE NATIONAL BANKING SYSTEM. 265
The failures during 1875, it will ho seen, numbered 7,404.
The failures for the first quarter of 1875 numbered 1,733;
.and for the first quarter of 1876, 2,806, or an increase of over
60 per cent, over the corresponding quarter of last year.
At the same rate the failures this year will reach about
12,000.
In times prior to the war, when bank currency was nom-
inally redeemable in specie, the banks did not hesitate to
•expand their circulation as soon as a general settlement had
been effected and "confidence had been restored " through
the instrumentality of the Sheriff, which usually took about,
•one year. Business then began to improve, and the banks and
the people together soon started on another era of inflation
and speculation, only to wind up in a few years in another
crash. But now a, different condition of affairs exists.
Gold bears a premium over the lawful money of the country,
because it is a full legal tender, whilst lawful money (green-
hacks) is only a partial tender. It is true in ante-war times
bank currency was at a discount as compared with gold, but
then it was issued at par and the loss fell upon the people.
Now, however, specie payments have been decreed to take
place January 1, 1879, and the banks do not intend to
redeem their notes in specie until the government has first
furnished them with the specie. Consequently they are
•calling in their circulation. This contributes largely to the
general depression All transactions, since the passage of
the law decreeing forced specie resumption, except of the
most limited character, both in respect to time and amount,
.have naturally ceased. Money is appreciating in value by
operation of law, and property of all kinds is depreciating in
a corresponding ratio. No one, with forced specie resumption
in view, will invest either in property or business. Money is
borrowed only in cases of great urgency, or for a short period
266 THE NATIONAL BANKING SYSTEM.
for purposes of speculation. As production diminishes the
people grow poorer and failures multiply. The producing
forces of the nation are paraly/cd for the want of a healthy
circulation of money, and general bankruptcy and ruin are
inevitable. As for the money power, it awaits the final
convulsion with serene composure. The fall in the price of
all commodities renders living cheap to all who have an
income. As their investments are mostly exempt from
taxation, they are not concerned about the burdens of gov-
ernment. The appreciation in the value of money and
bonds, as compared with property of all kinds, which is
silently going on, is adding enormously to their wealth, and
when the crisis arrives they will be enabled to reap where
they have not sown and gather in a rich harvest.
EXTRAVAGANCE.
When the panic of 1873 occurred the bullionists and the
money power generally raised the old cry of extravagance
and over production. The same cry has been used to account
for every crash that has occurred during the present century*
The charge of extravagance scarcely requires refutation. The
producing classes as a rule are anything but extravagant.
The farmers, with the help of their wives, NOUS and daugh-
ters, as is well known, are enabled only by hard labor and
strict economy to come out ahead at the end of each year.
The same is true of the mechanics, the trades people, the
laborers, and the toiling masses generally. The only extrav-
agance that has developed itself to any extent in the United
States is among those who, l>y means of corrupt legislation-
rind a false monetary sy>t< -m, arc enabled to riot in wealth
stolen from the people.
OVER PRODUCTION.
The cry of over production is equally groundless. Human-
ingenuity is being constantly taxed to increase and cheapen
T1IK NATIONAL HAN KIN. . vysrKM. 267
production, in order that the good things of life miiy be
within the reach <>f all. The production of commodities is
govemed entirely by the laws of supply and demand.
When it happens, us at the present time, that productive
industry in many forms becomes paraly/ed, on account of
the \vant of a healthy circulation of money in the channels
of trade, large classes are deprived of the means of supply-
ing their wants, and the markets become suddenly gorged
with certain commodities. For the sake of illustration we
give the following table exhibiting the comparative produc-
tion of five staple articles in 1860 and 1870, five years after
the termination of the war:
l M, 1870. Decrease.
Cotton, 2,200,000,000 Ibs. 1,200,000,000 Ibs. 4!) per cent.
Hemp, 149,000,000 " 25,000,000 " s:j "
Rice, 187,000,000 a 73,000,000 " 00
Silk, 12,000 "• 4,000 " <><>
Tobacco, 434,000,000 " 202,000,000 " 40
Total, 2,970,012,000 1,560,004,000 o2
During this period the manufacturing establishments of
the country increased in number from 140,433 to 252,148,
and their products from $1,885,861,676 to $4,232,325,442;
and the population of the country increased from 31,443,321
to 38,558,371.
That over production can produce a commercial crash is
DOW acknowledged by all political economists, whose opin-
ions are entitled to any weight, to be an exploded fallacy.
John Stuart Mill, in his work on political economy, says:
"A general over-supply or excess of all commodities above
the demand, HO far as demand consists in means of payment,
is thus shown to be an impossibility. I have already
described the state of the markets for commodities which
accompanies what is termed a commercial crisis. At such
208 THE NATIONAL BANKING SYSTEM.
times there is really an excess of all commodities above the
money demand — in other words, there is an under-supply of
money. But it is a great error to suppose that a commercial
crisis is the result of a general excess of production."
And E. Peshine Smith, a distinguished American political
economist, disposes of the question as follows:
"In treating of supply and demand, no reference has been
made to the notion, by which some writers have been
bewildered, of a general over production in commodities.
The proposition that any good thing has ever been produced
in excess of the wants of humanity will not bear a moment's
examination; nor is there the slightest reason to apprehend
that such an event is likely to occur. The truth of the
matter may be quite as correctly rendered by the statement
that the supply of other commodities is deficient, as that
any particular one is redundant. Where has it been, in any
community, sufficiently numerous to permit the application
of the general consideration! in which political economy
deals, that any product of industry has been offered in such
:i quantity as to surpass what the comfort of all its members
would require? The trouble is, that many of those who
would gladly be consumers have not produced enough to
enable them to be. The true remedy for what is called
over production in any article is an increased production of
other things."
When Congress convened in December, 1873, there was
a strong public sentiment in favor of inn-rasing the- amount
of legal tender paper money. The people as a body have
never failed, when an opportunity offered, to signify their
preference for legal tender Treasury notes. This is undoubt-
edly to be attributed to "the instinctive sagacity of the
people," to use Benton's language, "which is an overmatch
for book-learning; and which being the result of common
THE NATIONAL HA\KT\». sVsTEM. 269
sense, is usually right; and being disinterested, is always
honest/' In obedience to tliis sentiment Congress passed a
bill authorising the Secretary of tlie Treasury to reissue
$44,000,000 of legal tender Treasury notes which had been
retired under the policy of contraction. This step would
undoubtedly have afforded great relief to the oppressed
industries of the country, but it would have been only tem-
porary. In a short time the whole amount would have been
absorbed by the banks. Individuals here and there would
have been benefited, but in the end the nation would have
been as poorly off as ever. The money power, however,
was unwilling to have its plans interfered with to even this
extent; a howl was at once set up by their organs against
inflation, and a large delegation of bankers, requiring a
special train of cars, at once proceeded to Washington to
induce the President to interpose his veto. They succeeded
as usual, and on the 22d of April, 1874, the bill was returned
to Congress with the President's veto. Five months prior
to this President Grant, in his annual message, argued
that the panic was due to the great contraction of the cur-
rency that had taken place, and referred to the greenback
in the following eulogistic terms. He said: "The experi-
ence of the present panic has proved that the currency of
the country, based as it is upon the- credit of the country, is
the best that has ever been devised. Usually in times of
such trials, currency has become worthless, or so much
depreciated in value as to inflate the values of all the neces-
saries of life as compared with the currency. Every one
holding it has been anxious to dispose of it on any terms.
Now we witness the reverse. Holders of currency hoard
it as they did gold in former experiences of a like nature."
Public indignation at this betrayal of the interests of the
people by the President found vent at the polls at the next
270 IHK NATIONAL HAXKINU SYSTEM.
general election, and a Democratic House of Representatives
was elected by an overwhelming majority.
When Congivjss met in December, 1874, it was apparent
that some measure, looking to the relief of the oppressed
industries of the country, must be adopted. The result of
the election also occasioned great consternation among the
bullionists and bondholders. Their plans had not been fully
carried out. Specie resumption had not yet been attained.
They could manage Congress as it was then constituted, but
their influence with a new Congress was not so well assured.
An act to force specie resumption was at once prepared and
entrusted to that subservient tool of the money power, Sena-
tor Sherman. It was introduced in the Senate at an early
period in the session, was passed by both houses and was
signed by the President on the 14th of January, 1875. In
order to deceive the public, banking was made free, a
measure that had been contemplated from the beginning,
and which, as has since been fully demonstrated, could con-
tribute nothing to the relief of the public. The hanks at the
time had abundance of currency, and there were several
millions of bank note circulation assigned to States having
le>s than their quota, not yet taken. It is now possible for
the bondholders to inflate the bank currency of the country
to the full amount of the bonded indebtedness of the Federal
Government, about $1,700,000,000. That advantage is not
taken of this act to increase the bank note circulation is due
entirely to the specie resumption act. Hanks, on tin
trary, are withdrawing their circulation and going out of
business. Two hundred National Banks have already with-
drawn their circulation, as i> disclosed by the records of tin-
office of the Comptroller of the Currency, and four hundred
more are engaged in doing the same. The amount of
National Bank note circulation withdrawn during the past
THK NATIONAL HANKIV; OTBTS1C. 271
year is $13,482,540, ami the legal tender notes held on
deposit for the redemption of National Bank notes in process
of retirement, amount to $27,098,429, making in all a con-
traction of $40,580,975. During the same period the green-
haek cireulation has been contraeteil £11,244,752, and the
fraetional currency $2,758,278.
AX KXTRAORDIXAKY ACT.
The specie resumption act, passed in January, 1875, pro-
vided for the retirement of the fractional currency issued
by the government. Long before specie payments are
resumed the nation will be deprived of a circulating medium
of any kind. Under the specie basis system of banking, as
it existed before the war, the people were frequently driven,
in times of great stringency, to use the notes of individual-,
•firms and corporations, which circulated under the name of
shinplasters, and cities, towns and boroughs were obliged
to issue promises to pay, which were commonly known a<
scrip. To prevent the people, in the approaching stringency,
from availing themselves of even this method of relief and
to give the National Banks absolute control over the circu-
lating medium of the country, an act, approved February s,
1875, was passed by Congress, which imposes a penalty of
ten per cent, on any individual, firm, association, city, town
or. municipal corporation, except National Banks, that shall
issue or use such notes. This bill was smuggled through
Congress under the title of an act "To amend existing cus-
toms and internal revenue laws and for other purposes," and
reads as follows: "Section 19. That every person, firm,
association other than National Bank associations, and
every corporation, State bank, or State banking association,
shall pay a tax of ten per centum on the amount of their
own notes used for circulation and paid out by them."
"Section 20. That every such person, firm, association,
272 TIIK NATIONAL HANKING SYSTEM.
corporation, State bunk, or State banking association, and
also every National Banking association, shall pay a like tax
of ten per centum on the amount of notes of any person,
firm, association other than a National Banking association,
or of any corporation, State bank, or State banking associa-
tion, or of any town, city, or municipal corporation, used for
circulation and paid out by them." The National Banks
evidently expect, in due time, to furnish the entire circulation
of the nation, including fractional currency.
When specie resumption takes place it will be found that
the greenbacks will all be in the possession of the banks.
The reserve held by the National Banks, on the first day of
October, 1875, amounted to $235,000,000. They have still
over two years to gather in the greenbacks that are still out-
standing. On the 1st of January, 1879, the government will
be called upon to pay the sum of $300,000,000 in specie to
redeem the greenbacks. The banks will then be in pos-
sion of abundant specie, furnished at the expense of the
people, to enable them to begin banking on a genuine specie-
basis, in the manner in which banking was conducted prior
to the war. In the meantime the nation will be entirely
stripped of a medium of exchange, involving an almost entire
cessation of production, attended by general ruin and bank-
ruptcy. The suffering, want and misery, which the people
of the United States will be called upon to endure, during
the next few years, on account of the machinations of the
money power, will be terrible beyond that experienced by
any nation in modern times, not even excepting the exjKv
rknce of the people of Great Britain, under like circum-
stances, in 1819-25. (See next chapter.) Beyond that it is
idle to speculate, for then there will probably be no National
Hanks, unless the liberties of the American people shall,
in the meantime, have been entirely subverted.
CHAPTER VIII,
TIIK RESUMPTION OF SPECIE PAYMENTS.
A PREMIUM was placed on gold by the first legal tender'
art, passed February 25, 1862, which declared that interest
on United States bonds and duties on imports should be
paid in coin. This was nut only unnecessary, but was in
violation of the plainest principled of public policy. The
people were obliged to respond to the re<niircments of tin
government, and a medium of exchange was absolutely
necessary to enable them to render their resources available
to the government. It was manifest that this medium of
exchange had to be supplied by the government, and it
could be done only by issuing public notes, made a full
legal tender. In no other way than by making the public
note a full legal tender was it possible to place the people
all on the same platform with respect to the government
and to each other, and compel each individual in the nation
to bear his proportionate share of the public burden. These
principles were fully embodied in the original legal tender
act as it passed the House of.Reprcsentativo, but the sharks
of Wall street and the money power generally perceived
that if it became a law they would be deprived of all power
to shave either the government or tho people. The passage
of the bill, therefore, met with a desperate opposition in the
Senate. In tho conference between the committee* of the
Senate and the House which followed, the Senate committee
was stubborn and tho House committee was obliged to yield.
The Hon Thaddeus Stevens declared, whilst: hedding bitter
tears over the result, that the House committee did not yield
274 BESVMPTTON OK M'K< IK I'AYMKM-.
until it found that cither the banks must be gratified or the
country be lust.*
The only plea or justification offered for making the
interest on the bonds payable in gold was that it would
induce capitalists to invest in them. Subsequent events
have wholly disproved the necessity of any such stop. A»
a matter of fact the war was carried on for over a year with
partial legal tender paper money (greenbacks), and the
$500,000,000 of bonds authorized by Congress were in the
end taken at par by the people (not capitalists or bankers)
out of a spirit of patriotism. If further proof is required it
is to be found in the fact that the currency bonds of the
government to-day command a higher premium than the
gold bonds, simply because they have a longer time to run.
Having made the interest on the bonds payable in gold, duties
on imports were made payable in gold in order to obtain the
gold to pay the interest on the bonds. This was also entirely
unnecessary. No bonds, as we lia\ e mentioned, were issued
for over a year, and as the interest would not fall due until
six months after they, were issued, the government would
then have had ample time to dcviM- a way to obtain the
necessary gold.
The effect of making the interest on government bond*
and duties on imports payable in gold was to impose a tax
on all foreign commodities for the benefit of the bank'
bullionists and bondholders, and to greatly disarrange the
monetary affairs of the country. A great many people are
partially reconciled to the payment of this tax under the
mi-taken belief that it inures in some way to the advant.
of the government. Such is not the fact. Commodities are
purchased abroad with American product >; and the {.rice of
American products abroad is regulated solely by the laws of
•See page 200.
OK 8P* M. I- \YMF.\T*.
suppi\ .-iii.l demand. The total imports and exports of the
United States for the years 1873 and 1874 were as follows:
Imports in 1*7:1 .............. $642,136,210
KxportH " .............. 575,227,017
Balance againM t'nitr.l Suites. . $66,909,193
Exports in is 74 .............. $633,339,30*
Imports - .............. 507,406,:J4i:
Balance in favor of I'nited State- $65,933,026
Balance against the United States in two years, $976,167
It appears, therefore, that the imports and exports of the
United States during the two years (1873 and 1H74) balanced
each other to within less than one million of dollars. The
exchange of commodities between different nations is effected
principally 1 »y means of bills of exchange. The manner in
which this is done is thus referred to by Colwell: "If the
United States and Great Britain have mutually exported to
each other commodities to the value of £100,000,000, the
amount is adjusted by the familiar process of bills of
exchange. He who has exported commodities to the value
of $110,000 is paid when he sells a bill for the amount. The
adjustment proceeds afterwards without any further trouble
on his part. The bills are concentrated in a few hands in
each country. If a house in London purchases in each week
a million of dollars of American paper, and a house in New
York with which it is in business relations purchases a
million of dollars each week in bills on London, it is easy to
see that it requires no money to pay to each other the two
millions. As business is generally conducted, the bills are
forwarded from this country, and the respective claims art-
balanced and extinguished on the books of the London
house." After an adjustment is thus effected the balance is
276 MI'IToN UK M'K< IK PAYMENTS.
paid in bullion. As this process is going on constantly,
bullion (gold and silver) will flow into the country when
the exports exceed the imports, and out of the country when
the imports exceed the exports. In order to cause gold to
flow into and remain in the country, it is manifest, there-
fore, that the thing to do is to develop the producing forces
of the country to such an extent as will enable it to export
more than it imports. This fact was fully rccogni/ed and
endorsed by President (Jrant in his annual message in 1S7:'>.
lie said: "My own judgment is * * that a specie ba.M.s
cannot be reached and maintained until our exports, exclu-
sive of gold, pay for our imports, interest due abroad, and
other specie obligations, or so nearly so as to leave an
appreciable accumulation of the precious metals in the
country from the products of our mines."
When foreign commodities are received in the United
States the merchant to whom they are consigned is obliged
to pay the custom duties, established by law, in gold.
Ban kern and brokers deal in gold, and sell it at the highest
price that they can get. During the war it will be remem-
bered that the btillionists succeeded in running up the pre-
mium on gold to as high a« $1.85£ over the lawful money
of the country, while the volume of the currency and the
price of domestic products remained unchanged. This of
course added greatly to the cost of all imported article*.
The premium on gold, which was paid by the merchant in
the fir.-t place and by the people in the end, was a clear
profit to the bullionist*. Until 18(54 no gold was required by
the government to pay interest on bond-*, consequently the
burden thus imposed on the people was entirely unnec.
:u.d inured to the advantage of no one except the dealers in
gold. If the war had terminated in the early part of 1H63,
fJiere would have been no necessity for issuing any gold
KKS[-MTM!«.\ <•}•• M'K. IK rWNfKVTS. 277
interest bonds at all. The total funded and uiifuiiclcd debt
of the government then uas only $783,804,252, consisting
chiefly of legal tender iiotos, 7-,'JO Treasury notes and certifi-
cates of indebtedness, all of which could have IK-CM railed
in, or provided for, by taxation in two years, if desired.
But the bullionists had their plans well laid. The Treasury
notes bearing interest were purposely made payable in one,
two and three years, in order that, as soon as the gold
interest bonds were issued, they could be advantageously
converted into money and the proceeds invested in bond.-,.
With the gold of the country and the bonds both in their
lK>ssession, the business of selling gold was wonderfully
simplified. The bankers and bullionists sold their gold to
the merchant to pay the government, and the government
immediately returned it in the shape of interest on bonds to
the banker and bullionist. ruder this arrangement it was
not even necessary to transfer the gold from the vaults of
the banks. The whole matter could be adjusted by means
of gold certiticates ami checks.
The amount of gold held by the National Hanks, at any one
time during the past ten years, would scarcely have sufficed
to pay the duties on imports at New York City alone for
two weeks. On the 1st of October, 187~>, the gold held by
the National Banks of New York City was $4,955,624, of
which sum $4,201,720 was in T. S. gold certificates and
only $75^,904 in coin. The amount received by the govern
inent for duties on imports during the past ten years has
*veraged|180,000,000 a year, or in all $1,800,000,000; the
interest on the public debt for the same period has been
about $100,000,000 a year, or in all * 1,000,000,000. It. is
manifest, therefore, that if the payment of duties on imports
and interest on bonds in gold was not a pure fiction, the
government could have accumulated $800,000,000 of gold
in the past ten years.
278 KKSUMPTION OF SPECIE PAYMENTS.
Since specie resumption became desirable to the bullioniste
and bankers, it is common to hour it asserted that the differ-
ence between paper money and gold compels the people of
the Unite. 1 States to trade with the rest of the world at a
disadvantage. This would imply that foreigners are enabled
to reap some advantage on art-omit of the premium on gold
in the United States. A moment's consideration will satisfy
any one that this is not true. Foreign commodities, as we
have seen, are purchased with American products. The
premium paid by Americans on gold and for bills of
exchange is not an essential part of the transaction. The
products of America are sold in foreign markets at the
ruling price there, and with the proceeds commodities are
purchased in turn. To say that American products sell for
any more or less in foreign markets because of the premium
on gold in the United States is simply absurd. As has
already been suggested, not even the interest on the boiuU
held abroad is paid in gold. It is paid in products, against
which bills of exchange are drawn. When the exports of the
United States fall short the balance is paid in bullion, the
product of our mines; and this would be done just the >ame
whether there were any bonds held abroad or uot. The
same is true of the bonds held at home. Interest on them
is paid in current money at gold rates. The conclusion.
then, is unavoidable that the mily persons wh«» are benefits)
by the premium n\\ gold, established by the legal tend
are the bullionists and bondholders of the Tinted State-,.
The bankers and biillionist* having secured possession
of the bonds, their convertibility with greenbacks \\.-is
then taken away, and they were also exempted from
taxation. The original loan of $500,000,' HJO of f>-_'u bonds
has been retired or converted into gold bonds. By the
act of March 18, 1869, the Secretary of the Treasury ia
L-I -i UPTION or SPECIE PAlClf] 279
forbidden to redeem any of the -ViMi bonds, payable in
law I ul money, still outstanding (>ome several hundred mil-
lions) until greenbacks an- <>n a par with g»»ld. The bonds
of tin- I'nitcd Stairs now command a high premium. The
following; is a liM of the (juotaliniix nf l"nhed States bonds
on the -Jtith of April, 1870:
U. S. 6 per cent, bonds of 1881 122
U. S. a-ii() bonds of lst;r>, Nov 11^
IT. S. o-^O l)onds of 1865, .July 119
I*. S. ,-i-20 bonds of 18(57, July 121J
U. S. 5-20 bonds of l^tis, .July PJi'A
U. S. 5 per cent. 10-40 bonds*. 118|
IT. S. 5 per eent. funded lo:m bonds 117^
U. S. ti per eent. currency bonds 126^
The money power having thus succeeded in robbing the
poople to the utmost extent in this direction, it is now pro-
posed to continue the process by means of specie resumption.
The action of the bullionists and bankers, in this particular,
was hastened, as we have seen, by the result of the elections-
in 1874.
SI>K( IK KKSUMPTIOS.
Soon after Congress convened in December, 1874, a specie
resumption act was hurried through that body and was
approved by the President, January 14, 1875. The act pro-
vides as follows:
The h'rst section requires the Secretary of the Treasury,
us rapidly as practicable, to cause to be coined, silver coins-
of the denominations of ten, twenty-five and fifty cents, of
standard value, and to is>ue them in redemption of un c»mal
number and amount of fractional currency, until the whole
amount of such fractional currency outstanding shall be
redeemed.
The second section repeals the authority to charge a
per ce-ntage for coining bullion.
The third section repeals so much of the National Bank-
280 KKM .M1TION OF SPECIK PAYMENTS.
ing law as limits the aggregate circulation of the banks to
$354,000,000, and makes banking free to bondholders. It
also provides that "on and after the 1st day of January,
1879, the Secretary of the Treasury shall redeem in coin the
United States legal tender notes then outstanding, on their
presentation for redemption in sums of not less than fifty
dollars."
The greenback, although issued in a mutilated form, (not
payable for interest on bonds and duties on imports) was
made a legal tender for private debts. It was not, therefore,
simply an evidence of indebtedness of the government — a
mere promise to pay money; it was something more than
that, ft beeanie the measure of all values, the basis of all
money contracts, and the standard of all payments among
the people. For fourteen years it has constituted the
lawful money of the country. All exchanges of property,
during this period, have been made and all existing debts
have been contracted on the basis of greenback money.
If the standard of payment is changed, all existing indebt-
edness will change with it. For example if A. owes II.
$10,000 and he is compelled to pay the amount in gold,
which rules at say 51.12, he is obliged to pay *1 1,200
instead of £10,900. When the entire indebtedness of the
country, individual, corporate and municipal, is taken into
consideration, it will be seen that the amount thus added
by changing the- standard of payment is enormous. Estima-
ting the aggregate indebtedness of the country, of individ-
uals towns, cities, townships, counties, states, railroads and
other corporations, at * 10,OUO,UOU,000, the amount would be
increased $1,200,000,000.
The alteration of the coinage of a nation is universally
rded as a matter of the greatest delicacy, only to In-
attempted when absolutely required by the highest consid-
erations of public policy. When the legal tender act was
RESUMPTION' OK ftPtt KB IWYMKNT^. 281
pending the only plausible argument offered by the money
power against its passage, was that it would work injustice
to the creditor class, by enabling debtors to pay their debts
in a depreciated money. The specie resumption law, how-
ever, compels the debtor class to pay one-eighth more than
it contracted to pay, and the debtor class, owing to the
workings of contraction and the National Hanking system,
now embraces all the industrial classes of the country. N«>
alteration of the coinage was ever attempted by any nation
that would at all compare with this.
(The bondholders have provided against any alteration of
the coinage so far as they are concerned. The act of Con-
gress of July 14, 1870, for refunding the public debt pro-
vides that the bonds shall be redeemed "in coin of the
present standard value")
Th amount of gold in the ountry, in view of the resump-
tion of specie payments, has become a matter of serious
importance, because the circulation of the country, whether
the gold is actually used as a medium of exchange, or made
the basis of a bank note currency, as in times prior to the
war will necessarily be limited by the amount of gold on
hand. On the 27th of February, 1870, the Secretary of the
Treasury, in response to a resolution passed by the House of
Representatives calling for a statement of the gold coin in the
possession of the government, submitted the following report :
Coin coupons ........................... $1,547,402 0(5
Coin certificates ........................ 1,427,200 00
Sinking fund and interest ................ l,873,sii;> 0<)
Bonds redeemed and interest ............. 13,882,553 •;:>
Interest due and unpaid .................. 9,254,034 50
Outstanding bonds called for sinking fund. 2,548,000 00
Outstanding coin certificates ....... ". ...... 33,908,300 00
Silver coin' and bullion ................... 14,193,U1S 7<>
$78,645,533 01
Actual gold coin available ............... 13,34 1 ,423 7«;
Total .................... $91,980,957 07
2P2
N OF SI'K( IK I'AYMKXTS.
IJy tin- terms of the specie resumption act .the government
will be required to redeem the legal tender notes outstanding-
on the first of January, 1^7!), (x;jon.ono,000) in coin. Tin-
will take nearly x-j IK), 000,000 more coin than there is avail-
able gold in the Treasury. Where and how is this immense
amount of gold to be obtained? The estimated product
of the mines of the L'nited States for the past three \ear-
lias been about $50,000,000 a year. The annual iiitt
on the public debt, one-half of which, it is estimated, is held
abroad, is about #100,000,000. As long as the imports of
the country exeeed the exports, the difference will have to-
be made up in specie. The imports of the Tinted States a^
a rule have exceeded the exports for many years past, and
to such an extent, that notwithstanding the enormous yield of
American mines, there is not at the present time $100,000,000
of specie in the country. And now that the productive
ability of the nation has been greatly diminished, and is still
diminishing under the operations of contraction and of the
National Hanking system, the excels of import- o\er exports
must naturally increase, and thus augment the neces.-ity for
sending the product of American mines to foreign countries.
It i> dear, therefore, that until the producing forces of the
nation are sutlieiently developed to enable it to export more
than it imports, there can be no accumulation of gold
obtained from the mines of the country. The amount
required to resume specie payments then, if obtained at allr
must come from other nation-. The demand for gold at
the present time abroad is unusually great on account of the
demonetization of silver in (iermain and other count;
The government of the Tinted States has already had some
experience in trying to obtain gold in Kurope. When the
gold bond- of the I'nited States were put on the market in
Kurope, $21,000,000, resulting from their sale, accumulated
RESUMPTION OF I 283
in the Bank of England The Bank of England objected
to the traiisfi-r of this sum to the I'liilcd States, ami the
government was forced to turn round an<l invest it in other
bonds, which had been purchased pr.ihably at lc»s than 60
cents on tin- dollar. Senator Boutwell detailed the facts in
this caM-, in a speech in the 1'nited States Senate, January
22, IsT-l, a* follows: "When tin1 negotiations were going
on in London for the sale of the largot amount of United
States bonds that have ever been sold then- at one time, it
was foreseen by the Bank of England that a quantity of
coin would accumulate as the proceeds of these bonds to
the. credit of the government of the United States. As a
mutter of fact, there was an accumulation of about $21,000,-
000. The Hank of England, foreseeing that there would be
an accumulation of coin to the credit of the United States
which might be taken away bodily in specie, gave notice
to the officers of the Treasury Department of the United
States that the power of that institution would be arrayed
against the whole proceeding unless we gave a pledge that
the coin should not be removed, and that we would reinvest
it in the bonds of the United States as they were offered
in the markets of London. We were compelled to do it."
Mr. Boutwell aKo mentioned another case in point, which is
equally significant, as follows: "There is another fact,
known to all. We recovered at Geneva an award against
(i real Britain of 815,500,000. When this claim was matu-
ring, the banking and commercial classes of (Ireat Britain
induced the government, to interpose, and by diplomatic
arrangements through the State Department here, operating
upon the Treasury Department, secured the transfer of secu-
rities and thus avoided the transfer of coin. In the presence
of these facts, is it to be assumed for a moment that we can
go into the markets of the world and purchase coin with
284 r:i-:si-Mi*rioN OF SPECIE PAYMENTS.
which we can redeem one, two, three or four hundred mil-
lions of outstanding legal tender notes."
If any further argument is required to show that it is not
only utterly impossible for the government of the United
States to obtain the requisite amount of gold to resume
specie payment at a fixed time, but that it is also undesirable,
even if it were possible, because it would disturb all the
industrial and social relations of the world, it will be found
in the following extract from an able speech delivered on
the 2Gth of April, 1870, by Senator Jones in the Senate of
the United States, in favor of placing silver on an equality
with gold as a medium of exchange. lie said:
"The world's stock of coin is $5,700,000,000, of which
nearly one-half is silver. Of this sum Europe, America, and
the rest of the Occidental world employ about $3,600,000,000.
Previous to the late demonetizations of silver in the Latin
union, and in Germany and the United States, these $3,600,-
000,000 consisted of, let us say, $2,000,000,000 of gold
and $1,600,000,000 of silver. They now consist of about
$2,600,000,000 gold and $1,000,000,000 silver. By continu-
ing to exclude silver from equal participation with gold in
the currency of the United States and attempting to resume
specie payments, we occasion a demand for say $350,000,000
of gold wherewith to pay off the greenbacks and furnish
bank reserves, and $50,000.000 of silver in lieu of the frac-
tional notes. If we could obtain these $400,000,000 of
metal without drawing it from other countries in Europe or
America, they would add so much to the stock of coin in
the Occidental world, which would then be $2,950,000,000
of gold and $1,050,000,000 of silver. This is the answer to
the question so far as the Occidental world i> <•< >nr(-nied
The quantity of the precious metals needed for money and
the basis of credit in the Occidental world — that is to say,
MMI'MoN OF M'KMi: I'AYMI.MTs.
tlii' quantity needed to maintain prices at their present le\el
—is at least $4,000,000,000. Of this sum the I'nit. -.1 S
% it iracceeds in resuming specie payments, will hold about
$400,000,000, of which $350,000,000 must be in gold.
Where is it to come from:' %
"Anticipating the argument that no such sum is nece-<-ai y
to specie resumption, because prior to suspension in i
our entire stock of coin included m>t more than $225,000,000
of gold, he reminded the Senate that population since then
had increased per 50 cent^, and that in 1801 oar whole circu-
lating medium consisted of $300,000,000 in coin and $200,-
000,000 in bank notes, which circulated within limited areas
at nearly par; whereas now it consists of not more than
$100,000,000 of coin and some $850,000,000 of government
aud bank paper, the latter circulating (throughout nearly the
whole country) at about 87J cents on the dollar; say total
circulation at par equal to $850,000,000. This is 70 per-
cent. more than the par circulation of 1801, an incontestible
proof that the exchanges have increased in volume at least
70 per cent. It cannot be doubted that the bulk of to-day's
exchanges in this country is at least double that of a corres-
ponding day in 1802. Put it at only 70 per cent, higher;
then, in order to resume specie payments upon at least as
firm a footing as specie payments in 1801, we shall require
at least 70 per cent, more specie than we employed in 1801.
Add 70 per cent to $300,000,000 and you have $510,000,000.
Allow $100,000,000 for specie already in the country, in the
banks, in private hands, and in the vaults of the Treasury,
and you will need $410,000,000 in order to resume, say, for
round figures, $400,000,000 of specie, of which, under the
operation of the act of 1873, about $350,000,000 must be
gold.
"I warn gentlemen to beware of making a mistake in
286 EK-SUMPTTOy OK SPKCIK PAYUKNT^.
respect to this matter, for a mistake will set us buck many
years. The Jiritish government tried to resume in 1S17,
after :i suspension of 20 years, but. it failed, ami sii>|>cn>i,<n
was deferred until 1823. If we try to resume in 1S71) with
$100,0001000 and fail, we may be set back a quarter of a
century. Moreover, if we fail, some clique of stock gam-
blers will make 15 or 20 per cent, out of the operation.
Knowing that $100,000,000 was the limit of the government's
ability to pay, they could easily make arrangements with the
banks and depositories throughout the country to withdraw
$100,000,000 of greenbacks on the eve of the day of resuni]>-
tion, and present them for payment at the Treasury After
having drawn the last dollar of specie out of the latter, they
could, by presenting an additional note, compel it to suspend
again. Then gold would go up once more, perhaps to the
full extent of the figure from which it would have fallen,
and the clique could sell their specie in the market and
realize their profit. . We cannot resume with $100,000,000
nor with $200,000,000. We have had $200,000,000 in - pect-
in the Treasury on several occasions during the past ten
years. If it is practicable to resume now with $100,000,000,
why was it not practicable on those occasions with $200,-
000,000? It was certainly not for lack of desire on the part
of the- Secretary of the Treasury, but simply that both th<-
Secretary and Congress saw that the thing could not bo
done. Where are the nee. led *;550,000,000 in gold to come
from? The annual gold product of the world is x!)7,mn),oiM).
More than half of this is needed in the arts. One and a half
per cent, on $2,600,000,000, the present Occidental >t«
1 for the maintenance of money to replace ahra-ion
and loss. This is $39,000,000. Deduct thoe <ums and there
remains a surplus of $10,000,000 a year, out of which our
needed $350,000,000 must come, unless it comes out of the
17KM MiTios 91 PA1 MI N i- 287
existing stock in other count! -u •>. It would take W yean t«»
accomplish the result Upon the in««>t fax Mi-able hyp«»thr-i-.
"But tin* increased population of tlie Occidental \v<>rl,l
will make increased demand tor gold e\ehange> ami t'«»i- it-
UM- in art- e.jual to at least $6,000,000 annually, ami the
annual product of gold i.- diminishing instead «>f inciva-ing.
When these elements of the circulation are all -Moderately
provided for, there will remain perhaps $500,000 per an-
num of surplus, taking 7<»n year> to get our fc:*50,000,000.
And even this cannot be done unless Austria, Italy and
Russia shall leave us to monopoli/e all the gold we need
before they reform their own debased currency. I tell you,
gentlemen, the thing cannot be done. Redemption in gold
is out of the question. Tt is not practical tinancially, metal-
lurgically, internationally, or politically; in short, it is not
practical at all.
"The stock of coin which forms the substratum of the
world's prices is the accumulation of 50 centuries, and bar-
gains are being made every day which cover long periods
of time. To disturb these prices and contracts by forcing
the exchanges of the country to be inea>uivd by a sum of
specie so vastly less than its usual measure, as $ 100,000,000,
or even $200,000,000, would be tantamount to the violent
destruction of vast interests and a wrenching of all the
relations of industrial and social life.
"The Senator proceeded to argue that we cannot get the
gold from Europe, with which to resume, becau>e its whole
Mipply is only $2,600,000,000, and mi every one of tl,
dollars stands a vast and almost toppling superstructure of
credit in every conceivable form. Try to buy one sixth or
seventh of that amount, and the rate of interest would go
up in Europe in order to check the outflow of gold; and so
the price of gold would rise until, in order to secure the
RESUMPTION OF SPECIK I'AVM-
amount required, we would be obliged to sell all our mova-
bles at prices that would bankrupt every interest in the
country. We might get $50,000,000 or $100,000,000 possi-
bly, but it would be at the expense of a tremendous financial
convulsion abroad, reacting with equally alarming disaster
to ourselves. Recollect that the problem is that of taking
$350,000,000 in gold out of a fully occupied and heavily
overtopped basis of only $2,600,000,000 in the Occidental
world. It is not the whole stock of metal, both in silver
and gold, that we can now call upon. Silver has been
demonetized in several countries in Europe, and here we
have so thoughtlessly worded our laws that, until we alter
them, we can only pay in gold."
By the act of April 12, 1873, the silver coins of the United
States were declared to be a legal tender at their nominal
value for any amount not exceeding live dollars in any one
payment. Silver as a commodity fluctuates in value agree-
ably to the laws of supply and demand. The effect of the
law above mentioned was to partially demonetize silver, and
hence silver coins are now (May, 1876) quoted at about 3
per cent, less than legal tender Treasury notes.
There is no good end to be attained by specie resumption
that could not be attained by simply making the greenback,
a full legal tender, as should have been done in the first
instance. By making the greenback a full legal tender, the
product* of the country would be placed upon the same
footing with foreign commodities, and that is all that is
proposed to be accomplished by specie resumption* The
public would then l»e relieved of the onerous tax imposed
on gold to pay duties on imports, which redounds solely to
the advantage of the bullionists and bondholders of the
rnitcd States. If this method were adopted, no disturbance
of the industrial or social relations of the country c6uld
i;> M M!'Tlo\ Ml-' s|M i [I I- \\\\] 'JK9
possibly occur. Koivcd -pecir resumption .•:ui be a«-rom-
piished only through ;i complete revolution of all tin- husi-
.iiul social relations of thr rountry. This will appear
from a brief consideration ,,!' tin- Mcps that will nrrevsarily
precede resunij)tion. Tin- circulation of the country mi the-
1st of April, 1H7G, was as follows:
Legal tender Treasury notes *?o7".7-vvj i^
Fractional currency 12,604,808
National Bank notes •••
Total £743,739,045
The lawful money reserve of th«- National IJanks on the
1 8t day of October, 1S7.~>, \\a> a- follow-:
Legal tender Treasury notes ..'•_' I
United State's ccrtiticatcs of deposit l-.sl<),00(>
Due from reserve agents S5,044.
Redemption fund with Treasurer 10,23:'..
1227,065,078
Specie 8,050,328
Total >52:{.j,lor,,40U
It will be seen that the lawful money reserve of the
National Banks, exelusive of specie, now amounts to ,
two-thirds of the entire greenback circulation. The bunks
have still two years and a half to i^tther in the remainder
of the outstanding LTi-cen backs — all that arc not locked up
in private hoards. To call in their own circulation i> an
easy matter. If the banks cease dix-ountiiii;- paper for six
months there will scarcely be a bank note left in circulation.
That they will do so is not to be doubted. The notes of the
banks are simply evidences of their own indebtedness, and
it is not to be supposed that they \\ill voluntarily add twelve
per cent, or more to their o>\ n indebtedr.e-s \\lien they can
easily avoid it. Long before the first day of January, 1879^
the banks will have i> --ion of the entire circulation of
10
KKSTMl'TUiN <»K Sl'KCJK !• V ^ MKN 1's.
the country, both greenbacks and bank notes, and the
nation will be completely stripped of a medium <»f cxchai
Tin- public will be helpless. The people will not pos-
•even the poor privilege of issuing and usin'j, shinplasters and
scrip, because it. will be impossible to raise money enough
to j»:iy the ten per cent, fax imposed upon all notes not issued
by National .Hanks. Forced resumption, therefore, means
something more than adding I- per cent, to the amount of
•every debt owed in the Tinted State*. Without, a medium
•of exchange people will be unable to pay their debts at all;
industry and trade will be completely paraly/ed; and bank
ruptey. distress, starvation and riot, will ensue.
SI'Kl'IK KKSirMTTlON IN K.NiiLAM'.
The experience of the people of (ireat Britain from IK 19
to 1825, under similar circumstances, is full of instruction to
the people of the Tnit.ed States. In 1797 the Bank of K up-
land was obliged to suspend specie payments."' (ireat Ilrit-
ain at the time WAS engaged in war with France. In 179*7
large sums of gold were required, abroad, and the price of
Hold be^an to rise. In September, 1790, the standard price
"f -_:old was I'::, I 7s., fid. per ounce, and in June, 1800, it wati
L'4, 5s. per ounce. The war with France ended in |sl5.
During I his period and for several years after the war the
pi-<.ple of (ireat Britain were obliged to u>e an irredeemable
paper currency for their medium of exchange. IVior to the
suspension of specie payments the <-onditi<'ii of a flairs in
Great Britain was gloomy indeed. Sir Archibald Alison,
the historian, in speaking of the period immediately pn
in«j suspension sa\s: "Nor was the internal sullerin^ of this
ill-ornened pi riod inferior to its external disaster. It bewail
witli the severe commercial distress «»f 179:;, unprecedented
;it rliat ]>eriod in intensity and duration, and which was only
••See Bank of I-ln^laml, ?
KKM Ml'l IMS , , |< MMJ. I 1-. P\YMKN : 'J'M
relieved !»y an extensive loan to the trailing elas>es by gov-
ernment; ami it terminated in the dreadful monetary critiis
ami run upon the bank ami mutiny in the fleet, in tin? spring
of 1707, which brought tin- nation to tin- brink of ruin, ami
forced upon the £overninent the neeoMty of su^pemlinj;
rahh payments.91 Tin* Hritish (Jovernment ami people had
been vainly trying t«> carry "ii ^n-at operations with :in
iii:ti]c(ju:i(e. int'diuni of excluingc. The Mi<pcn>ion of th<-
Hunk <>f KnirlamJ ii-d to the us»r of irredeemable paj*'i-
uidiii'V tc» an enormous amount, or, to use :ui uxpi •• ^-i"ii now
;rrratly ridiculcMJ ]»y the hullionists, "to an amount equal t>
The wants of trade/" The result was matrieal. AYe will
&
;tLjain <[tiot«; from Sir Archibald Alison. He says: "The
next eighteen years of the war, from 1707 to isi.'i, were, as
:dl the world knows, tin* mo^t glorious, ;md, taken as :i
•whole, the most prosj>erous, which (ireat liritain had ever
known. lTsh«-reil in ny a combination of circumstances the
most calamitous, both with reference to external security
and internal industry, it terminated in a bla/.«' of j^lory and
a ll->od of pi-os]»erity whidi have never, since the beginning
of the world, descended upon any nation. Hardly had the
run upon the bank shaken t-> its center the whole fabric of
our commercial prosperity, and the mutinies of the Norc.
Plymouth and o!F Cadi/, paraly/.cd the arm of our naval
defender*, when the victories of St. Vim-nit and Camper
UOM.II a;_rain iv-tore«l t^> IM the dominion of the v,.i; aiid ere
lonu: the thunderbolts of the Nile ami Trafalgar prostrated
the naval strength of the enemy, and the \icf.»rie< nf Wei
lington lirst arrested, ami at leiiLTfh broke his militant
]»ower. Prosperity, universal and unheard of, pei'vadeil
eveiy department of the empire. Our colonial po»rssions
eiu-ircled the earth — (he whole We^f. Tndi.-i Islands had
falJen into our hands; an empire of sivfy millions of men in
292 RESUMPTION OP SPECIE PAYMENTS.
Hindostan acknowledged our rule; Java was added to oar
eastern possessions; and the flag of France had disappeared
from every station beyond the sea. Agriculture, commerce
and manufactures at home had increased in an unparalleled
ratio; the landed proprietors were in affluence; wealth to
an unheard of extent had been created among the farmers;
the soil daily increasing in fertility and breadth of cultivated
land, had become almost adequate to the maintenance of a
rapidly increasing population; our exports, imports and
tonnage had more than doubled since the war began; and
though distress, especially during 1810 and 1811, had :it
times been severely experienced among the manufacturing
operatives (occasioned by Bonaparte's decrees against Brit-
ish goods), yet, upon the whole, and in average years, their
condition was one of extraordinary prosperity. The revcnu •
raised by taxation within the year had risen to £72,000,000
in 1815 from £21,000,000 in 1796; the total expenditure-
from taxes and loans had reached in 1814 and 1815, th •
enormous amount of £117,000,000 each year. In the ycurn
1813 and 1814, being the twentieth and twenty-first of th -
war, Great Britain had ibove a million of men in arms in
Europe and Asia, and remitted £11,000,000 yearly in subsi-
dies to the continental powers. Yet was this prodigiou-r
und unheard of expenditure so far from exhausting either
thf capital or resources of the country, that tho loan in 1814
was obtained at the rate of £4, 11s., id. per cent, being a
lower rate than that paid at the commencement of the w.sr;
although the annual loan at its close was above £35,000,000,
and the population of the empire at that period was onlv
eighteen millions."
All this was accomplished in Great Britain during the
early part of the present century by irredeemable paper
money. The bullionists try to blunt the force of this argu-
RESUMPTION' OK SPK( I
ment by attributing tin- prosperity of i during
period to the vast outlays of the government, but if this
the cause, why did it not produce the same effect during
period prior to the suspension, when the government
making similar outlays? The simple truth is that the people
of Great Britain possessed patriotism and faith in the sta-
bility of their government and institutions, and when fur-
nished with industry's most essential tool, an abundant and
cheap medium of exchange, they were enabled to devt
the producing forces of the nation to their utmost ext*
with the marvelous results above given. And the loiric of
the whole matter is, that if paper money will perform such
marvels in time of war, danger and uncertainty, it ean be
made to perform the same or greater marvels in time of
peace, when no uncertainty need attend its uaa
When the several acts of Parliament were pa^-ed contin-
uing Pitts' "bank restriction" (continuing the suspension of
specie payments), one clause was always retained, and •
was that the bank was "to resume cash payments" within a
few months after peace should be established. Doubloday,
in his Financial, Monetary and Statistical History «.f I
land, says that " it has been asserted that Pitt never m
this clause to be enforced, at least as far a* regard. -d tho
fundholders (bondholders); and that he intimated a* much
in Parliament on one occasion." However, it \\:is adhered
to. The bullionists immediately began to clamor for a
return to specie payment*. The bank of Kngland, u
had "bales of paper money" in circulation, was obliged to
Contract to an extent that would enable it to redeem the
remainder in coin. This began to occasion distress amongst
the merchants and manufacturers. In speaking of :
period Doubleday says: »* During former revulsions, sue:
that of 1810, caused by the decrees of Bonaparte agu
294 RESUMPTION' op SPPHTTK PAYMENTS.
the admission of British goods, the hank had conn- promptly
forward with loans and discount* to relieve the pressure.
Now, ho wever, the directors .scarcely dared to move an inch.
They knew that the political economists were strong in the
House, and that they were bent upon c;ish payments at all
risks. They knew that the Jews of Change Alley would
secretly abet the same doctrine. Against a combination of
usurers and theorists, one set all selfishness, the other all
crotchets, there was m> defen>e l«> be ma/lc. The country
gentlemen, who were the duj>es of the economics. ^
tO believe that Cash payments wen; necessary for both the-
interest and security of themselves. Those who had t. he-
power were resolved, and nothing was left to the hank but
to narrow its issues, and look about for gold and silver
wherewith to meet the storm. This was altogether a diffi-
cult business. In the year 1S10 alone thirty-seven coir
banks had become bankrupt. The commercial world
required additional propping. But the government ^tho
bank) was in the same dilemma; and t<» it the merchant.-*
were sacrificed. Between February and April, 1810, the-
directors lessened their discount from I'l-'^Ooi 1,000 to
.€11,000,000; and before February, 1817, to £8,000,000; and
before August of tlie same year to- £7,000,000; whilst up t»
nearly the same period they held of Kx.-hequcr bill>, . ..
£25,000,000. * * This reduction of the bank issuo, and
destruction and crippling of the ••ountry bank-, had another
and still more important effect, ina-mu<-h as b\ causing the
price of gold to fall to nearly the mint j»ri«'f, it ciicour;1.
the political cconomistn t>» JHV-S forward, and at last, in
1819, to pass an act, the most important in iss oonteqaei
Mid extraordinary in its circumstances, that ever was decided
upon by any legislature, in any ajv or coiintn . The
Currency bill of (May) 18 in v, d at Uic insUiuce oi"
RB8UMP1 I«.N i pA\ MI »T8,
A Committee, amongst the members of whom were included
all tin- parliamentary dabblers in political economy of unv
name Or talent, and of whom IVcl was chairman. Hnrn»-rr
the chairman of the bullion committee «.f isi.i. \\as dead;
but in his htoad, they liad Kicanh>, a rich Jew stock-jol>;
who having made an immense fortune by this vsor-*
of gambling, had also contrived to nhtain a reputation l.s
the publication of some bookfl <»n political economy.
Hacked ]>y the authority of this rich and arrogant man, the
economists obtained on this occasion an almi»»-t entire »-om-
rnand of the House of Commons. * * The HOUM- madc
Ihe plunge "\vitli one accord. There Mas hardly the sem-
blance of an opposition. Kicardo had the enormous folly
id tell the House that the bill was* not worthy of half an
hour of even tlieir consideration;" and assured them that tlu-
Whole question was one of 'throe per cent:' this being the
extent of the fall of prices, which this man calculated would
take place, after all the one ami two pound notes in the
kingdom were burned, and the remainder, of live pound
notes and upwards, mat le -payable on demand in gohl. sover-
eigns worth £3, 17s., lOAd. the ounce/ In short there was
only one man in the Commons who really understood and
opposed the measure, and this man was Mr. Matthias Att-
wood, * * and Mr. Attwood was prevailed upon to quit
the House that, the vote might, be unanimous. Tn the llou-.-
of Lords, Lord (irey alone ventured t«» di-^cnt from til--
measure; * * The Houses, however, for once * \\ere all in
one aeeord/ * * AH a bit of legislation, this e\ er-merao-
ra-ble act is remarkably brief and to the point; consisting
only of thirteen not very long nor wordy claiiM->. It repeal*,
in the first place, all the acts for restraining the bank from
paying its creditors, which bad been passed from 1707 up
to that time, the repeal going into effect 'from and after the
296
RESUMPTION OP SPECIE PAYMENTS.
lirst day of May, 1823.' This was a repeal of all bank notes
on demand for sums less than five pounds. It then provides
for a gradual return, in the meantime, by the bank to cash
payments; beginning with an issue of gold at four pounds
one shilling the ounce, in 1820, and ending with the stand-
ard mint price of £3, 17s., 10£d."
The premium on gold during this period fluctuated aa
follows:
1814 30£ per cent.
1815 18} "
1826 2£ "
1816, Oct. to Dec. r "
1817 2£ per cent.
1818 5 "
1819 6£ "
1820 par.
Although the Currency bill passed Parliament unani-
mously, it did not fail to excite great alarm and opposition
among the industrial and business classes of the kingdom.
The Directors of the Bank of England protested against its
passage, declaring that <• they could not venture to advise
sin unrelenting continuance of pecuniary pressure upon the
commercial world, the consequences of which it was impos-
sible for thorn to foresee or estimate-," or countenance a
measure in which ' tlu- whole community was so deeply
involved, and which would possibly compromise the- univer-
sal interests ,,f the empire in all the relations of agriculture,
manufactures, commerce and revenue." Tin; hankers and
merchants of London joined in a petition against it, in which
they predict CM! the most disastrous results.
The contraction of the currency, which was augmented
by the passage of the bill, noon produced the most alarming
rcMilis. We airain quote from Alison's History of Europe.
He says: tkThe effects of this extraordinary piece of le-_;i>l.i-
tion were s<x,n apparent. The industry of the nation wan
speedily congealed, as a flowiug stream is by the severity of
an Arctic winter. The alarm became as universal
Ml'IlMN Of x|'K< IK PAYMKNTs.
spread us confidence ami activity had recently been. The
«-ountry hankers, who had ad\anced largely on tin- slock>
of goods imported, refused to continue their support to their
customers, and they were forced to bring their stocks into
the market. Prices in consequence fell rapidly; that of
e«,:ton, in particular, sank in three months to half its former
level. The country banker-^ association wax contracted l>y
no less than five millions sterling ($24,000,000); and the
entire circulation of England fell from $235,545,000* in 1818
to $174,385,000 in 1820, and in the succeeding year it sank
as low as $142,757,000. * * The effects of this sud
iind prodigious contraction of the currency were soon appa-
rent, and they rendered the next three years a period of
ceaseless distress and suffering in the Uritish Inlands. The
accommodation granted by bankers diminished so much in
consequence of the obligation laid upon them to pay in
^jM-cie, which was not to be got, that the paper under dU-
count at the Bank of England, which in 1810 had been
$115,000,000, and in 1815 not less than $103,000,000, sank
in 1820 to $23,360,000, and in 1821 to $13,610,000. The
effect upon prices was not le>s immediate or appall:
They declined in general, within six months, to half their
former amount, and remained at that 1<>\\ h-\rl f.-r the next
three years. Distress was universal in the latter months of
1819, and that distrust and discouragement were felt in all
branches of industry which are at once the forerunner and
cause of disaster." From Mr. Douhlcday's history we also
quote as follows: "We have already seen the fall in price>
produced by the immense narrowing of the paper circulation.
The distress, ruin and bankruptcy which MOW took place
were universal, affecting the great interests both of land
and trade; but especially among land owners, whoso estates
were burthened by mortgages, settlements, lc-_racie-, etc.,
•Amounts are given in dollars instead of pound;.
298 RKSF.VfPTIOV OF SPECIF PAYMENTS.
the effects were most marked and out of the ordinary oonr*<v
In handreda of cases, from the tremendous reduction which
now took place, the estates barely sold for as much as would
pay off the mortgages; and hence the owners were stripped
of all ami made beggars." lie-lore the close of the v
1X10 the di>ln-ss became insufferable, (treat meetii! .
held throughout England and Scotland dnrinir the summer.
In August 00,000 people, men, women and children, assem-
bled near Manchester. A collision occurred between the
people and the troops, in which a number were killed and
many wounded. This created intense e.veitcnicnt, and the
meetings of the people held in Liverpool, York, Leeds, and
various other cities, were attended by vast multitudes of
Buffering j>eoplc, demanding vengeance. Serious riots
occurred, which were only <juell.d by military force. In
1820 a conspiracy was discovered, which had for its object
the murder of all the King's Ministers, and which was only
frustrated through the cowardice of one of the eonspira'<
who betrayed his associates. Military training went on
amongst the people, and th: government was obliged to
provide a large military force to pr. v nt an outbreak. "On
Sunday morning, the I'd of April," :ays Aiison, ua treason-
able proclamation was found placarded all over the street*
of Glasgow, Paisley, Stirling, and the neighboring tol
and villages, /,; f /u: name »t' a , -'I governn
calling on the people to tlesist from labor; on all nianu
turers to close their work>hop«:; and <>n all the fr'n-ii'ls ,.f
their country to come forward and effect a revolution },y
force, with a view to the establishment of an entire equality
of civil rights. Strange to say, this proclamation, D!
and proceeding from an unknown authority, was widely
obeyed. Work immediately ceased; the manufactories AS
closed, from the desertion of \\ orkmeit; the streets were filled
nm MPI ION »v MM en tona
with anxious crowds eagerly expecting neu s from tin- south:
the sounds of industry were no longer heard, :m<l two hun-
dred thousand persons in the hnsirst districts of the country
were thrown into :i state of compulsory idleness hy the
mandates of an unseen and unknown po\\«-r." Ki\r thou-
sand troops were immediately assembled at (llas-^ow, and
tho immrgents were overawed IScforc the end of ih.
tin* ^oviTiiinrnt had iiHMvaM-d it^ \oluntfi-r forrr 1-. :
iiu-n. " \Vit)u)iit «l«>uht,"says Alison, "this powerful \olunti-rr
forrr, or^ani/cd operially in flir maniifarturin^ tli^ti'irt-,
at this period, and the derisive demonstration it afforded
of moral and physical strength on the part of thti govern-
ment, was tin- chief rau^e through which (ireat IJritain
csrapi'd an aiariiiin^ (Convulsion."
Thus wore the masses of Great Kritutn, whose valor and
Jahor had <-arried the nation to the acme of iclory and pro—
p<-rity, ruthlessly and wantonly sacriiiced «»n tin- altar
railed k* honest money," only to further enrich the nio:M-\«-d
chiss of the kingdom. l>nt after all forced specie resump-
tion proved a failure. Parliament was ohli-^yd to retrace its
Kfeps. In ls-J2 an act was p.-ixsi-d auf Iioi-i/.inic the issue of
one and two pound notes for a period of ten \ears longer,
and the one pound notes if ere ///>"/,• ,t /> :/"; -very
where except at the bank of Kngland. ^This a. •«."
Alison, "coupled with the grant of £4,000,()n»k K\rlie<jiu-r
l>ills, which the government was authori/.ed to issue in :n,I
<»f the agricultural interest, had a surprising elTe.-t in rest^.r
ing confi<lonce and raising prices; and by doing
repealed, so long as it continued, the nn^t injurious parts- of
the act of 1819." I>ut (he ruin, suffering :md misery \\hich
had attended the attempt to Wee ipeCM payments could not.
be undone, nor could the broken fortunes be restored. By
a return to specie payments finally, the Npocie IKLS'IS banking
I:K>I MITION
>!•}•;< 11-; I-AVMKM-.
and credit system, the whole tendency of which is to con-
centrate wealth in the hands of the few, was re-established ;
and the industrial classes, especially the agricultural class,
"have never since been able to recover from the blow then
received.
"Princes and lords may flourish, or may fade, —
A breath can make them, as a breath has made:
Hut a bold peasantry, their country's pride,
When once destroyed, can never be supplied."
In 1822 the land owners of England numbered 165,000.
According to the census of 1861 the number was about
30,000, and one-half of the whole kingdom is now owned
by not more than twelve persons.
From this mere outline of the disastrous events which
attended specie resumption in Great Britain, revolutionizing
the whole structure of British society, and shaking to the
center the foundations of the government itself, some ide:<
may be formed of what the American people will be obliged
to suffer during the next few years, (ireat Britain then
Sfled many advantages which arc not possess, -d by the
United States at the present, time. Her industries wen- i-;
full operation; the balance of trade was largely in her favor;
she had a lar^e Mipplv of specie to begin with; the premium
on gold was only about live per cent.; and, as the country
was limited in extent and densely populated, money circula-
te*! ^ith great rapidity. On the other hand, the industries
of the Tnited States :)re already prostrate; the balance of
trade is against the country; the specie in the country \*
Inconsiderable in amount; the premium on gold is over
twice as high as : was in Knghmd; and the immense extent
•«i' the country precludes :my possibility of money circulating
with rapidity. In addition to this, British thought and
liabit had been educated under the «.pcci«- basis :m,l credit
union 01 v,., , n. i-v, M,
• in of money; whilst, in the 1'nited States, BXporioncC
baa fully demonstrated that the •ysteni is inc,,iiMstent \\ith
the genius of American institutions and repugnant to . \mer-
ican habits and idea-.
There is e\ery reason, therefore, to helic\r that tin- di-:i--
ter and distress which will attend an attempt to fOTOC Bp
payments in the 1'nited States will exceed in intensity that
which marked the experience of lin-at IJrit.-iin an hundred
fold. The contraction which took place just after tin-
was earned on wholly by the government The evil DOOM-
C|uences of this contraction were partially averted l>y the
emission of over $350,000,000 of bank currency. Hut n«>\\
a different kind of contraction is going on. The National
Banking System has already enabled the banks to ac.juin-
possession of over two-thirds of the greenback circulation,
and it is a question of but a short time until they will hold
almost the entire amount. Their own notes are em-umbered
with interest, and are not subject to the natural laws of
trade, but to the will of the banks. It will take but a shoi t
time, therefore, to call them all in. The organ* of tin- banks
arc constantly repeating the statement that there is plenty
of money in the banks, and that any one can get it who has
anything to get it with, and the statement is echoed and
re-echoed by all the demagogies and weak minded tools of
the money power in the country. Properly consider, d, we
submit that this fact alone confirms all the objections which
we have urged against the system of bank-* of i-xue. Why
is money plenty in the banks, and why is it not occupying
the channels of trade and honestly performing the functions
for which money is designed? For the simple reason that
a medium of exchange consisting, even in part, of bank
currency will not obey the natural laws of trade, because it
is burdened with interest which robs the industry of the
30'J KKM MI-IION OK STKCIK PAYMHS T-.
nation of more than its average j>rotit. In ordinary time*,
after industry had boon drivon to the wall ami a commercial
crash had brought about an adjustment, the banks begun to
expand their circulation, and the banks and the people would
enter upon another era of inflation, only to end in the same
manner. IJut now the spoeie resumption act not only pre-
vents any such expansion, but compels both the banks and
the people to contract in every way possible to prepare for
the impending crash. True enough, money is plenty in the
hunks, and it will grow plentier there before the nation is n
year older. In fact the contraction of the banks has scarcely
more than begun. lint as failures multiply, as they are now
doing with startling rapidity, loans and discounts will grow
l«-s* eorninon, until finally the country is entirely deprived
of ti circulating medium. This can end only in the complete
destruction of all values. It will be as difficult to pay
small debt as a largo one, for money will be everything and
property nothing. Taxes cannot be paid, for there will be
no money to pay them with. Not only will individual
bankruptcy be general, but the decline in the public reve-
nues, which must follow, will render it impossible for the
Federal or State Governments to meet their obligation*.
This is the only kind of repudiation that need ever be feared
in America. The people are being rapidly deprived by the
policy of the money power, not only of the ability to sustain
the government, but of the ability to provide for themselves
and families. That a nation pos*e*sing the \\onderful
advantage* and the skill and enemy poxxt^xrd b\ the Amer-
ic.-ui people should bo brought to even its present di<t
condition in the pur>nit of a phantom, is simply monstrous.
And when the crisis is reached, what will have been attained?
'•Honest money?'' No. Nothing but a circulating medium
Consisting of bank currency, <.nly nominally redeemable in
l-' s|M.. IK ]• \ V Ml
•co'lll. A88UIIlilIg 1 1 Kit the Lr<>N ''I'll I IK '1 1 t Will be able t«. . i -i 1 1 -i -I II
the greenback circulation •'•nd that tin- amount is paid to the
hanks, itis n.>t difficult to foretell tin- result. The hankn
will i-sue bank currency, redeemable in coin. \Vlu-iir\-
dernand for specie arises ahs-..ad, American securities \\\\\
be thrown upon the market, :uul tin- iT"l<i in th«- country will
<li>:i|i]ic:ir in a «I:iy. The )>anks will IK- (»}>liLT«'»l to K I>|M-IH|
vj.ri-ii' jKiyiniMits, precisely as the ol<l State banks of i
were obliged t<> do. time an«l ri^riin. nmler similar ciivuni-
>t:mcc>. I'nih-r th«- oNl State banking sytiMii the people
-were compelled to use bank currency even whe'i they knew
if was a fraud and a lie, because they had nothinu; else to
use. l>uf under the National Hanking arrangement the
notes of the banks will be taken without hesitation, not
because they are convertible into coin, but beeause they are
guaranteed by the rV.h-ral Government— bused upon the
faith ami wealth of the nation. In the end, therefor. •. s,, far
^is specie circulation is concerned it will prove, a^ in the
• lays before the war, a fraud and a delusion. The National
Hanks, however, will have accomplished their end. They
Will have obtained absolute control o\cr the monetary ami
political affairs of the nation. The whole affair is in
but a irrand scheme to accomplish that purpose, and it is
marvelous that intelligent people can be dreie\ed in bcliev-
tng Otherwise. In ITlll. when Hamilton «oiiLrht to establish
his funding and banking scheme, the «rrcat I'itt said: "L. t.
tlie Americans adopt their fundini; system and Lr<» into their
banking institutions, and their imlcpendene. \\ill be a mere
phantom." What Hamilton, With all his genius and ..
ability and influence was unable to accomplish in the
Infancy of the republic, a pack <»f venal dema^OLTues ha\e
well niijjh accomplished nearly a century later. People are
wont to say, and apparently seem to think that it is au
RESUMPTION OF SPECIE PAYMENTS. 30*
evidence of their good sense, " tliat they don't know nor care
anything about this financial question." It is high time that
everybody should seek to understand this question, because
until the National J>.-inks are destroyed and a system of
money is founded upon sound principles, there can be no
enduring prosperity in the country, and the "independence
of the people will be a mere phantom." The demoralization
which is now going on throughout the country in conse-
quence of the enforced idleness and poverty of millions of
people, is a matter of serious import, and one which should
awaken to a sense of duty and action every Christian man
and woman in the land, and especially ministers of the
Gospel, who profess to follow Him whose tenderest care was-
ever manifested for the weak, the lowly and the oppr
There is another fact which may convey a warning t«>
those who are lending themselves to the ignoble rause nf
enriching the money power at the expense of ruin, poverty
and distress to the masses. When the American people are
driven to the extremity that the English and Scotch people-
were, by an attempt to force resumption, and gather in vast
multitudes, as the English did at Peterloo and the Scotch at
Glasgow, to demand redress, matters will assume a very
different shape in tho United States from what they did in
Great Britain. It is true that an organ of a notorious Waif
street operator, the New York Tribune, has intimated that
any such demonstrations would promptly be met with "shot
and slaughter;'* but in the United States that is more CHM!;,
Kuid than done. The day has not yet arrived when Ameri-
cans can be intimidated by such threats. As yet they "their
duties know, but know their RK;IITS, and knowing dare
maintain them." AVhile the American people undoubtedly
possess too much patriotism and intelligence to jeopardi/**
the stability of their institutions, they nevertheless may
f.«,s^il)ly forget, in the hour of their distress, that* the Lord
hath said, "vengeance is mine." In that day the Sherman*
and McCulloclis had better never have been born.
CHAPTER IX.
A MONETARY SYSTEM FOUNDED UPON SOUND TlilNCIPl.!
IT is a common error, inculcated by the bullionists, to
suppose that metallic coins alone are money, and that money
is the same thing in all parts of the world. Nothing could
be further from the truth. Population, commerce and trade
have long since outgrown the world's supply of the precious
metals. Every nation builds up a monetary system of its
own, and no two systems are or can be alike. The monetary
system of a nation is an outgrowth of its civilization, pre-
cisely as are its manners, its customs, its language and its
government. For example, Great Britain and France both
use metallic coins and paper money, and yet the monetary
systems of the two nations differ in almost every particular.
Several centuries ago the increase in population, trade and
manufactures and the limited supply of gold and silver ren-
dered it impossible for the people of Great Britain to secure
a sufficient amount of coin to form an adequate medium
of exchange. The true nature and functions of money were
but imperfectly understood, and no effort was made, on the
part of the government of that kingdom, to remedy the diili.
culty under which the people labored in effecting their
exchanges. The people were obliged to do the best they
could. Exchanges of property and commodities thus came
to be effected to a great extent by means of promissory
notes, book accounts, and other de\ ices of the credit system.
In the course of time the Bank of England was established.
Soon after it was established its managers conceived the
306 A MONETARY SYSTEM FOL'NDKD
idea of issuing bank notes, to be exchanged for the notes of
individuals. Merchants and others gladly availed them-
selves of an opportunity to substitute the notes of a respon-
sible and widely known institution for the notes of individ-
uals, which could only circulate in a limited sphere. Bank
notes were found to be capable of greatly facilitating the
operations of trade, and became the chief medium of
exchange of the nation. Bank notes, it will be perceived,
are purely an offshoot or development of the credit system,
invented to remedy the want of an adequate medium of
exchange. In this manner a monetary system of a peculiar
character has been developed in Great Britain, which has
exercised a powerful influence upon the destinies of the
people of that kingdom and also upon the rest of the world.
The monetary system thus developed in Great Britain,
although based on specie, is made up almost wholly of
credit. The statement of Sir John Lubbock, given on page
4S, shows that of £19,000,000, paid into his bank in a iV\v
days, only one-half of one per cent. <-onsi>tcd of coin.
Every dollar in coin in Great Britain thus becomes the basis
of an immense superstructure of credit. Gold coins are the
legal tender money of the country, silver being a tender
only for small stim>. As the exchanges of the country
are carried on with a medium of exchange only a small pcr-
ge of which is coin, whenever a stringency occurs, or
a want of confidence prevails, which inevitably happens :i>
soon as the credit of the nation becomes fully inflated,
everybody seeks to obtain PUSM-MOII of this small per-
centage of the circulating medium, which alone is a tender
in payment of debts. Coin consequently ri>es in value and
is no longer a proper measure <»f other values. In this
•t at least its functions as money are totally perverted.
Money thus instituted is given a tremendou^ power over
Sol Mi l'KIN< !]•: 307
property and labor, and tin- whole tendency of the system is
lo make the rich richer and tin.? \»»>r \ vr. The s
however, is in accord with the views held by the ari-t
or governing class of Gre.it Britain, and finds its champions
in a school of political economists, who profits to believe,
and strive to inculcate, the doctrine that it is natural and
proper that poverty and want and disease and misery should
be next door neighbors of wealth and unbounded prosperity.
It is due chiefly to this system of money that su< -h
extremes of wealth and poverty are to be found in <
Britain.
France, like Great Britain, uses both coin and
monc}, but money in France is instituted upon entirely
different principles. The policy of the I-Yem-h (iovemmeiit
is to render money abundant and cheap, in order that the
exchanges of the nation may be effected with the lea--
possible, and that the productlvo ability of the people may
be developed to the utmost extent. The men who moulded
the French system were wise enough to know that labor is
the true source of wealth, and that the surot way to render
the government powerful was to enable the ma-
become prosperous. This was not accomplished without a
great struggle. Colwell, in his work on The "\Va\
Means of Payment, says: "The system of public tina
France, once so cumbrous and awkward, so e\j>cii-:-.
otherwise disadvantageous to the nation, has, during t:
half century,* under the able direction of Count M
the Marquis ITAudriiTet and other eminent men, und<
such radical changes as; have completely modified both its
principles and its mode of operation. Thc-e reform! were
resisted, in every d with every weapon, by the
parties (the money power) interested in mamtainin
*Tliis was written prior to 1860.
308 A MONKTAKV SV.-TKM FOUNDED
abuses. The persevering efforts of honest and intelligent
men for thirty or forty years overcame all opposition, ami
France now enjoys a financial system, in not a few respects,
superior to any other nation." The people of France have
the cash system and pay as they go. The circulation of the
country consists of about $1,200,000,000 in specie and about
$5500,000,000 of irredeemable legal tender paper money,
issued by the Bank of France. The London Standard of
April 14, 1876, in commenting on the remarkable condition
of the French finances, says:
"The Bank of France at the present time occupies in the
financial world a position more remarkable than has ever
been held by such an establishment! Its notes enjoy a
forced currency and are a legal tender in all l>uMnc>s trans-
actions, yet those notes suffer no depreciation. They pa.v*
from hand to hand for precisely the same value as gold. A
sufficient explanation of this fact may, perhaps, be found by
some persons in the circumstance that the bank has accumu-
lated in its coffers at this moment the greatest quantity of
the precious metals that has ever yet been possessed by a
single establishment. That, however, does not really account
for the undiminished credit of the bank. For even in the
agony of the last war, when the veteran armies of the empire
were prisoners in Germany, when Paris was closely in\ •
and one-third of the departments were occupied by the
invader, the bank's notes were at no greater discount than
two or three per cent., and almost immediately ro-e to par.
It is, then, the admirable management of the bank, not the
satisfactory nature of its reserve, which gives to it the confi-
dence it commands. It adds to the peculiarity of the POM-
tion that, although tho bank p».vM x., > u stock of gold and
silver out of all proportion greater than is held by any other
bank in the world, it does nut propose immediately to
UPON BO1 M' 1'IMN. [PI
resume specie payments And what i* more remarkable
still, nobody demands thai it shall do -
A further examination of the monetary s\-tem« <»t
nations would diselo-e >imilar peculiarities and dinVn-nces
in some gold is the only tender, in others >il\cr,
others gold, silver and paper. In Au*tria, for example,
silver pieecs of the denomination of one and one and a hah'
florins are a legal tender to any amount. <i«»ld i-
coined into pieces of the denomination of four and ei-^lit
florins (about %L} and $4), but as gold is not :i tender, r
is regarded as merchandise and fluctuate* in value like
other merchandise. The Austrian *y>tem i* modeled after
the British system, silver forming the ha*i* instead of ^ol-l,
and it lias proved there as elsewhere a peri»efu.il M»U:
disaster.
From these facts it is manifest that a people >h<>uld b»»
far more concerned about the manner in which their mone-
tary system is instituted than ain.ut the material of which
their money is made. The chief function of money is to
exchange property and commodities, and it should l»e in^ti-
tuted in such a manner as to enable this to lie -lone econom-
ically and equitably, so that all rla**e< may be duly ivu
in the distribution of the products of labor, according to
their deserts.
People strive to accumulate wealth, ami wealth, in it*
ordinary signification, consists of property and mone\ . A^
money, by virtue of its legal properties U :m equivalent for
all kinds of property, its pos>e»'nm i- eagerly sought, and
hence it seems that people are seeking solely for n
which is not the fact. Money N -imply the mean* to attain
the end, which is dominion o\er property. K<:il value
belongs only to property or product*, and money is the
medium by which it is represented, mea*ured and exchanged,
310 A MONETARY SYSTEM FOUNDED
and hence money, properly considered, is simply a tool of
exchange.
As has already been explained, the population, commerce
and trade of the world lias long since outgrown the supply
of the precious metals available for the purposes of a medi-
um of exchange. Other forms of money are in use in all
civilized nations. The larger operations of trade, both for-
eign and domestic, are carried on almost wholly by means
of paper devices or substitutes for money, which represent
and are based on the value of the commodities exchanged.
Bills of exchange constitute the real "money of the world."
The trade between different sections of the country, like the
foreign trade, is carried on almost entirely by means of bills
of exchange, checks, drafts, etc., and no one will say that it is
not more economically and safely done than if it was carried
on by means of gold and silver. The volume and amount
of the bills of exchange, etc., used are limited only by the
exchanges to be made. If any one were to suggest that bills
of exchange, drafts, etc., whether foreign or dcmicstic, should
be limited in volume and amount by law, he would probably
be denounced as a fool, and yet it is just as absurd and fin-
more unjust, to limit the volume and amount of the legal
tender money to an amount manifestly inadequate t«> effect
the exchanges of the nation.
Money, by reason of its legal properties, under any cir-
cumstances, has sufficient power over property to enable it
to perform all the osential functions of money, namely, to
exchange and accumulate value; but to limit it in amount,
as by selecting ;i rare and expensive material like gold, or
by arbitrarily declaring by law, as in the ca-c of legal
der Treasury Dotes, that it shall not exceed a certain sum,
without regard to population, extent of country, or exchanges
to be effected, is to invest money with an extraordinary
UPON soi MI PIMM M-
|K>wer over property, labor and trade, -und in princi-
ple as it li;iv proM-d niinoii.v in pra< ••
TIIK REAL i
The issue presented lo tlu- American people, tii.-u, in t|K.
present crisix, i> not between specie ami paper iin.si'-y, Imt
BOH tWO systems of money, both in\ol\
pajii-r i-ui-iTiic-y. Xo IIKUV in»|Mirtant ijm^t'nm c«.'i!,i •..
arise, for upon its |»nipi-r solution dt-j.i-n.N .y the
present prosperity of the nation, i»ut tin- wrlta: • «.t' the
plb for i;vmTation> t«» conn-. " .Muiu-tary lau -," sayi K< .
ure ^le luost important that arc fiiai-tc-.l, for by these
s money is made the temler for <lehts an-1 tin- nifliuin
of exchange for products. All indivi-luaU arc <• .inpcllcd to
found their contracts for the necessaries oi' liu- upon the
standard lixed by law. However good the intention of tin-
panics, their contracts will partake of the evil of the mone-
tary laws upon which they are founded, and every la\v that
goes to support the fulfillment of the contract* will partake
of the same evil. * * The laws make money tin- founda-
tion for all business contract*. The value of thi> fotin
is unjust and continually varying, so that parties in fulfilling
their contracts are compelled to give either more Of ten
than a just equivalent for their pur.
all 'contracts are as varying and unjust as their foun-!
The continual fluctuation^ in the value of money m
sort of gambling system of all trade.'
Tlu1 distinguishing feature- of the t\\o i
The Specie JJaMs or Hank Currency Sy>Um and The i
Tender Paper Money System, which are now p.
the American people for th-ir adoptioi,
been duly explained in l!ie fore-join: If only
remains now to bring them t< t the
312 A MM \BTABY SYSTEM FOUNDED
advantages and disadvantages of each may be fully dis-
cerned.
TIIH >IM-:< n: HAMS on HANK CURRENCY SYSTEM.
The specie basis or bank currency system originated with
the Bank of England;* it was introduced into the United
Stales about the time of the Revolution, and has exercised
a powerful influence upon the business and social relations
of the people of the United Stales since that time.
The fact that bank> of issue have existed in the United
States for over three-quarters of a century has led many to
suppose that issuing and lending bank notes constitute the
chief business of banks. Issuing or lending bank not
the contrary, is a mere incident of the business of hanking.
The great function of banking is the adjustment of pay-
ments, growing out of the exchange of property and com-
modities, by means of devices of the credit system, such as
bills of exchange, etc. Banking, as we have explained.* is
an agency of trade, second in importance only to money
itself. For many purposes of trade the means of payment
afforded by hanks are preferable to the use of cash, a< where
they obviate the nece»ity of transferring or ret ran>f erring
money between individuals, localities and nations having
mutual dealings. The great error of the specie basil
bank currency system of bunking consist* in thi>, that the
banks, not. satisfied with furnishing the mean* of payment
best adapted for carrying on the larger operations of trad-',
seek to compel the public to use the same means of payment
(device* of the credit system) in all the operation^, of trade,
although for many purposes ca>h is preferable to credit.
Xo dividing line can }>c established between the n*r of casi,
and credit, and it is manifestly but the part of wisdom to
have money -<> instituted that commerce and trade can avail
•See page v.t. tSee page 76.
N BOOTH) ri:i\. IPLE8, 313
themselves of either cash or credit in such proportioi:-
Jiiay IK- most advantageous. If tin- circulation UQUfif(
bank currency this cannot bo done, because bunk < in ivnr\
is credit and not cash. "The l):mks of tin* I'm'ted St.v
Bays Col well, one of the mod oonscientioai a- \\«!
found writers upon the subject of moncx, "are, properly
hpeakinir, dealers in credit. So far as their capital i- i
up in LC'>ld or silver, it is reserved as a security l'.»r their
circulation. It is a rare thing that a hank lends i^-ld ni
silver. Their business consists mainly in pun-ha*iiiur <-"in-
inercial paper — that is, the eviilences of debt taken by m< -;i
of business in the ordinary course of their affairs; in pa;,
for that paper with bank notes, or with credits granted upnii
their books; in receiving upon deposit their own n«.te- and
claims or transfers upon other banks; in allowing a n mutant
transfer of deposits, in the way of payment, amon^ their
customers and those with whom they deal. The banks,
then, are not lenders of money, though compelled to pay
their obligations in money. They are founded on the idea.
tliat an av-ociation of men, with a paid up capital, and a
corporate existence-, is entitled to a higher credit than indi
viduals, and that the latter mi-lit tind it ^really for their
advantage tO avail themselves in their bu-inexs transacti'>n»
of this superior credit/' It is undoubtedly highly advanta-
geous to individuals to be enabled to avail theniM-lvi-s of
this superior credit in many of the operations of trade, but
it is equally important that they should be enabled also t«>
avail themselves of the use of cash in other operations.
Under the hank currency system cash does not circulate
the channels of trade, hut bank notes and these are contin-
ually beinu: returned to the hanks in payment of debts.
The following extracts from The Wayt and M.-ans of
Payment, to which we are already so much indebted, will
314 A MONETARY SYSTEM FOUNDED
convey 11 clearer idea of the leading principles, which
underlie the specie basis system, than we could otherwise
hope to give. It should be remembered that Mr. CohvelPs
work was written prior to 1860:
"We have seen," says Col well, "that the credit system
rests upon the fact, that the business of purchasing ami
selling commodities is separated from the business of pay-
ments; and upon the further fact, that the commodities
which men sell are made to pay for those they purchase.
So far as credits and payments are concerned it is the main
object of every man to apply his credits to pay his debts; to
employ what is due to him by others in discharging that
which he owes to others. The main agency in this is the
banks. It is well known that all the large transactions of
business are made upon the credit of the parties concerned
in them; that the great staples of the country, as well as
foreign goods in large quantities, are bought and sold upon
individual credit. The market value involved in cvcry
transaction is expressed in money of account, and appears
on the face of the bills of exchange and promissory notes
which the purchaser gives, and the seller tikes, as evidence
of the debt incurred and credit given in each case. Tl.
evidences of debt and credit, which represent, in various
shapes, the market value of the commodities, foreign and
and domestic, as they move in the channels of trade are the
very articles in which it is the object and proper business of
the banks to deal. The parties to these evidences of debt,
or this commercial paper, having delivered and received the
commodities upon which the credits and indebtedness
alike founded, have the remaining duty of payment to
fulfill." * *
"Men extensively engaged in commercial and industrial
pursuits are, by the very nature of their business, both buyers
N BOOTD ri;i.s. n-LBS.
ami sellers — both del dors ami creditor-, [tlfl important to
pay their debts, and realize their credit-, \\itii the least
trouble, expense and waMe of time possible. When any two
of them have mutual accounts against e:ieh other 01
books, they compare and balance them; <
paid, and credits so realized, Are a< xri-factorily paid and
reali/ed as if gold liad pa-M-d <>n each tr.iii-.i
man of business indebted upon promi^m \ note* and bills
of exchange, and holding sm-h paper «>!' othen t'-n- debts
due to liini, is only desirous of applying his credit* to his
debts. He never thinks of looking for gold or sihir to
effect a discharge of his debts, and as little do.-* he think of
exacting such payment from those who ;nv indebted t.»
him." * *
"The banks of the United Stato are the cliict
in this mode of payment. They offer t!u* means and f.i--i!i-
lies of payment which the partie-; t.> thi* bii>ine— p-iper-
reijuire. They receive this paper., having some months to
run to maturity, and deducting interest for the time, give
the parties bank notes, or a credit on their book-* for the
pyoeeeds. This is not turning indi\ idual notes into money,
it is -imply turning them into promissory not. bank,
or deposits; these being of higher credit, and lilted, from
the manner in which they a:e issued, to !»• u-ed a< :: « m
rency or a medium of payment. The real basis of the.
individual notes discounted by the bank i- the « .'inmodities
which the person giving the not. d. Th>
contracted debts to the .^evcral amounts of their notes, and
against these debts they hold the purchased comnu>
They offer the goods thus purchased to the public, and
expect, from their sale, to realize the means of paying t he-
debts. The discounted paper, therefore, exhibits on i:
the true market value of thc» commodities purchased by it;
316 .v MONKTAUY SY>TKM F«»UXI>KI>
and the bank notes, or bunk credits, given for this individual
paper have the same basis, with the added guarantee of the
bank. All bunk notes and bank credits issued upon real
business paper are virtually issued for commodities actually
moving in the regular channels of trade. The purcha-
of these commodities expect to realize enough, by their Hale,
not only to pay for them, but a profit beside.
"It is this process which is continuall,/ nhtorbiixj
bank notes and returning them to the bunk*. The
sellers of goods receive the paper of the purchasers, and
dispose of it to the bank, taking therefor bank notes and
bank credits, the latter of which they employ in paying their
debts, and the former pass into circulation in the retail
business, and in this way soon reach the hands of the
debtors of the banks, to whom they are always as valuable
as the equivalent, or same nominal amount of gold or silver,
and even more desirable, because they pay debts to the
bank equally well, and with less trouble, expense and haz-
ard." * *
"If the banks in any community have discounted notes to
the amount of a million, averaging sixty day> to maturity,
granting credits therefor to the amount of $990,000, they
will promptly give up any or all the notes going to make
up the million, for a return of their credits to the amount.
The banks give nothing for the notes discounted but credits
on their books: what they gave for the notes they are
willing to receive in kind for them. The profits of the
bank, being the intcre-t, for which they i — ued no credits,
must of course be paid when the notes are retired. The
main business of the banks consists, then, in pnn-ha>in_r
Commercial securities and evidences of debt, paying for
them with their own notes and b;uik credits, and deducting
the interest for their profit In doing this, they not only
i I-..N IOUHD ri:i\. ii 317
furnish a medium of payment in which these <
•eeurities can be discharged, &til « <-'ir,',',n<>y »r/,,v/,
be employed in the itift ••/•<•///, In-fore it is app!
extinction of these debts. What chiefly make> th;
available and effective is, that there is an acti\c and
ileinuml for it, to the whole amount due to tin- hanks th:it
is, for more than all the banks have ixxited. This demand
is active, urgent, daily, unremitting: the ootei in hank are
maturing daily, and the demand, tlieivfoiv, n. \.r flags;
every day lias ils payments, which are to he enV.-ied with
money, or the issues of the bank*. The latter, in any « i-
muiiity where there arc banks of circulation, hcin-_: tin* chief
medium of payment, is the medium inoxt in demand.
"We have shown that, in all casex \vhcre the n.»tc> dix-
counted by the banks were given by the makers of them fur
commodities of daily use and consumption, t! ;. nodi-
ties are immediately offered to the public for hank notes, or
checks on bank deposits, as the proper fund with which to
pay the discounted notes. The commoditie-, by their sale,
give origin to promissory notes; the promissory in»t«is give
rise to the bank notes and credits; these become, in their
turn, a medium with which to purchase the commodities; and
the bank notes and bank credits coming thu^, by circulation,
into the hands of the debtors to the banks, are returned to
the banks in payment of the discounted notes."
"In cases where banks discount paper not given for prop-
erty transt't rred at the time, it K or should be, on u- ii
grounded confidence that the maker of the paper has tho
power or means of redeeming from the hands of the public-
an e«|iial amount of the issues of tho bank. The hanks
being large holders of individual paper, either discounted
or deposited with them for collection, they are of course
constantly looked to for the mca- nu-nt; a
318 A MONETARY SYSTK.M FuTXDED
on the hook* of a bank, granted »>y tho bank, or derived
from another quarter, being .'ill that is required, it is earnestly
sought for that purpose. Where there arc many banks, ami
Tansaetions in business and upon credit, the movement
of these payments in banks, and the consequent movement
of bank credits or deposits, become far too complicated to
be followed up by any process of analysis. One great fea-
ture, however, must ever be prominent, and that the most
effective of all in sustaining the present banking system;
that is, that every debtor of a bank is an active agent in
purchasing and returning to the bank its notes and credits;
that the issues of the banks, whether notes or credits on
their books, are more available, convenient ami economical
for these debtor*, than the legal currency of coins. They
.ire more abundant, more easily obtained, and equally
effective. It is this which gives to bank notes and bank
credits th< ir efficiency and rapidity of movement. The
amount of the circulation of the New York banks avcra^'d
over $8,000,000 in 1857, ami the deposits averaged over
$87,000,000. These constitute tho medium in which the
payments of the City of Xcw York are chietly made. With
. there is a daily payment to be made of from $30,000,-
000 to $50,000,000, and they are quite capable of making
that amount of payments each day, for both notes and
depo-ii> may be paid many times during the day. It ;
safe to assume that over $30,000,000 of city bank not'
depoftite are paid each btuinesfl day in New York. There
is a demand, then, Upon these notes and deposits in
i-aymenN, to tho amount of $200,000,000, and in
month for $800,000,000. This demand daily, weekly,
monthly, constantly pressing upon a- fund of bank not«
deposits, which may at no tin «1 $100,000,000, is
certainly active and proving enough p up the value
ri:i\« IIM i>. 319
of a fun<l MI min-h n-ed, ami s<> indispensable to tin- men
who have *-JOO,000,000 to pay every week.
"That these sums an; far within the actual daily payments
of New York is apparent from the operations of the C'learing-
hou>e. The amount cleared daily, in 1 80 7, was over $20-,
000,000, and these clearings are but the balances on the
transactions between tho banks. A vast stun of payments
is made every day in the business of sa -h a city as \e\v
York, which is in no way embraced in the transactions of
the Clearing-house. If we assume that the whole of the
payments effected yearly through the agency of banks in
the United States, is only ten times greater than the amount
paid yearly in New York, wo shall have an aggregate 400
times greater than the amount of tho precious metals in the
country; 500 times the amount of the bank note circulation
of the United States; 400 times the amount of bank deposits;
and oU times the annual value of the whole productive
industry of the country."
"In the great movements of industry and trade, goods
and services pay for goods and services; the promissorv
notes, bank notes, bank credits, or other currency^ which
intervene, are devices of adjustment) and not the very pa v-
nu'iit ultimately aimed at. Men give what they have t-»
spare, to obtain what they .desire. If they do not, in the
first instance, sell for money, and with that purchase what
they want, they tike a security or evidence of debt; thev
make their purcha>es upon their individual credit, and give
evidences of debt. The debt and credit extinguish each
other in the banks, and the parties have, in substance,
exchanged goods; all the rest is merely keeping and bal-
ancing accounts between them. These securities are issued,
in this country, to an amount not less than §1,000,000,000
every three months, in which period this amount continually
320 A MONETARY SYSTEM FOUNDED
runs off and is renewed, making ^4,000,000,000 in the year.
Of this $1,000,000,000 of securities, the banks become the
owners and collectors; and for half this amount they are
under a constant engagement to pay money on demand.
To meet this engagement, the banks hold 860,000,000
against #500,000,000, or twelve per cent, of the amount.
Of course, absolute convertibility of all this fund of securi-
ties into specie, on demand, is an impossibility. If all the
gold and silver in the country, estimated at $250,000,000,,
were in the banks, it would be an impossibility. It must.
therefore, continue to be impossible; and IK-IK-" arises one
of the gravest difficulties connected with banks of circula-
tion.
"If bank notes, like checks upon banks, were confined in
their use and circulation to those at whose special instance
they are issued, and whose debts are to be adjusted by
them, there would be less occasion for any public interven-
tion or concern. For the public have little interest, whether
men thus mutually indebted discharged their debts by bal-
ancing accounts, by bank notes, or by checks on banks.
I>ut the experience of a century and a half lias sho\vn that,,
where bank notes are offered as a currency, they are fr.
received, and BOOB become the chief medium of exchange.
It is almost invariably true that, wherever bank notes are
offered as a currency, with even the slightest pretentious to-
regularity and security, they are accepted, and pa>s rapidly
into 'general circulation. This facility of converting bank
paper into a currency is a strong temptation to ivxirt to it,
and accounts in p:trt for the multiplication of banks of
circulation in this country and eKewhere; but it lias given
, also, to that ceaseless jealousy with which this system
of banking has b.-ni \vat.-lie.l. There N, perhaps more
ground for this jealousy than many friends of the
N BOUVD no
have been willing to a<-kno\\ K -.1^,.. If the < in-ulation of
bonk notes had been confined to the payment of the
in whicli they originate, n<> more mi~ >:ild cn-ue tlinit
now arises from the cmplo\ nu-nt of oheokl upon
which the parties using them are interested to ke, ],
legitimate and safe bounds. Hut as hank not,-, wl*
Offered, Secure 8 wide circulation, it is n,,t t-ii.Mfjh •
let people take them at their ri-k, a- tlu-y take them at their
discretion." *
"We have said, and the ti^mvs uc ha\i- addm-.-d >ho\v,
that convertibility of tl»e notrs and d«-p«.-iN <»f our !»•
impossible, evi-n when the hanks are in tlie lu--t nutditiuii.
And that this must, continue t«» In- tin- «
the banks of the I'nitcd Statt-^ aiv, i- U certain,
feiltitn- of the bu>im-v> of tlie>i- lianks i> the di-«-<,unt of
notes maturing at ft future time: Wvi have previously assumed
that the average time to nuiy ol the paper ilm^ «i
is ninety days, or one-fourth of n veai-. Tlu-y i>^iu- t«> the
jiarties at whose instance thr-«- di^eount- an- m.idi-, their
notes payable on <lemand, or virive tliem eredit on :
for the proceeds, payable in like nianm-r on demand.
• lejMi»its of the banks are made up, almost altogether, from
the notes thus issued, and the credits thu» granted. The
circulation and deposits <.f l^:>i; amounted to $443,000,000,
for which the banks, by this modi- of doin-_r bu>ine--, '(HMMIHI-
liable on demand; that is, they i from their
mers claims on tin- public malurinir in three months, and
they become liable t«> |>ay a rertaiu amount on di-mai
the 'year 185G, for instance, in e\cry tlim- mouth*, * 4 43,000-,
000, and in 1837, in every like jHiioil, ^500,000,000. The
paper discounted by the banks not feeing payable on demand
would only be paid, and could only be demanded
matured from dav to day; whether the stuns thus paid into
~
322 A MONETARY M'STKM FOUNDED
the banks were eiglit or ten millions daily, it was all the
banks could exact, and if the notes had not been discounted,
the amount required to pay them would have been the same.
But the banks became liable to the payment of from $445,-
000,000 to 8500,000,000 in any one day in 1S5G and 1857—
a position, stripped of the mists and prejudice which con-
stantly surround it, which should be called, as it really is.
stupendously absurd; and, in times of commercial revulsion,
not less dangerous than absurd."
"Banks of circulation, however, here and elsewhere, are
and continue to be placed under stringent legal obligations
to pay their liabilities in coins. If any law could compel
them to do this, and still leave them power sufficient t»
carry on the business of banking with the same advantage
to their customers and the public as at present, the currency
they would furnish would indeed be the best attainable for
circulation. For a paper currency of sufficient amount,
absolutely and at all times convertible, would combine
almost every conceivable advantage. The obstacle is, that
such a convertibility is impossible; no legislation can a
plish it; the omnipotence of the British Parliament could
not achieve it. Even the unusual provision in the constitu-
tion of the State of New York, which denies the power to
the Legislature of legalizing a suspension of specie payments,
availed not in 1857, during the tearful panic of the hundred
days, This precaution about the notes did not extend to
the deposit-,. The bank* suspended upon their deposits,
which were ten times the amount of their note-. They have
since resumed, and have now $31,000,000 of specie t<»
$90,000,000 of notes and deposits. With this enormoii- and
unusual accumulation of gold, payment on demand AMU
only on the forbearance of the people. The depositors
could bring the banks to a fckite of Mi>pcn>ion in two hours.
UPON 801 M> I'KIN. II 323
Upon tliis MHIOM phrase that .Mir bank
circulation ix haM-d ,,., -,,] I an. I .silv.-r i* absoluti-ly uiitrur.
If our paper currency had no otln-r I»:IM* than l\\\^
uncertain. iiiM-cure, ami ultimately impo^'ibl,- convertibility.
d not be upheld f..i- a ireekyDor even .-i day. Tin-
real ba>i> nt' mil- paper currency, that \vhi«-h <l<H-s M^taiii it
through extraortlinary cnicpj-rn. •!(•-. i- tin- imliviiluiil •
issory n.'.tes, and other t-\i.K-nci-> of ,1,-l.t, in e\«-han
which it is issued. The>i- inu>t all !•»• pai«l, or the debtors
must fail or sus])en«l. The l)iisines< nu-n of th«- I'nitr.l
States owed the banks, in 1850, the MUM of $684,000,000;
and the hanks were indebted, for their eirrulatiiui and
deposits X44.->?000,000. If we supjM.^e that tlioe debtors to
the banks wen- 100,000 in number, « '\\in-_: an a\er:ige of
$6,840 each, all this mass of bosinesa m« n would be :n-ti\r
agents in redeeming the iaraei <>f the bank-, «-f which the
average burden of eaeh would be ^4,450. The products of
the industry of a country being sold, indiv'ulnal paper being
given therefor, and the i»in-x <-f the bank bein^ «_riven f«u-
that individual paper, it is evident imt only that the :
are based upon that paper, but it is equally evident that the
commodities for whieh the individual* i^>u«-,l their paper
have eonie into their hands, that they have these commodi-
ties t--- offer to the public for the notes in eilvtilation, and
for checks on the banks, with whieh to pay their debts. The
real strength of the banks is in this that their business IB
founded on the trade and industry of the country; and all
the. business men, with the eommod- -ump-
tion in their hands, are under the stnmgt-t in.lneenn
offer these commodities for the notes and d t the
bank.
"It must not, then, we repeat, be supposed that the basis
of our paper currency i- ipecie; the fact is, and must be,
.^24 .V .MONETARY SYSTIC.M FOUNDED
otherwise; that is no foundation to be relied upon, which
must go with the tirst flood. No superstructure like our
banking system should be reared upon a quicksand. We
do not urge this as an argument against convertibility on
demand, in the aspect of a check upon tlie banks. It may
be necessary or expedient, but cannot be so on the ground
of its being the basis, or adequate security, <>t* bank issues
We should not make the concession even by implication,
that $50,000,000 or $60,000,000 of gold and silver can be
any proper basis for issues or liabilities of the banks to the
amount of $445,000,000 to $500,000,000: it is a mere delu-
sion, to regard the former amounts as sufficient to sustain a
demand for the latter/'
u \Ve object, then, to a phrase so likely to mislead, as that
of calling gold or silver the basis of paper currency, under
the present constitution of our banks. The obligation to
pay on demand can be nothing more than a check on the
abuse of banking, or a security to the public, and as such
only should it be regarded and discussed. If it be indi —
pcnsable, it is upon the ground that no other adequate
security is attainable. \Vo do not believe this, and regard
tli is attempt to place the credit system on the back of our
coinage system, as partaking of that caution and wisdom
which would place a locomotive, for its best service, upon a
one-horse cart."
THE COST OF THE SPECIE BASIS SYSTEM.
I'nder the specie basis system the money of the country-
is- locked up in bank vaults as the basis of bank currency,
and the business of the country is necessarily earned on with
credit and currency. The amount of credit and currency
IB limited, not by the amount of specie held by the bank-,
but by the amount of property and commodities moving
S BOUND I'KiNi IIM.I>.
in tin' channels of trade. Tlic cost of such .1 medium of
exchange is enormous. The amount of the loans and di-
counts of the banks during the year is;.") amounted, on an
average, to nearly * 1,000,000,000, the interest on which at
10 per cent, is $100,000,000.* The loans and discounts
made outside of the banks doubtless exceed the loans and
discounts of the banks, but assuming that they are the same
(* 1,000,000,000), and that the rate of interest averages 15 per
cent, f.u- the year, it would amount to * 1">0, 000,000, or in all
$250,000,000 paid yearly in the way of interest.
there is another method of arriving at an approximate
cost of the syMem, which makes the amount much larger.
The clearings of the banks of New York city average
about $20,000,000 daily. Estimating the payments of the
city of New York at £40,000,000 daily, and the payments
of the whole country at five times that amount, or $200,000,-
000 daily, will give $60,000,000,000 for the year. If this
vast sum of payments costs the payers on an average 60
•day*' interest, or say one per cent, on the whole amount, it
will make the sum paid yearly under the credit system
$000,000,000. This vast sum is paid by the industries of
the country. AVith a medium of exchange occupying the
channels of trade, unencumbered by interest, such as specie
or legal tender Treasury notes, the greater portion of this
enormous sum would be saved to the producing classes of
the nation. The interest paid for a inodivm of exchange
furnished by the banks and for the use of credit rendered
necessary by the bank currency system, is a burden upon
production and trade, that can only be removed by tin-
extinction of banks of issue and the substitution of legal
tender Treasury notes for bank currency.
«See Page 2GO.
326 A MONETARY SYSTEM FOUNDED
COMMERCIAL CRASHES AXD MONEY l'AM< ->.
When the business affairs of the country are in .
operation, the whole amount of credit and currency available
for the purposes of trade is in constant demand. A
increases the demand for credit and currency i:
until it becomes inflated to a dangerous extent, or a demand
for specie may arise abroad. In either event the banks arc-
obliged to provide for their own safety, and the withdrawal
from business men of the required amount of currency and
credit produces a stringency, which inevitably leads to d:
ter. The manner in which this happens is thus explained
by Col well:
" It is not difficult to see what abundant food for panic there
is in such a condition of things. Persons in the Unite' I S;
have claims to the amount of 8400,000,000 on the hunks,
payable on demand; these claimants know that the hanks
cannot pay in specie the fifth part of them, and often not
the tenth part. And although the specie is not what they
need, or would ever have asked, yet they know that the
hanks may stop payment in an hour; that they will then be
branded as bankrupt; and that they may thereupon be sub-
jected to injurious and damaging legal proceedings: panic
becomes, therefore, inevitable. Men in such ciivui:
feel themselves to be involved in a widespread, complicated
calamity. They fear the roult, not only for the amount of
their present dcp«»>iN, and the bank notes they h<»ld, but
they tremble for oilier debts due to them, and are in equal
dread about what they owe. They know that if this
machinery of the credit system i> Mopped, or seriously
diMtirbed, debts cannot be paid. The banks, under the
influence of a panic, knowing that they can neither tru«t one
;hcr, n«»r the unreasoning public, for an hour, adopt what
ins to them the only >aic OOHT8e; th- 6 in payment
UPON SOL'M) 1'KIN* II'LES. 327
all their issues a> t'a-t a> cunviit payments return them,
without, however, as usual, keeping up the currency liy
fresh discounts. If the payments at the banks amount in
the- 1'nited Stato, for each day, to $300,000,000, tin- with-
drawal of the iiMial facilities at the banks by contraction, to
the extent of even one-half, would rapidly al)sorb the stock
of bank notes and deposits applicable to current payni-
and of course make thoe payment^ daily more difficult, and
finally, to a large extent, impossible. High interest, such
a> eighteen, twenty-four or thirty-six per cent, per annum,
supervenes in this hour of trial to check still further the
circulation of that portion of the bunk notes and dep*
not absorbed by the banks."
"The contraction in New York, in the panic of 1857, is a
specimen of what the banks are constrained to do, to save
themselves. They can only protect their coffers by refusiiiir
to issue the usual supply of currency. The diminution of
loans and deposits in the banks of New York stood thus in
August and October, 1857:
Loans. Deposits.
loth of August $121,241,472 $92,356,328
19th of September 108,777,421 75,772,774
17th of October 97,245,826 52,894,623
"This exhibits a reduction of discounts, in one month, of
$13,000,000, and the succeeding month of $11,000,000; that
is, 824,000,000 in sixty days: in one month dep>»ii< ran
down, under this operation, $17,000,000; in the succeeding
month, $23,000,000; making, in the two months, a redue:i"ii
in the chief medium of payment of $40,000,000. The
deposits were thus reduced nearly one-half. It cannot U
surprising that, under such a process of contraction, interest
went 14) to between fifteen and thirty-six per cent., and
exchange down to nine or ten per cent, below par. \Vhat
the banks did in New York was done, in a greater or les>
328 A MONETARY SYSTEM POUNDED
degree, in other cities; bankruptcy, ruin and destruction
followed. It is estimated that from five to six thousand
failures occurred, involving an indebtedness of from $280,*
000,000 to 8300,000,000, with a loss to creditors of more
than £150,000,000. But this loss bears no comparison with
that arising from the depreciation of securities, and from
the fall in price of real and personal property, which, judg-
ing from the results of estimates carefully made, cannot be
than ?•"> 00,000,000, and may not improbably be t\\
that sum. The loss sustained by the men who labor for
their living is even more severe in its consequences, if not
equal in pecuniary am unit. A million of men idle for
six months involves a loss to the country of $150,000,000,
besides the loss upon the machinery, shops, tools and facto-
ries which stand idle when the workmen are unemployed.
"Tlie late panic has inflicted, in all its bearings and rami-
fications, a loss upon the country which may be variously
estimated from $500,000,000 to $1,000,000,000. No doubr
the ill effects of the panic- were much enhanced by the piv-
vious abuse of credit, ami that a considerable portion of this
devastation should be set down to that account. With
every allowance in that respect, \ve shall have a vast -um of
lovs to charge, to the panic; and whether this sum be $400,-
000,01 HI, ,,i- $800,000,000, matters not to our view. The LoM
\va», to jjivat extent, unnecosary, cruel, terrible — a lo--
which ha> can-led privation, di-trcss and ruin to a million
of home-. For a time, at lea-t, not yet passed, it reduced
hundreds of thousands of the best people to a state of entire
• lence, if not beggary.
44 Wlial was the occasion of the-e dire calamities;' The
bank- i,f the United States had a reserve of specie f,.r sev-
eral years previous to H.57, and during the fiiM half of '
year, am«»unting lo somewhat over $50,000,000; and of tin-,
\ BOUND PI:IX< iru>. 329
tho banks in tin- city of New York held a little more than
one-tifth. To save this amount of specie, tin- banks con-
tracted the currency one-half, denied the usual facilities
upon tlieir books, put up tlic rate of intercut from twelve to
thirty-six per cent., put down exchange upon Kngland t«>
nine or ten per cent. In-low par, reduced the revenue from
customs to less than half the usual amount, drew a surplus
of $20,000,000 of gold out of the public, treasury, and drove
the government to an issue of paper promises to pay it-
current expenses, deprived hundreds of thousands, perhap>
millions, of their customary employment, caused some live
«»r s':\ thousand failures among men of business, and finally
inflicted a loss on the country, in the depreciation of securi-
ties, in the reduction of prices and by insolvency, of several
hundred millions. — Not to save this sum of fifty millions
from being lost, sunk in the ocean, or thrown away, were all
these evils encountered, but merely to prevent it from pa —
ing into circulation among the people, or at the worst, to
prevent it from being exported in payment of debts due in
foreign countries. Nine-tenths of the debts of the country
are paid, as we have seen, by the agency of discounts and
deposits, with some aid from the circulation of the banks;
but the banks have been placed under such heavy penalties
to pay all their liabilities in specie on demand, that when
they are threatened with a panic, a commercial revulsion, or
a heavy export of specie to foreign countries, they an- com-
pelled, like Sampson in the temple of the Philistines, to pull
down the whole fabric of credit, public, and private, ;ib. nit
the ears of the people, to disturb and check the progress of
industry in all iUs departments, to make bankrupts of their
customers, and to sow pauperism broadcast in the field of
labor.
"This compelled policy of the banks, under the stringency
330 A MONKTAKY SYSTEM K«>UM>KI>
of the l:i\vs which govern them, has been called p;r
-pecie. JJut with how little propriety. Instead <>f p:r
their liabilities with eoiiiuiercial promptness an«l tin- faith-
fulness of those who are discharging a legal and moral
obligation, they resist it with all the power and wea:
they can command. In the struggles incident to tl
ance, they strike down friends as well a> enemie-s, and
deprive the public, of an amount «>f currency nece»ary to
businessmen times greater than the specie they are unwilling
to pay out. Ami this is the convertibility so long aimed at,
and to secure which so much legislation and so \\
thought has been expended! This is the triumph «<£ banks
which pass through a season of panic and revulsion without
suspending] — a triumph like the victory which leaves 100,000
dead bodies on the Held of battle, which rnako lu,uoo
widows, 50,000 orphans, and 200,000 pauper-."
THE LEGAL TENDER PAPER MOXKV SYSTEM.
With the clear and comprehensive analysis of the princi-
ples of the bank currency system, contained in tl. ing
extracts from The Ways and Means of Payment, before us,
it IB not difficult to understand how public notes i^m-d by
the government can perform the functions of a medium of
cxch.v
The great object of trade i> the exchange of commodities
and M-rvici--, and it is immaterial to the parlies ii/
whether this exchange i> effected by means of a medium
possessing intrinsic, value, or p-pre>entative value, a- i
as it i> done with equal safety, convenience and C
Public notes, like bank notes, are virtually based on com-
modities moving in the channels of trade. There i
stant interchange of commodities and services <>i
scale going on between individuals, growing out of the
8Ol M> I-IM.N" IPLB& 331
necessities of government, Federal, Slate and local. To
effect tliis exchange a medium is rctjuired. On the one >ide
arc the people, who :ire obliged to contribute out of their
substance in proportion to their means towards the expenses
"I" government. On the other, there i» a va>t multitude of
people to whom the government, r'edcral. State and local,
is indebted for commoilities and services. The people
possess abundant property and products desired Ivy the
creditors of the government, and the only problem to be
solved is as to the manner in whieh the exchange can be
equitably, speedily and economically accomplished. This
can be done, and as it is a matter in which the entire nation
is directly interested, it is eminently proper that it should
be done, through the instrumentality of public notes i>sued
by the government. Individuals engaged in trade employ
the superior credit of banks to enable them to exchange
commodities and services; and this superior credit of the
banks, for reasons which have been fully explained, sei\ e<
the purposes of money, in the interval between the time it
is issued, in the form of bank notes, to creditors of the
banks, until it is returned by the debtors of the banks. In
the same manner the superior credit of the government,
issued in the form of public notes to the creditors of the
government, performs the functions of money, until it is
returned to the Federal Treasury by the debtors (tax payers)
of the government. The bank notes n >t upon the credit of
the institutions which issue them, and are a lien upon the
assets of the banks, which consist of the property of the
banks and of their debtors. The public notes rest upon the
credit of the government, and are a lien upon the whole
property of the nation. Thus far the analogy between pub-
lic- notes and bank notes is complete, with the advantage
largely in favor of public notes, for two re-i^on^: in the first
A MOXETAIiV SYSTEM FOUNDEB
place, public notes constitute a more economical ^medium of
< -\ change, because they do not bear interest, and in the
second place their security is more ample. There is not
an objection to the use of public notes, as a medium of
i-xchange, that does not apply with ten fold more force to
the use of bank currency; while there are a great many
objections to the use of bunk currency, which cannot
be unveil against the use of public notes. It is said
by the bullionists and bankers that the "security, though
ample, is too general and intangible for the purpose;
ami that the 'whole property' can only be reached and
applied through the slow process of taxation." Tin
begging the question. The process of taxation is going on
constantly, and in point of fact the "whole property" of the
people can be reached by a tax warrant much more speedily
and certainly than the property of the banks and their
debtors can be reached by process of law.
A'_rain it is contended by the bullionists and bankers that
a paper currency, in order to perform the functions of
money, should be convertible into gold on demand. It has
already been sufficiently explained that this is impossible
under the bank currency system, unless the amount of notes
i>sued does not exceed the amount of gold held for their
redemption; and in that event there is no need to issue any
notes, for the public ini^ln as \\-ell use the gold. Nothing
ran be clearer than that paper currency is used chiefly for
the purpose of supplying the deficiency of money occasioned
by the scarcity of the precious metals; and to issue paper
notes to the amount of three, five or ten times the amount of
1 held for their redemption, and say that they are con-
•ible into gold on demand, is nothing more nor le>s than
a fraud and a delusion, which inevitably leads to di>;:
There is but one way to make paper money equal to
UPON SOlNf Pins. II'LES.
>pecie, ami that is t«> clothe it with the ability to perform
the same functions that specie will perform. That this can
be done is fully demonstrated by the instances referred t<»
by Jefferson* and ( 'alhoun, f ami by the experience of the
French people at the present time. The partial legal tender
paper money of the United States now in use fails to circu-
late at a par with gold, because it is not clothed with the
•ame powers as gold, That Treasury notes of the govern-
ment, when made a full legal tender, will circulate at par
with specie was clearly established by the "old demand
notes" issued in 1801, which, after they were made a full
legal tender, went up with gold to $2.85, as compared with
greenbacks; and at the present time we find the currency
bonds of the United States government quoted at a premium
of three or four per cent, over gold bonds.
WHAT IS A DOLLAR?
Much confusion arises in regard to the nature and func-
tions of money, from the fact that people have been led t<»
believe that gold, in some way or other, has been made a
standard of value. Such is not the fact, either theoretically
or practically, as will be fully shown.
The idea of value is something that exists in the miinN of
the people independent of coins. The unit of value, which is
established by custom and education, whatever may ha\v
been its origin, is used abstractly. When once a unit of
value becomes fixed in the minds of the people, or in other
words has passed into the "money of account," it measure-
all values and is capable of measuring the value of gold and
silver, the same as any other commodities. "The value of
the unit, or beginning point, being once firmly fixed in
men's minds by constant use," says Colwell, "remains there
wholly independent of subsequent changes of price which
*See page 56. tSee page 19.
A MoNKlAKV sYMK.M FoL \J)ED
may affect the specific article from which it took its
Thus if it sprung from a coin, or a certain quantity of gold
or silver, it becomes afterwards so independent of the^<
to In- <jnite capable of expressing the changing prices of that
or any other coin. It is, then, a matter of fact that all com-
mercial people, keep their accounts, compute money, and
express prices by the use of a money of account. The
naming a price with them is not naming a coin, or any
specific quantity of gold or silver; but it is the employment
of the denominations of the money of account, which all
understand to express a price. There is scarcely any mental
operation more generally and constantly in exercise than
that which is used to express prices." It was thus that the
people of Great Britain came to keep their accounts in
pounds, shilling> and pence. The unit of value with them
had its origin in comparing values with the value of a pound
of silver, which was divided into twenty parts denominated
shillings. This unit of value was changed by successive
changes in the silver coinage, until about a century ago,
since which time the unit of value in England has remained
unchanged. From about 1660 until 1816, the pound sterling
had no corresponding piece of coin. The Knglish guinea
had been intended to represent a pound, but it had not been
proporly adjusted, and, owing also to the fluctuations in the
price of gold, it varied in value until 1717, when its value
was fixed at twenty-one shillings. In 181(5, after much delib-
eration, it was decided to fix the weight of the sovereign at
"• I icnny weights, .'! grains and 171-U-j:1, thousandths of a grain.
It i- manifest that the whole difficulty was in establishing a
coin whose value should correspond to the unit of value
of the money of account, carried in the minds of the people.
The Knglish sovereign has since been changed Several til:
The people of the United States have undergone a -imilar
s BOUXD i'i:is. i:
experience. Prior {•• tin- [Devolution the money of account
•of tlu coloiiic< wa- i xjuv-M'd in pounds, shilling-** and pence.
The unit of value, the pound, not only differed from the
Knglish pound sterling, l»ut wa< different in different colo-
nie>. The pound in the following named coloniex \aried
from the present money of account in the I'nited ^
follows:
I'l — New England and Virginia, $3.33 or 6s. to the dollar.
\. \v York and North Carolina, -2.~>() or 8s.
Penns\Tnia and Middle States, 2.66 or 7>., r,d.
^ South Carolina, 4.28 or 4s., sd.
There \vcrc no coins in existence correspond ini: to tln-se
amounts. These different units of value had their origin in
vari-'iis causes, which we will not stop to dU<-u-s; l»ut when
industry and trade had Become sufficiently advanced they
hccanu- fixed. The trade of the colonies with the \\Y-t In-
d'n-< had introduced into the country a considerable amount
of Spani>h coins. The names and values of these coins did
• •! •!•« -]n)iid to the money of account of the people, and
their value was estimated in the money of account of the
several colonies precisely as that of wheat, or any other
-commodity, wa> estimated. Fn IT'.*1-' an act was passed by
•Con Lr rex with a view to estalili>hin'_r a uniform money of
• unt throughout the country. I'eopK- reckoned in pounds,
shillings and jx-nce, and paid in Spanish dnllars. It will be
rememnei-eil that continental money \va^ payable in "Span-
i^li milled dollars, or the value thereof in ^old or silver."
The Act of CongreW of April, 17!'_\ ,l,.rlar.-d— "That the
money of account of the I'nited States shall l»e expressed in
dollars or units, dimex or tenths, cents or hundreths, and
mills or thousandths; a dime beinir the tenth part of a dollar,
a cent the hundreth part of a dollar, etc.; and that all ac-
counts in the public offices, and all proceedings in the courts
336 A MONETARY SYSTEM FOUNDED
of the t'nitcd States, shall be kept and had in conformity to*
tliis regulation." This is belie\ ed t»> be the first time that :i
money of account was ever established by law — moneys of
account having in all nations grown up in the minds of the
people. The word dollar, however, expressed a value which
was fully understood by the people, without any reference to a
fixed amount of gold or silver. The great difficulty consisted
in fixing the amount of gold and silver that would be equal to-
il dollar. By the same act a coinage of gold and silver was
provided for; "Dollars, or units, each to be of the value of a
Spanish milled dollar, as the same is now current, and to
contain 371 4-16 grains of pure, or 410 grains of standard
silver. * * Eagles, each to be of the value of ten dol-
lars, and to contain 247^- grains of pure or 270 grains of
standard gold." Other coins were to be in the same propor-
tion. It was then declared and established, that 371 4-T5
grains of pure and 416 grains of standard silver, shall be
current as money at the price of one dollar, the value of the
unit of the money of account; and gold eagles and half
eagles were made current in like manner. The act further
provides, "that the proportional value of gold to silver, in
all coins which shall be current as money within the United
States, shall be as fifteen to one, according to quantity in
weight, of pure <_>-ohl or pure silver."*
This attempt to li\ the price of <^ohl and silver bv law
proved ;t failure. The price of u'ohl as compared with silver
was fixed lower, as it proved, than ihe market price, and the
roull was that gold ceased to circulate as monev to anv
extent, until L884,when the amount of pure gold in the e ,
was changed from L'-lT.'i grains to L':;L'. After the dN<-<>\<Ty
• »f gold in California and Australia, gold depreciated in value,
and silver, becoming the more valuable metal of the two,
• I'diiiLC to the standard otablished bv ( <
\ BOVHD ri;i\. in i >. 337
the channels of trade. This wa- remedied, in a measure, by
the act of ]>.'•:'., wliirli changed the coinage of >il\ er :il M Mlt
Bevdn percent Tin- weight of silver half dollars \\asti\ed
:it 19'J grains, and tin- smaller coin-* in the same proportion.
Tho simple fact i>, that u«'ld and silver fluctuate in value
like other merchandise, beiiiLC jjoverncd entirely l»y tlic
uncontrollable law of snp|ily and dnnand, and it i< alnuit a<
abMird to attempt to fix, by law, an unchangeable price on
LT«'ld or silver as upon a bushel of wheat or a day's labor.
Sir James Stewart, in his work on political economy, says:
u Money which I call money of account, is no more than a
>cale of equal parts, invented for measuring the re-pective
Vftlae of thingfl vendible. .Money of account pel--
forms the same otlice, with regard to the value of thi:
that decrees, minutes, M'cond>, etc., <h> with regard to an^le<,
or as scales do to -fo^raphical maps, or to plans of any kind.
In all the>e inventions then- i< >'»mc denominative taken for
the unit. In angles, it is the- de^n-e; in LrcoLrraphy, it U the
mile; in plan*-, it is the foot or yard; in money, it is the
pound, livre, florin, etc. The decree has no determinate
length, so neither has that part of the scale upon plans or
maps which marks the unit; the usefulness of all the^e beinir
>olely conh'iu'd to the marking of j)ro})ortionv. .h^t >o, the
unit in money can have no invariable determinate proportion
to any part of value; that is to sa\, it cannot be ti\ed in
pei*petuity to any j>articular <|uantity of urold or silver, or any
other commodity. The value of commodities depend"
circumstance^ — their value ouirht to be roiiMdered
in«4 with re>pect to one another only ; consequently anything
which troubles or perplexes the a-M-ertainiiiLC these cliai.
of proportion by the means of a ireneral determinate and
invariable scale, must be hurtful to trade; and this is the
infallible consequence of every \ ice in the policy of money
338 A MoNKTAKY SYSTEM
or coin. * * It does not follow, from this adju-
of the metals to the scale of value, that they themselves
should, therefore, beOOmfi the scale."
It i> of course denied by the Imllionists that any such cur-
rency can be established, as will naturally conform to the
money of account; but upon what other hypothesis can the
gncoess (>f the greenback, as a currency, be accounted for?
During and since the rebellion the greenback lias performed
all the functions of money. Gold in the meantime lias ranged
from par to 82.85. If gold was the standard of value the
price of all commodities would fluctuate with gold; but com-
modities rise and fall in price, as measured by the greenback,
without reference to the price of gold (except articles on which
duties are paid in gold.) It is said, however, that now that
matters have become settled the price of gold shows the de-
preciation of the greenback; and only recently a distinguished
ex-United States Senator,* in a letter to the Hon. S. S.
proposed to change the unit of value (the dollar) from K»u
pentfl to say 85, or the supposed present value of the g
back as compared with gold. If gold coins and greenbacks
::ie footing, such reasoning might carry sonic
weight, for then- would be reason to believe that the D
of account of the country had undergone a change; but until
greenbacks are made a full legal tender, it is entitled
consideration whatever. If gold was only a partial
tender and greenbacks were a full legal tender, greenbacks
would probably bear a premium over gold, ju-t as CUT
bond- bear a higher premium than gold bond-, bcrau-e they
-light ad vai it ::•_:<• "Vcr gold bonds in point of time.
The inconvertible inscriptions of credit of the JJank of
Venice were at a premium of 20 per cent. M for
centuries, simply because they \\, .-»\ved with superior
- \r Cowan, of Pennsylvania.
ri'M\ BOUND I'KIM [FLE& 339
powers t<» coin; and for centuries these inscriptions ,,f credit,
conforming as they did by law to the money of account of
Tin- people, con-titut -d an unvarying standard of value, by
which all commodities, including g»ld, were measured.
•.-tndard of valuo of the Venetians thus instituted
changed only with the money of account of the country.
!, if not made a legal tender in payment of debts,
performs the functions of a medium of exchange simply as
an equivalent; but when made a tender it is invested with
additional powers. If the amount of gold put in a dollar
is less in value than the money of account, injustice is done
to the creditor; if more-, injustice is done to the debtor;
and when too much gold is put in a coin, it will cease, if
there is any other tender, to circulate as money at all. The
fact is that the precious metals, considered in their true
light, have simply come to perform, in the commercial
world, the functions of an universal equivalent, ami pavs
'._rhl, except when made a tender in the shape of coin^;
and are Mil.ject, in regard to price, to the >ame la\\-> which
govern other commodities At the pre-eni time silver is
some two nr three per cent. In-low par. while gold is about
twelve per cent, above, as measured by the greenback.
This is due almost entirely to the character of the legislation
which regulates the circulation of gold, silver and paper.
(told, then, performs the functions of a medium of
exchange by reason of its imrin-ic value; and public notes
und bank notes perform the same olliccs by reason of their
-iiiLT representative value, not of gold, but of property
"iimoditie-, includiiiLT -_T«>ld. (It will be ohx,.rved that
in using the words "public notes." Treasury notes are
referred to, not as a legal tender, but as a device of the
credit system, the same as bank notes.) The bank note
virtually represents the commodities niovin-_r in the channels
o40 A MONETARY SY>TI..M i uL'NDKD
of trail o, which brought it into circulation, and rests upon
the credit of the institution which issued it; in like manner
the public note virtually represents the property or commod-
ities levied by the government to defray its e.\pen>es and
discharge its obligations, and is backed by the credit of the
government and the entire property of the nation. It was
in this sense that Calhoun asked, u \Vliy not use its own
credit (the credit of the government) to the amount of
own transactions? Why should it not be safe in its own
hands, while it shall be considered safe in the hands of
eight hundred private institution*, scattered all over the
country, and which have no other object but their own
private profit; to increase which they extend their business
to the most dangerous extreme^ And why should the
community be compelled to give six per cent, discount
the government credit, blended with that of the banks, when
the superior credit of the government could be furnished
•eparate, without discount, to the mutual advantage of the
government and the community'.-'"*
Public notes issued by the government for the purp<>
effecting the exchange of property and product* constantly
taking place between the people *>u the one side and the
creditors of the government on the other, should naturally
conform to the money of account in which they are. stated,
and would undoubtedly do so if founded upon sound princi-
ples. The nation pottettef abundant property and prod .
of almost every description, subject to the demands of the
Lfovernment; and the government Unquestionably ]<•
the ability to command every dollar's worth of property and
products befonir'niLT 1o the nation. The credit of the LL
eminent, therefore, should be beyond <jiicsfi<>n, and iN paper
^hould reproent and command property and products to the
t amount Mated on its face. A note of the government
BOUND riMNfii' 341
i> virtually :iu order given by the people collectively n
themselves, payable in property and products. To n.
tltis order payable in precioux metals, when the people ha\.-
no precious metals, or only a very limited amount, i-
to render it impossible for tin* people to comply with the
order, and compel them to dishonor the public credit. A
law making public notes payable in diamonds of a certain
degree of purity and weight Would be eolith-red very
oppressive, as well as absurd, and yet it is upon precisely (In-
sane principle that the public note is made redeemable in
gold. The public note will command property and products,
if properly instituted, to the preci-e amount inscribed on its
face, and gold coins can do no more. The creditor of the
government wants property and products, and the tax payer
must have money (public notes) to pay his taxes. It is thi*.
that, in the first instance, gives circulation to public note-.
The tax payers constitute ;i vast army of agents en^a^cd in
selling commodities for public notes, with which to dis-
charge their obligations to the State, just as the debtors of
the banks form a large body of agents engaged in collecting
bank notes to pay their debts in bank.
I.KtiAL TKNDKK.
People cannot be compelled to part with their property
for money, bat public policy requires that some equivalent
of property should be established as a tender in payment of
debts, and this equivalent is styled money. To the creditor
it should be immaterial whether this equivalent pOMOf
intrinsic or representative value, provided it commanded
property to the amount attached to it by law. A dol!
worth of gold, when coined and declared the only ten.l-r,
is endowed with great advantages over all other kind-
property, as well a< over the public note which repre-
property. C'rediturs can refuse to take property or public
342 A MoNKTAKY SYsTKM FOUNDED
notes, at no matter what valuation, but gold coins they
obliged to take at the price fixed by law. Hence it is that a
public note, which represents property to the amount in-
scribed on its face, and should command property of any
kind, including gold, will not command gold. The gold
lias been transformed into money by being made a legal
tender. Gold being clothed with special powers over prop-
erty, as well as over the public note, comes to be in great
demand, and, as it is limited in amount, is absorbed by
capital, to be used as an instrument to control property and
public notes; its functions as a medium of exchange are thus
capable of being perverted, and the object of the l--j.il
tender law is consequently also perverted, greatly to the
injury of society and of the public credit.'
The public note is intended to perform the functions of a
medium of exchange for the exchange of all kinds of prop-
erty, including gold, and should, therefore, be made a legal
tender. If any commodity is to be made a tender, it should
be such a commodity as the people possess or can readily
acquire at its market value. The great object of trade i> the
exchange of property, not property for money or money for
property; and money which is designed to effect this ex-
change should be instituted in such a manner as to form
an unvarying representative and measure of value, conform-
ing to the money of account of the nation. ]>\it, if money is
made of a commodity, it will rise or fall in vali
to circumstances, and will render trade uncertain, or,
Kellogg aptly expressed it, will make a gambling system
of all trade.
The responsibility of furnishing a medium of exohl
or declaring what shall be a tender, rests with the I-Ydi/ml
eminent. It is a matter of vital importance l> the
nation, individually and collectively, to have- money so insti-
.c»r\i> r!:!\< ii-i
tilted as to ci..U' the production and exchange- of the nation
as little at possible. In this advanc.-d age credit is every-
where uvrd in trade, when ere.lit can In- u-ed t-> exchai
products more advantageously than a medium of exchai
-••>sing intrinsic, value. It is nut only eminently proper,
but it is a matter of public- advantage, therefore, for the
gOrernment tO U0e itB own credit, at l<-a-t, to the extent of
its own operations. To do this its notc< sliould l>o ma«le
a full leiral ti-ndcr, otlier\\'i>e tin- people can repudiate1
individually what, they have done collectively, which ine\ it-
alily works injustice to the creditor of the jjovenmient, and
impairs the credit of the nation.
The bullionists assert that a paper money, not redeemable
in gold, issued by the government, can p > value;
and that it virtually consists of bits of paper with tig;
and words printed on them; and political economic are
found so shallow, or worse, as to adopt this theory. If this
is true, then are all the paper devices of rivilixation, l.y
means of which property is held or exchanged, a IVaud and
a delusion. But public notes are not simply bits of paper,
to be issued to an unlimited extent. Kvery dollar emitted
by the Federal Government in payment for property, Cer-
vices, or in discharge of its obligations, eo^ts the people
precisely one dollar in property or products, to redeem it
and return it to the public Treasury. When publi«- n<
representing commodities moving in the channels of trade,
are issued by the government to the extent of its own trans-
actions and arc made a, legal tender, they conform to the
money of account of the nation, ami become the measure of
all values, the standard of all payments and the l»a-U of all
money contracts; they, therefore, perform all the offices of
money, and pass into general circulation. They are paid
out by the government for property or >erviees at their 1
344 A MOVKTAKV SYSTEM FOI-.VI»KJ>
value; being :i tender they pay debts at their face value;
and in the end arc re-turned to the Federal Treasury in the
shape of taxes, in lieu of property, to the amount inscribed
on their face. Xo evidence of debt or device of the
credit *y*tem ever devised possessed greater elements of
strength and security than the public note of a rich and
powerful nation, made a legal tender and issued to the
ut of its own transactions. The notes of the Bank of
France, as we have seen, although not redeemable in specie,
circulate at par to the amount of hundreds of millions of
dollars, when made a legal tender and backed by the credit
of the people. Who will say that the revenues of the t'nited
States are not as certain as those of France, or that the ability
of the American people to produce wealth does not equal
that of the French people, or that the Federal Government
is not as stable as the French Government;' The French
people are uncertain as to whether they will be living under
a monarchical or ji republican form of government in ten
years from to-day, and yet we see, at the present time,
$500,000,000 of inconvertible notes of the Hank of France,
made a legal tender, circulating at par, on the credit of the
government; while in tho United States the notes of the
government, not exceeding $400,000,000 in amount, circulate
at a depreciation, as compared with gold, of over twelve per
<-ent. This is clearly the fault of legislation — making the
notes of the government only a partial tender, when in order
to conform to the money of account of the nation, they
ought to be made a full tender.
THK I.TANIIIV OF MONKV KK^IIKKD BY A NATION.
The «|iie.xtion as to how much money a nation needs has
led t<» a great deal of mystification. A nation evidently
need* a *ntlicient amount of money to enable it to effect it*
exchanges in the most economical manner possible. A* ha-
t I'oN RO1 M» I'IMN. II-
been explained, many of the operation- of trade, exp,.,-ia!ly
of a larire character, can In- conducted m* lily,
economically ami safely by means of tin- dexicrx ..t'
err. lit xystem, Midi a- bills of exchange, note-, cheek-, •
while, on the other hand, in other operations cash i^ an
alinoNt imlNj»en>al»le aui-ncy. 1 Iy i-a^li i> meant nnnn-\.
Mich as LT"1<1 "i- silxer <-»>ins, or j.ulilic note*, ma-lc a !«--al
tender in j)aynuMit of debts. Tlicre should, thi'ivt'Miv, IM-
a sutVu-icnt amount «>!' nmiiey in eireulation to »-nal>lc t1
en^aired in exehaiiiriniLr projH-rty or servires to avail tlu-in-
selves of either cash or credit, or both, in Mich
as may be im»t ad\ anta-_:'eou-.
Under the bank currency system, money, ux we have
scarcely circulates at all. Tin- medium of e\chaii'_r«' conxi>t>
of bank eiirrency, which is u>cd a^ a substitute for ca>h.
Jiank currency bears interest, and it, therefore, con-titute>
a very expensive medium — far more expense than Lr<»ld
or silver, «>r Ic^'al tender public notes which bear int*
only when used as capital in individual transaction-. The
volume of bank currency is regulated, not by the want- of
trade or the exchanges to be effected, but by artificial cir-
cumstances; and it frequently happens that bank cunvnc\.
as at the present time, will desert the channel- of circulation
almost entirely, because industry cannot afl'ord to pay tin-
tax which it entails upon the community.
The precious metals can be obtained only by di_
them out of the ground in localitic- win-re they exi-t, or by
oxi-han.irinLf products for them at their market value; and
when obtained can be retained in the country only b\
importing commodities to a le-< amount than are exported.
l.i--_r:il tender juibTu- notes, like- bank note-, can he i--iied
to an unlimited amount; and the only ijucstion to be con-
sidered is as to the amount which tin- ifvcrnmeiit ou^hf t'->
346 A MOM-:TAI:Y SVMKM K«r.\nEn
issue. It is perfectly clear lliat tlio government ought to
issue, at least, an amount sufficient to conduct its own
transactions with the people. This amount is based on
commodities moving in the channels of trade (l>ct\veeu the-
tax payers and the creditors of the government), as certainly
and as securely as any commercial paper or hank currency
was ever based on commodities, to which they owed their
origin. The revenues of the government, for example,
amount to about $300,000,000 a year. This require-
exchange of property or products to that amount. H<>w
inuch money will it take to effect this exchange? Who can
tejl? The public, note, when issued by the government to
effect this exchange, passes into circulation and performs the
offices of a medium of exchange, not only for the purposes
of the govern iiient, but for the trade of the nation. Its
offices are limited, therefore, not by the immediate transac-
tions of the irovernment, but by the exchanges or trad
the entire nation. It follows, then, that the amount of pub-
lic notes put in circulation by the government should
limited only by the exchanges of the nation. This theory,
as to the amount of money required by a nation, is fully
recogni/cd and endorsed by political economists, who stand
high with the bullioni>t>. PnitVssor Pxinamy Price, in the
quotation given on page -'•'•*>, says: " A cart transfers weight;
money, ownership; ami all the world knows that the
to be done determines the number of cart-," etc.; and airain,
in speaking of the amount of bank notes that will circulate,
lie says: ''The answer is the same as that which has already
been given to the parallel question respecting coin,
many bank notes as the public has a distinct \vant for will
circulate, and no more. It is the universal law of all com-
modities in use, the law of demand and supply ''
should be instituted in such ;i manner that the
UPON sorNn IM:I\. MM us. :H7
amount in circulation will conform to tin- \\-.\ ,dc,
Otherwise it Will not prove an unvarying standard of meas-
ure ami payment. If money is scarce ami interest U high,
all exchanges become difficult and expensive; properly an. I
products depreciate in value; wages fall and production U
diminished. On the other hand, if money is redundant, it
will depreciate in value, and property., products and wages
will appi-eciate in value in a corresponding ratio. In either
• •\ent, money fails to conform to the money of account of
the nation, greatly to the derangement of all value-, and
• specially of exchanges of property founded on conn
It is far better, however, for a nation that money should
be too plenty than too scarce, for when money is scarce pro-
duction languishes, wages are low, and idleness prevail-; hut
when it is too plenty capital alone sutlers and it i- better
for the interests of the nation and of >oci.-ty that capital
should bo idle than lab«»r. In the one instance (if capital is
idle), people are deluded with the idea that they are much
better off than they really are, because property rules at
high figures; and in the other (if labor is idle), the m:,-
are much worse off than they ouirht to be, because property
and labor are at a great discount; individuals are brought
to want; the public revenues an- cut down; the e\j.
government become oppressive; and demorali/.ati.»n is rife.
It is said, however, that, in any cxeiit, the amount of
public notes issued by the g.i\tM-nment should not exceed
the annual revenues of the government; othcrv\i-e the\
will become redundant. Why limit the amount by the
revenues <»f a year, instead of a shorter or longer period'/
This is illusory. The public note performs the oftic« » ..i a
medium for the entire trade of the nation, and to limit it-
issue to an amount corresponding to the evict am-. in '
the immediate transactions of the government would be
348 A MOXETAIIY SVSTKM FOI'XI»K1>
similar to limiting the aiuouiit of bills of exchange u>ed in
trade t<» tin- exact amount of property to be exchanged. It
is possible that a less amount of public notes would suffice
to effect the exchanges of the nation; it is probable that a
larger quantity would be required. Whether the public
--ued can be redeemed in the revenues of the govern-
ment in one, two or three years, is a, matter that will not
effect their value in the slightest degree, as long as their
security is undoubted and their use is required in the chan-
nels of trade. This lias been abundantly demonstrated by
the greenback, both during and since the war.
It is idle, therefore, for people to speculate as to how
much money should be issued by the government with a
view to fixing the amount by law. As already sug'j
innumerable contingencies are constantly arising which will
cause the amount required to vary. How much is needed
can never be known until money is properly instituted, and
then people will not care to know. Some idea may be
formed of the vast character of the exchange** constantly
taking place in the nation, when w<- reflect that the annual
product of industry, agricultural and manufacturing, in the
I'nited States exceeds $6,000,000,000 a year, ami that, this
mighty mass of products is exchanged many times and in
many forms. All that can be safely said is that money,
the principal tool by means <,f which these exchanges :in-
efl'ected, should be commensurate in amount with the work
to be performed.
When money becomes too plenty, or, as :* ;- f'-""-d,
redundant, prices go up, property enhances in value, and
•tagefl become high. This is detrimental to trade, works
injustice to creditors, and impairs the public credit, if public
• •nstifute the money of the nation. It is therefore, a
matter of almost as much importance to the public, that
I po\ 8O1 \i> ri:is< M'l.i.x.
money should not he redundant MX that it should n..t he
ICarce, How ix this to he remedied? 1'uhlic notes are
issued by the government I'm- property or ser\ ices, and are
returned to tin- Treasury in tlie shape of taxes. An inei <
in tin- rate of taxation would soon relieve the nation of any
redundancy in the currency, jiM ax hank currency U P8-
turned to the hanks under similar circumstances. Hut in
this connection another <juestion arises, which lias an im-
portant hcarini: upon the suhjeet, and that ix the <|iicMioii of
interest
1 \TKEE8T.
The price paid for the use of money or it> suhstitutex i>
ternu'tl interest. When money posM-^ses intrinsic value,
in the eax.- ,,f --, -Id coins, the value of the metal of which
the coin is made ix one tiling, while the rate of int.
which the coin will hear is •juite another. The fluctuation
in the price of the precious nietaU hears no relation to the
fluctuation in the rates of interest of money. The prii <
-old depends upon the laws of demand and .supply, which
u"\crn the commerce of the world; hut the rate of int'
of money, as money is now instituted, is regulated hy causes
of a local character, (iold may not vary a fraction in the
markets of the world, and yet money and its Mihxtitutes
may, at the same time, he in such demand for the purpo>ex
of trade as to command exorhitant rates of interext. It then
fails to continue an unvarying measure of value or standard
of payment. A dollar that will command TJ per cent, inter-
69) is a very difTerent tiling from one that will only com-
mand (5 j>er cent. To make money an unvarying measure
of value and standard of payment, it is necessary that it
should hear a uniform rate of inter.
That money should hear interest is not only legitimate,
hut essential to the performance of its function^ as a medium
350 A 3IOXKTAKV SYSTEM FOUNDED
• >f t -M-hange. Money represent* value and should be able
to accumulate value; otherwise it would not be accepted in
exchange for property. But, as has been suggested, its
power in this respect should be uniform, in order that it
may prove an unvarying measure of value and standard of
payment. It has long since been discovered that usury laws
are in vain, because they are not based upon sound principles.
But money can, and ought to be so instituted as to com-
mand only a uniform rate of interest, proportionate to the
profits of labor. Money, by reason of its legal tender
property, naturally possesses a command over property
and labor, and if it is instituted, as at present, so that it
can be made to command any rate of interest that can be
extorted by capital, its functions are not only perverted, but
it is enabled to rob labor of its entire profits.
On the other hand, if legal tender public notes are issued
by the government in excess of the wants of trade, they will
lose the power of money to accumulate value, and their
functions as money will be totally perverted, greatly to the
disadvantage of the nation and to the injury of the public
credit. It is, therefore, as necessary to provide airaiust a
redundancy, which will lead to such results, as it is to
puMic notes to supply the want of a medium of exchange.
Inflation, in the sense in which the word is now used, is
undoubtedly an evil, second perhaps only to contraction.
The application of the term, however, is limited by the
bullionists to an over issue of public notes, which leads to
error and confusion. Public notes, if properly instituted.
do not* depreciate in valuo when over issued, because the
people do not possess sufficient property to redeem them,
but because the excess is not required for the purposes of
trade, and they, therefore, fail to accumulate value. It is
not on account of the weaknos of the credit of the people
VPON SOI-M. ri:i\. ir;
that j»lil>lic notes under Midi riivinnstam-t -
on a, ]>ar with the money of accouni, but IxfCfttlM «>f their
redundancy. This is evident iV..iu the fart that bonds
bearing interest, wlii<-li rest upon tin- same f..imdati. >n (tin-
pnbllO credit) can he i^iied j,» a much Lrreater amount than
])ill)iic notes. An excess of public notes U ],,,t, tin-re!
strictly speaking, an intlati":i «il' jmhlic cre.lit, l.ut >iinply a
6UperflllOU8. amount of in*»ne\', an e\ il NN'hic'n can eaM'lv l»e
remedied. l>nt it IS Otherwise with hank cnnvnc\. '1'hen it
is not money that heemne^ intlated, hut it is cre.lit, in all IN
lorms, that becomea e\j»ainlni. This is real inflation, and
is iar more dangerous to the interests of >ocictv than a
redundancy of money, because it inevitahlv leads to com-
mercial crashes and money panics. The advocate^ of the
specie basis <>r hank currency M'Mem are, therefore, the real
inflationists of the nation. It is pMxxiUlf, as tlu1 la\v no\v
stands, to isMie hank currency t.» the full amount «.f tlie
bondeil LndebtedneSf <»f the counn v, aliont -S 1,7 I'M, 000,000,
and .">11 that is wanting to call that amount, of hank currency
into circulation is an oj)portunity. The loan- and discounts
of the banks in l^T.") am<>unte<l t«> ah..m xl.non.iino.inMi,
Which indicated the amount of credit u»en 'iirposes
of trade at that time.
Bonds of the government hearing interest can he i-Mied
to a larger amount, than ]>ul»lic notev, Kecaii^e the ability of
the ]»iihlic note to accumulate \alne i^ limited to its u-c as a
medium of exchange, \\liile the amount of bonds which can
be issued depends upon entirely different <•' -iisiderat :
PnbllQ notes will not seek investment in a bond as loiii£ as
they are needed in the dianneU of trade. ] hiring the- \sar
•^500,000,000 of 5-20 bon.N, with which -rcenbat !,
conyertible, were in the market, for o\er a \car. and the
Secretary <>t the TreaMiry wa«» unable to di^po-e of more than
352 A MOXKTAirV SYSTEM FOUNDED
$25,000,000. The reason is obvious. The greenbacks were
needed for the purposes of trade, and could accumulate value
more rapidly in the production and distribution of wealth
than a six per cent, gold interest bond; and it was not until
the channels of circulation were amply supplied with a
medium of exchange that the ">-20 bonds could be sold.
We have already .suggested that a redundancy of money
(legal tender public notes) could be remedied by incrca.-ed
taxation; but it may happen, as was the case during the war,
that taxation cannot be resorted to, to the extent of the wants
of the government, or the necessities of the occasion, with-
out producing distress and defeating the ends of the gov-
ernment. It then becomes necessary to employ the credit
of the government in another form — in the shape of an
interest bearing bond. This bond or evidence of indebted-
ness represents property or products, payable i.i the form of
money in the future; while the public note represents prop-
erty in the process of exchange between the tax payer and
the creditor of the government, ami is virtually payable in
the present.
When money (legal tender public notes) becomes redun-
dant, it is manifest that there are more notes in circulation
than there is property or products moving in the chain
of trade to be exchanged through their instrumentality, ami
consequently more than the exchanges growing nut of the
transactions of the government will justify. Taxation must
be increased to increase the transactions between tax p.-*
and creditor; or, if that is inexpedient or unnecessary, the
form in which the government credit is issued muM In-
changed, that is, the public note, not bearing interest, i»ued
in excess of the wants of trade, must be converted int
bond bearing interest; or in other words, as the government
note is no longer payable in the present, it must be made
N SOUXD ri:i\« ir
payable in the fiifuiv, and justice re,|iiiivx that it shoiiM bear
interest (accumulate \ alue), ju-t as tin- public note. when
not redundant, was capable of accumulating value, ami this,
U i- oh\ ioiix, ,.:m ,,iily he done in the t'«»nn of a lion. I.
A l.on.l, inter-converiible with the public note of th-
eminent, is capable of performing a two-fold v,.r\ i.-, •; it will
prevent a re.lun.laney «.f pnldie note-, and it will regulate
the rate of interest which nioiiev will c<»innian«l. \V!ien
public notes become iv.lumlant ami are unable to accumulate
value, the 8X0688 woiil.l naturally seek investment in an
interest bearing boml; ami when money (public in>'
able to accumulate value more rapidly in production and
trade, and intercut ri^ex, the inti-re^t hear'niLr ImmN of the
iiment would airain be <•• inverted into money, and thus
the equilibrium would be restored.
Money thus instituted could not do otherwise thai
form, in value, to the money ..f a»-'-nnnt of the nation, and,
in amount, to the wan;> of Tide. It would then always
circulate on a par with money of account a dollar note
would mean a dollar, neither more m»r lew, :md would
always command a dollar's worth of property; i:
would not vary a fraction lor any length of time; and
money would prove, what it i- designed to be, a:i mnaryinir
standard of measure and payment. I'ndcr such a BJ
of money the excl of the nation could be efl
economically and equitably, and capital and labor \\.»uhl
e;ich secure a due share of the products of industry, and
commercial cra>hc* and money panic- coiild not
ooour.
The amount of interest which an inter-eon\ ertiblc
should bear is a matter of detail which can be settled fully
only by experience. Interest on in- lias been IOg-
i, should be in j.roportion to the profits of industry,
- j . i
:!~>4 A MON'KTARY SYSTKM F« »r.\I>KI>
otherwise capital will be enabled to reap more than its «lu«
share of the profits of labor. The average rate of increase
of wealth in the nation is estimated at about 3^ per cent.
Capital is entitled to a proportionate share of this inciva>»-,
and hence the rate of interest of money should not exceed
greatly, if at all, the average increase of wealth. For the
>ake of convenience in computing interest it is BUgg
that a bond bearing interest at the rate of one per cent, a
day on $100, or 3.65 per cent, per annum, should be isMu-.l.
This, as well as other details, can only be settled by expe-
rience. The important point is the institution of a monetary
system based on sound principles, and its details can be
safely left to the government, if its affairs are placed in the
hands of capable and trustworthy men, in sympathy with
the wants and interests of the nation.
It is urged by many who are favorable to the use of the
public credit, in the shape of public notes, that a bond is not
< ntial part of the legal tender paper money syMem:
that it would be absorbed by capital, and in the end would
constitute a burden upon the nation. This is borrowing
trouble. The public notes of the government would not be
funded in an interest bearing bond as long as they could
accumulate more value in production and trade; and, when
funded, they would return to the channels of trade U
as their services were required.
The inter-COnvertible bond plan is greatly derided by the
bnllionists and their tools, who «lo not fail to misrepresent
tin- principles upon which it is based in every way ].ov-ibU-.
The pub lie note is treated by them as simply a promise to
pay money, and upon this hypothesis it is not difficult to
l»-"\< that it is a very worthless piece of paper. The public-
note, as has been sufficiently explained, i> a representative,
not of money but of property, and a> the great ol>:
-«'i M- ri:i\. in M, 355
trade is to exchange property ami not iii<>nc\. it U far more
important tliat tin- public n»tc should represent property
than money (irold coins). Tin- amount of property in the
country is estimate*! at $40,000,000,000; tin- amount of jn.ld
at $100,000,000. It is to exchange this $40,000,000,000 of
property tfaat money i* required ami not the $100,000,000;
and to base the public cre.lit on $100,000,<>oo ,,f ^.M, when
it should he hased on $40,000,000,000 of property, is in utter
violation of the plainest principles of the credit system, t«»
which all paper devices for the exehange of property,
whether public or private, belong.
Airain it is asserted that the inter-convertible note and
bond i> simply paying <>ne 1'ajM-r d»-bt witli another. If the
public note was simply a promise to pay money this would
l»e true, but the public note, properly understood, is not a
promise to pay money, but is a representative of property to
the amount inscribed <>n its face, which the government i-
entitled to demand and re.-eive forthwith from the people,
and in this sense was described by Calhoun as a "promise
to receive," and not a "promise to pay."*
HOW Tin-: rrr.i.i. ffOTE BE! PO m-: i'i 1 INT" • n:« i I.AII.'N.
How the paper money of the government is to be put
into circulation is a matter worthy of consideration, Mpe-
cially as friends of the system, with the best intentions in
the world, have frequently allowed thcniM-l\i-s to be led
into error by failing to carry the principle- of the system to
their logical result-. A- the public note represrnts property
and products which the iro\ ••rnment is entitled to demand
and receive forthwith, in the way of taxation, to the amount
inscribed on its face, and 5> virtually bas.-d -m such
erty or products in the process of transfer from the M\ payer
to tlie creditor, just as other de\ ice- of the en
•See page CO.
A MONKTAKY sYsTMM For NDK1)
:.iv based on commodities moving in the channels of trade.
it is. clear that it (the public note) should only be
by the government for property or services. If the g«
ment should issue public notes without reference to the ability
of the nation to respond in property and products in the way
of taxation, as for example, to pay oft' the public debt in
paper money, when a corresponding amount of property and
products COuld not be transferred at the same time to tin-
creditors of the government, would, as is manifest, be a
infraction of the principles upon which the legal tender
paper money system is founded. The creditors of th-
'•rnment are paid in property or products, and the public
note must not only represent such property, but must be
able to command it, which can be done only to the extent
to which the people are able to respond in the way of taxa-
tion. Hence it is idle to talk about liquidating the public
debt with paper money, or any other kind of moii-
more rapidly than the people are enabled to produce wealth
(property and products), which can be applied to that pur-
pose.
It has already been explained that the amount of money
which the government can i»ue is limited, not by the
amount of the transactions of the government for any
tied time, but by the transactions of the entire nation, which
are constantly varying in amount, lint when the channels
"f circulation are supplied with a medium of exchai,
more public notes can be used; it i- e^ential, the!
that their emission by the government should go hand in
hand with taxation.
i in: NA i IMNAI. i.i:i;i.
Debt, whether individual «»r national, is inconsistent with
true independence, and the payment of the national debt at
\ 8O1 M' I'IMSi I!':
LiTiext 'lay practicable should nc\er be i..-t -i-ht
:l moment.
It' tin- hondx of the I'nited State- ire payable in lawful
money, it is then jh.xxiU,. jo redeem them in prop,
product-, iii which they should be redeemable, a.x rapidl\
as tin.1 nation can produce- a surplus of products, luit if
made payable in jr«'l«l, Nvh'u-li <lot-s not cin-ulatc in tlu-
<-lianiR-ls of tra«K-, tln-ir redemptiOD U rc-mlcrc.! \\rll ni-_'li
iinjHisxihlj'. If forced rc-uiii]>tion takes j.lacc tin- jnihli-
of tin- 1'nitrd States may IK' ri-^ardrd as ju-nnaiu-nt, and itx
incrrasi- ini'vitaMi'. Tlio c\i.cri.'iic»- of Kn^laiid in this
iVxjHM-t L8 Worthy Of llOte. At the clo»e of the NajM.h-ojii.
n L8 15 the producing foroefl «•!' Kn.irland \vnv in full
«'XiT<-isf, and thr ivvi'nik-s of tlu- «xoviTiiiiifiit \\«-n- »-no|-iuou-.
KiiLchnnl immediately In-iran to reduce her jmMir di-lit; luit
tlie money powi-r interfered and n-xinnptinn \vax d.
and the li<|iiidation of the public del>t ci-a>ed. When the
Kel.ellion ended in the I'nite.i production ran on,
OWing tO the abundance of m-.m-y in circulation, to a mar-
velous extent, and the Federal (iovernment wax ,-nahled t-»
reduce the pul.lic del.t some ^500,000,000. Hut the policy
of contraeticn soon ciirtailfd production, the revenue- ol
the government lie-an t«) decline, and the payment of the
public debt practically 06a0ed, It remains now to return to
>pecie payments to render it permanent, and to accomplix'n
this end the money power is e\ertin«r its he-t etTort>. It ix
to the advance of the money ] M. \\er to ha\e natioiix i:i.
volve<l in debt, as \\ell as to have money scarce; in this
way LToyernments and nations are rendered subservient to
capital.
N > event in modern time- ha- spread -uch alarm amon-
the money kiiiLT> «>f the wt.rld a- the adnpt'mn of
tender paper money by the people of the Tun
358 A MONKTAKY >V>TKM FOr.VDKD
None know better than the money kings that if tlic s
is adopted in its entirety, it will ultimately release tlie ma»es
from the bondage in which they have been held for ages by
capital, and hence the bitter opposition with which th
tcm meets. For several hundred years past commerce and
trade have been engaged in a constant struggle to <•!
money, the tool of exchange; but it was not until the
United States made the public note a legal tender that any
progress was made, except in the use of substitutes for
money, which were controlled entirely by bankers and money
lenders. When the American government began to N-ue
legal tender paper money, the money kings of the world
perceived the necessity of taking measures to reverse the
tendency of affairs, and they organized not only to d-
legal tender paper money, but also to demonetize silver, in
order that they might be. able to maintain their rule. That
an organized conspiracy exists to demonetize silver for the
purpose of increasing the power of money, is evident from
what has occcurred in Europe and in America within the
past few years. Silver has been demonetized in England,
Germany and Holland, and practically in France and in the
United States.
No country in the world produces so much gold and silver
as the United States, and yet the people of the United S
are unable to retain it in the country. The same condition
of affairs prevailed prior to the war, when we had the -
basU system of money, so that the inability of the peopli- to
retain gold and silver cannot be charged to the use of public
notes.
The simple fact is that gold and silver cannot be retained
in the country until the producing forces of the nation are
sufficiently developed to enable the nation to export more
than it imports; and in the second place gold ami silver and
i I-MN KM \i. nuH in ES, 350
paper money will not. all occupy tlu' <-hannels of circulation
at the same time, unless tlu-y arc all clothed with
:•« -\\ers as money.
[f specie Circulation is de^m-d, therefore, it can only be
.•ittainc.l by making g"ld, silver ami tin- public note e.jnal
iciral tender-; then, af SOOn M tin- nation is al)!c t.» retain
thi' j»rcci«»us metals, they will occupy the channels of trade
as a matter of c<>m>c. The l)ullii>iii>ts ami !»ai,kci> thein-
M-lvos are comjtellud to ackn<>\\ Icd^e tliat forcrtl rc-umption
will not give specie rireulation, but tlu-y say it will fix prices
at a gold standard. This, as ha* Keen fully shown, is not
only a delusion but a barefaced fraud. The notes of banks
»f i^Mie, which the public will be obliged to u>e, cannot be
maintained on a par with coin, if redeemable only in coin,
unless the bunks ean retain the coin to redeem them, and to
say that the banks can retain specie in the country, when
the nation cannot retain it, U absurd, as well as contrary to
experience.
The only way in which the people can hope to reduce and
eventually liquidate the public debt, is by the adoption of a
system of money, such as has Keen described, which will
give industry free development) mod enable the nation not
only to largely increase its production of wealth, but to
render it available when produced.
•'NCLUSION.
Those who desire to fully understand the money <|ii.
• •an only hope to do so by always keeping in view the fact
that the great object of commerce and trade U the exchange
of property and products, and that inonty is designed to bo
simply a tool to accomplish that end. M . is nothing
more than "one of man's 0\\ n inventions, a contrivance
which lie lias himself de\ i-ed for rendering an indispensable
360 \< i.rsii.%.
M-rvicc to the practical life of every civili/cd people."* Its
institution is a governmental duty, and as political sover-
j in the United States, theoretically at lea>t. iv>ide< in
the prople, it, is incumbent upon them to take hold of this
question and compel their servants to dispose of it in such
a manner as will best subserve the interests, not of a single
class, but of the entire nation. Thus far almost the entire
rourse of Federal legislation has been controlled and
directed by the few, in utter disregard of the rights of the
many and of the honor of the government, and especially
was this the case during the late Rebellion. Eulogies, it is
true, are frequently heard from servile or subsidi/cd sources
<>f the patriotism of capital during that trying period. They
ore utterly false. "Not a patriotic act can be found in its
history. It neither volunteered its services nor submitted
t<» a draft. Its support of the government was purcha>ed at
tin- highest price ever paid by a bleeding people. It was in
truth a traitor to the existence of the Tnion — a baser traitor
than lie who fought to destroy it upon the field of battle-.
Tt hid itself from danger, and sold its assistance only for
enormous pay, while the rebel soldier offered his life on the
field of battle for nothing, except his devotion to an errone-
ou> principle. While the soldiers of the North, too, were
freely going to the front by the million, the capitalists, who
now trample upon them and their children, were allured
from their safe retreats in the midst of their hoarded treas-
«nly by va«t golden briber Ncilher in law or in
equity, neither in the sight of human court < or courts di\ ine,
have they any claim upon the forbearance or gratitude of
ti «• American people." And then, not content with the
jains wrung from the people in the hour of their
.ity, they perfected a plan, to quote again from the
•CiiiTrm-v :unl Hanking, hy linn.imv I'ri< ••.
CON • i
•• eloquent champion of tin- ]•»••, j,l,-'> cail»C/ utO hold the
bonds uf tin- Lrovernment :is a foundation for hanking. Tin-
\s ' althy classes \\erc unwilling that tin- pivcriniiciit -InniM
deal directly with tin- people and furnish them \\ith a «•!
and safe currency. They insisted upon s!andin-_r bct\\-
the u'overnment ami people. They insisted uj,..ii hcc,,niiie_:
the 'middle men' in tin- matter «.f l'urni>!iiie^ a ••in-iilatin-j
juediiun; and the jirntit> that have ac.-ni.-.l t,, th.-ni as xU,-h
*nii«lillr men' and have hern paid l.y the ta\ j.a\
without a parallel in tin- hiitoiy of any other financial
tem Upon the face of the ;_rl"l>c. * * \ _•>,.•!:
policy \\hi.-h thus taxes i;.. p,-,,plc in <irder to fulfill a plain
<luty to them, can only he properly character! /ed a- h-
i/ed
Since the war every energy ha< luvn direi-ted l»y the
money power tow:ird> the destruction of the ^reeiiliai-k
and :i return to the spr,-i,. L.-i^is >\xtmi of IIHHM-X. Tin
machinery of tht' govern ment is in its hamU, and it is n,,\\
aiming to control the two -ivat political or^ani/..!
the country, in or.ler that it may i-oiiMiiuniate it- piirp..-
'The i.sMie has l.cen forced upon tin* nation l»y the Bullion
the bondholders and the money lenders, who-,- tools an
be found in every party convention and caucus held in the
country. Thr crisis has arrived, and tin- masses mit«t ariw?
ill their majesty and as>rrt their rights, or liherM in America
will be a mere phantom. It is not from kings or emperors
that the American people m-ed fear the IOSH of liberty, but
from a moneyed aristocracy, who*,, hand now rests heaviU
upon the nation. The question is one of paramount impor-
tance, involving as it docs not only the j. resent welfare of
the people, but the well bein^ <»f tin- nation f«>r many jjener-
•itions to come. It is a question, too, i:i which the do
*Hon. I). AV. Vor,
362 CONCLUSION.
trodden masses of other nations have a deep interest, for,
if the money power is able to accomplish its designs in 1
republican America, where else can the people hope to
tpe its bondage':'
The contest will undoubtedly be bitter, surpassing in that
respect the memorable contest between the money power
and the people under the lead of General Jackson in 1 3
but "the flower safety is only plucked from the nettle dan-
ger." The political organizations of the country are no
longer faithful exponents of the popular will, nor can they
be until the money changers are driven from their tern;
The people must regain control of their party machinery,
or be led like sheep to the slaughter. But it is to be hoped,
in the language of Jackson's farewell address touching the
same subject, "that, while the people remain
uncorrupted and incorruptible, and jealous of their rights,
the government is safe, and the cause of freedom will con-
tinue to triumph over all its enemies."
APPENDIX.
THE 3.65 INTER-CONYEKTIIILt: ItoMi
BELOW we give an able article from the pen <>f Horace
(ireelcy, oil the subject of till* intcr-CollN crt ible bt>lld. \\llicli
appeared in the New York TVt&tm* of November 9, 1871.
It will be oh>cr\ i-«l that .Mr. (ireelcy sugge-:« d tliat tin- bond*
should bear a moderate gold intcrot. Tliis is n:
and would be taken advantair*' «»t' by the Lr"M .irainl»lrr>.
Tin- currency bonds of the- Unit. < i- >\ crnnu-nt to-ilay
bear a larire ]iiviiiiiun over the Lrold bmids. siniply In-cattSO
tliey pO8868fl a slight advantage in point of the time they
have to run. It may be, however. tl»at,if the public im-
properly instituted (made a full leiral tender and sustained by
a bond), it WOQld practically make no difference whether the
OOndfl of the gOVemmeiU \\<-re payable both principal and
interest in gold or leiral tender notes. Thi- view U held by
many eminent per*nn>. The lion. Fr:m.-ix \V. Huj
Pennsylvania, a di^tiii.ur»i^hed leader in the democratic party.
as well as one of me mo>t profound lawyer*, in tin- . ..imtry,
in a speech at Scranton, 1'a., in October, 1875, in di*cu*Mn^
this jioint, said:
-What better ^ysteni could be de\ i-,-d and what
guarantee could he afforded, that our paper lei_ral temh-
always remain e.jnal to par with Lrold, than that
there -hall be an eXOejM of eurreney it can and \\ill go into
iiment bonds j><i>f<if>l> in //"/'/. 1 i. 1.. ,-ati-«
I regard i: M immaterial wliether under me] n the
bonds be jiayable in gold or not — either way they can be
made, as now. /" tf» r ///•/-• ;/»/>l. Our gi.vernmeiit bon
at I'M and 1'4 ]»er cent, above par in our r<irf',,il legal tender
364 APPENDIX.
currency, and from three- to eight per cent, above par in gold.
Did OUT government not discredit, our greenbacks by refus-
ing to take them for duties on imports, and did it not thereby
inake a market for gold, the paper legal tenders would I
always remained at par with gold. The $60,000,000 of full
legal tenders 1irst i-siied remained at par with gold, when the
latter wa- as to partial legal tenders at a premium of _
Let t lie bonds be payable in gold, and what then? "Why,
whenever the is>ue of legal tenders is in excess of the
wants of business, by a law of its own nature as fixed as the
law of gravity, such excess of currency will go baek into
such gold bonds. Can such legal tenders ever get below
par in gold? Never, so long as government bonds shall be
at a given rate of interest. Let experience determine this.
I believe that under such a system the government credit
would be so assured that 3.05 bonds, as have been proposed,
would go above par in gold. In such case the int<
should be less. Let results determine the proper rate of
interest, or, if need be, perhaps some functionaries under
careful guards, might be aulhori/ed to lessen or increase the
rate of interest. This is a subject for legislation, and from
the many suggestions that have been made a proper method
can readily be adopted."
"It is not proposed to abolish gold as a legal tender.
Whether as an article of merchandise or as a coin, let u-
have the benefit of it to the extent we may. Hut let us also
have a NATIONAL CUI:KI-:N«-V. ()ne that will not keep us
involved in Kuropean money complications, but secure to
u- perfect independence therefrom."1
The following is Mr. Grccley's editorial:
HOW TO KKDLTK THK I\ I i:i:i -:ST OF THE NATIONAL DEBT.
•".Mr. KoiitweH'M plan of funding the national debt has
had a pretty fair trial. True, the times have been ad\ CI-M-,
but we have generally found them so when we needed to
borrow money.
The Mini and substance of the Secretary's success is the
funding of x _>o 1 1,()00,000 at 5 per cent, on the payment «>f
the bonus of 11 per cent, to the syndicate of foreign banker-
who ha\e airreed to take the loan. We would not disparage
this achiexenient, for \\e regard if as decidedly better than
nothing. Add to the interest (*3,000,000) $1,000,000 more
for the a. • of printing the new bond-, ad\ erti^ing.
API- MB
explaining and commending tin- l«»:m, ami the
tm i.l in- the $2oo,ooo,»'
$4,000,ooM. It 9CH iiis to iiu- that this d»es M,,I jii-:n\ a h..p,-
that our $1,500,000,000 of instantly or presently redeemable
sixes ran IM- promptly funded e\e|| at ~> per n-ilJ.
Having gi\eu to the Secivtai . ;-po,t
throughout, WO urge that ;i radically different plan ni.-r.
ha\e a fair trial, I'.efore we send another bond abroad to be
ha\vkc(l from hanking IHUIM* to liankiiiLf hoiis(. thr..u-h..iit
EurujK', >\c ask the government to try— ju>t rann -sfl\
— to fund the bill* of our drl>t at hom. . \V, ro'uld mit
have sold our ImmU durinir tin- dark ln.urs of mir «-i\ il war
to Kuropu at any price, m> matter l»o\v ruinous, if \\ «• had
not first shown our faith in them by taking liundi-
millions of tlu-iu om-M-lvi-. s., no\v, havii lm\v
reluctantly they tiikc our n-i^^uex at ."> per rent., uit!:
count, let us show them that we stand ready to tak
amount at a lo\\.-r rate of interest at par. ll< T. ID I
of our proposition.
Let Congress make our «_rreen hacks fumlable, at the pleas-
ure of the holder, in bonds of $100, * 1,000 an i
drawing interest at the rate of one rent per day <>h
$100 (or 3.05 per annum), and e\dianeable in LTI eenl.a«-k> at
the pleasure of the li older. NOW authori/e the Treasury to
purchase aud extinguish our outstanding l»m-i-
is supplied with the means of s,, doing by receipts «.f nin-
tOniS Ol* Otherwise, and to isvllt. m-w grerllbacks \\in-ne\er
larger amounts shall be required, every one being fundable
iii sums of $100, 1,000 or $10,000, a« aforesaid, at the
ure of the holder, in bonds drawing an annual intei
3.65 in coin per annum, and thes,. b-.n-U exehan^rai.U- into
greenbacks win-never a holder shall de-ire it.
The benefits of this system Would be these:
1. Our greenbacks, which are now virtual raNrhoodt,
would be truths. The government would pay them on
demand in bonds as aforesaid, which is in substantial ac-
cordance with the plan on which the c first
authorized.
2. Every person having greenbacks for which he had no
present need would present them at -omr Sub-Treasury and
exchange them at par for these bond-. Suppose he had
$10,000 which he exprrted to use a month hencr. he can
make them earn him *:JO meantime, >\ ithout incurring the
366 APPK.VDIX.
smallest danger of loss by bank failures or otherwi-
with a positive certainty tliat the money would be really for
him whenever he chose to take it.
3. A merchant leaves New York with a million of dollars
which he proposes to invest in wheat at the West or in cot-
ton at the South. He calls at our Sub-Treasury, exchange-
his greenbacks for these bonds, and takes or sends t!
Chicago, Saint Paul, New Orleans, or <4alveston, t«> be
exchanged for use when needed. After looking about for a
month, he buys half the produce he originally intended,
converts half his bonds into greenbacks, receives $50 per
day or 81,500 in all, as interest, and makes his payments.
After traveling and looking for another month, he invests
the remainder of his capital, receives $3,000 as interest
thereon for the two months he has held the last half million
of bonds, and lays his course homeward. His bonds may
have lain nearly all the time he owned them in the vaults of
some bank; but they were earning money, not for that l»ank
but for him.
4. Our greenbacks, no longer false, but convertible at
pleasure into bonds bearing a moderate gold interest, and
exchangeable as aforesaid, could not fail to appreciate stead-
ily until they nearly reached the level of gold. Indeed, they
would, unless issued too profusely, be really better than
gold. Drawing a higher rate of interest than British con-
suls, and convertible at pleasure, as these arc not, they
would in time obtain currency even in the Old World.
5. The trouble so inveterately borrowed by thousands
with respect to over-issues, redundant currency, etc., would
(or at least should) be hereby dispelled. If there wen- at
any time an excess of currency, it would tend to precipitate
itself into the bonds aforesaid. If there should ever be a
scarcity of currency, bonds would be exchanged at the
Treasury for greenbacks till the want was fully supplied.
Black Fi-idays and the locking up of greenbacks would BOOB
In- numbered with lost :irts and hobgoblin tcrn»r>.
«J. Though the demand for tlie-e bonds might for month*
t>6 moderate, their convenience and manifest utility would
S.M.M dilTiiM' their popularity and stimulate an ever widening
demand fur them. They would be a favorite investment
with guardians and trustees win. would expect to be required
to pay over the funds held by them at an early day, whether
fixed or uncertain. They would say, though I illicit invent
APT! N : Ml
«>r deposit thcM- funds when- tliry \\.-uld .-..111111.111.1 :i .'
interest, I ohooae t<» pla<-»- them uhnv 1 km»\\ tli«-y will be
>afe ami at hand when called i'«,r.
7. ritimately, we hi-lir\»- i'n.-\ ironld '-••••me *o popular
that hundreds of million! of them would !•«• ab-«-
very near the par of >pecir, ami that \sith tin- pri..-,-.-,u an
ftjual amount of our out-tand'ni-
.ami cancelled, without ad\ eriNin^ f .r L.ans or pa\ ini;
Itankcrs to shin for us thrmi^hmit Km-']*-. Tin- i:
thus saved to our country woul«l In- au Jmportant it«-m.
Such are the rude outlino «•! a plan which w«- <li«l not
originate, but which we heartily eml«.r--. \Vh\ :
a trial? We should dearly like t<» int'.»nn Kuropr that.
she seems not to want any more of our liomU at .~> per < •• -nt.,
Ave have concluded t«> take the bal:. :*f."
THE LEGAL TENDER BILL AS II IMSSEll TUT.
OF REPKKSKMATIMv
The following is a copy of the principal MM-HOMS <>f the
iirst legal tender bill as it passed the House of li
lives, February 6, 1862:
•"An Act to authorize the issue of United States notes,
! for the red*', ,</•''•-.< <•• /
funding the floating debt of '/«; Cnit€<!
SECTION!. Be i' s '*eof
Representatives of the i' ^ \
s.n.hled: That to'meet the nc. •, — iti«-> ,.f the T
the United States, and t<> pro\ ide a »-urn-n.-y receivabh- fnr
the public dues, the Secretary ..!' the Trea-«ir\ i- i
authorised to issue, on the ereCUl of the Vnit. -• . $150-f
000,000 of I'nited State* ootet, nol beari
to bean-r at the Trea-ury ..f the I'ni' Oiinvr-
ton or New Fork, and of such dflnominatkmi a^ he m.i\
dt-em expedient, not lr-s than ti\e dollars each, i
ho\\e\er, that $50,000,000 of said nor,-> M.ail 1»- in '
the deinand Treasury notes aothoriied to ted by the
Act of July 17, 1801; which -aid demand tioh-s shall be
taken up as' rap idly a- prarticablr, ami 11. i^eivin pro-
vided for substituted for thum: And j>r«.> irther,
APPENDIX
that the amount of the two kinds of notes together, shall, at
no time, exceed the sum of $150,000,000. And such n<
herein authorized, shall be receivable in payment of all
taxes, duties, imports, excise, debts and demands of e\
kind due to the United State-., and for all salaries, debts and
demands owing by the United States to individuals. <-,,rp<,-
rations and associations -within the United States, and shall
also be lawful money and a legal tender, in payment of all
debts, public ami private, within the United States. And
any holders of said United States notes, depositing any sum
not less than #50, or some multiple of #50, with the Trea-
urer of the United States, or either of the Assistant Tr-
urers, shall receive in exchange therefor duplicate certihV
of deposit, one of which may be transmitted to the Secretary
of the Treasury, who shall thereupon issue to the holder aii
equal amount of bonds of the United States, coupon or
registered, as may by said holder be desired, bearing interest
at the rate of six per centum per annum, payable semi-annu-
ally, at the Treasury or Sub-Treasury of the United St-
and redeemable at the pleasure of the United States, after
twenty years from the date thereof. Provided, that the
Secretary of the Treasury shall, upon presentation of said
certificates of deposit, issue to the holder thereof, at his
option, and instead of the bonds already described, an equal
amount of bonds of the United States, coupon or regi>tered.
a* may by said holder be desired, bearing interest at the rate
of seven per rent, per annum, payable semi-annually, ami
redeemable at the pleasure of the United States, after the
years from the date thereof. And such United States P
shall be received the same as coin, at their par value, in
payments for any loans that may be hereafter sold or in-
Mated by the Secretary of the Treasury, and may be reissued
from time to time, as the exigencies of the public inter
.shall require. There shall be printed on the back of tin-
United States notes, which may be issued under the provi-
sions of this act, the following words; 'The within is a h/«_ral
tender in payment of all debts, public, and private, and i*
exchangeable for bonds of the United State-, bearing >iv
per centum interest at twenty ye.-ir-. or in seven per cent.
bom Is at th e yean.1
Jj '2. Ami '/,,' it further enacted. That to enable the
Tetaiy of the Treasury to fund the Treasury notes ;md
floating debt of the United States, he U hereby authorized
A i • i • i BTDIZ. 369
to U-UC, mi the credit "f tin- I'nitcd States, coupon bonds,
of registered bonds, to an amount not - iim: *"'•"
000, ainl iv. len nalile at tin- pleasure of t In- 'j.«\ en mien r.
twenty years from date, ana bearing interest at ih • r
MX per centum JUT aniiinii, pa\ able scmi-annually ; ami the
bonds liiTrin authori/ed shall be of such denominations. n,,t
less than fifty dollars, as may be determined ii|»<>n b\ flu*
Secretary of tin- Treasury; ami tin- Secretary of tin- Treasury
may dispose of Mich bonds at any time for lawful money of
the United States, «,r for any of tin- Treasury notes tliat liave
1>« rii, or may lu-reaftor In-, is>ue«l nmU-r any f^n-mn- a«-t of
C'oiiirn-», or for I'liiti'ti Stairs notr< that may !••• i--ur<l
under the provisions of this act; an«l all stocks, bonds, and
other securities of the l'nite.1 State-, liehl l»y imlivi.Iuals,
eorjtorat ions, or associations, within the l"nite«l States, shall
i»e evemjit. from taxation l»y any State or county.
g 3. And b* it f»rtlii r < nocted: That the United S
mite< ami the coupon or registered bonds, aothorued l»y this
act, shall be, in Mu-li forms as the Sn-rrtary <»f tin- Trra^ury
may .lirect, an<l shall hear the u ritten or i'm_rra\«-.| Slgnatarefl
of the Treasurer <•!' the l'nite<l State-, ami the Keni-try <»t' the
Treasury, and also as evidence <»f lawful issue, the- imprint
of a copy of the M-al of the Tr«.-a>ury Department, which
imprint shall be made under the direction of the Secretary,
after the said mites or homls shall he received from the
engravers, and In-fore they an- i^ncd: or the said note- and
homls >hall he signed hy tlui Treasurer of the I'nited Statr^,
or for the Treasurer hy such persons a< may he imperially
appointed l»y the Secretary of the Trea-ury for that pnrpOM,
Tr
and sliall he eounteiNi^neil hy the Ke-_ri^ter of ihr Trra-ury,
or for the Ife^i^ter hy -uch persons as the Secretary "f the
Treasury may e-perially appoint for that purpose; and all
the provisions OX the act entitle-1 • An act to authori/.e the
isMie of Treasury note*,1 approved the -'--I day of December,
1857, SO far a> they can he applied to this act, and imt
inconsistent t hereu ith, are hen-hy revixed and i
ami the sum of $:l(>0,000 is hrreKy ap|»ropriate<l, out of any
money in the Treasury not otherwise appropriated, to enable
the Secretary of the Treasury to carry this act into effect."
Two penal section! (jj ^ ami jj'o irere adopted as part of
this bill, to guard airainM counterfeitinir, but it is not impor-
tant to insert them here, as they do not affect the principles
of the bill.
370 APPENDIX.
THE LEGAL TENDER ACT AS IT FINALLY PASSED BOTH
HOUSES AND BECAME A LAW.
"An Act to authorize the issue of United State* /
dud for the redemption or fii,,</i,i:i thereof^ «ndfor
funding the floating debt of the United States.
Be it enacted by the Senate and House of Represen-
tatives of the United States, in Congress a**> ////;/< <//
That the Secretary of the Treasury is hereby authorized t<»
issue on the credit of the United States one hundred ami
fifty millions of dollars of United State** imte-. not bcarin<L:
interest, payable to bearer, at the Treasury of the Tinted
States, and of such denominations as he may deem expe-
dient, not less than five dollars each.
/'/•'tvicled, however, that fifty millions of said notes shall
be in lieu of the demand Treasury m>Us j uthori/ed to be
issued by the act of July 17th, 1801, which said demand
notes shall be taken up as rapidly as practicable, and the
notes herein provided for substituted for them; and
d further^ That the amount of the two kinds of
i< 'Aether shall at no time exceed the sum of one hun-
dred and fifty millions of dollars; and such notes herein
authorized shall be receivable in payment of all taxes, inter-
nal duties, excises, debts and demands of every kind due to
the United States, except duties on imports, ar.d of all
claims and demands against the United States of every kind
whatsoever, except for interest upon bonds and notes, which
shall 1-e paid in coin; and shall also be lawful money and a
leiral tender in payment of all debts, public and private,
within the United States, except, duties on imports and
interest as aforesaid; and any holder of said United States
note* depositing any sum m>t less than fifty dollars, or BODIfl
multiple of fifty dollars, With the Treasurer of the United
States, or either of the Assistant Treasurers, shall receive in
exchange then-tor duplicate certificates of deposit. <mc of
which may be transmitted to the Secretary of the Treasury,
who shall thereupon i-^ue to the holder an e«jual amount of
the bonds of the United States, coupon or registered, aa may
by said holder be desired, bearing interest at the rate of six
per <•< •ntum per annum, payable semi-annually, and redeema-
ble at the pleasure of the United States after five year*, and
payable twenty year* from the date thereof; and such United
all be received the same a* coin, at their par
\ I' I' I . N . M71
value, in payment l'..r :uiy lo
or negotiated hy ti . ,ry ..t' th- .. and n
• •d from time tO time a* tin- «••
interest* -hall rcijuirc.
.I"-/ /•• •'//,/• tnaettdi That to enal.le the
taryof the Tn-a-m-y to fund the Tn-a-
floathlg debt Of the 1'nited State-, he i* herehy aiirl,.
te on the credit of the Unit - coupon I ...... I- or
registered bonds, to an atnoont not »-\«-cr.iinur tix,. ),,,
million dollars, an«l n-.lcniialiK' at tin- |>l< i In- I "nil. ••!
States after tivi« years, ami payal.le twnr
and lieai-iiiir interest at the rate ot M\ j,, i ,-. niiiin JM-I- aiiniiiii,
jiayal.le >enii-annually; and the hoinU }i«-r<-in anil .
shall )>e of >uch denomination, not h-^x than fifty dollars, as
may lie detenniiu-d u|*on l»y t!ie Seen-tai-y of the Treasury;
and the Secretary of the Treasury may di~
at any time at the market \ aim- li ; lawful money. th«-
•coin of the t'nited Statr^, or for :m\ of the Trea>nry
tli.-tt have lieen,or may liereaftrr I" . i^u. d undrr an\"t-
act of Conirivss or tor the I'nitrd Statt-s notes iliat "n.
is>ued under the j»n»\ i^ioiis of this act; and all M«H-k-, l»«ni«U,
and other securities of the t'nited States held l»y indiviiluaU,
corporation A or associations within the l*nit« . -
eiiipt from taxation l,y or under State authority.
fl/«r*A0r< ,'/-•'../. That the I'niti-d States
notes and the coupon or registered ii«»mUauti .\ thi-*
net nhall l»c» in sueh form as the Secretary of the Treasury
may direct, and shall lu-ar the written or eii-,'i ' •'
of the Treasurer of the Tnitcd Stati-x and the Keuri-'
Hi" Ti-easiiry, and aNo, as e\ iden.-e of lawful i-xu,-, tl
print of a eopy of the seal of the Treasury Deparlineiit. which
imprint shall l>e made under the direction of the Sec:
after the said note* ,,•• l,.,nd- >hall be received from the
eiiLTravers, and l>efore they are i--ucd; or the said notes and
bonds shall l>e signed l,v d,, • t|M. I*,,
or for the Treasurer, by such pcr-ons as may be special ly
a]ij»ointed 1>\ the Secretary of the Tiva-iiry for that j»ur|»o>«-.
and shall l>e eniuiter-iirnetl l»y t! 1 ,'
or for the IJeirister. l»y >u.-h ].er*onx . g ,f the
~:iry may appnint for that purj»ose; and all :
of the act entitled *.\n act to authoi'i/e t(.
-ury notes, approved the fu enty-third da\ of Deer
• (•iirhteen hundred and tifty-»evi-n, -o f;iras they can 1»e applied
APPENDIX.
to this act, and not inconsistent therewith, are hereby
revived and re-enacted; and the sum of three hundred thou-
sand dollars is hereby appropriated, out of any money in
the Treasury not otherwise appropriated, to enable th-
retary of the Treasury to carry this act into effect.
g 4. And be it farther enacted, That the Secretary of
the Treasury may receive from any person or persons, or
any corporation, United States notes on deposit for not less
than thirty days, in sums of not less than one hundred dollars,
with any of the assistant treasurers or designated deposito-
ries of the United States authorized by the Secretary of the
Treasury to receive them, who shall issue therefor certificates
of depo>it, in such form as the Secretary of the TreaMiry
shall prescribe, and said certificates of deposit shall bear
interest at the rate of five per centum per annum; and any
amount of United States notes so deposited may be with-
drawn from deposit at any time after ten days' notice on the
return of said certificates; r,-<>vided, that the inter*
ail such deposits shall cease and determine at the pl«
of the Secretary of the Treasury; and Provided further^
that the aggregate of such deposits shall at no time «
the amount of twenty-five million dollars.
$5. And I>< 'it further enacted, That all duties on ini]
goods which shall be paid in coin, or in notes payable on
demand, heretofore authorized, to be received ami by law
receivable in payment of public dues, and the coin so paid
>hall be set apart as a special fund, and applied as follows:
First — To the payment in coin of the interest on the bomK
and notes of the United States.
Second — To the purchase or payment of one per centum
of the entire debt of the United States, to be made within
each fiscal year after the first day of July, 1862; which is to
be Bel apart as a sinking fund; and the interest of which
shall in like manner be applied to the purchase or payment
of the public debt, as the Secretary of the Treasury shall
from time to time direct.
Third — The residue thereof to be paid into the Treasury
of the United States."
The penal sections (§ 6 and § 7), in relation to counter-
feiting, etc., of no importance here, are omitted.
SPEECH OF HON. THAIHH I S STEVENS IN Mil: lln! s| m
REPRESENTATIVES, DECEMBER 19, 1862.
W H K.\ Congress convened in I>e. -, •ml.er, i*ij-j, the
Thaddeus Stevens, Chairman of the Committee of Ways and
Means, offered a bill similar to the original 1,-,'al tender bill,
whieh passed the IIou*e of Uepre*entatives, February 0, 1-
This bill was intended to remedy the evil* whieh had re-
sulted from the partial le^al tender act, but the m..iu-\
power raided a -real hue and cry, and Iff. fi . lindm-
that it, was impossible to carry the measure, \va* t
abandon it. His remarks upon the occasion were ax fol-
low-:
Mr. STI-:VI-:\S. I a>k the gentleman from Maryland.
Cristield,) who is entitled to the floor, to permit me to in.
a statement in reference to the national tinan
Mr. CKISFIELD. I yield to the gentleman for that purpose.
Mr. STKVENS. The bill which I introduced some days
since, to provide mean* to defray the expen*c* of the irov<
inent, produced a howl amon^r the money-chan_ Ic-
ons as that sent forth by their Jewish cou*in* \\heii they
were kicked out of the temple. It produced, what
to me, an unaccountable excitement in tinancial circle*. Thi*
wa< eau*ed, 1 suppose, by wronir information a* to it* origin,
and a misunderstanding as to its object, 'r i* partly
the fault of letter writers, and partly the fault of stocK-j
biiiLT money editor^. I j.ereei\e the money article of the
1'hiladclphia Piv**, of Monday of this \\,-, k, r. pri-xent* the
bill as reported by the Committee of \Va\ * and Means, not-
withstanding the papers of la*t \\ -in.
I *uppose these money-article editors are BOine d
brokers who make «rain by their mi*v- tfoaa The
bill, as all knew who wi*hed to know, was introduced by m«-
on my individual responsibility, «»n the call of the States,
with the sole object, as I then stated, of referring it in
Committee of Ways and Mean*. Neither the 9
the Treasury nor the Committee of Way* and M .id
374 APPENDIX.
ever been consulted with regard to it; nor, although referred
to them on motion of the mover, has it ever been cons!
by the committee.
So much for the origin of the bill.
IT- contents and objects s.-cm to be equally misunderstood
or misrepresented.
It is known to this House that I do not approve of the
present financial system of the government. When this
Congress ;: — '-mbled a year ago, all the banks of the Union,.
as well as the government, had suspended specie payments.
The last *;io,( loo.ooO of loan, which had been taken by the
hanks at a discount of 15,600,000, payable in coin, was no
longer paid in anything but the currency of suspended banks.
The immense expenses of the government, (from $2,000,000
to $3,000,000 daily,) were to lie provided for. It was impos-
sible to negotiate' loans, except at a ruinous discount. The
( 'oinmitlee of Ways and Means were expected to provide the
means, without any suggestions from any imartcr to aid
them. After careful deliberation, the committee, or rather
as it turned out, the one-half of them, determined to inaugu-
rate a system of national currency consisting of legal tender
receivable in all transactions bet ween individuals, and
hetween individuals and the government, and convertible
into bonds of the- United States, bearing six per cent, inter-
est, payable semi-annually in lawful money, and redeemable
in twenty years in gold or silver coin. The is>ue of $150,-
000,000 of such notes was authorized, ami of $500,0<
of twenty years bonds.
The system was -imple in its machinery, and easily un-
derstood. It formed a uniform currency, sustained by the
faith of the government, and furnishing but one currency
for all classes of people. It was believed that as the
tender notes accumulated in the hands of bankers and capi-
talists they would invest them in six per cent. bond*.
U> realise a profit from their capital. The instinct oi
rice and gain would never allow them to remain hmir idle.
This coii\crsion and reconversion would have absorbed the
$500,000,0<M) within the fiscal year, and supplied all tin-
wants of government. So long as the legal tender
remained unconverted the government would have had the
benefit of the circulation without interest. This wa> the
plan of the committee. The currency has proved the most
able ever offered to the people. This was the •
\ IT 1 \ I. I \.
lion <>f tlu> liills us presented ori/mally, :unl as they passed
tin- House.
Hut the simplicity an. I hann«»uy of thi-
doumed t<> iu- manirled and desjro\ed a- if pa — .-d through
tin- Senate. They began by making t\\o kinds «•
lor tin- same community — a fatal mistake when\ 91
They provided tliat bonds issued as ah,.\e stair. I sh-.uld re-
tin1 interest, iii p»l«l, while the interest of all other
bonds should he pax able in leu'.tl tcii-lcr n..trx, thii^ j.ro.hu-
tlu- niitM-t a (Irpivriati.Hi nt' tln-rnit. i -
and rrr:itin^ a (Ifiiiand 1'. «r 'j"M t< - I " taken ad\ ant.,
st-iui-aiiiiually l>y Imllion nn»ii'_r»T>. Without Mich i'f.»\i>ion
tlu-ri- would ha\f IKM-II no demand for a MULT!*' dollar of
to In- u-'-d ill tliis country. If merchants wi.-i
import «r«M»ds IM-VOIM! .uir r\pnrt>, and that iv«|uiivd .ir-»l«i, I
should feel hut little sympathy for them, \\hate\er premium
they were ohliired to pay. IJeiiiL? unal'le to defeat tiii- pro-
vision, I procured to I,.- in>t-rte.l a pi..\i-i..n making the du-
•i imports payable in Lr<(ld. 'I'hi- ual»le the
jfovernmrnt to meet the payment of interest in coin. That
had one good and one l»ad etl'e.-t. It innvasrd ,,Mr tariff
soim- thirty j>er cent., l»ut it conipi-lled our mm-hants logo
:iinonur Hi*- Shyloi-ks to pmvha>r coin to pay their duties.
The-e comhined provisi.ms form :i mine of wealth for
brokers and hanker^. Tin- duties and int«-rest \\ ill ivi|tiiro
$60,000,000 of go Id annually, and >«>on douhle that amoimL
N.'\\, our hanks and hroker> h:i\ iy that ft]
han.l. Tlu-y may j»ut the price as hiurh as they p!« .
must l>e paid. Sup|.ose the l.anks in our three irrea; com-
mercial <-itie> to have ju^t that amount. If half-yearly they
sell the half of it tothegovetnmeal and nu-rchants at thirty
per cent., nMiiL? the other half to the i-nd of the \.-ir and
thru selling it, they would clear by th;~
thirty per cent. «>n their capital, and have all the pr.*'
loans, on deposit-*, and currency circulation betide*, The
irold would rrturn to their \ault-, poxxihly, hy the payment
of interest, on the \ery l.oiids they held tlicniM'h
to he rea.ly for the same operation at the n. .nmial
]>ayment, tloiiblin^ their capital in three years. If a finan-
cial system \\hieh ]«ro, luces MU-|I re-u!t-» 1- \\i^, -. t!u-n I am
laboring under a ureat mistake.
The ne\t error was to , -h^ ir bonds into
boiuls redeemable at the option of the government in live
376 APPENDIX.
years, and payable in twenty years. We all know these long
loans sell much higher than short ones. But the most un-
salable kind of bond is that payable in a short time if the
obligor choose, or at any intermediate time up to a distant
day at his option. Every man wishes to know when his in-
vestment will fall due, so as to know how to arrange for busi-
ness for re-investment. The very uncertainty of the day of
payment is a great fault; hence our bonds sell some five per
cent, lower than an absolute twenty-year loan would; yet no
one believes that we shall be able to redeem them short of
that time. The only justification for this change would be
the expectation of being able to pay in five years. He must
be a very hopeful man who can indulge that idea.
Another change, which seems to me equally injudicious,
was the allowing the holders of legal tender notes to deposit
them with the government agent at interest not exceeding
five per cent., and payable on call after ten days. This ef-
fectually destroyed the hope of any very speedy conversion
of them into bonds. A holder of them would much prefer
lending them on short call at a smaller interest, and wait for
emergencies to speculate, than to fund them in government
stock. The consequence is, that while $80,000,000 have
been deposited on short loan, only about $20,000,000 have
been invested in bonds. One singular feature of this pro-
vision is, that when $50,000,000 or more of these notes are
thus borrowed by government, the Secretary of the Treasury
shall keep on hand $50,000,000 of legal tender notes to meet
the call, either by not issuing the amount authorized, or
holding others. It is, in effect, the same as if the govern-
ment agreed to take a loan of $50,000,000 at four per cent.,
and keep it in their vaults without use until the lender called
for it; in other words, paying four per cent, interest for the
privilege of holding unused a special deposit. How these
short loans and the pressing demands for other claims are to
he paid, at least after all the greenbacks are once issued, I
do not well see. Had they twenty years to run, I should
feel easy. These are the objections which I have to the
present system.
I will now briefly state the provisions of the bill which I
introduced. It was intended to restore the law just to the
condition in which it left the House of Representative^ and
nothing more.
The first section provides that the Secretary of the Treas-
API- :177
ury shall p:iy off and cancrl all the tive-t\v • 1ft and all
others whose inteiv-t i- payable in ir-'l-l, and to exchange
new bonds for tin-in on -urh torn ill IH* agreed 0
pay tin-in in leijal tend'
Certain money cdit«»r- ha\e professed to 8e< :i Vio-
lation of public faith, which promised tin- payment in gold.
Nothing & more fata, It pn»p..M-d to HfttMM bonds, by
negotiating with the holder*, at Mich • -u Id be agreed
on. If the holder declined to >dl. In- would !•«• «-ntr
receive hi* interest in gold, according t«» tin
tract. I suppose in* man nuiM IM- fnuml in thi- H.>nM*bMe
iMn»u«^li to nro|M>sii repudiation. N"in- lur fupid U1AII
COtlhl BO misn-ad tin- dill. True, it pmpoM-d t«. iaUM n» niorr
- t»i' that kind, and repealed the law aiitlmri/inu' it- And
yet it has heen thought «'f Mitl'n-icnt inn jravcly to
introduce the resolution hen- de<-larinur in adxatb. t;
intended to make no rhaiiiri* in the law. NVIiat Im-iness Han
nnyhody to iiKjuire whetlu-r in onr future i-xn« ot l.oi
intVnd 'to pay the inteivM in e«»in or h-_r;,| tender'.' It i-*
enoiiirh for them to kn«»w that in contract> al:
the Lr<'Vernment will keep its faith.
It further pn.po-ed to pay olT the li-iral tender interest-
liearinLf deposits, and to repeal the law anthori/in'_r
loan. It has turn<-d out ju>t as the emnini" ::- t«-d,
that such demand loan ha> : i the conv.-r-.ion to any
ieralile amount. While $80,000,000 of legal tender
are deposited on call, hut about *20,000,0»>o have been
invented iii homU. It i> ol»\ioiis that at that rate the Hale
«»f bonds will aid but little in carrying <»n the war.
It proposes to repeal the law re.juiring the payment of
<lnties in coin, as well a- the interest on future w*ii€* of
})ond-. OXOep4 "iie-lifth of the amount of du'i- -. Thi-. i-*
retained -o a- to furnish the •government with c«>in to •'.
the foreign diplomatic and <-onsular expenses, and the
<-har<_res of our courts in foreign j»orts. an«l the costs of des-
titute seamen. Thus the whole currcn.-y n.M-drd in thi«
country would be leiral tender l'nite.1 Stat»-s not.-s. The
bullion monirers would lose; the merchant* and government
would L,rain.
Saving restored the law to its original shape, it proposes
to raise money to pay the pressing aebts due to dep«
and gold-bearing bonds, the pay due soldiers, ana oth-r
expenses, by issuing K-iral tender notes, not exceeding
378 APPENDIX.
$200,000,000 beyond those already authorized, and to i>sue
* 1,000,000,000 of bonds, bearing six per cent, interest, pay-
able semi-annually in lawful money, and redeemable in
twenty years in coin. With $500,000,000 of legal tender
notes in circulation, they would accumulate sn faM with
capitalists and banks that the holders would be glad to turn
them to profit by purchasing the loans; and I d«mb:
before the year would expire the whole $1,000,00'
bonds would be called for at par. In my opinion, with the
present law this amount can never be sold except at rui:
discount. I believe that this disposes of the provision- of
this bill, which were intended to restore the committ. '«
project, and which was sanctioned by a large ma;
the House.
The balance of the bill refers to State banks, and im:
a tax of fifty per cent, on all their circulation beyond one-
half of their capital. This tax is obviously intended for
prohibition, and not for revenue. I incline to think it sh
have taxed all above three-fourths, instead of one-half of the
capital. The object of this provision was two-fold: first,
to give a wider circulation to United States notes, and thus
induce their conversion; secondly, to prevent the undue
inflation of the currency. I suppose that such a law would
drive at least $1 00,000,000 of bank notes out of circulation,
leaving about the same amount afloat. Those, together with the
United States notes, would give a circulation of $(500,000,000.
I believe the business of this country reouires that amount.
Before the rebellion the paper issues were over $200,000,'
and the coin was at least $300,000,000. I suppose svhat
may properly be called the present circulation amount -
more than that sum. The checks which pass as currency in
our large cities are as much a paper circulation as bank
notes. They amount to some $200,000,000, I imagine, and
almost entirely supersede bank notes in New York and
Bo-ton. When it was said that the currency necessar;
do the businr>s of (ireat Britain was near two billion dol-
lars, the hank note circulation was less than four hundred
millions. The re-t was supplied by bills of exch.v
But in time> of -u-pen-ion of specie payments, bank* will
md to an unlimited amount unless re-trained I-;.
national law. I can account for the present high pric--
rything in no other way than by such expansion or the
expectation of it. I fear the true amount of present ciivula-
A i- 1- i:\nix.
t'.on 1- not ascertained. Take, as :ui example, :i very sound,
well-managed bank in my own district; it \IM a capita
0,000j it In. 1,1s .il.oiit $150,000 of V md
fteven-thlrty per cent bonds; it has on vi,,,rt i,. ,
il tender; it has $80,000 in coin; ami its cireu
^000. In an adjoining district a hank \\ .oQO
capital has more than its \\hoie capital nm-M,-! i:i TI,
Statt-s l..aii-, ami lias a rirnilation ,.f f>
isMu-s nnixt inflate the mnvin-y. 'I'lu- p.-.,p|,. will run niad
\\itlj >piMMiIali«»n, an«l in a tW \cu- I noenU rr.-i-h will
folln\\ . My jiropoMtimi \v»>ul«l riot rr.liu-f Uank profit^ lie-low
a fair train. Wlme suspension continue* tln-y mi-^lit hold, as
tlu-y now liavc, th»-ir wlioK' capital in LT«>\ cninu-nt stocks,
l)c'ariiiiX at least six p<T cent. JKT anninn. Tin \ c..ul.| 1,
Tho profits of a circulation c.jual to three-fourth of th.-ir caj»-
ital, and hank on whatever deposits tliey ha\e. Tlii- would
irivc tlu'in at lea^t ten per cent. infeivM t,, j,:ty their expenses
and dividends to stockholder^ This i>
15ut I ouuht perhaps to - ay. Let.. re I olose, to my country
iVirnds that tlie nccil n«>t !,»• alarmed. 'I'liei-
no i^ivat prosi.eet that we shall return to p
indicated, nor do much to protect the people from their own
i-aiTer speculation*. \Vlieii, a fe\\ yssn In-nce, tin- people
sliall liave heen hroii-jht to ireneral hankruptcy l.y their
unre<?ulated enti-rpri-e, I shall have- the -ion to k:
that I attempted t«» prevent it.
Mr. Steven^' views in regard to the defects of the partial
Legal tender system have IH.H fully continnetl by fourt.
\ -ca i -s' experience, and his prediction^ h :t'ud in
markable manner. Notwithstanding the defects of the
system, h<> \\e\ci-, and in spite of hostih- legislation and the
existence of the National Hanks, it has proved im:
superior to the specie l.asis or hank eurn-n«- . . whicli
cursed the country for o\cr half a centui-y prior to the
Rebellion, and which the hullionists and bankers are now
seeking to re-establish. The people ha\e Ix-en bn.u-ht t-»
the verge of bankruptcy by the machination* ,,f the money
j»ower, and the intcrcM* of the nation deman«l that a fuU
380 A 1' PKX DIX.
legal tender money system In- no\v given a fair trial. Thi<
end can only be accomplished at the poll*. The bullion
and bankers, and their tools, are already in the field, manip-
ulating party conventions and caucuses all over the country,
to carry out their designs. The masses must organize
against them, throw party prejudice aside, and vote for no
man for any official position, from the lowest to the higli
who is not known to be honestly in sympathy with the peo-
ple's cause, and in favor of full legal tender money.
A I'l'I \ |.| \.
Monthly Kaiik'o of tin- (...M Premium for FmurtMB Yfan.
Tin- following table shows tin- l..\\,-t ami hi-jhe«t prices
ofgoM at \.\\- York, for ,-.i«-li m.-nrii in tin- la»t foAt66O
years. Tin- l.-ft-li.-m.l ••••lumn of t-:u-l» \- n- -Imwn the lowest
price, ami the right-haml column the highe»t*
ȣg
00 —
nzr^iiiiz-:^
Sr::
-i -i ;
- H aSlll MNHM
•From the Tribune Almanac tor MW,
— — to to tc :.- ^ i -
382 APPENDIX.
FRENCH ASSIGXATS.
FRENCH A>signats and Continental money are ghosts
which have been conjured up to frighten the public by the
bullionists and bankers, who wish to monopolize the right to
furnish the circulating medium of the nation. The subject
•of Continental money was fully disposed of in the chapter
on Banks of the United States;* and a word of explanation
in regard to French Assignats seems to be necessary. Thiers,
in his life of the celebrated John Law, tells what Assignats
were as follows :
" Assignat was a name given to a peculiar species of paper
money, issued during the first French revolution.
The first issue of assignats was made on the security of 1 1n-
forfeited [confiscated Ecclesiastical] property; and was
.adopted as a preferable alternative to throwing the forfeited
lands on the market; which, * * so large an amount
of property would glut. The holder of the assignats might
use them as money or claim the land which they repre-
sented.
"The French revolutionary government wished to pay the
debt of the monarchy and the expense of a universal war
with the national property [confiscated church property], tin-
property not being disposable, on account of the quantity
and want of confidence, it anticipated the sale, and repre-
sented the results by papers called assignats.
But as the success of the revolution began to be distrusted,
and doubts arose as to the; maintenance of the national sale,
they declined, and, as they declined, the government, t<»
supply the deficiency, in value, was obliged to double the
issue, and the repletion contributed, with distrust, to depre-
ciate them."
Upon the overthrow of the revolutionary government and
the formation of a responsible government, under Napoleon,
the church property was restored to its lawful owners, and
the a»i'_rnats became wurthlc^.
To compare the legal tender money of the I'nited 8
to assignats, is simply an insult to the intelligence of the
American people.
•See page 112.
:;-.
i\ ii:\< IN IKOM KI:I i IM.I..
::!•: nio>t fundamental and important tnr ition
! in. Mi. \ , h:t\e ah| ip by
••hnicalities of la\v as com:
tltli.iiivrli tin •;.
known :ili«l t'clt that tilde Ua- sometime,'
Writers upon political economy, public in
jrfncral, have taken it for granted that tin* 1
iiirlit in founding thu value of money in tin- innate
value of the <rold aii«l sil\«-r metal which r
<Miim-il: lu-nce the onnrluMoiK at whirli th«-y mn^t all ani\r*
are ju-: a- false as the premi-»e< npuii which ti \ i
political rcomimi-N may contii ..ml the public
may cuntimie to ar the-r pr-
C.MIIC, ami l»e ju^t a^ far from tin- truth a- \\ !
instituted Upon thill bai N- Aith-taii.lii;^ thi- my-titi.-a-
ti«'ii about inom-y. r ami |".u . r :t; t
dimple, an<l ncc.l only TO U- drarly and f:iirl\ • m«-ct
the approval (•!' the common mind; and then the public imM
know that the present ccntrali/iicj is as
an imposition upon the eonmion §en»e of ID
upon the common rights pf labot. and propi-i"- if tlie
material of neither ^o!d, >ilver no" paper inon»-y i-an ii
be uxt-d av food, clotliinir <>r >helter, then certainly the
scarcity or abundance of money, or the scarcity or 'abundance
of the niateriaU of money, oii^ht never in the le:i-t t«.
fere \\ith a LTeneral and full >upply of all the nej-e-^u
life. l-'or thcvc nccr^arie- «.f !:' dcntlv the pmduet
of labor, and not the pn'duct «.f m..m-\. Vet th«- j.
powi-r of money U Mich that the people are comjH-lh
to work for money, and then to depend upon tin-
money to Mipply the m of life. Tim- the j...\..
money i< first,' and tlie jMiwer of labor i^
money i-ominand^ the labor instead of lalmr eoiiunandini:
the nionev. This ix ezaOtljf '-«-N « r-in-_r the trn«
thinirs f"i' it »x niakinir a «lea-l
ami tyranni/e over the li\ ;
the productive ouirht always to < ommand the unj»roductive
power. If any writer* upon political economy, or any finaii-
. have discovered the true nature, j»ower and
money, they have not made Mich discovery manifest to the
Understanding <d' the public. For the laws of nations, as
well a* the newspapers and other publication* of th<
384 Al'l'KNDlX.
are still carrying forward and enforcing the idea that money
is a productive, living power. Yet the power of money i<
entirely a dead power, and totally unproductive, notwith-
standing its legal, accumulative powers."
"THE avarice that pervades the civilized world has IK-CM
ingrafted upon society by the too great power of money.
In most countries it has made production by labor degrading
to the child whose necessity compels him to perform it.
The skill to gain by lending money, and by taking advan-
tage of others in bargaining, lias been, and is taken as evi-
dence of superior talent, until, by example ami precept,
avarice has been instilled into the minds of childern. It
lias grown with their growth and strengthened with their
strength until it has corrupted the very foundations of
society. The percentage incomes on bank, railroad. State,
and other stocks, and the rates at which money can he bor-
rowed and lent, are the great leading topics of a bu>i:
community. The topics are not, How shall we contrive to
produce by our labor the greatest supply of all the nce<
ries of life for the general good? but, on the contrary, How
shall we contrive to get the largest possible per cen;
income with the least possible production on our part':* This
state of society is directly at variance with such a one a- a
just monetary syMcm would naturally induce. It is as much
opposed to the natural rights of society as falsehood 5*. to
truth; and no continuance of competition in production or
distribution, under the present monetary laws, will be any
more likely to remedy the evils of this deba>ing ny>tcm,
than competition in false-hood would be likely to produce
aixl sustain truth. We must begin improvement by doing
away the- great gain by unrighteous per ceutage interot on
money; and then theVealth will naturally be widely di-
tributed among those who do the most for the good of man,
instead of being gathered in by a few, who thus become the
great oppressors of the human family."
Berkey, William Augustus
60$ The mone -r question
B5
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