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Lorsque le document est trop grand pour dtre reproduit en un seul clich6, il est film6 d partir de Tangle sup6rieur gauche, de gauche d droite, et de haut en bas, er: prenant le nom^ire d'images ndcessaire. Les diagrnmmes suivants illustrerit la mdthode. 1 2 3 1 2 3 4 1 S 6 ''f0 i *.^l' SHORT ROAD TO Spfxie— Currency. ■ JWKW'qypwcwaw » ._/ KttSfi Mi-yriJopoLiTAN National Bank, ) N K w Y( ) 1 : K . May 1 1 1 h , ^H74. \ T<» ITON. J()IL\ SllKIIMAN, C//(fir/j/(f/f ()f Finance Ctmuinlh'C, ' ir. S. Ornate, Dram Si i;: SiiHM' last Noveml)t'r, wlieii yoii tnlked ovor uitli mo, liere, Mh' su])Je('t of 13aiilviiirings lip anew, hovvevcu', the old^tn-'stions : ])t'rhaps, under circumstances more favorable for a calm consideratict, it has seemed to me, that the j)nblic and Congress, have })een too much fettered by 'precedent — by clinging to what has been — by eft'orts to ]);itch up old nn^thods — " sewing new cloth into , old garments," instend of hiying the ohl garments on the slielf, grateful none the less, for the good they have done, but knowing we had outgrown them — as the man tin.' boy's clothes—and had no further practical use for them. This we hav(^ done, in estal)lisliing our own form of Government| why not do it in reference to ])()litical economy f Among Mich useless antiquities, may be classed, "the Suifolk l>i»nk System," so called, which was the most i««K--^iS(tW»« umnitiuatod paper scheme evs, to inspire con- fidence and provide for contingencies. Nor need any diffi- culty be ap])rehended on this ])oint, as (California yielded last yea- up to 81st December, seventy two million two hundn'd and fifty-<'ight thousand dollars. Moreover, as soon as the ]>ul)lic understand they can have s])ecie for the asking, it will not be wanted. People will prefer to carry U. S. notes in their pockets, as more convenient and equally valuable. Neither could any one reasonably obj«»ct, that the Unit 'd States would be, by su(;h an o])eration, banking or engaging in business, for, pro])erly regarded, it is as much a function of Government, as the drawing of a Treasury Draft on the Assist- ant Treasurerjn New York; indeed, practically, it is only that. 4th. To guard against undue issue, on the part of the United States, antl to provide in summer, when money is cheaj), for a necessary surplus of currency to transact the autumn business. Congress should authorize the emission of a convertible and re-convertible bond, bearing 3, 4, or even f) per cent, interest. Said bonds to be obtained either of the Assibtant U. S. Treasurer, in New York, or of a Commis- sion, appointed to take charge of the same, at the office of said Treasurer, upon paying for them, in either National Bank notes, legal tenders, or 11. S. notes. And the bonds should be payable at the office of said Treasurer, with accrued interest, on demand, at the option of the holder. The effect of this emission of bonds, would be two-fold : first, to check any excessive issue of U. S. notes, as they would at once be taken to the Assistant Treasurer and con- verted ipto bonds, thus placing such excess on interest, as fast as the n'otes became superabundant ; secondly, these bonds would take \) circulation when cheiip — and not wantM for business purjjoses — and k«'ep it till it was. Then the bonds would be presented foi paynu'nt and the circulation come out to do its beneficent work, without disturbing the discount lines of the Banks, as the operation wcmld be entirely in(lep<*ndent of thetn. Indeed this machine would act automatically taking up or letting out currency, according to supply and denumd. Should money be abundant and cheap, 3 j)er (rent, bonds would absorb the surplus ; but so important is it to accu- mulate money in July and August, for Septenib«,'r and October, that even f) p(T c<'nt. for 00 or 90 days, might well be paid, on 20 or 'AO millions, rather than have no adequate pr(»vision for the autumnal demands of trade, which come round with the regularity of trie season. nth. Here, an important question naturally arises, namely : What amount of currency is requisite to C(mduct the enlarged business of a constantly increasing ])opulation, dealing in various commodities at enhanced prices i This question may be practically answered, although nuithematical certainty may not be attainable. A commis- sion carefully selected, would be able to reach a satisfactory result in this particular ; and also to ap})roximate' the per centageof increase of currency that would be required, every five or ten years, to meet the growth in population and busi- ness ; and thus escape the evil of either deficiency or excess. For instance, if with a population in 18()1, ot"S\i millions — and banks paying specie — we had a Bank note circula- tion of 220 millions —and specie in circidation, 170 millions — aggregate, 390 millions — how much would now be required for a population of 43 millions, including demands for manu- factures, for mining the precious and other metals, and for railroads, quadrupled in extent in thirteen years i Allow- ance being also made for advance in prices of from 30 to 50 per cent., in nearly every article bought and sold. This increase in values is real and not nominal. An effect largely owing to an addition of specie since 1848, from Australia and California, to the amount of hoo thousand millions in gold and silver ! The commercial exchanges of the civilized world have thus been increased, making 'i 8 A ^()l(l and silver, Jind not paper, responsible^ for tiu'cniin need value of commodities, in ail countries, even where there has been no pa])er used as currency. Thus it is seen, that no special study of the subject is re- quired to pei-ceive, that double the former volume of curroncy^ say 780 millions, would be none too much for the ])resentday. Nevertheless, exactness as to amount, is less important tliJin if the proposed U. S. notes were not to he paid, on demand, in sjK'cie. That fa(;t, complemented by the converti- ble bonds, would r<'c^ulate the anu)unt of the issue of I'. S. currency to a nicety never before attained. Especially, as these notes would noi he subjecttothelluctuationsincidentto Bank note circulation, for the latter must always be more or less mixed up with the Bank's liability for deposits, and depend- ent '^pon the availability of the Bank's discounted })aper. Suppose then, for example, weassumeSuo milliois asthe requisite amount of circulation to-day. The profits of that, to the people, may be thus stated. Deducting" 150 millions, as anu)UMt of coin to be kept on hand, would leave a balance of ^50 millions net, to draw interest as uHHiey. This sum at (5 per cent, would yield a profit of HO ruillions annually ! Reducin<; the taxes of all the inhabi- tants, every year, exactly that amount, compared with what would oe the case, if that circulation were given up to J^anks. full. Undoubtedly there are a few Banks that will raise a cry about vested rights, violated charters, cS:c., but it is enough to say, to such, that any Bank which cannot live without circulation, must have less of the confidence of the public, as evidenc'ed in de])0sits, and more of the element on which wild-cat banking subsists, thaniscompati))le witli sound commercial Bank manageiaent. The truth is, the proposed change is not, in fact, so much of a sacrific*.^ of profits, as at first sight, it may seem to be. You know that Banl^s are now required to hold live per cent, bonds, in- stead of six, as the i)asis of their circulation ; the rate may, probably wili, be reduced to four per cent. Then the Banks would be relieved from all taxes, and reserves, on account of their notes — and here, in New York, these amount to about three per cent, per annum. They would save the premium on U. S. bonds deposited in Wash- i!iniei\s receiving wliiohever they preferred. Tn a word, they would do a strictly legitimate ])usinesH aH lianks of discount and (h'posit ; knowing, tliat wliatever leads to tlie prosperity of tlie whole ])eo])le, must be benefi- cial to tlie baulks; but leaving the right, where it belongs, to tlie V. S. (Tovernment, to supply the whole circulating medium of the country. While I speak thus strongly, for the t)est interest of all, as I understand it, 1 beg to say, that no one can enttMtaiji a higher estimate of the usefulness, the integrity and tlu; honor of I)auk managers than 1 do ; and, no one, I believe, knows til em be iter. Yet, in this connection, we must lemember that Banks are th(i creatures of law. The laws which created them, may, by virtue of rights res(^rved, be amended, .altered, or "epealed. If therefore, it is found, that, as heietofore, and as now, constitut(Ml, tlu?se instiiutions, with the best intentions of those who d' -ect them, fail to secure for the people a satisfac- tory currency ; and that ev(*n to attemi)t it, on the old basis, would be to lay themselves open to as frequent suspensions as Wall Street should choose to inflict ; then, surely, it is fitting and ne ilful that some better methods be d«n'ised and carried out. To those who are disposed to complain of the change as a hardship, one istempt(?d to ask whiit 7ial7iral right a dozen stockholders have to receive notes from Govern- ment to circulate, that any other dozen men do not possess? 7th. Again, some may say, it is true, we need reform, but if Wall Street is so powerful, as again-st Bard<:s, why may it not have equal ability to cause Government to sus})end i The reply to this is })lain and conclusive. The cases are esseTitially difi'erent. Whenever Banks }iav(^ failed, it has always been because of the withdiawal of their deposits, and not that a few thousand dollars were demand of tlu^ s(Heral Bank failures. I 10 How unwise, then, nor to seek a sure and sufficient remedy, aft<*r trying seventy-five years to ^onipass the inipossibh.' ! N'ow, innsmueliasthe V. S. Government /^r/.v no (l('posUi<, and its circulating: notes wouhl permeate fvery corner of this vast country' — 'lowi^" tfie liglitf'nl work of a National currency — thercjfore, tlic^y could not bt« hoarded — even if the attempt were made —in any quantity sufficient to derange the regular basiness of* tlie hujd. 'I'liey would (!onstitut<% so to sjx'ak, the lif '-blood of our commercial and niercaiitih'! transactions, circulating to the lemotest parts, and equally indispensable at the centre or ihe cir<'umf<*r- ence. And if, by labor and sacri lice of interest, a sum could be gathered together, what motive would exist to den-and specie, when the ])aper wcs of equal value with the coin. Another good result would surely he accomplished. Speculation in gold would be killed stone-dead ! aiul that nuisance abated, most etrectiuiliv. 8th. The proposed separation of circuhition from Banks of discount and deposit, would (*stal)lish banking proper, on a legitimate basis, and transfer to the (Teneral (fov-i-nment, when^. it belongs, the circulation of the pr-ojile fc the sole blieving a i)resSure arising from want of capital and currency, there, l)ut which no longer is felt at the East I In truth, the uu])r(>cedented and irrepressible grov/th of the West, in population and productive power, indicates, also, an api)r(^,aching, if not an existing, political power, that will soon speak to tiie East in tones distinctly audible. And now, Mr. Senator, only one word more; if you approve, in the main, of the foregeing suggestions, will you do me the favcr to draw a bill embracing them, substan- tially, and advocati; its passage in the Senate ; Providing, that the law take full effect on the Fourth of July, 1870, making, thus, our sec<>nd and linancial declaration of Independence! Bi^lieve me, sir. Yours, witl) much respe(;t, J. E. WILLIAMS. LETTER TO THE Hon. Sir Francis Hincks. t'. f (i>:' ;»: Mktropolitan National Baxk, ) New York, March 26th, 1876. f Hon, Sir Francis Hincks, Montreal^ Canada, Bear Sir : Your polite letter and your pamphlet on the Bank of England, reached me in due course of mail ; but various engagements have prevented an earlier acknowledgment of your kindness in sending them. My attention had been called to the report of your remark —as published in the newspaper you refer to— on the subject of currency and banking. I have read your views with much interest and instruction. It is })articularly interesting to 11 ud a gentleman of your large experience r^ady to place himself deliberately in so advanced and en- lightened a position, before the public, in regard to this all- important subject. You certainly are not one of those political economists " v;ho mistake time-honored prejudices for axiomatic truths." I am gratified too, to learn that you found in my letter to Senator Slierman, much that you could approve. Will you pardon me if I am a little prolix iii consider- ing the points of dilfei-ence you suggest \ In the first place, however, I would thank you for the extract from Mr. Gallatin, which you give in the following words: "The right of issuing paper money as currency, like that of gold and silver coin, belongs exclusively to the nation and cannot be claimed by any individual." Now, while it is desirable to have so responsible an endorser as Mr. Gallatin, there are others and equally good authorities on this point. Thomas Jelferson, in a letter to his son-in-law, Eppes, dated June 24th, 1813, recommended the issue of Govern- ment notes instead of allowing Bank notes to be circulated, giving, at the same time, cogent reasons for his con- clusions. "And," says Mr. Buckner, ''he thus fore- shadowed the proper monetary system of the country." t X i 16 John C. Calhoun, also — than whom there existed, in his day, no keener intellect, or iiercer advocate of State-right8 — said, in his speech in Congn^ss, March 22d, 1888, on the Sub-Treasury bill, " I now undertake to afTirm positively, and without the least fear that I can be answered, what I have but suggested, that a paper issued by Oovernment, with the simple promise to receive it in all its dues — leaving its creditors to take it, or gold and silver, at their oi)tion —would, to the extent it would circulate, form a perfect paper circulation which could not be abused by the Govern- ment ; that would be as st(»ady and uniform in value as the metals themselves." Again, said Mr. Callioun, in his speech in Congress, Sept. 19th, 1839, "no one can doubt but that the Govern- ment credit is better than that of any Bank — more stable, more safe. Why, then, should it mix it up with the less perfect credit of those institutions ? The question is, not between credit and no credit, as some would have us be- lieve, but in what form credit can best perform the functions of a sound currency." Reposing then on the autliority of the fathers, the friends of a sound, but i-adical currency reform, need not be dis- turbed with doubts and fears, or the oft repeated cry of the newspapers, that'ring the changes on "broken promises," "theory versus bullion," &c., &c. Especially when it is rem-embered that to restore the old system would be to in- vite certain failure and disaster. Permit me now, to consider the points of difterence betv^en us, referred to by you. You say, "with regard to Mr. vv'^illiams' scheme I have but two objections : First, lie does not propose that his notes should be a legal-tender. Surely this would necessitate the holding of gold in large quantities by the Banks all over the country." •* The fact is, I first wrote legal tenders, but on reflection, altered that to coin-notes. For two reasons : (1) there is, to say the least, a strong prejudice in many minds, against our paper legal-tender. It savors of the war, is regarded as a war-measure. (2) Then, the conflicting decisions of the U. S. Supreme Court, as to the constitutional right of CongTess to create such legal-tender, seemed to me another 17 objection. For these reasons, 1 thought it expedient to suggest nothing that would land to keep alive the excite- ment incident to such questions, but rather endeavor to keep them out of sight — if possible, extinguish them. T am inclined to think, there would practically arise no such difficulty as that which you apprehend. Almost any- where, such amounts of specie as might be temporarily wanted for legal-tender purposes, could be easily procured. For the simple reason, that U. S. notes payable in specie in New York City, would be generally a trifle above par in an 3^ I)art of the country. Exchange on New York is always in demand, excepting for brief periods in New Orleans, when cotton is being largely bought ; or at prominent points at the West, when heavy shipments of grain are being made. Besides, it sho^ild not be overlooked that currency is remitted to the money-centres at less cost than coin, and would conse- quently have the preference. Nevertheless, if it should appe.ir evident in the course of the practical working of any new scheme, that legal-tender notes were perferable to coin notes, then it would be advisa- ble to try them. I have no prejudices — I only seek to secure the best. Such notes might be made legal-tender every- where, except at the office of redemption in New York City — at which place only (for obvious reasons), they should be payable in coin. The case you cite, of the notes of the Bank of England being a legal-tender all over England and Wales, except at the Bank in London, would, by analogy, seem to commend most favorably a similar course here. In the next place you say, " Mr. Williams proposes an issue of 800 millions, keeping a reserve of 150 millions in gold and 650 millions in securities. It would be much safer, in my opinion, to adopt the English system and issue say, 400 millions on securities, and any further amount on gold. •* * * * I think 800 millions an exaggerated estimate for a convertible currency." In reply, I would say, one or two essential facts should not be lost sight of. First, no more gold should be kept on hand than is found necessary to meet the requirements of a sound I '*.' ¥ n currency— all beyond that is waste, idle capital, as utterly useless to commerce as a deposit of pavement stones. Second, it is not proposed to establish a Bank, as in England, or any department of such an institution, but rather to create a Cur- rency Bureau or Commission ; not to supply discounts, or to take deposits, but to furnish circulating notes for the whole United States, redeemable in coin. Tliis one, simple tiling we covet, neither more nor less. No Bank would have an exceptional right to lean u])on the Bureau for relief in a panic, but with U. S. Bonds in hand, it could always exchange them for circulating notes. Especially ought Savings Banks to have thf right to present any of their U. S. Bonds to the Currency Bureau and obtain for them currency, with whi(!h to pay their dep(^sits. The importance of this provision can hardly be over-e&timated. W/th suck a right, no properly conducted Savings Bank could ever fail ; without it, alri%ost any one might fail, in a panic among that class of deposi- tors ! The deposits of the 158 Savings Banks in the State of New York, now exceed three hundred million dollars ! The unparalleled increase >f $204, 109,794 within the last ten years, is an infallible index of general prosptn'ity. For here are laid up, iV)r future use, actual profits, the savings of labor and careful economy. Trust Companies, too, under certain circumstances, may find it very desirable to avail themselves of the privilege of converting their United States Bonds into currency. Still, Banks then, as now, from injudicious cn»dits, or ex- panded discounts, might fail. But the U. S. Currency must remain solid, safe, intact, exchangeable always into bonds, or convertible into specie, but good for a hundred cents on the dollar under any conceivable circumstances. These are some of the advantages we claim for our new currency over any hank circulation. And, while no individual Bank could legally claim the right to borrow circulating notes whenever it chose to apply for them, yet the Currency Bureau should possess the power to extend relief in a commercial crisis, on satis- factory security in a way not unlike that now practised by the Issue Department of the Bank of England. That being the only known, efficient method of nipping a panic in the 19 bud. But strange to say, with this knowledge, President Grant and Secretary Ricliardson, refused, in the panic of 1873, to deposit temporarily 15 or 20 millions currency with the New York City Banks— although virtually the same in- stitutions, in 1861, to prosecute the war, lent the U. S. Gov- ernment, (without authority of law,) more than twice that amount of spe(;ie on U. S. paper promises. As to the amount of circulation required to transact the business of our widcdy exU^ided country, we are not altogether in the dark. In my letter to Senacor Sherman (under head 5), I dis- cussed this point at some length. A close examination of the panic of the fall of 1873, sheds additional light, however, on the question. Then, the aggregate quantity of circulation was set down at 800 millions — about equally divided between legal-tender and National Bank notes. It is now quite evi- dent, from the record of the operations of September and October, 1878, that 800 millions were not only not too much, but certainly too little for the emergency. As proof of this, early in September gold was at a premium of 1 6 per cent. ; be- tween that time and the llth October it fell to 8^ per cent, about half! While currency — the well-abused, scandalous currency — during that six weeks, rose in the market, and sold at from 103| to 104 — four per cent, above nominal par ! If, this does not show that more paper, rather than more gold was , wanted to relieve the extraordinary pressure, then figures go I for nothing I Mills stopped, for want of currency, in cases where owners were worth millions; railroads, coal mines, and all sorts of manufactories found it difficult to get currency to pay their hands. Later, it is true, the scarcity alarmed persons who had notes to pay, and they locked up in their safes currency to meet their indebtedness. But the over- whelming demand was from the West. Sight drafts on this City against grain shipped, amounted, at one time, to a million of dollars a day. The crop was large, foreign der.iand good, farmers anxious to realize, Europe ready to buy, at full prices, and hence the heavy shipments with un- precedented drafts. At the rate of a million a day, a single month would take out of the city twenty-five millions. &• 20 True, the cheap money of the preceding hu miner, to this amount, or more, had been hhined to HroktTsand otlierHon call, but when the call camr, tiie curren<\y had been sent away, the (U'btors could not pay -the bank vaults were emptied of the (uirrency they relied uj)on. No such y>rovision had been made as the new plan contemplates, by taking up currency in summer to su})ply the autumn demand. Th<> panic of 1873 occurred under 'somewhat remarkable circumstances. Our foreign trade was tho ight to l)e in our favor. We were importing specie at that very time, but that afforded no relief; in fact, was regarded by even BuU- ionists with disfavor. What the public hunge^red and thirsted for was greenbacks, or even bank bills, but no more of these could be had, they had emigrated— gone West. I have alluded to one consideration in calculating how much currency we need, which 1 take the liberty, d(»ar sir, of referring to again, and that is this : In the (estimate of how much paper-currency can be maintained at par with gold, under ^he new plan, bear in mind, that there would be no deposits liable to be withdrawn — no more than there are in the Issue Department of the Bank of England — indeed, the exposure of the Bureau to unlooked for vaWs would be less than in the case of the Bank, because of its absolute divorce from all Banks of discount and de})osit, which the Issue De~)artment of the Bank is not, as it is a branch of the same institution. That element of deposits has always been, and ever must be, the bane of specie payments by Banks, which embrace in specie obligations, both deposits and circulation. Under the new scheme, only notes in commercial or personal use by individuals or corporations, could be presented for redemption ; and such notes would always be of precisely the same intrinsic value as gold, because redeemable in specie. • . ■. In my lettei- to Senator Sherman, I suggested not only the withdrawal of all National Bank notes, but the substi- tution therefor of an equal amount of U. S. coin notes, redeemable in specie at the option of the holder. I likewise provided for the purchase of some 400 million U. S. bonds (now lodged in W^ashington to secure the Bank notes,) at the market price of such bonds. I also recom- I 91 mended an oxfhange of Uio t)re9ent legal-tenders for the new II. S. coin nott'rt - (tli<' legal-tendern and bank notes— about 400 millions each) — in all, 800 millions. 1 tlius stattnl, the profits to the people— deducting loO millions of specie to be kept on hand — would leave a net balance of (550 millions ; the interest on which at pvv c(mt. would yield annually HO millions -and lessen the taxes that amount. I now propose, in addition to the 150 million specie, to k(^ep on hand, the 400 millions of bonds, purchased of the National Banks, to be held as a special reserve, or collateral security, for the circulating notes. This sum, of 550 millions, would secure the 800 millions beyond a j)erad venture. For, if the specie balance, by reason of panic, or from other cause, should fall below what might be regarded as the minimum point of safety, these bonds could ha us<.^d to restore it to the required amount, without interference either with the Mnancial resources of Government or the discounts of Banks. This is very important. For, besides the direct obligation of the U. S., the note holders will have this special collateral security. Moreover, the ol).jection s'^me- times urged against trusting Congress with so much power, has no force wliatever, for Congress possesses and exerci^e8 plenary power already over the whole subject, by virtue of the fundamental law of the land. The Constitution of the United States, Section 8, provides that Congress "shall have power to coin money, regulate the value thereof, and of foreign coin, and hx the standard of weights and. measures ;" while Section 10, reads as follows : " No State shall enter into any treaty of alliance or confederation ; grant letters of marque and reprisals ; coin money ; emit bills of credit; make anything but gold and silver coin a tender in payment of debts." It does not, however, say that Congress may not do all the things thus inhibited to States, but, inferentially, that it may, that it must, perform every right that is an essential function of Government or it would not be performed at :iU. If then no state is allowed to declare .vhat shall con- stitute money, it is because the framers of the Constitution intended to reserve that power to Congress — to the repre- sentative authority of all the States. Does it not follow then, that Congress only can aay what shall be a tenier in payment of debts? A few words as to the disposition of the income from the purchased bonds. Snj)po8e the interest to be at the rate of 6 percent., payable semi annually, on the 400 millions, this would yield 20 millions yearly. Assuming the National debt to be $2,()()(),(K)(),()()(), the conversion of this interest into a sir\king fund, would pay the entire debt, a(!Cording to Professor Bartlett's iigures, in 28iVo\ years, or about 28^ years. Or, better still, dongnvss might pref(;r to make the interest cumulative ; thus adding every year, or half year, to this 400 million reserve, and so increasing thf security. In that manner the collateral fund would be enlargt^d, to meet the necessary increase in the volume of notes that must in- evitably be required by the growing wants of a constantly increasing business and a larger and larger population. I owe you many apologies, dear sir, for this long, long letter. I feel so desirous that our (rovernment should take wise action in regard to this vital subject, that I fear I may have exi)osed my own want of wisdom in so taxing your time, and, most likely, exhausting your patience. I am, Most resp«ictfully, And truly yours, J. E. WILLIAMS. -'•fkm^mtntm t^'ftMfc»i»ar.4itt'»gj>Mf,»,'fttT^iuM'- 'i ''»«'*, ' (