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CURRENCY OR MONEY; 
 
 ITS 
 
 NATURE AND USES, 
 
 AND THE EFFECTS OF THE 
 
 CIRCULATION OF BANK-NOTES FOR CURRENCY. 
 
 BY 
 
 A MERCHANT OF BOSTON. 
 
 BOSTON: 
 
 LITTLE, BROWN AND COMPANY. 
 
 1855. 
 
Entered according to Act of Congress in the year 1855, by 
 
 LITTLE, BROWN AND COMPANY, 
 
 In Ihe Clerk's Office of the District Court of the District of Massachusetts. 
 
 CAMBRIDGE: 
 ALLEli AND VAnMIIAH, PRINTERS. 
 
PREFACE 
 
 A CLEAR and complete comprehension of the nature 
 and uses of currency or money is of the greatest impor- 
 tance to persons in every class of life ; yet there are few 
 subjects with regard to which the general knowledge is so 
 inaccurate and confused. Many of those who are engaged 
 in trading and money transactions as their regular business, 
 consider it in vain for them to attempt to understand it. 
 But the difficulties, that give it this appearance of being 
 abstruse and complicated, arise from the false and unsound 
 opinions and practices prevailing with regard to it, many 
 of which are encouraged by those whose interests are 
 promoted by them. 
 
 The subject of the currency has also been unfortunately 
 connected with party politics, and this circumstance has 
 been fatal to a calm and intelligent examination of it. 
 But changes in the condition of the country have rendered 
 unnecessary what has been by some deemed, in former 
 years, to be essential or expedient in financial legislation; 
 and the great political parties, considering it now to be 
 only a business question, the subject can be examined and 
 
discussed without fear of awakening the slumbering preju- 
 dices of politicians, though there may still be considerable 
 differences of opinion with regard to it. 
 
 When the resources of the country were exhausted by 
 the protracted and expensive war of the Revolution, it was 
 impossible to possess a currency of real money; and great 
 credit is due to the genius that established, at such a time, 
 the system of paper currency that obtained universal credit. 
 Nor should those services and exertions be undervalued, 
 which restored and preserved at par, as compared with 
 specie, the paper currency that had depreciated in most 
 parts of the country during the war of 1812. But the 
 condition of the country has greatly changed since those 
 periods. The United States, without any national debt of 
 importance, and with its immense exports, is now better able 
 to possess a sound currency of real money than any other 
 nation. The precious metals exist within the country in 
 abundance for that purpose. All that is necessary to 
 retain them for use as money is to prohibit the circula- 
 tion of the notes issued by the banks. The coin of the 
 country would then circulate, as currency, to benefit the 
 industry and property of the community, instead of being 
 forced abroad, as it is now, to the great injury of the labor 
 and wealth of the whole country. 
 
 As a merchant seeking to promote his own interest, or, 
 as a director of a bank seeking to promote the interest of 
 the stockholders, one would naturally consider banks mostly 
 with reference to those objects, without looking beyond the 
 laws which authorize the establishment of them, and the 
 character of their business. But as a member of the legis- 
 lature considering the interests of the public, I have beeni 
 
impressed with the evil effects and the injury to the com- 
 munity arising from the excessive use of bank-notes for 
 currency. Believing that, so far as the public was con- 
 cerned, no benefits are derived from their use, I have advo- 
 cated the principle of restricting the power of the banks to 
 issue notes for circulation. They should be required to 
 deposit security for the notes they issue, — and the circula- 
 tion of all bank-notes of very small denominations should 
 be restrained. 
 
 The personal attacks heretofore made upon me in the 
 discussion of the subject have not diminished my confi- 
 dence in the correctness of my opinions. The eagerness 
 with which my views were combatted suggested to me that 
 they may be even more important than I had supposed, 
 and thus I have been induced to examine the subject with 
 more care. The results of that investigation will be found 
 in the following pages. It has been my aim to apply, 
 in the' plainest manner, the history of the past and the 
 experience of the present to the subject. 
 
 I desire to disclaim the production of any new or 
 original doctrines. Those which I advocate may be found 
 in the writings of philosophic economists and in the public 
 legislative reports and debates of distinguished statesmen 
 and practical merchants and men of business. They are 
 most especially to be found in the actual experience and con- 
 versations of those most engaged in dealings in exchanges 
 and currency and credit and coin and bank-notes, — men 
 who usually have neither time nor disposition to publish 
 their experiences, — men indeed whose profit and fortune 
 are more concerned in quiet industry and in concealing 
 their wisdom on banking and currency than in effecting 
 
6 
 
 any legislative action which might lessen speculation and 
 protect the community. 
 
 What I have written has been intended not for the 
 skilful and initiated alone, but to be easily comprehended. 
 Some doctrines and illustrations have been repeated when 
 they have seemed to bear directly upon the different kinds 
 of currency, or of the same currency under different cir- 
 cumstances. Some passages may seem too plain and ele- 
 mentary, being merely axioms of financial practice. But 
 avoiding any undue expansion of a subject, upon which 
 useful and learned volumes have been and may be written, 
 I have only sought to be readily understood, and in the 
 briefest manner, precisely and unmistakably, to develop my 
 own opinions. These opinions have not been hastily formed. 
 I believe them to be founded in truth. Whatever errors of 
 argument may be found, the conclusions are surely on the 
 safe side. They advocate the increased stability of the 
 currency. They uphold both the employment of the labor 
 and the diffusion of the wealth of the country, the two 
 conditions of our true prosperity. 
 
 S. H. 
 
 Boston, March, 1855. 
 
CURRENCY OR MONEY. 
 
 Wkd is Currency or Money. 
 
 In treating the subject of currency or money, it 
 may be well first to consider of what the present 
 currency or money of civilized countries actually 
 consists. 
 
 Gold and silver have been recognized for many ages, 
 by the general consent of mankind, as the standard 
 of value ; and it is more important now to investigate 
 their uses and effects as money, than to advocate or 
 deny their fitness for that purpose. They are the only 
 universally recognized standard, by which to measure 
 the value of all other articles; and they constitute 
 the only real money of commercial nations. 
 
 Real money measures the value of all other objects, 
 ]»ecause it is in itself comparatively of an unvarying 
 value. The gold and silver, of which it consists, are 
 obtained with much difficulty and labor, and the 
 annual supply of them, in a series of years, has 
 usually been only about sufficient to balance their 
 waste and their uses for other purposes than money. 
 The quantity of the precious metals throughout the 
 
world has not often been increased or diminiwhed to 
 any great extent, and, as the purposes for which 
 they are used do not suddenly vary, their value has 
 been more uniform and regular than the value of 
 other articles. The price of these metals is not alto- 
 gether exempted from variation ; but the changes to 
 which it is liable are geneiully slow and gradual. 
 
 Gold and silver can easily be divided and again 
 reunited without being diminished in value. Each one 
 or any number of the smallest pieces always possess 
 the same relative value, according to weight, as the 
 same quantity possesses when united in one mass. 
 Moreover, these metals have an intrinsic value, inde- 
 pendent of their use for money ; because they are 
 less subject to decay or rust than other metals, and 
 because of their utility in the arts and sciences, and 
 for purposes of luxury and ornament. These circum- 
 stances have rendered them a more suitable material 
 by which to measure the values of all objects, of 
 which the supply and demand is subject to greater 
 changes. 
 
 While money continues invariable and unchanging 
 in quantity and value, it continues to be a true 
 measure of the value of all other things ; and the 
 rise and fall in the price of other commodities is the 
 consequence of a variation in their supply, or in the 
 demand for them, and consequently in their value. 
 If an article of trade is increased in quantity, or 
 become., more plentiful, more of it is given than 
 before for the same quantity of money. On the 
 other hand, if the quantity of an article is decreased, 
 if it becomes less plentiful, less of it is given than 
 before for the same quantity of money ; because, 
 
9 
 
 while the articles of trade vary in quantity and 
 value, the money remains unchanged in these respects. 
 Ifj however, by any means, the quantity of money 
 circulating in any country be suddenly increased or 
 diminished, that of itself will cause a rise or fall in the 
 prices of other commodities. If the quantity of money 
 is increased, a rise will occur in the prices of all other 
 articles. If a decrease in the quantity of money 
 occurs, all other articles will fall In price. To the 
 public this will appear to be a general cheapness or 
 dearness of all commodities, for which they cannot 
 account. Suppose, for instance, that by the discovery 
 of very productive mines, the quantity of the pre- 
 cious metals in any country is suddenly increased. 
 As they are obtained with less labor and trouble 
 than before, and have become more plentiful, those 
 who possess them will more easily and more readily 
 p.art with them in exchange for other articles. In 
 this ^yay, a general advance in prices is commenced, 
 which will extend to all articles. It is, however, 
 only a greater cheapness of the money, and not a 
 greater dearness of the commodities. The articles meas- 
 ured by it seem to cost more. That is, one receives for 
 the same weight of gold and silver, a smaller quantity 
 of any article than before. If the quantity of money 
 should be suddenly lessened from any cause, the 
 reverse of this would occur. Money being less plen- 
 tiful, and requiring more labor and trouble to obtain 
 it, becomes of greater value. Those who possess it 
 are less ready to part wdtli it in exchange for other 
 articles, and require larger quantities of other articles 
 for a given quantity of the precious metals. This is 
 the beginning of a general decline of prices. But 
 
 2 
 
10 
 
 this decline, like the advance of prices, is only an 
 apparent change in the value of articles of sale. It 
 is, in fact, the greater scarcity and dearness of money. 
 The things that are measured by it seem to cost less; 
 that is, one receives a larger quantity of any article 
 for the same weight of gold and silver than they did 
 before. 
 
 If the rise of the price of any article, wheat for 
 example, is a consequence of its increased scarcity 
 as compared with the demand for it, the quantity 
 that can be purchased for a given sum of money is 
 diminished, whilst the quantity of other articles that 
 can be purchased for that sum of money remains the 
 same. The sum of money being the same, it is evi- 
 dent that wheat has risen in value as compared with 
 other articles. But, if a similar rise in the prices of 
 all other articles has occurred at the same time, and 
 the quantities of them that can be purchased for that 
 sum of money have diminished in the same proportion, 
 it is evident that the rise in the price of wheat is 
 not in consequence of its increased scarcity ; and that 
 there is no change in its value as compared with 
 other articles except money. The change is in the 
 price and not in the value of the wheat. It is a 
 decline in the value of money. 
 
 The average for a series of years of the price of 
 wheat has been considered by financial writers as the 
 best criterion of the value of the currency of a coun- 
 try, because the cultivation of wheat is spread over a 
 large surface, and the quantity of it produced is of such 
 magnitude, and the use of it so general, that its value 
 cannot be materially affected, except by the seasons. 
 For no combination can affect the value of all com- 
 
11 
 
 modities at the same time ; nor can the value of so 
 abundant an article as wheat be controlled for a long 
 series of years. Its value may fluctuate from season 
 to season, depending on the condition and extent of 
 the crops ; but taking the average of a series of 
 years, the quantity and value, as compared with the 
 demand for it, must be about the same, unless there 
 has been some great improvement in the mode of 
 production ; which certainly has not yet been the case 
 with regard to wheat and most other articles of food. 
 These are and have been, for the most part, the result 
 of simple manual labor. Therefore, any long con- 
 tinued change in the price of wheat for which the 
 seasons would not account, has always been ascribed 
 to an alteration in the value of money. 
 
 Great and sudden fluctuations in the quantity of 
 the precious metals in the world have seldom occurred. 
 Whenever changes have taken place, they have been 
 gradual, extending over a period of many years. And 
 it has been difficult, at the time, to see or to believe 
 that it was a change in the value of money, the 
 standard of value, and not a change in the value 
 of the commodities, which it buys. Changes in the 
 value of articles of sale and commerce, arising from 
 variations of supply and demand, are constantly occur- 
 ring, and every one becomes familiar with them. But 
 an alteration in the standard of value, that is to say, 
 in the supply of the precious metals and the value 
 of real money, is an unusual occurrence, and the 
 consequences of such a change have been unexpected 
 and not understood at the time. The effect of a 
 great and sudden alteration in the quantity and value 
 of money, may be seen by comparing the prices of 
 
12 
 
 some commodities before the discovery of the rich 
 mines in America with the prices which those com- 
 modities bore subsequently ; and it will afford full 
 and complete evidence of the truth of the foregoing 
 statements; because, although there are constant fluc- 
 tuations in the prices of particular articles from time 
 to time without any change in the standard of value, 
 — money, — yet there cannot be a great and per- 
 manent change in the prices of all articles in general 
 use without an alteration in the value of the standard 
 ^y which the price is measured. 
 
 After the conquests of Mexico and Peru, the large 
 quantities of gold and silver poured into Europe 
 caused a continually increasing circulation of money. 
 This produced a great rise in the prices of all com- 
 modities. In England, these enhanced prices were 
 believed by many to have proceeded from monopo- 
 lies granted by the government, and from forestalling. 
 Admitting to the fullest extent, the evils and injuries 
 of the system of court favoritism then prevailing, still 
 it is now well understood that the true and efficient 
 cause of the high prices was Ihe lessening of the value 
 of gold and silver, in consequence of the quantities 
 produced from the rich mines of Mexico and South 
 America. The other causes which at the time justly 
 excited so much popular clamor were, in comparison, 
 but trifling in their effects. 
 
 Freedom of commerce soon equalizes the value of 
 the precious metals in all countries that trade with 
 each other. If gold and silver are brought in imusual 
 quantities into one country, they quickly spread them- 
 selves through the others. The process by which this 
 is effected h very plain. The merchant is always 
 
13 
 
 seeking to send his merchandise to that country 
 where he can obtain for it the most money ; in 
 other words, the largest quantity of the precious 
 metals. The precious metals he sends to those coun- 
 tries where the largesc quantities of such merchan- 
 dise as he wants can be obtained for the smallest 
 quantity of the precious metals. Spain, for example, 
 was the nation to which came the first great influx of 
 gold and silver from America. That influx, by greatly 
 adding to the amount of the money in circulation in 
 Spain, raised at once the price of all commodities in 
 that country above the level of the prices in other parts 
 of Europe. These high prices encouraged the mer- 
 chants of foreign countries to send goods into Spain 
 for sale, and to take away the gold and silver which 
 was received for them; and the merchants of Spain 
 found ?j,n immediate profit in sending gold and silver 
 abroad, where larger quantities of commodities could 
 be obtained for them than in Spain. Thus the treas- 
 ure which had been poured into Spain from America 
 quickly spread to other parts of Europe; and thus, 
 whenever the amount of money in circulation in any 
 country is greatly increased, the enhancement of 
 prices produced by it is certain to cause an increase 
 of the import of goods from abroad, which will con- 
 tinue until the circulation of that country and of the 
 prices of merchandise are equalized and at par with 
 the prices in surrounding nations. 
 
 When, in the commerce between covmtries, each 
 takes from the other about the same amount in com- 
 modities, those persons who wish to pay money abroad 
 buy the bills of those who have to receive money 
 abroad, and, by this exchange, the payments in each 
 
14 
 
 country are met and settled without the necessity of 
 exporting the precious metals from either side. The 
 "course of exchange" is said to be against the coun- 
 try which has imported more than it has exported, 
 because from that country there is a balance due to 
 the other, for the payment of which no bills can be 
 had, and which must, therefore, be liquidated by the 
 transmission of coin or bullion. This must have been 
 the case with Spain during the period referred to. 
 The " course of exchange " with other countries must 
 have been against Spain, in consequence of the large 
 importations of foreign products, until the value and 
 amount of the money in circulation in Spain, and 
 the prices of commodities approached nearly to, or 
 were at par with, the money and the prices of the 
 surrounding countries. While there was an excess 
 of the precious metals in Spain, it may have been no 
 disadvantage to have had the "course of exchange" 
 against her. It may generally be admitted, that any 
 countries producing gold and silver can, to a certain 
 extent, afford to ha\e the course of exchange against 
 them, and may export the excess of bullion beyond 
 what may be required for use at home. 
 
 The effect of the vast and rapid addition to the 
 currency or money in Europe in the sixteenth cen- 
 tury is shown by comparing the prices of many 
 articles of trade, at times preceding that event, with 
 the prices at a subsequent period. Carefully prepared 
 tables of the prices of wheat for successive periods, 
 between the years 1423 and 1700, show an increase 
 of price of fivefold, which has continued, with only 
 occasional variations, to the present time ; and for 
 which no other cause has ever been assigned than 
 
15 
 
 the increased quantity and cheapness of the precious 
 metals. It appears by those tables, that tlie average 
 price of wheat from 1423 to 1560 was about ten 
 shillings sterling per quarter of eight bushels, and 
 from 1561 to 1700 it was nearly fifty shillings. 
 
 The value of wheat from 1561 to 1700, while the 
 average price was nearly- fifty shillings, was not greater 
 than its value in the previous years, between 1423 
 and 1560, when the average price was about ten 
 shillings, if there was the same degree of change in 
 the prices of other articles. If the farmer could 
 get no more of the articles which he needed, and 
 which he obtained in exchange for the wheat that 
 he sold, the price in money, which is only the meas- 
 ure of values, had alone changed. If fifty shillings, 
 between the years 1561 and 1700, would buy no 
 more of the articles which the farmer had to pur- 
 chase than ten shillings would buy previously, the 
 money must have fallen or depreciated in value to 
 that extent. One dollar a day would therefore have 
 been no better wages to a laboring man in the year 
 1700, than twenty cents a day had been a hundred 
 and forty years before, because it would not purchase 
 for him any more of the necessary supplies which 
 he required for the maintenance of his family. 
 
 The following curious document in Doubleday's 
 Financial History of England, extracted from "Drake's 
 Eboracum," is a table of prices at York in the years 
 1393 and 1733. It shows that the same effects had 
 been produced on the prices of other commodities as 
 on wheat. This must have been occasioned chiefly 
 by the same cause, although it is possible, as that 
 author remarks, that difterent rates of duties may 
 
16 
 
 "■<■! 
 
 ill 
 
 have affected the prices of some of the articles of 
 import in the table. But there can be no doubt 
 that these lists of prices present substantially a cor- 
 rect comparison of the prices of articles in general 
 use at these two periods. The prices of 1393 were 
 assessed by the judges of the assize, aided by the 
 bench, "to prevent combinations to enhance prices" 
 ■when Richard II. and his court were at York. 
 
 Prices 2>roclamed at York in 1393. 
 
 £ s. d. 
 
 Strong beer per gallon li 
 
 A milder sort " 1 
 
 Finest claret wino " 8 
 
 All common white wines " 6 
 
 Carcass of finest beef ... 1 8 
 
 Next best 14 
 
 Scotch Kyloe ox carcass . . 12 
 
 " '" cow " . . 10 
 
 Carcass of mutton, best ... 1 8 
 
 " " worse fed . U 1 6 
 
 Carcass of fine veal .... 2 6 
 
 Another sort of " .... 1 6 
 
 A lamb 008 
 
 Afat pork hog 3 4 
 
 A smaller pig 3 
 
 A capon 4 
 
 A hen li 
 
 A fat goose 4 
 
 One dozen pigeons .... 3 
 Woodcock and teal, each ..001^ 
 
 Prices at York, 1733. 
 
 £, 8. d. 
 
 Strong beer per gallon .... 2 
 Mild ale " ....010 
 
 Best claret " .... 17 
 
 White port " .... 8 
 
 Choice carcass of beef ... 9 10 
 
 Next best " ... 8 
 
 Scotch Kyloe 4 4 
 
 Cow " 3 
 
 Carcass of mutton, best ... 1 10 
 
 " " worse fed . 1 
 
 Carcass of fine veal .... 1 6 
 
 Another sort " .... 15 
 
 A lamb 12 
 
 A fat pork hog 2 10 
 
 A smaller pig 2 
 
 A capon 19 
 
 A hen 009 
 
 A fat goose 2 
 
 One dozen pigeons 13 
 
 Woodcock and teal, each ... 9 
 
 At Chester, in England, the records of the market 
 prices are extant so far back as to the year 1378. 
 It appears from them, that in the year 1379, the 
 price of a bushel of wheat was M. ; a gallon of white 
 wine, Aid. ; a fat goose, 2d. "In 1437, "wheat sold 
 for seven pence a bushel, being a very dear rate 
 according to that time; so that the poore in Chester 
 and elsewhere made their bread of peasen, vetches, 
 and fearn roots." 
 
17 
 
 Since the year 1700, and nntil the recent discov- 
 eries of gold in California and Australia, the quantity 
 of the precious metals in the world had noi; very 
 materially varied, though there was some fluctua- 
 tion in the relative value of gold and silver. The 
 average price of wheat, taking long periods of time, 
 has continued about the same. From year to year, 
 it has varied with the character of the seasons, and 
 in some countries, with the condition of the currency. 
 It is well known that the effects in California and 
 Australia have been similar to those produced in 
 Spain after the conquests of Mexico and Peru; that 
 is to say, to raise the price of commodities of all 
 kinds above the level of the prices of other coun- 
 tries. Merchants have found an immediate profit in 
 sending merchandise to California and Australia, to 
 exchange for gold. Their prospects of profit may 
 not always have been realized, in consequence of the 
 effect of the abundance of gold on prices having 
 been often counteracted by the very excessive sup- 
 plies of many commodities. The activity of modern 
 commerce diffuses rapidly the newly discovered gold, 
 and spreads it over the w^hole of the civilized world ; 
 but sufficient time has not yet elapsed for results 
 from it of a character so marked as to be at once 
 recognized and appreciated. 
 
 Effects of Paper Money. 
 
 Thus far we have given our attention to the sub- 
 ject of currency in the fonn of metallic money. Let 
 us now consider the new element of paper money 
 
 3 
 
WW 
 
 18 
 
 -:l 
 
 , i 
 
 ; I 
 
 which has been introduced into the currencies of some 
 countries, though all its effects are not yet so clearly 
 and pi;ecisely understood as to cause but one opinion 
 with regard to them. This new element renders the 
 operations of money more uncertain and more com- 
 plicated. It increases the difficulty of obtaining exact 
 data upon which to base opinions that can be posi- 
 tively verified within a short period of time. The 
 use of paper money for currency has been so profit- 
 able to many of those who have furnished it, that 
 they are not generally disposed to encourage any 
 discussion concerning its uses and effects j but, as it 
 exercises an important influence upon the currencies 
 of some of the most commercial countries in the 
 world, it is necessary to know something of its char- 
 acter. . , . 
 
 From perceiving certain conveniences in commerce 
 from the use of notes of hand and bills of exchange, 
 variously contrived forms of promises and orders for 
 the payment of money were probably suggested. 
 These may have gradually led to the issue of prom- 
 issory notes for small sums, payable to the bearer on 
 demand, and transferable from hand to hand, to be 
 used as a substitute for money. They are called 
 paper money. They are not money. They are, in 
 fact, only promises to pay money. It would be as 
 corroct to say that a contract to deliver flour was in 
 reality flour, as to say that such promises to pay 
 money were really money. Paper money possesses 
 no intrinsic value; it has only a derivative or sec- 
 ondary value, arising from the belief, founded upon 
 the good credit of those who issue it, that it will 
 command, at any time, the amount of the promise in 
 
19 
 
 real money, or that it will be received by others in 
 satisfaction for debts, or for the purchase of any 
 articles, as real money. •■ 
 
 When an amomit of paper money is added to the 
 circulation of a country, except so far as an amount 
 of coin is withdrawn from circulation and held in 
 reserve by the banks that issue it, it decreases the 
 value of the money in circulation, for the same rea- 
 sons and to the same extent as the addition of the 
 same amount of gold and silver would have dimin- 
 ished it. The gold, silver, and paper all depreciate 
 together. And this is shown by the rise that imme- 
 diately takes place in the prices of all articles of 
 sale and commerce. It is this effect on prices that 
 renders paper money so popular among persons 
 engaged in trading pursuits. They are satisfied with 
 this effect of it, which enables them to sell their 
 merchandise at enhanced prices, and to gain appar- 
 ently large and unexpected profits, without heeding 
 the difficulty of realizing and investing those profits 
 and rendering them secure. 
 
 Whether the paper money thus added to the cir- 
 culation be inconvertible, or whether it be redeemable 
 on demand in specie, so long as it is in circulation 
 and in actual use, its effect of diminishing the value 
 of the money in circulation would be the same. A 
 rise in the prices of all articles would take place, 
 and this general advance of prices would cause 
 increased importations of foreign merchandise, and 
 a demand for gold and silver to export in payment 
 for them. As more paper money would be issued to 
 supply the place in the circulation of the amount of 
 gold and silver thus withdrawn from it to export, 
 
20 
 
 the volume of the currency would not be lessened. 
 The export would continue without aflfecting the 
 amount of currency in circulation, until the con- 
 tinued advance of prices and consequent increase of 
 importations had rendered the demand for specie so 
 intense that there would be the greatest difficulty 
 in meeting it. 
 
 If the paper money were not redeemable in specie, 
 the demand for gold and silver to export would 
 increase their value as compared with the paper 
 money, and they would be sold at some premium. 
 In other words, the paper money would be depre- 
 ciated as compared with specie. But, if the paper 
 were redeemable on demand in specie, the gold and 
 silver could be obtained for it witliout the pay- 
 ment of any premium ; as any one possessing the 
 paper money could exchange it for specie by demand- 
 ing it. It is often said, that a currency consisting 
 of paper money redeemable in specie on demand 
 cannot be depreciated, because of the demand for 
 specie it would at once produce.^ As it is the 
 
 ^ The following account of a recent affair shows liow far, in some parts 
 of the United States, public opinion allows convertible paper money to be 
 converted : — 
 
 A Banker Hung ix Eifigy — Excitemkxt at Ykusailles. — 
 Tlie branch of the Commercial Bank of Kentucky, located at Versailles, 
 Woodford county, has been, for several months past, greatly embarrassed 
 by the constant and heavy drafts made by Mr. Barclay, a Lexington 
 banker, upon its vaults. It was a custom with that gentleman to collect 
 all th« notes payable at the Versailles branch, and present them at the 
 counter for redemption. The drain upon the bullion of the bank required 
 very skilful financiering, on the part of its officers, to prevent a collapse, 
 and, as a consequencie, it was impossible for the institution to afford jner- 
 chants, farmers, and tradesmen the desired discounts and other monetary 
 facilities. Thinking that this draw f/aine had been played sufficiently. 
 
21 
 
 depreciation wliicli cmtses the demand for the specie 
 that is to be the remedy, some degree of depre- 
 ciation must first occur. But the remedy of a 
 demand for specie will not operate, to any great 
 extent, until the depreciation has continued long 
 enough to produce an advance of prices and increased 
 importations. It will not create the demand for spe- 
 cie to any great extent, until it has affected the 
 importations. And, in fact, it is usujUly by the 
 increase of imports and the rise of exchange, and 
 the demand for specie to export, that a depreciation 
 of the currency renders itself perceptible. If the 
 paper were not convertible into specie on demand, 
 the extent of the depreciation would be indicated in 
 some degree by the premium on the specie. But it 
 is not always a certain index of the extent of it. 
 The amount of coin Avithdrawn from circulation to 
 export is at first supplied by an addition of paper 
 money. The depreciation of the currency may there- 
 fore continue for a long time before it is affected by 
 the demand for the precious metals to export. 
 
 The depreciation of paper money, as compared with 
 specie, is one of the consequences of inconvertible 
 paper money. This depreciation is often confounded 
 with the depreciation of the local currency as com- 
 pared with the currencies of other countries. The 
 misfortune is, that these two evils of depreciation, 
 both of local currency and of foreign exchange, may, 
 
 the citizens of Versailles met together on Saturday, pas^sed resolutions 
 denouncing the conduct of IJarclay, and then proieeded to hang him in 
 effigy. The indignant people also promised to make sunmiary work with 
 Barclay, or his clerk, if either ever again molested the vault of their 
 bank. — Louisville Courier^ of Tuesday^ January 30, 1855. • • 
 
22 
 
 and frequently do, occur at the Hame time. In the 
 Hixteenth century, the currencies of Spain and of the 
 other parts of Europe consisted wholly of specie. Yet 
 the currency of Spain became greatly depreciated 
 in comparison with that of the other countries, by 
 reason of her supplies of the precious metals from 
 America. So, at the present day, when paper money 
 is redeemable on demand in specie alike in the 
 United States, England, and France, no one can 
 doubt that the abundant paper money in the United 
 States, with its notes even so small as one dollar, 
 is more depreciated than the currencies of England 
 and France, where the amounts of bank-notes in cir- 
 culation are restricted, and where no bank-notes are 
 allowed of smaller values than twenty-five and twenty 
 dollars (£5 and 100 francs). 
 
 The greatest mischief of a depreciation of a cur- 
 rency of paper money, whether it is redeemable on 
 demand in specie or not, is, that it is constantly 
 varying in value by changes in the amount of such 
 money in circulation. This operates with great 
 injustice and great injury to the community, though 
 individuals are often made rich by it. Great injus- 
 tice occurred towards the people in Russia when 
 the paper money circulating as currency there was 
 allowed to depreciate to nearly one quarter of the 
 value at which it was first issued. It then repre- 
 sented the silver rouble, equal to nearly eighty cents 
 of our money. Not being convertible on demand in 
 specie, it gradually diminished in value, as increased 
 quantities of it were issued, until about four paper 
 roubles were required in exchange for one of silver. 
 It would have been equally unjust to have restored 
 
28 
 
 these paper roubles to their original value after the 
 public had become accustomed to their depreciation, 
 and had based all their transactions lor years upon 
 that depreciated value. Being under the control of 
 the government, after the general peace of Europe in 
 1815, any further depreciation was prudently guarded 
 against by regulating the amount in circulation, and 
 adapting it to a relative value with the silver coin, 
 which was annually declared, and which, though 
 varying slightly in difterent years, was usually about 
 three and six tenths of paper to one of silver. It 
 continued thus, for mony years, to supply the com- 
 munity with a currency of nearly uniform value. It 
 has since been entirely withdrawn from circulation, 
 and new paper, convertible into specie on demand, 
 was i&sued in the place of it, of the same value as 
 the silver coin of the country, at the rate of one for 
 three and a half of the old paper roubles. The 
 money of accounts was gradually and easily changed. 
 The people had become accustomed to the difference 
 of value between the old paper and the silver rouble. 
 They were not required to believe that there was 
 no difl'erence, as was unwisely and ineffectually at- 
 tempted in Great Britain during the suspension of 
 specie payments. There, it was made illegal to esti- 
 mate in payments any difference between the coin 
 and the paper money in circulation, although light 
 guineas, which, being below the standard weight, were 
 not a legal tender, often sold for more than thirty 
 shillings of paper money. t ,.. . , ^ ,., 
 
 The paper money of our own country during the 
 Revolution, from 1775 to 1781, known as "the con- 
 tinental money," affords an instance of a different 
 
It :; 
 
 
 24 
 
 character. The first issue of it was made by Congress 
 in August, 1775. It continued for some time without 
 depreciation, and until the amount exceeded nine 
 millions of dollars. In April, 1778, the amount in 
 circulation was thirty millions of dollars. The con- 
 dition of the war was then most discouraging, and no 
 limit could be perceived to the amount that might 
 be issued. The value became depreciated to six 
 dollars for one of silver. While the issue of nine 
 millions had beon at par, and would have remained 
 so, if no additions had been made, the thirty millions 
 in circulation came to be worth only five millions in 
 hard money. 
 
 The capture of Burgoyne's army, in October, 1777, 
 and the treaty with France, opened a more favorable 
 prospect, and in June, 1778, though the issues of the 
 continental money had been suddenly enlarged to 
 more than forty-five millions of dollars, the deprecia- 
 tion was only as four of paper to one of silver. Soon 
 after, the probabilities of peace again seemed as dis- 
 tant as ever. The value of the continental money 
 then diminished constantly and rapidly, never to rise 
 again. 
 
 % : ;! 
 
 In MaiTli, 1779, the silver dollar was worth 30 paper dollars. 
 In January, 1780, « " « 40 " " 
 
 In January, 1781, " « " 80 " " 
 
 '! -M 
 
 :l. 
 
 and in May, 1781, it ceased to circulate as money, 
 though the notes were afterwards purchased for spec- 
 ulation at rates varying from 500 to 1,000 paper 
 dollars for one of silver. 
 
 The total issues of the continental notes, three hun- 
 
25 
 
 dred and sixty millions of dollars in all, probably 
 at no time exceeded the value of fifteen millions of 
 silver money. This paper money effected a good and 
 a great work at a most critical time^ and the loss by 
 its total depreciation was not much greater, or less 
 justly distributed, than it would have been by any 
 scheme of taxation, or by any other method possible 
 in those difficult and revolutionary times. No attempt 
 to redeem this paper money has ever been made by 
 the United States. In view of the impossibility of 
 indemnifying the really meritorious creditors of the 
 country, further than was afterwards done by the pen- 
 sion laws, by the allowance of claims, grants of mili- 
 tary bounty lands, and appointments to government 
 offices; and considering, moreover, that the great rise 
 in value, by the redemption of this paper money 
 in coin, would have been as unjust to debtors as the 
 great depreciation of it had before been to creditors, 
 perhaps the opinion may be entertained that the gov- 
 ernment rightly abandoned the continental money in 
 its fallen condition. 
 
 A depreciation of currency may take place, even 
 when the precious metals are alone used, occasioned 
 by a great addition to the quantity in circulation. li 
 occurred in Spain after the conquests of Mexico and 
 Peru, to which reference has been made. Such depre- 
 ciations, however, have seldom happened, because of the 
 infrequency of great additions to the precious metals. 
 When such an increase of the quantity of gold and 
 silver has occurred, the effects have been gradual and 
 spread over a period of many years. But wherever 
 paper money is used for currency, the depreciations 
 produced by additions of it to the circulation occur 
 
 4 
 
 ■i! 
 
 ,j;M 
 
 « 1 
 
 
 -' % 
 
26 
 
 liif 
 
 
 often. They are sure to take place again and again, 
 almost as soon as they are remedied, and are rapid and 
 violent in their consequences, causing at frequent inter- 
 vals much alarm, bankruptcy, and distress. 
 
 With a mixed currency, consisting chiefly of bank 
 paper redeemable on demand in specie, whenever by 
 reason of the general advance in prices, and the con- 
 sequent increase of imports, the demand for specie has 
 become so urgent that it is difficult to meet it, the banks 
 that have issued the paper money become alarmed 
 for their safety, or for their ability to continue to pay 
 specie. Then commences the rented?/ for the deprecia- 
 tion of such a currency. The export of specie did not 
 produce the remedy so long as the volume of the cur- 
 rency was not diminished by it. But when the demand 
 for specie has become so intense, or the quantity of it 
 so much diminished, as to alarm the banks, the remedy 
 commences. It is a sure, though a sharp remedy. It is 
 brought into operation by stopping all discounts at the 
 banks, and requiring the payment of all previous loans 
 as they fall due. In England, this is usually preceded 
 or accompanied by sales of securities belonging to the 
 banks. Traders and merchants are forced at such times 
 to make great efforts to obtain money to pay back 
 their loans to the banks. To do this, they must sell 
 property at low prices, or borrow money at exorbi- 
 tant rates. A general decline of prices is thus pro- 
 duced, which soon renders the import of many articles 
 of merchandise from abroad unprofitable. Many kinds 
 of merchandise become so cheap that it is advanta- 
 geous to export them in order to bring back specie. 
 The payment into tlie banks of previous loans, while 
 the banks refrain from making any new lo.ans, — and 
 
27 
 
 the exchange of the paper money at the banks for 
 specie, — and the sums withdrawn from circulation by 
 the sales of securities belonging to the bank;?, — soon 
 reduce the amount of the paper money in circulation. 
 Thus the currency is restored to a sounder condition 
 by approaching more nearly to a specie basis. 
 
 This is the only process by which to remedy the de- 
 preciation of a mixed currency consisting partly of 
 paper money redeemable on demand in specie. It is a 
 process which invigorates the currency at the expense 
 of the industry and the enterprise of the country. 
 
 " But these alternations of bank expansions and nominal prosperity, 
 followed by bank contractions, disappointments, and, perhaps, failures, 
 are very much to be deprecated. The banks, to be sure, have no dif- 
 ficulty in these cases ; if well managed, the whole pressure is thrown 
 on the mercantile community." — Hon. Nathan Appleton. 
 
 There is always money enough during these contrac- 
 tions of the currency to enable all those to pay their 
 debts who have sufficient property. But the value of 
 their property must be estimated at a new and reduced 
 scale of prices. Money can be obtained either by the 
 sale of property, or by borrowing at a high rate of 
 interest. Money may cost one per cent, a month, or it 
 mav be worth double that rate. Not that there is more 
 money at these high rates than at the lawful rate of 
 interest. The only difference is, that at the high rates, 
 it can be borrowed, while at lower rates, the posses- 
 sor may prefer to make some other use of it. The 
 question to be considered by the merchant Or trader 
 who has money to pay at such a time, is, whether to 
 sell his merchandise at the reduced prices, or to borrow 
 money at the high rates, and continue to hold his 
 

 28 
 
 i^ I 
 
 merchandise, with the hope of selling it afterwards at 
 prices so much higher than the present reduced price 
 that the difference will more than pay the high rates for 
 the borrowed money. The prices of merchandise and 
 of property of all kinds must be accommodated to the 
 new condition of the currency, which may be sufficient 
 to conduct the business of the community at the 
 reduced scale of prices, when it would not be sufficient 
 if prices were maintained at former rates. These dif- 
 ferences in prices, produced by contractions of the 
 currency, often render bankrupt many of those who 
 are so unfortunate as to owe at such times large 
 amounts of money. 
 
 The wealth or capital of a country is made up of all 
 the various kinds of property that exist in a country, 
 including all those commodities which are consumed by 
 use and annually reproduced, such as the articles of 
 food and clothing, as well as the objects of a more 
 permanent character, such as the cultivated lands, dwell- 
 ing-houses, warehouses, and barns, the buildings and 
 machinery of manufactories, tools for agricultural and 
 mechanical purposes. All of these are not immediately 
 consumed by use, but continue to perform the service 
 which they render to the community over and over 
 again, year after year. The money or currency of a 
 country, wdien it consists of the precious metals, is 
 another of the items of the wealth or capital of a coun- 
 try belonging to the class of permanent property, 
 which is not consumed by use ; but, being once in the 
 possession of a country, it remains, always ready for 
 use over and over again. As the warehouses and barns 
 remain, and year after year perform the important 
 service of protection and storage for many of the 
 
29 
 
 articles of property, so the coined money of the country 
 continues, year after year, to perform the important 
 service of measuring the values of all other articles in 
 the daily transactions of trade and commerce. 
 
 It has been stated by some writers on finance and 
 currency, that the aggregate amount of capital invested 
 in the warehouses and barns of a civilized community 
 is equal to the whole amount of the money required to 
 carry on the commerce and trade of that country ; and 
 that the warehouses and barns could as well be dis- 
 pensed with, and the articles which are usually stored 
 in them, kept in open fields and protected from the 
 weather by temporary and cheap coverings, as the 
 coined money could be dispensed with, and paper 
 money used as a substitute for it. The inconvenience 
 and loss and injury to the commodities, which require 
 to be stored, would often, in a single year of rinfavor- 
 able weather, be equal to the whole cost of rabstantial 
 warehouses and barns. And so with the money of the 
 country ; the inconvenience and injury and losses occa- 
 sioned by the use of paper money, may not always 
 be so apparent, but, often in a single year, they exceed 
 the whole amount of coined money that would supply 
 a substantial and permanent currency for the country. 
 
 The amount of property returned for taxation in the 
 State of Massachusetts is about six hundred dollars a 
 head for the population of the Commonwealth. The 
 amount of coined money required to perform the busi- 
 ness of an active commercial community, has been 
 estimated on the average at about ten dollars a head for 
 the population. If this is correct, less than two per 
 cent, of the amount of the taxable property of this 
 State is required in coined money for currency to per- 
 
 
 4;; 
 
30 
 
 form all the business of the community. No one can 
 doubt that the depreciation of the value of property 
 and the losses produced b}*- a single instance of the vio- 
 lent fluctuations of the currency, which so often occur 
 in a country where paper money is used, is far more 
 than two per cent, of the taxable property of that 
 community. 
 
 ii'^ 
 
 I 
 
 Sketch of the History of the Modern Currency of Great 
 
 Britain. 
 
 An examination of some portions of the financial his- 
 tory of Great Britain, and of the history of paper 
 money there, may assist us in forming a correct estimate 
 of the utility, as well as of the value and of the effects, 
 of paper money. In that country, they have already 
 gone through with the experience of paper money on 
 the large scale. The results of it have been well 
 known and recorded. Their bank statistics and tables 
 of prices have been, from time to time, collected and 
 published, both by public commissions and by private 
 individuals. And the great concentration of their 
 moneyed affairs in the Bank of England, presents a 
 more marked and intelligible account of their progress 
 than is to be found in the financial history of any 
 other nation. i 
 
 The first charter of the Bank of England was granted 
 on the 27th July, 1694, in fulfilment of a promise of 
 the government to secure " certain recompenses and 
 advantages to such persons as shall voluntarily raise 
 £1,500,000 towards carrying on the war with France." 
 The whole of the capital of the bank, amounting to 
 
31 
 
 ^1,200,000, was loaned to the government at 8 per 
 cent per annum, and £4,000 in addition was to be 
 paid to the bank annually, for its agency in the man- 
 agement of the loan. For the remaining £300,000, 
 which had been subscribed to make up the required 
 amount, the government issued obligations to pay 
 annuities directly to the individual subscribers. This 
 wfis the first permanent debt created by the govern- 
 ment of Great Britain, for which it was only neces- 
 sary to provide the annual interest, and it may be 
 considered as the commencement of the national debt, 
 which has ever since continued to augment. The notes 
 issued by the bank commenced the system of paper 
 money there, being the first paper security that was 
 used to pass from hand to hand as money, except 
 the receipts for more considerable amounts of coin 
 deposited with goldsmiths in their capacity as bankers, 
 which had for convenience been sometimes used in that 
 way among merchants. 
 
 At first, the lowest sum for which the bank issued 
 any of its notes was twenty pounds, equal to nearly one 
 hundred dollars in the money of the United States ; and 
 this continued sixty-five years, until 1759, when bills 
 were issued for ten pounds, that the bank might more 
 conveniently loan to government the necessary sup- 
 plies of money to carry on the French war of that 
 period. It was not until 1777, during the war of the 
 American revolution, that the bank was allowed to 
 issue notes of so small a denomination as five pounds, 
 equal to nearly twenty-five dollars of the money of the 
 United States. The object in reducing the denomina- 
 tion of notes, in each instance, was to aid the govern- 
 ment in obtaining money to carry on expensive wars. 
 
82 
 
 'ii 
 
 k > 
 
 Five pounds continued to be the minimum sum for 
 which a note could be issued by the Bank of England 
 until 1797, during the war against the French republic, 
 wlien the bank suspended specie payments. Then, in 
 consequence of the depreciation of its notes as com- 
 pared with specie, it became necessary, for the con- 
 venience of trade, to issue one and two pound notes, 
 equal to only five and ten dollars of the money of the 
 United States. These small notes were considered a 
 temporary expedient only, to meet one of the exigen- 
 cies of the suspension of specie payments. And, by 
 the act passed in 1819 for the resumption of specie 
 payments, the lowest denomination of notes issued by 
 the bank was again limited at five pounds, to take 
 effect after May, 1823. / , 
 
 And here may be noted, in passing, how much the 
 history of the currency of England, during the last cen- 
 tury, has been connected with the history of America. 
 The first issue of bank-notes in England of the value 
 of ten pounds was to help the war, in which Wolfe 
 climbed the heights of Abraham, and ended his glori- 
 ous career with the capture of Quebec and Canada, — 
 the same war in which Washington received his fii^it 
 lessons in the military art. 
 
 The issue of bank-notes for five pounds was first 
 made during our revolution, in which Washington 
 acquired his immortal renown, and when the alliance 
 with France, of which the motive was mainly the loss 
 of Canada in the previous war, did so much to aid and 
 to secure our independence as a nation. , .,, 
 
 This revolution of America planted the seeds which 
 ripened in the revolution of France. Soon followed the 
 long wars ending in 1815, which caused the Bank of 
 
 M 
 
33 
 
 England to stop payment, and to issue notes of one 
 pound, the smallest paper money ever known in Eng- 
 land. 
 
 It is argued by those who advocate the use of paper 
 money, that, "during the suspension of specie pay- 
 ments by the Bank of England, though the bills of 
 the bank depreciated nearly twenty-five per cent., the 
 shares of the bank were worth nearly or quite one 
 hundred per cent, advance." This depreciation of its 
 bills made no difference to the bank. The public 
 bore that loss ; and, so long as the public was obliged 
 to receive the bills and use them as money, the bank 
 gained its interest on their circulation. It is not sur- 
 prising that the profits of the bank increased, with 
 the unrestricted power to issue any amount of notes 
 irredeemable in specie, or that the increase of prof- 
 its should have been nearly or quite sufficient to 
 double the price of the stock of the bank, while 
 there was not then even the check of convertibility 
 to control the amount of paper money that the bank 
 could issue. 
 
 Again, it is said that Avhen the government author- 
 ized the bank " to issue promises to pay money on 
 demand, to be used for currency, it did not imdertake 
 to make them a legal tender for the payment of 
 debts from one individual to another, or to compel 
 its own creditors to receive them as money. The 
 law left these bank-notes exactly what they were, 
 promises to pay money. It made it lawful for the 
 bank to issue them to such persons as should choose 
 to receive them; to be used for currency by such 
 persons, and by such persons only, as should choose 
 so to use them." Is not this statement one of those 
 
 5 
 
w 
 
 34 
 
 1= ';:!lli 
 
 n 
 
 ingenious sophistries, that are sometimes used to de- 
 ceive the public ? It is well known that individuals 
 are compelled to use for money whatever currency is 
 legalized and may be in general use. They have 
 usually no choice about it. When paper money is 
 authorized by a government, or even permitted, it 
 must become the common currency of that country. 
 The government, therefore, sanctions, and stringently, 
 though indirectly, requires the public to use bank- 
 notes for money, when it authorizes and sanctions the 
 issue of them by the banks. In Great Britain, dur- 
 ing the suspension of specie payments, laws were 
 enacted to protect the banks against suits to enforce 
 the promise of payment on their notes. The State 
 governments in the United States have done the 
 same thing under similar circumstances. 
 
 No one can doubt that the issue of paper money, 
 to be used for currency, is profitable to a bank. It 
 is most profitable during a suspension of specie pay- 
 ments ; because the bank can then issue and keep in 
 circulation larger amounts of it. It can also loan the 
 whole amount, as it is not then necessary to keep 
 any specie on hand for the redemption of the bills. 
 When the Bank of England suspended specie payments 
 in 1797, the amount of its bills in circulation was 
 £9,674,780, equal to about forty-five millions of dollars 
 in the money of the United States. At the close of 
 the war in 1815, it amounted to £27,274,670, or 
 about $175,000,000. It must, of course, have been 
 very profitable to the bank to keep up such an amount 
 of circulation ; and it is not surprising that the value 
 of the stock was nearly or quite doubled. But, in 
 considering the public interest, it is more important 
 
35 
 
 to know what effect so great an increase of circula- 
 tion produced upon the whole community, rather than 
 how the few prospered who were stockholders of the 
 bank. The amount of the circulation of the Bank of 
 England, during the suspension of specie payments, 
 can be ascertained from official documents ; but it 
 is not so easy to know. the extent of the circulation 
 of notes by private and local banks. 
 
 English writers upon that period of the financial 
 history of England assert, that scon after the suspen- 
 sion of specie payments, on the 27th February, 1797, 
 the continued advance of the prices of all sorts of 
 merchandise, occasioned by the rapid increase of bank- 
 notes in circulation, and the progressive depreciation 
 of the currency by the great additions to it of this 
 paper money, caused, with some few interruptions, 
 " an appearance of growing and perennial prosperity 
 amongst every class of the people, but the class of 
 those who toil. No branch of industry escaped the 
 delusive effect produced by this plethora of paper 
 money. Enormous fortunes were made by contracts 
 with the government for the supply of stores and pro- 
 visions; but more particularly by government loans, 
 in some of which, the profits were so great that the 
 gains on one might be, almost literally, said to be 
 capable of affording the means for the next one." 
 "All who dealt in money, capitalists, bankers, stock- 
 jobbers, and speculators of every kind, and all mer- 
 chants, manufacturers, and traders were put in a posi- 
 tion in which profit and wealth flowed in upon them." 
 "While every thing else advanced nominally in price, 
 in order to keep pace with the falling value of the in- 
 convertible paper money, which was now being poured 
 
86 
 
 'jl!l!: 
 '-!!!;, 
 
 forth all over the kingdom, the wages of labor lagged 
 behind, and the temptation to rob the poor was increas- 
 ing." '■' For as the paper money 8welled in amount, 
 the prices and rates of every thing grew and rose 
 apace ; while the receivers of wages, the laborers, 
 both agricultural and commercial, were gradually 
 depressed, the ratc;s of wages generally, not keeping 
 pace with the advance in prices." " Money was drawn 
 up into great masses in the possession of saving per- 
 sons, while the laborers were turned over to the pro- 
 tection of the poor-laws." " It is certain, that up to 
 the time of the accession of George III., in 1760, 
 many of the rural population owned their cottages 
 and gardens. After that time, the increasing difficulty 
 of living caused them rapidly to disappear. The cot- 
 tage of the grandfather was sometimes sold to pro- 
 vide maintenance for the pauper grandchildren. And, 
 at the end of the war in 1815, little of this property 
 of the industrious poor was left." " During the time 
 that enormous fortunes were being realized by the 
 trading classes," " those who do the labor of the coun- 
 try were gradually and silentlv being stripped of all 
 hold upon a soil, which, were it not for them, would 
 be worthless." 
 
 Such are represented to have been some of the 
 effects produced by the progressive increase of paper 
 money during the suspension of specie payments, which 
 was so profitable to the Bank of England, that the 
 stock of the bank nearly or quite doubled in value. 
 
 It is well, however, to examine it still further, and 
 to ascertain more particularly what effects were pro- 
 duced by the contraction, which must always follow, at 
 some time, one of these inflations of currency. 
 
 ■li 
 
87 
 
 The quantity of paper money in circulation had 
 been almost constantly increasing during the suspen- 
 sion of specie payments, and prices constantly ris- 
 ing in consequence of it. But, immediately alter the 
 peace in 1815, it "was well understood that this de- 
 preciation of the currency would not be much longer 
 tolerated. "With the interruption of foreign commerce, 
 occasioned by the war, some of the evils of such a 
 condition of currency could be restrained. But the 
 revival of commercial activity, as soon as peace was 
 declared, would have inundated the country with the 
 products of foreign labor, which would certainly dis- 
 courage domestic industry. Notice was given by the 
 government to the Bank of England that the suspen- 
 sion would no longer be sanctioned, and that they 
 must prepare for the resumption of specie payments. 
 It was not, however, until 1819 that the act of Par- 
 liament was passed for immediate resumption. At 
 the same time, all paper money of a smaller denomi- 
 nation than five pounds was forbidden, the prohibi- 
 tion to take effect after 1st May, 1823. 
 
 Much has been said and written respecting the ex- 
 tent of the depreciation of bank paper in Great Britain 
 during the suspension of specie payments. It is dif- 
 ficult to define it precisely, but there is no doubt 
 that, at times, it considerably exceeded twenty-five 
 per cent. The quantity of paper money in circula- 
 tion was constantly fluctuating, and at the same time 
 the prices of gold and of property of every kind. 
 Five pounds in paper, was a common price for the 
 ounce of gold; and light guineas, which could be 
 openly sold, were legally worth more than those of 
 full weight. Five pounds in paper was often paid 
 
 i'. 
 
 % 
 
 
I IP'^' 
 
 38 
 
 Id.::;; 
 
 f;!: 
 
 for three and a half light guineas, because not being of 
 the standard weight, they were not considered legal 
 coin of the realm. Laws had been passed prohibit- 
 ing, under penalties, the taking of bank-notes at less, 
 or of coin at more, than their nominal value. The 
 price of gold is not, under such circumstances, a cor- 
 rect measure of the depreciation of the paper money. 
 The average price of wheat is, perhaps, the surest 
 criterion by which to judge of the extent of the 
 depreciation of the currency. From 1783 to 1794, the 
 price of wheat in Great Britain averaged a trifle over 
 forty shillings; and from 1808 to 1815 the average 
 price was about ninety-five shillings. Since then, it 
 has been more difficult to estimate the average price, 
 for the purpose of comparison, in consequence of the 
 corn laws, which were first passed in 1815 ; but, dur- 
 ing the seasons of good crops since that year, in which 
 the corn laws would be nearly inoperative, the usual 
 price has been between forty-five and fifty shillings; 
 and since the corn laws were repealed, in January, 
 1849, and all grains imported into England have paid 
 only a nominal duty, the price of wheat has rarely 
 exceeded fifty shillings, until the two last years, one 
 of short harvest, the other of war. 
 
 One of the first troubles, which occurred after the 
 peace in 1815, and in consequence of the prepara- 
 tions to restore the depreciation of the currency, was 
 that of " plenty and cheapness." The people had 
 looked forward to it as OQe of the greatest blessings 
 of peace. Among their illuminated devices to cele- 
 brate the close of the long wars which ended in 1815, 
 was a great loaf of bread and a foaming pot of beer, 
 with the mottoe», "I am coming down," and "I am 
 
39 
 
 coming after you." But " this vulgar view of cheap- 
 ness" was far from being agreeable to those who had 
 been accumulating large fortunes during the period 
 of high prices and speculation. The discounts of the 
 Bank of England were reduced in one year after 
 February, 1816, from twenty-three millions down to 
 eight millions of pounds sterling. " This reduction of 
 private loans answered two purposes of the bank ; it 
 kept the circulation within bounds; and, if it slaugh- 
 tered the merchants and manufacturers, it brought 
 about another novelty, a reduction in the price of 
 gold down to four pounds the ounce, or nearly to 
 the mint price (£3. 17s. lO^d.)." The consequences 
 of it were, that the prices of all articles suddenly 
 diminished to a ruinous extent. Distress and bank- 
 ruptcy extended to every part of the country, and 
 overwhelmed many of those who were withdrawn from 
 trade, as well as those who were engaged in the 
 active pursuits of business. In addition to the enor- 
 mous numbers of merchants and others, of all grades 
 and distinctions, no less than eighty-nine country banks 
 became insolvent. The mercantile part of the com- 
 munity, however, after a time, began to accommo- 
 date their business to the new scale of prices and to 
 the changed condition of the currency, and trade 
 gradually resumed its usual course. 
 
 At the commencement of the suspension of specie 
 payments, in 1797, the number of country banks in 
 Great Britain was estimated at about two hundred. 
 They increased rapidly, from year to year, until 1815, 
 when the number was nine hundred and forty. This 
 " enormous vegetation of banks," possessing the power 
 to issue bills to be used for currency, must have pro- 
 
40 
 
 'i' , 
 
 i I 
 
 III'! 
 
 duced a vast increase in the amount of the paper 
 money in circulation during the suspension of specie 
 payments. And it is rather a matter of surprise that 
 they should have been so prudently managed, that 
 only about eighty-nine of them were made bankrupt 
 by the contraction of the currency when the resump- 
 tion took place. 
 
 The petition of one Charles A. Thompson, for the 
 redress of his losses, which was presented in 1823 to 
 the House of Commons, by Lord Folkstone, and to 
 the House of Lords, by Earl Stanhope, illustrates the 
 effects produced by the change from a condition of 
 currency which was so profitable to the Bank of Eng- 
 land that its stock nearly or quite doubled in value. 
 The petition stated, that some years before, during 
 the suspension of specie payments, the petitioner, in 
 connection with his father, had purchased two estates, 
 one costing £72,000, which they paid for in money, 
 the other costing £60,000, which was partly paid 
 for in money, and the balance in a mortgage upon 
 both of the estates. In consequence of the reduction 
 of prices occasioned by the contraction of the cur- 
 rency to resume specie payments, both estates together 
 would not sell for enough to pay the mortgage, and 
 it had been foreclosed. The party from whom the 
 estate was purchased for .£60,000 had received £18,- 
 555 in money on account of it, and now, in addition 
 to that sum of money, possessed both of the estates, 
 which had cost £132,000. In consequence of this 
 great change in the value of property, resulting from 
 the changes in the currency, which were authorized 
 and sanctioned by the governm;jnt, he had become 
 bankrupt. " His father had died of a broken heart. 
 
41 
 
 and he himself is a ruined man, with seven children 
 of his own, ten of his brother's, and seven of his sis- 
 ter's, all dependent on him. He imputes no inten- 
 tional wrong doing, but grievous error to the gov- 
 ernment; yet he hopes they will not change error 
 into injustice by persevering in it;" and prays "for 
 an equitable adjustment jo£ his own and other similar 
 claims growing out of the changes authorized by the 
 government in the currency of the country." This 
 was only one of many thousand instances, which 
 occurred at that time. Few of them were ever re- 
 corded, and nearly all are now forgotten. 
 
 The admirers and advocates of a cheap currency 
 may say, that all the evils of this period, in Great 
 Britain, Avere the consequences of the suspension of 
 specie payments, and of the efforts to restore a depre- 
 ciated paper money to par, as compared with specie. 
 Therefore, they argue, that such examples can be 
 cited only as objections to the use of an inconvertible 
 paper money. This is a mistake. For the purpose 
 of proving that such evils are not peculiar to incon- 
 vertible paper money or to a suspension and resump- 
 tion of specie payments, it may be well to notice 
 rfome of the effects of the next great monetary crisis 
 in Great Britain, the troubles of which commenced 
 in the latter part of the year 1825, some years after 
 the resumption of specie payments. 
 
 The act of 1819, providing for the immediate re- 
 sumption of specie payments, prudently delayed the 
 time of withdrawing from circulation the notes of a 
 smaller denomination than five pounds beyond that 
 fixed for the resu.iption of specie payments, so as not 
 to increase the inconvenience of that measure. This 
 
 6 
 
 iiit^ 
 
 ■\\- 
 
42 
 
 l> 
 
 If 
 
 allowed ample time to the banks to recall gradually 
 the small notes, that specie might come in to supply 
 the place of them. The country bankers were natu- 
 rally reluctant to give up the profits which they had 
 derived from issuing notes below five pounds. These 
 had been mostly withdrawn from circulation, and both 
 the public and the banks had prepared to have the 
 law which forbade their circulation carried into efiect. 
 Taking advantage of the discontent caused by the 
 restriction of the currency in consequence of the re- 
 sumption of specii T/ments, they succeeded in in- 
 ducing the ministry , i parliament to sanction the 
 circulation of them for an additional term. Early in 
 the year 1823, and only a short time before the period 
 named in the law of 1819 for rendering the small notes 
 illegal, the act was passed by Parliament to authorize 
 the banks to continue their circulation for eleven years 
 longer. 
 
 The joy of the unreflecting portion of the public 
 at this result was excessive. " Landlords, fiirmers, 
 bankers, merchants, ship-owners, and tradesmen, all 
 joined in the universal exultation. They were not 
 long in persuading themselves and each other that 
 the sun of national prosperity was now risen, never 
 to decline, never to be eclipsed again." Fortunately 
 for tlie Bank of England, it would not take advan- 
 tage at that time of the new law, but continued to 
 issue no bills of a smaller denomination than five 
 pounds. The country banks geneially availed them- 
 selves of it, and inundated the currency of the coun- 
 try with an immense amount of small notes. Mr. 
 Thomas Tooke, a celebrated writer on finance, in a 
 treatise on the state of the currency, which he pub- 
 
43 
 
 lished in 1826, estimated the addition to the circula- 
 tion at this time to have been not less than fifty per 
 cent. All these notes in circulation were redeemable 
 in specie, on demand ; and were, therefore, always 
 at par as compared with specie. But this did not 
 diminish their effect in depreciating the currency. 
 The immediate consequence of the great issues of 
 paper money was a general rise in the prices of prop- 
 erty of every kind, and apparent prosperity in all 
 branches of industry and trade. The importations of 
 the products of foreign labor increased immensely, 
 and, consequently, the revenue from duties on im- 
 ported goods. At the next session of Parliament, in 
 1824, the Hon. Frederick Robinson, afterwards Lord 
 Ripon, then Chancellor of the Exchequer, alluded ex- 
 ultingly to the great rise of prices that had occurred, 
 the increased revenue, and " the matchless prosperity 
 of the realm ; " boasting of them as the result of 
 the wisdom of the ministry in permitting the con- 
 tinued circulation of the small bills. This afterwards 
 brought upon him the cognomen of "Mr. Prosperity 
 Robinson.'* 
 
 This apparent prosperity continued less than three 
 years. Towards the autumn of 1825, strong symp- 
 toms of an approaching catastrophe began to be seen 
 in the extravagant prices of many articles of com- 
 mon consumption. " The Bank of England had become 
 alarmed as early as in July of that year, and began 
 to draw in their notes by privately selling Exchequer 
 bills. It was too late, however, to avoid a crisis." The 
 enormous amount of imported goods must be paid 
 for, and the bills drawn against exports were not 
 sufficient for it. The coin of the country was, there- 
 
44 
 
 fore, exported in large quantities. Under these cir- 
 cumstances, tviih a circulation of paper irmiey convertible 
 on demand in specie, the depreciation of the currency, 
 and the high prices it occasioned could not be sus- 
 tained. As the demand for specie continued to in- 
 crease, the banks generally became alarmed, and, in 
 December, the panic commenced. It spread through 
 the whole country. Great Britain and Ireland seemed 
 to be one scene of confusion, dismay, and bankruptcy, 
 worse even than had existed at any time during the 
 process of resuming specie payments some years before. 
 Notwithstanding that the Bank of England had 
 foreseen the trouble, and commenced so early to pre- 
 pare for it, even that great institution sustained itself 
 with difficulty, and its coin was at one time reduced 
 nearly to a million of pounds sterling. There was 
 a probability of its being entirely exhausted of specie, 
 when, as a temporary resource, the bank availed itself 
 of the law to issue small notes, having accidentally 
 found in the bank a box of the old notes for one 
 and two pounds, which had been used during the 
 suspension of specie payments, and happened not to 
 have been cancelled.^ 
 
 Ill' 
 
 ^ The following evidence before the secret committee of the House of 
 Commons, in 1832, was given by Mr. Jeremiah Harman, then one of the 
 principal directors of the Bank of England. 
 
 Q. Was there a period in December, 1825, during which the bank con- 
 templated the probability of being entirely exhausted of gold ? A. At the 
 latter end of 1825, decidedly. 
 
 Q. Do you recollect the lowest quantity of gold which the bank possessed 
 during any period of December, 1825 ? A. I do not remember immediately ; 
 but it was viiserahly low. 
 
 Q. Was it under the sum of £1,300,000 you have named ? A. Unquestion- 
 ahlij. 
 
45 
 
 It is difficult to estimate the extent of the injury 
 produced by this revulsion of paper money in Great 
 Britain. It extended through the commercial world. 
 In London, where the Bank of England alone issues 
 notes for circulation, the failures among the bankers 
 were few and less disastrous. But more than one 
 hundred of the country banks failed, and countless 
 numbers of merchants, manufacturers, and traders of 
 every kind became bankrupt. 
 
 An act was finally passed by Parliament in 1829, to 
 abolish all paper money in England of a smaller de- 
 nomination than five pounds, equal to nearly twenty- 
 five dollars of the money of the United States ; but, in 
 order to neutralize the opposition made to this meas- 
 ure by the Scotch banks, the small note circulation 
 of Scotland was continued. This exception in their 
 
 Q. It was stated by the late Mr. Huskisson, that he, as a member of the 
 administration at that time, suggested to the bank, that, if their gold was 
 exhausted, they should phice a paper against their doors, stating that they 
 had not gold to pay with, but might expect to have gold to recommence pay- 
 ments in a short time ; do you recollect such a suggestion ? A. There was 
 such a suggestion. 
 
 Q. What would, in your opinion, have been the consequence of that 
 paper, placed against the door of the bank, without preparation to support 
 commercial and financial credit ? A. I hardly know how to contemplate it. 
 
 Q. The bank issued one pound notes at that period. Was that done to 
 protect its remaining treasure ? A. Decidedly ; and it worked wonders. 
 And it was by great good luck that we had the means of doing it ; because 
 one box, containing a quantity of one pound notes had been overlooked, 
 when the others were destroyed, and they were forthcoming at the lucky 
 moment. 
 
 Q. Had there been no foresight in the preparation of these notes ? 
 A. None whatever; I solemnly declare. 
 
 Q. Do you think that the issue of these one pound'? notes did avert a 
 complete drain? A. As far as my judgment goes, it suued the credit of the 
 country. 
 
46 
 
 favor has undoubtedly been profitable to the Scotch 
 banks. But, as their circulation is local, not extend- 
 ing beyond the borders of that country, the evils 
 resulting from it are diminished. This currency of 
 paper money of small denominations may account 
 partly for the poverty that exists in Scotland. 
 
 From this last-recited instance of the money crisis 
 in England, of 1825, when the paper money had 
 been redeemable in coin, as compared with the previ- 
 ously recited instance when the paper money was 
 not redeemable in coin, an opinion may be formed 
 of the effects and dangers of such fluctuations as oc- 
 curred under those different circumstances. The only 
 essential difference will be found to be, that with 
 paper money convertible into specie on demand, the 
 effects of a depreciation of the currency are more 
 rapid and violent. The crisis will go through its dif- 
 ferent stages, from the high price and apparent pros- 
 perity of the inflation, to the decline of prices and 
 real distress of the contraction of the currency that 
 must necessarily follow, in less time than when the 
 paper money is not convertible on demand. The 
 resumption of specie payments was in 1819. There- 
 fore that "necessary quality of a good currency," 
 being redeemable on demand in specie, was not want- 
 ing to the paper money in circulation during the 
 financial troubles of 1825. 
 
 The principal object of the currency laws, passed 
 in Great Britain in 1819, was to restore the paper 
 currency in circulation to par- as compared with the 
 precious metals. The apt of 1844 was intended to 
 restrict the occasional depreciations of the currency 
 as compared with the currencies of other countries,, 
 
47 
 
 by limiting the amount of paper money which could 
 be issued by the banks. Those laws were in accord- 
 ance with the wise policy, which should be found in 
 the financial history of all civilized nations. That is 
 to say, as a country grows richer, it ought to provide 
 constantly a more and more substantial basis for any 
 paper currency that it may have been considered expe- 
 dient to tolerate at an earlier time, and under different 
 circumstances, until the paper can be wholly with- 
 drawn from circulation, and the currency of the coun- 
 try consist wholly of real money. 
 
 The act of 1844, for the renewal of the charter 
 of the Bank of England, is the only important change 
 in the currency laws of Great Britain since 1819. 
 The object of it is, to limit the control of the bank 
 over the currency of the country by restraining its 
 issues of paper money. It permits the bank to issue 
 notes, it the extent of the government stocks tvhich it holds, 
 not exceeding fourteen millions of pounds sterling, 
 that having been found to be the lowest amount to 
 which the issues of the bank had been for many years 
 reduced. It also allows the issue of post-notes, for 
 the convenience of remittances, to the extent of two 
 millions. For every note issued beyond these amounts, 
 (in all, sixteen millions sterling) it must hold an equal 
 sum of the precious metals. It has, therefore, no 
 interest in extending its issues of paper money beyond 
 the sixteen millions, as it could not increase its loans 
 or investments by doing so, but is obliged to keep the 
 whole of such excess on hand in bullion or coin. 
 
 The wisdom of this law has been questioned, and 
 in some respects, it appears to be justly so, unless it 
 was intended, as very possibly it may have been, only 
 
 1 > , 
 
 P 
 
48 
 
 
 m. 
 
 as a temporary measure, to prepare the way for abol- 
 ishing altogether the circulation of paper money in 
 England. The deposits of the government and of indi- 
 viduals always amount to many millions. Unexpected 
 drafts upon those deposits may, at some time, place 
 the bank in a position that would cramp its opera- 
 tions, or render it necessary to transgress the law. 
 Should the precious metals in the bank be ever en- 
 tirely withdrawn, the law requires its circulation to 
 be reduced to sixteen millions, including the two mil- 
 lions of post-notes. But, suppose the amount of the 
 paper in circulation, including the post-notes, to be 
 twenty-six millions, and the coin and bullion in the 
 bank to be ten millions (which, certainly, may not be 
 a weak condition for the bank), the payment by the 
 bank of drafts against deposits, if paid in notes, would 
 create an excess of notes in circulation beyond the 
 amount allowed by the act ; while, on the other hand, 
 if the drafts were paid in coin, the precious metals 
 in the bank would be reduced below the legal amount. 
 The bank, in such a case, though perfectly strong to 
 fulfil its obligations, would seem to be checkmated by 
 the law. Its only resource, then, unless a sufficient 
 amount of its loans were falling due, would be to dis- 
 pose of securities in order to get in some of its notes 
 or coin; a resource that might produce great incon- 
 venience to the public, and much loss to the bank. 
 
 The opinion has been expressed by eminent bankers, 
 that, in case of a serious war, the Bank of England 
 could not sustain specie payments ; and therefore, that 
 an order in council should be issued, immediately on 
 the commencement of such a war, to oblige the bank 
 to suspend specie payment at once, before its specie 
 
49 
 
 was drawn out. For, the very apprehension of an 
 occurrence similar to that of 1797, would cause a 
 run for specie, which would render a suspension un- 
 avoidable. 
 
 If the effect of war upon the currency of England, 
 where the circulation of paper money is comparatively 
 so limited, and where there are no bank-notes of a 
 smaller denomination than five pounds, equal to nearly 
 twenty-five dollars of our money, would cause a sus- 
 pension of specie payments, what would be the con- 
 sequences in the United States, where paper money 
 is issued in notes of every denomination down to one 
 dollar; and where there are more than twelve hun- 
 dred different banks, spread over the whole country, 
 and established in each of the different States by the 
 State governments, at the discretion of each, and there- 
 fore subject only to a local and very limited control, 
 and entirely independent of the influence of the na- 
 tional government ? 
 
 From all these considerations it may be concluded, 
 that few, if any, benefits now result from the use of 
 paper money in England, except the profit to the 
 bank. Considering the amount of specie which, un- 
 der their system, must be kept in the bank to be 
 ready to redeem their notes on demand, and all the 
 trouble and expense incidental to the manufacture 
 of the notes, and the precaution necessary to guard 
 against frauds, it is doubtful, if the account could be 
 fairly stated, if the profit to the bank be very great. 
 Fifteen or twenty millions of coin would more than 
 supply the place of the notes issued by all the banks 
 in England. That amount of coin could be supplied 
 to take the place of the paper in circulation, without 
 
 7 
 
 411 
 
50 
 
 inconvenience or difficulty, during any of the seasons 
 of plethora in the money market which often occur 
 there, when new sources for investment are sought 
 after in every direction. The inevitable laws of trade, 
 which are just, and gradual and uniform in their oper- 
 ation, would then be left free to produce their natural 
 effects upon the currency. The increase of real money, 
 accumulated in times of prosperity, would prevent, in 
 seasons of short crops, or of threatened or actual wars, 
 the addition to the public calamity of the evils of 
 those money panics, peculiar to the artificial system 
 of paper currency, which are so disastrous in their 
 effects upon the community, and may even for a time 
 prevent the prompt and free action of the government. 
 The following is the official return of the circulation 
 of the Banks in Great Britain on the 3d of Septem- 
 ber, 1853 : — 
 
 The Bank of England notes £22,836,269 Specie £10,986,088 
 
 Private banks " 
 
 Joint- Stock banks " 
 
 Total in England " 
 
 «' « Scotland « 
 
 « « Irela I " 
 
 3,676,104 
 2,984,560 
 
 £29,496,933 
 3,728,890 
 5,230,387 
 
 
 1,174,058 
 1,447,830 
 
 Total in Great Britain, £38,456,210 Total " £19,607,976 
 
 ■■ M. 
 
 
 Currency in the United States. 
 
 It has been already shown that the great objection 
 to the use of paper money for currency is, that it 
 produces very injurious effects upon the industry of 
 the country, by stimulating the importation of the 
 products of foreign industry. This it does by the 
 
 
51 
 
 rise of prices, which it causes, increasing thereby the 
 cost of production. The variations that occur in the 
 quantity or amount of it in circulation, render it a con- 
 stantly fluctuating standard instead of a true measure 
 of the value of other objects. 
 
 The first effect of an increase of the money in cir- 
 culation in any country is apparently to make money 
 plenty; but it is, in fact, a depreciation of its value. 
 This is shown by the general advance that takes place 
 in the prices of commodities of every kind. When 
 the advance of prices has occurred, money becomes as 
 scarce as it was before. It is true that it is not al- 
 ways the amount of money in circulation, which settles 
 the question of plenty or scarcity of money. " Every 
 business man knows, that to-day the circulation of the 
 banks may be twenty millions, and that money may 
 be so plenty in the market as to be worth only five 
 per cent, a year; and that a year from to-day, the 
 circulation remaining the same, money may be so 
 scarce as to command eight or ten per cent, per an- 
 num." But every business man does not appear to 
 know that the natural and regular consequence of a 
 large addition of paper money to the circulation is 
 always to render money plentiful and cheap at first. 
 This plentiful and cheap supply of money produces an 
 artificial rise in the prices of property of every kind. 
 So that within a year, unless the amount of money 
 in circulation is still farther increased, so much more 
 will be required to transact the same business, at the 
 inflated scale of prices, that money will be in demand 
 at eight or ten per cent, per annum. 
 
 The increase of the money in circulation in any 
 country will increase the prices, without increasing 
 
 iV 
 
 
 ,■■ ^1 
 
52 
 
 the real value of commodities, if considered without ref- 
 erence to its foreign commerce. The celebrated writer, 
 John Stuart Mill, in his " Principles of Political Econo- 
 my," says, " The uses of money are in no respect pro- 
 moted by increasing the quantity which exists and 
 circulates in a country, the services which it performs 
 being as well rendered by a small as by a larger aggre- 
 gate amount. Two million quarters of wheat will not 
 feed so many persons as four millions ; but two millions 
 of pounds sterling will carry on as much traffic, will buy 
 and sell as many commodities, as four millions, though 
 at lower nominal prices." For example, suppose fifty 
 millions of dollars to represent the amount of the circu- 
 lating money in a country, and that flour is worth five 
 dollars a barrel, iron twenty dollars a ton, and other 
 articles in proportion. If the amount of circulating 
 money should be increased to one hundred millions of 
 dollars, this last named sum would represent and per- 
 form the business, which was before represented and 
 performed by the fifty millions. And the barrel of 
 flour that before was valued at five dollars, all other 
 circumstances remaining the same, may then be worth 
 ten dollars. It would therefore appear that flour had 
 doubled in value. But it is not so. It is only a nomi- 
 nal increase of value. For now that the barrel of flour 
 is worth ten dollars, that sum of money will not pro- 
 duce more of other commodities than five dollars did 
 before, as all other commodities will have risen in about 
 the same proportion. With fifty millions of circulating 
 money, the barrel of flour represented and was worth 
 five dollars. With one hundred millions of circulating 
 money, it represents and is worth ten dollars. And all 
 other articles are represented in the same proportion in 
 
■'•FT^.'^'T-'^ 
 
 — r~ ..rr-i.,.''r7^-r7?fr',-s^-,;i:;»T^f wTvr^j-^KV"' 
 
 53 
 
 these two conditions of the amount of money in circu- 
 lation. In the one condition, no more of any article 
 could be purchased for one dollar, than in the other 
 condition could be purchased for the half of it. This 
 explains what is meant by the statement which seems 
 so difficult of comprehension to some persons, that to 
 those who live on salaries or wages, the effect of an 
 artificial inflation of prices, by an increase of the amount 
 of paper money in circulation, is to diminish the quan- 
 tity of the necessities and conveniences which they can 
 provide for their families. So that it may with propri- 
 ety be said, that one dollar a day is not better wages 
 for a laboring man, than fifty cents a day, unless it will 
 buy more of those necessities and conveniences. 
 
 An increase of the amount of monev in circulation, 
 and the consequent increase of prices, are always grad- 
 ual. The circumstances that regulate the current or 
 market prices are so various, that the true cause of any 
 change cannot always be traced at once. Supply and 
 demand regulate prices when the amount of money in 
 circulation is uniform. But supply and demand come 
 through so many channels for articles in general use, 
 that the extent of either is not always readily per- 
 ceived. Any increase of prices is most commonly 
 ascribed to an increase of demand, as compared with 
 supply, that being the usual cause of the rise in the 
 prices. When prices rise in conseque/ice of an addi- 
 tion to the amount of money in circulation; it is be- 
 cause the increased supply of money furnishes addi- 
 tional power to purchase until it produces a demand 
 that will carry all articles up in price to their fair 
 value, in proportion to the extent of the increase of 
 money in circulation. 
 
 . ■! 
 
 
 
 
 ■::r 
 
 ■ii 
 
 1^? 'll 
 
 1,1 
 
 
54 
 
 yi 
 
 ■r,. :r 
 
 III J 
 
 The effect of an increase of the amount of money in 
 circulation on the price of any given article may be, 
 after a time, counteracted or qualified by an increase 
 of its supply, or by a reduction of the demand for it. 
 For example, iron, which has been worth twenty dol- 
 lars a ton, should be worth about forty dollars, if the 
 amount of the circulation has been doubled, all other 
 circumstances remaining the same. But the foreign 
 manufacturer, instead of obtaining an increased price, 
 may prefer to increase the supply of his iron. Twenty 
 dollars a ton is, perhaps, more than he can realize for it 
 at home, where the greater part of the iron he produces 
 is sold. Therefore, instead of getting a higher price for 
 a small quantity, as the Dutch did formerly, for their 
 spices, he may prefer to increase the quantity of iron. 
 He may continue to increase the quantity so long as it 
 will sell for twenty dollars. In such a case, the increase 
 of the amount of money in circulation increases the sup- 
 ply of iron from abroad, instead of increasing the price 
 of it. But how is it with the manufacturer of iron at 
 home? What is the effect on his business? He is 
 differently situated. Twenty dollars a ton was a re- 
 munerating and satisfactory price to him before the 
 amount of money in circulation was increased. But 
 with the increase of money, the prices of all the ele- 
 ments that make up the cost of his iron have increased, 
 and nearly forty dollars a ton would now be required 
 to remunerate him for it as well as twenty dollars did 
 before. He must therefore stop his works, and leave 
 the foreign manufacturer to supply the whole quantity 
 of iron needed for the consumption of the country. 
 The price of the elements that make up the cost of the 
 foreign iron remain the same as before. The paper 
 
55 
 
 money for which it is sold, being redeemable in specie, 
 the proceeds of the iron can be returned in gold or 
 silver. The home manufacturer, too, could exchange 
 the proceeds of his iron for gold or silver ; but it would 
 be worth no more to him than the paper money, 
 unless he wished to send it abroad to purchase and 
 import foreign iron for the supply of his customers, in- 
 stead of manufacturing it. But this benefit of a cheap 
 supply of iron will not be of long continuance. The in- 
 creased demand occasioned by stopping the manufac- 
 ture at home, raises the price abroad, and the foreign 
 manufacturers, perceiving that they have the market to 
 themselves, gradually increase their prices, and realize 
 extravagant profits. Thus the actual effect produced 
 by increasing the amount of money in circulation, and 
 thereby enhancing the prices of all articles of sale and 
 commerce, is to increase the profits on foreign importa- 
 tions, and the inducements to extend them ; while at the 
 same time, it injures the domestic manufacturer, and op- 
 presses the industry of the country, by increasing the 
 expense of the labor, and of the cobu of manufacturing. 
 To suppose the amount of the circulation f)f a coun- 
 try increased from fifty millions to one hundred mil- 
 lions, is apparently, to suppose an extreme case. But 
 additions of twenty to fifty per cent, to the amount of 
 paper money in circulation, not unfrequently occur, 
 when the currency consists of paper payable on de- 
 mand in specie, as it does in the United States. It is 
 not usually an immediate increase. It may take a 
 year or more to effect it. But it sometimes happens 
 within a period of a few months. The amount of the 
 loans of the Bank of the United States on the 1st of Sep- 
 tember, 1834, was $47,059,498, and on the 1st of June, 
 
't1 
 
 i! 
 
 Ih: i 
 
 v -. a 
 
 56 
 
 1835, was $63,649,646, being an increase of more than 
 thirty-five per cent, in the short period of nine months. 
 The increase in the local banks, during the same period, 
 was probably as great. The effect of the increase of 
 paper money at that time upon prices, and the conse- 
 quences resulting from it, which occurred a year or two 
 later, will not soon be forgotten. The published state- 
 ments of all the banks in the United States, show that 
 their bills in circulation had been increased from fifty- 
 eight millions in 1843, to about two hundred and 
 four millions in 1854; and that at this last period, 
 there was less than sixty millions of specie in all the 
 banks of the country. 
 
 The state of trade in any country may be such that 
 specie flows into it. That is, prices are low, rendering it 
 profitable to export merchandise, and diminishing the in- 
 ducements to import it. There is then a good demand 
 for the products of the industry of the country for con- 
 sumption and for exportation, and more or less specie 
 is imported in return for the merchandise exported. 
 But as the specie is not used for currency, it accumu- 
 lates in the banks, forming the basis of an increase of 
 the issues of their bills, which are put in circulation by 
 loaning them freely. This facility in obtaining these 
 loans stimulates the merchants and traders to increase 
 their purchases of merchandise and other property. 
 As the business of trading increases, prices rise, and a 
 larger amount of money is needed. The banks are 
 enabled to add still more to their loans, and to keep 
 still more of their bills in circulation. Borrowing 
 money with facility, traders are less anxious to realize 
 the money for their merchandise by selling it. . They 
 prefer to pay their debts by creating new ones in the 
 
57 
 
 hze 
 ley 
 the 
 
 shape of bank loans, in the expectation of obtaining 
 higher prices at some future time for their merchan- 
 dise. Many become speculators, and, buoyed up by 
 loans at the banks, are disposed to purchase the mer- 
 chandise of others, rather than to sell their own, ex- 
 pecting thereby to force the consumers to pay them 
 higher prices. The advance in prices at first encour- 
 ages the manufacturer to increase his work. But he 
 soon finds that the prices of all the materials which 
 he uses in his manufacture have increased in propor- 
 tion, and therefore, that he gets no more profit than 
 before. But not so with the importer of foreign 
 manufactures. His merchandise costs him no more 
 than it did before. The high prices will therefore 
 induce him to increase largely the amount of his 
 importations. Those high prices will, in the end, 
 diminish the consumption of many articles, by raising 
 their value beyond the reach of the many, who live 
 on salaries and wages. Large stocks of merchandise 
 will thus be accumulated. At the same time, the 
 indebtedness of the merchants to the banks has in- 
 creased. The amount of paper money, that is to say, 
 the indebtedness of the banks to the community, will 
 have been most dangerously enlarged. This specula- 
 tive inflation continues and augments, until at last, 
 the conditions of trade are entirely reversed. Prices 
 being high, it is profitable to import merchandise, and 
 the inducements to export it no longer exist. More 
 or less specie, is therefore exported in return for im- 
 ported commodities. This export of specie may con- 
 tinue for some time before its effects on the condi- 
 tion of the currency become serious. But all the coin 
 that can be spared will, in time, be sent away, and 
 
 8 
 
 ''} 
 
 H 
 
 V 
 } '■ 
 
 1,1 
 
58 
 
 I T 
 
 
 m^ 
 
 the demand will then come upon that which is ab- 
 solutely necessary to the banks to sustain the circu- 
 lation of their paper. All the resources of the banks 
 will then be required to meet the demands against 
 them. Those resources are the debts due from the 
 merchants and traders, and they must be paid. But 
 to pay them, these merchants and traders must either 
 sell their merchandise, or borrow money outside of the 
 banks, on the best terms they can. ., 
 
 Whether the currency of the country consists en- 
 tirely of the precious metals, or is a mixed currency, 
 consisting in part of paper money payable in specie 
 on demand, under the same circumstances the same 
 effect would be produced by any great increase or 
 reduction of the amount of money in circulation. 
 But there would be a great difference in the inten- 
 sity of the crisis in these two cases. Suppose, for in- 
 stance, the whole amount of the currency to be two 
 hundred millions of coined money. The gradual ab- 
 straction of twenty millions for exportation would pro- 
 duce effects that might not be greatly perceptible. 
 But, if the currency consisted of that amount of bank 
 paper convertible on demand in specie, and the whole 
 amount of specie to support this circulation did not 
 exceed sixty millions of dollars, the abstraction of 
 twenty millions of coin to export, if the whole amount 
 of the currency was reduced in any thing like the 
 same proportion, would produce a reduction in the 
 prices of property of all kinds that would render 
 bankrupt a large portion of the business community. 
 Money would become so scarce, and the value of 
 property would be so much reduced, tb .t many debt- 
 ors would not be able to obtain money upon any 
 
59 
 
 terms to pay their debts. Many commodities would 
 be exported to furnish funds to diminish the foreign 
 indebtedness. For, until that indebtedness was settled 
 in some way, either by the shipments of specie, or 
 of merchandise, or by the failure of the debtors, the 
 demand for specie and the contraction of the currency 
 would continue. 
 
 Of all the articles that supply the wants of a 
 well-furnished community, the proportion (derived from 
 foreign commerce is small. But in the United States, 
 the foreign commerce, small as it is in comparison 
 with the internal trade, now regulates and controls, 
 through its effects upon the currency and the banks, 
 the prices of all articles throughout the whole coun- 
 try. The object of trade and commerce is to supply 
 the various necessaries, conveniences, and luxuries of 
 life; and, whatever can be obtained cheaper from 
 abroad, will be procured there. If the cost of pro- 
 duction at home is enhanced by an increase of cur- 
 rency, the quantity of articles that can be obtained 
 cheaper from abroad will be increased, and the quan- 
 tity of articles that can be produced cheaper at home 
 will be diminished. This will continue and increase, 
 until it creates such a demand for the precious metals 
 to export for the payment of imported merchandise, 
 as to diminish the supply of the circulating medium 
 of the country. Assuming the exports of the country 
 to be equal in value to two hundred millions of dol- 
 lars, (including the expenses of transportation or freight 
 when in the vessels of the country, and the profits on 
 the sales abroad,) this two hundred millions of dollars 
 is the amount of foreign productions that can be 
 imported with benefit to the country. Any extent 
 
 Or 
 
 
 
 :li 
 
 I', t 
 
 i- 
 
«i 
 
 R 
 
 60 
 
 of importations beyond it makes an indebtedness in 
 specie, which must create a demand for the precious 
 metals of the country to export. The intensity of that 
 demand will control the amount of the currency, and 
 the prices of all the property of the country, which 
 amounts to many thousands of millions of dollars. 
 
 There is a distinction between money in actual cir- 
 culation from hand to hand, which is usually denoted 
 as "currency" and wealth that is not circulating, but 
 is locked up in the possession of individuals, in various 
 shapes of valuable securities, or deposits in banks, or 
 even in actual coin, which is denoted as " capital" It 
 is only the money in circulation that affects prices. 
 Hence it may and does often happen, that there is 
 an abundance of ^'capital" in the country, while the 
 money in circulation, or ^^ currency," is not sufficient 
 for the wants of the community. Much of this capi- 
 tal can at any time be changed into currency, by using 
 it for the purchase of merchandise or other property. 
 During any great money pressure, or scarcity, there are 
 usually large amounts that remain quietly on deposit 
 in the banks, for which the bills of the banks or specie 
 could at any time be demanded. This abundance of 
 locked up money or " capital " will always exist more 
 or less, when, from any causes, those who possess money 
 are deterred from investing it in trade, or other ad- 
 venturous channels, or can find occasional opportu- 
 nities to loan it at exorbitant rates. When any such 
 causes exist, capitalists are more and more indisposed 
 to invest money in commerce or manufactures, or pub- 
 lic works, and they are more and more resolute in 
 keeping it locked up in bank deposits, or valuable 
 securities, and sometimes in coin, waiting for some 
 
61 
 
 favorable opportunity to invest it. This state of things 
 may produce what, at first sight, seehis an absurdity, 
 a community growing more straitened for money, at 
 the very time when the property and wealth in 
 the hands of money-lenders and capitalists are daily 
 increasing. 
 
 Nothing can be more unreasonable, or further from 
 the truth, than the common statement of speculators 
 and money borrowers, that the amount of paper money, 
 which can be used as a substitute for the coined money 
 of a country, is so much gain to the community. They 
 argue that the coined money, for which it is a substi- 
 tute, will then become so much additional capital that 
 can be applied to support some new purpose of domes- 
 tic industry. If the currency of a country consisted 
 wholly of coined money, and an addition was made 
 to it of an amount of paper money, it would, to the 
 extent of that addition, increase the volume of the 
 currency, and thus would occur a corresponding rise 
 in the prices of articles. The effect of this would 
 be to increase the importation of merchandise from 
 abroad, until a demand for specie were produced. 
 Then the coined money would be gradually carried 
 off to pay for the increase of imported merchandise, 
 to the extent of the addition of paper money that 
 had been made to the currency. If the coined money 
 of the country is not needed at home for currency, 
 in consequence of paper money being substituted for 
 it, it can, in the existing condition of things, only be 
 used to injure the labor and industry of the country, 
 by being exported to pay for importations of the prod- 
 ucts of foreign industry. For the addition of paper 
 money to the currency only creates a corresponding 
 
 •:'■;( 
 
 
n% 
 
 
 II < 
 
 62 
 
 advance of prices, and, consequently, an increase of 
 foreign importations. 
 
 If the precious metals are not used for currency, 
 they will accumulate in the vaults of the banks, when 
 they are not wanted for export. There they will form 
 the basis of a greater issue of paper money, which 
 will further depreciate the currency. In such case, 
 by inflating the prices of all articles, they will give 
 a greater impetus to the import of foreign commodi- 
 ties. It is not desirable that the banks should hoard 
 up specie in their vaults, and issue for every dollar 
 of it five or ten times the amount in their paper prom- 
 ises to pay, or, in amounts placed to the credit of in- 
 dividuals as deposits, which may be changed at any 
 time into bills for circulation. The banks have now 
 too much to do with the imports and exports of the 
 country. They will continue to have this direct in- 
 fluence upon foreign trade, and the country will con- 
 tinue to be overstocked with foreign merchandise to 
 the great injury of domestic industry, until the cur- 
 rency of the country becomes more substantial, — un- 
 til it consists more of the precious metals, and less 
 of paper money. When the precious metals are used 
 for circulation, and the country has a sound, substan- 
 tial specie currency, sufficient in amount for the pur- 
 poses of trade, all business, both foreign and domestic, 
 will be regulated on more just and more correct prin- 
 ciples. We shall then cease to hear complaints of 
 the tariff, or of foreign interference with native in- 
 dustry ; and the banks will find their true place, and 
 become the servants, not the masters, of the money 
 and currency of the country. 
 
 When cotton and breadstuff's, and the exports of 
 
68 
 
 the country generally, are sent abroad, and their pro- 
 ceeds are invested and returned in foreign merchan- 
 dise, the surplus productions of the industry of the 
 country .ire exchanged for the surplus productions 
 of the industry of other countries. The cotton and 
 corn and flour and manufactured goods of the United 
 States, the iron and cloths of England, the wiries and 
 silks of continental Europe, and the teas and spices of 
 China and India, are interchanged. Thus is created 
 a trade between those different countries that is use- 
 ful and profitable to each one of them. If only 500,- 
 000 bales of cotton are manufactured in the United 
 States, the remaining 2,500,000 bales of the cotton 
 crop would be valueless without foreign trade. So 
 with the surplus quantities of the iron and cloths of 
 England; they would be valueless there without foreign 
 trade. Therefore, to exchange the surplus products 
 of the industry of the United States, which would be 
 valueless at home, for the surplus products of Eng- 
 land and other countries, which, without a foreign de- 
 mand, would be valueless in those countries, is an ad- 
 vantageous and profitable trade. 
 
 But the foreign trade is no longer useful or profit- 
 able when it requires the exportation of the coined 
 money which is necessary and useful at home for cur- 
 rency. When the importations of foreign merchan- 
 dise are paid for otherwise than by exchanging for 
 them the products of the industry of our own coun- 
 try, they come in competition with, and are an injury 
 to our domestic industry. 
 
 The very commencement and origin of trade and 
 commerce is the exchange, which is made between 
 individuals of the products of their respective labor. 
 
 
m 
 
 G4 
 
 by which their various wonts are supplied. Subse- 
 quently occur the exchanges which take place be- 
 tween nations, of the surplus products of their in- 
 dustry. The mechanic in a country village, whether 
 with or without the use of money or currency, ob- 
 tains the necessary supplies for his family, by exchang- 
 ing the products of his labor with his various neigh- 
 bors. When, instead of continuing to rely alone upon 
 his industry, he obtains the supplies for his current 
 wants by parting with his furniture, or the tools of 
 his trade, or the money which he has saved up and 
 laid by in years of toil, he is not more improvident 
 and unwise than is the nation that exports its coined 
 money to pay for importations of foreign merchandise. 
 Sickness may oblige the mechanic to do this, and a 
 deficient harvest, or the worse evil of war, may oblige 
 a nation to export its coin to pay for the necessary 
 supply of breadstuff's for food. But, in both cases, 
 they are vast misfortunes. 
 
 It is impossible, under the present system of cur- 
 rency and banking in the United States, that any 
 large loans can ever be negotiated at home. The 
 prospect, only, of a large loan would at once produce 
 a panic in the money market. The banks would 
 immediately stop discounting, to be prepared to pay 
 back their deposits. By doing so, they would make 
 money so scarce, and raise the rates of interest so 
 high, that the capitalists, who own those deposits, 
 could do better with their money than to take the 
 proposed loan. 
 
 The moment any accumulation of money occurs, 
 it is deposited in the banks, and is used by them to 
 increase their loans. The majority of the bank direc- 
 
65 
 
 tors are usually active business men, and the largest 
 borrowers of the banks. It is for their interest to 
 prevent large government loans being negotiated at 
 home, ud they know, in that case, that the banks 
 must provide the money by reducing their loans. By 
 this reduction of the loans of the banks, money can 
 be rendered so scarce and the rate of interest so 
 high at home, that the large loans can be obtained on 
 better terms abroad. 
 
 Parties w^ho wish to negotiate large loans, whether 
 for the government or for corporations, very naturally 
 and properly endeavor to borrow the money where 
 they can get it cheapest. There are, however, serious 
 objections to a system of cnrrency, which prevents 
 the accumulation of uninvested money, and the power 
 to take large loans at home. Under the present sys- 
 tem of currency united with banking, an accumula- 
 tion of unemployed capital cannot occur in ordinary 
 times. For, as fast as money accumulates in the pos- 
 session of individuals, it is deposited in the banks and 
 loaned by them. If merchants and traders will not 
 borrow, brokers and stockjobbers are always ready 
 to take it, and to give stocks as security, often the 
 stocks which they buy with it. As soon, therefore, as 
 these deposits accumulate, they are loaned by the 
 banks ; and the more the banks loan, the higher prices 
 will rise, and consequently new loans will be the more 
 in demand. 
 
 When the government of the United States accumu- 
 lated the surplus revenue of forty millions of dollars, 
 which was afterwards divided among the States in 
 1837, it was deposited to the credit of the government 
 in banks, and by the banks loaned to individuals and 
 
 9 
 
66 
 
 1 1;; 
 
 I 
 
 corporations. The more the government deposits in- 
 creased, the more the banks increased their loans, and 
 the more prices rose. The imports, and consequently 
 the amount of the revenue, increased with the rise of 
 prices. At the same time, and by the same causes, 
 the uses and demand foi money, and the demand for 
 specie to export, were increased. When the govern- 
 ment called on the banks to pay back the public de- 
 posits for distribution among the States, it was im- 
 possible for them to do it. They had loaned it out 
 to parties, who had invested it in various ways, a large 
 proportion of it in government lands. So large an 
 amount could only be paid back gradually and slowly, 
 as it had been received when collected by the gov- 
 ernment. The result was, that before the last instal- 
 ment was paid to the States, all the banks throughout 
 the country stopped payment. The change in the 
 value of property then became so great, thai many of 
 those banks that had extended their loans with the 
 government deposits, lost all their capitals, and were 
 never able to resume again. There were other causes 
 combined at that time to increase the difficulty. One 
 of them was the sudden check upon the negotiation 
 of loans abroad, which had, for some time previous, 
 been taken with great readiness, causing large importa- 
 tions of foreign merchandise. But no deficient harvest 
 in Europe occurred in 1837 to aid the payment of 
 that indebtedness, as happened in 1853. 
 
 The exports of the domestic productions of the 
 United States for the year ending June 30, 1854, in 
 merchandise amounted to $213,985,236, and in gold 
 and silver to $41,197,300. The greater part of tae 
 amount exported in gold and silver, if not the whole 
 
67 
 
 of it, was a clear loss to the country, because the net 
 amount of the importations of merchandise, which 
 were $274,134,733, could have been reduced more 
 than forty millions of dollars without injury or in- 
 convenience to any one. The reduction of the im- 
 ports of that year to the extent of forty millions, 
 though we did produce in California that amount of 
 gold, would have furnished to the manufacturing in- 
 dustry of the country more protection than could pos- 
 sibly be obtained from the national government by any 
 tariff legislation. 
 
 If the government had made a loan in Europe dur- 
 ing that year for twenty millions of dollars, it would, 
 in effect, have added that, or a greater amount, to 
 the importations. For, with paper money for cur- 
 rency, there was no use for specie at home, and the 
 loan of twenty millions would have only served to 
 pay for at least that increase of importations. If there 
 have been of late no such loans made by the govern- 
 ment, there have been many made by.railrpad com- 
 panies and other corporations to a very large amount. 
 The great increase in the importations for the last 
 three years, and the excess of them over the exports 
 of the same years were caused, in part, by those loans, 
 and the results are evidence of the effect produced 
 by increasing the amount of imports. In the latter 
 part of the year 1853, it became difficult to negotiate 
 corporation loans abroad, and consequently, the export 
 of specie was increased. Had it not been for the de- 
 ficient harvest in Europe, which caused a great de- 
 mand for, and a great increase in the export of bread- 
 stuffs in the autumn and winter of 1853, the demand 
 for specie would have been so intense as to have 
 
68 
 
 caused much distress in the United States. The in- 
 debtedness, arising from the large importations, was 
 so great, that the immense and unusual export of 
 breadstuflfs was paid for without any import of specie, 
 or even interrupting its export. As the amount of 
 money in circulation was not diminished by the ex- 
 port of specie, in consequence of the creation of new 
 banks and the increased issues of paper money, prices 
 were sustained, and the excessive importations con- 
 tinued. The export of specie was not diminished un- 
 til the autumn of 1854, when the banks, at last, were 
 forced to reduce their loans and their circulation to an 
 extent that produced much distress and bankruptcy. 
 
 The loans negotiated abroad may have been con- 
 venient at the time, to the parties who borrowed the 
 money. But all that was received for them, and all 
 that was brought into the country in consequence of 
 them, was an increased quantity of foreign merchan- 
 dise to be sold in competition with the products of 
 our domestic industry. All that remains now of those 
 loans is the obligation to send back the amount of 
 them at some future time. In the interim, we must 
 transmit an " annual tribute " for the interest on them. 
 It is estimated that this annual tribute now amounts 
 to about twenty millions of dollars, and an examina- 
 tion of the official tables of the annual imports and 
 exports will prove this to be not far from the truth. 
 
 It may be said that the railroads exist, which those 
 loans assisted to build. But those roads would have 
 been as effectually and surely built without those 
 loans. No money was imported for the loans. The 
 momy that was invested in the roads was ail furnished 
 at home, and so were the labor and materials, excepting 
 
69 
 
 only the iron rails. And there is iron enough in the 
 country to have furnished them. The roads were 
 partly built, ai^d in most cases in actual use, before 
 the loans could be negotiated abroad. The loan for 
 the Western Kailroad in Massachusetts, with the guar- 
 antee of the State, was negotiated in England at five 
 per cent., a lower rate than would satisfy capitalists 
 at home at that time. This was a consequence of 
 the disturbed state of the money market produced by 
 the high prices and excessive importations, which this 
 and similar loans had assisted to cause, whereby cap- 
 italists at home, in the course of that year, were 
 enabled to get one or two per cent, a month for 
 their money. Is it to be supposed, that, with taxable 
 property in Massachusetts, which, by the returns of 
 the valuation committee of 1851, amounts to nearly 
 six hundred millions of dollars, the Western Railroad, 
 the first cost of which was about seven millions of 
 dollars, could not have been finished but for that 
 loan; and that the money to build it ought not to 
 have been obtained without going to England ! Very 
 large amounts lay on deposit in the banks at that 
 time, to the credit of our money-lenders, capitalists, 
 and merchants. With a substantial and sound cur- 
 rency, every dollar of that loan, and of all the loans 
 cf the national government for the last twenty years, 
 would have been readily taken by our own capitalists. 
 But with the constant fluctuations of currency occa- 
 sioned by the comparatively unrestricted power to 
 issue paper money, every year presents the capitalists 
 and money-lenders of the country with opportunities 
 to loan money at much higher rates, and often to get 
 double the legal interest, or even more for it. The 
 
70 
 
 ■i' ■ ■ 
 
 parties in England who took that loan, had so little 
 confidence in the paper money of our currency that 
 they required the amount of the loan to be expressed 
 in the currency of Great Britain, and the principal 
 and interest to be paid in London in the currency of 
 Great Britain. 
 
 At the worst of times, there is always sufficient 
 money for everybody who needs it to pay their 
 debts, if they will give enough for it, and can give 
 satisfactory security. But when the owners of money 
 can make so profitable a use of it as to loan it at 
 one per cent, a month, or more, the banks must be 
 prepared to meet the demand for it, by obliging their 
 customers, to whom they have loaned it, to pay it 
 back. To do this, those customers are often obliged 
 to borrow it at any exorbitant rate of interest that 
 may be required. 
 
 It may be for the pecuniary benefit of a mere pos- 
 sessor of accumulated capital, that the whole credit and 
 enterprise and industry of the country should be at the 
 mercy of a "cheap currency," which admits of such 
 frequent convulsions and fluctuations as may enable 
 him to obtain exorbitant profits on his capital. But 
 it is a remarkable circumstance, that an intelligent, 
 commercial, and manufacturing community, with ex- 
 tensive resources, and with abundance of the precious 
 metals, which their enterprise causes continually to 
 flow in upon them, should cherish a system of cur- 
 rency that forces those precious metals to be used for 
 their injury, instead of being used as currency for their 
 advantage and benefit. Most of the gold that has 
 been brought into New York by the steamers from 
 California, is almost immediately transferred to the 
 
71 
 
 steamers for England, because it is more valuable for 
 remittance to Europe, where it is used for currency, 
 than for any purpose in the United States, where 
 paper money for currency is preferred. 
 
 Advantages of the Currmcy of the Precious Metals. 
 
 It has. 
 
 the 
 
 outset, been remarked that the ser- 
 vice which is rendered by the precious metals as a 
 just standard of the value of property, can be rendered 
 by nothing else with so much exactness and justice 
 and convenience; that they are the only materials 
 that can furnish a sound and substantial currency of 
 unifonn value. Whenever they are used for the cur- 
 rency of a country, the natural laws of trade wall al- 
 ways regulate the quantity of them ; and will dispose 
 of any excess of them, without aid from legislation, 
 and without inconvenience to the community. If the 
 gold from California were used for currency, when the 
 quantity in the country at any time became exces- 
 sive, the same effects would be produced that were 
 observed in Spain after the conquest of Mexico and 
 Peru. The laws of commerce would now, as then, dis- 
 tribute the excess through other countries. 
 
 There would be no objection to sending the precious 
 metals away, if the country at any time possessed as 
 much of them as could be advantageously used. For 
 the excess of them may then be, like the excess of 
 breadstuffs or cotton, of more value to export. But 
 so long as a valuable use can be made of them at 
 home to furnish a sound currency, it is a clear loss to 
 exchange them for the products of the labor of other 
 

 im 
 
 : 
 
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 '» :-« 
 
 lP.t 
 
 
 1' 
 
 72 
 
 countries, to be brought home to compete with the 
 products of the labor of our own country. There is one 
 respect in which an excess of the precious metals in 
 the country differs very materially from an excess of 
 cotton, or of any other commodity. It is that a sur- 
 plus of gold and silver may be laid by and reserved 
 for use at any future time without expense or loss; 
 whereas, most other commodities are injured or de- 
 stroyed by time, and the bulk of many of them ren- 
 ders the care .and expense of protecting them for a 
 long period equal to their value. 
 
 Gold and silver cannot be considered an expensive 
 currency in consequence of their waste or wear. It 
 has been proved by careful experiments, that the loss, 
 when in use for currency, by friction or wear, is less 
 than half of one per cent, a year on silver, and does 
 not exceed a half of one per cent, in ten years on 
 gold. 
 
 The amount of money required to transact the 
 business of a community, for which paper money can 
 be substituted, is much less than is usually supposed 
 by those who have not considered the subject. Finan- 
 cial writers variously calculate the whole amount re- 
 quired in an active business community, at sums vary- 
 ing between ten and fifteen dollars a head for the 
 population. With a mixed currency, consisting only 
 in part of paper money, still less would be required. 
 Ten dollars a head would probably be a large esti- 
 mate for the amount of paper that could be substituted 
 for coined money without greatly depreciating the 
 currency. The amount of paper circulation in Eng- 
 land, Scotland, and Ireland, is less than forty millions 
 sterling, equal to nearly thirty shillings sterling, or 
 
73 
 
 little more than seven dollars a head for the population. 
 In the State of New York, containing as active a trad- 
 ing and commercial community as can be found in 
 any part of the world, all the bank-notes are supplied 
 by tlie State, and registered and countersigned by a 
 State officer. No bank, whether it be incorporated or 
 organized under the general law, is allowed to issue 
 any other notes for circulation. According to the offi- 
 cial returns on the 30th of September, 1854, the whole 
 amount of such notes furnished to incorporated banks 
 was $19,300,963, and to banks organized under the 
 general banking law, $24,661,572, making together 
 $43,962,535; or about twelve dollars a head, for the 
 population of the State, including the amounts held by 
 the banks, and therefore not in circulation. There is 
 probably no community in the world where paper 
 money is so freely used as in the State of Massachu- 
 setts. Each one of its hundred and sixty-eight banks 
 can have printed and ready for use as many notes as 
 they please. The law allows them to be circulated to 
 the extent of one quarter more than their capital, but 
 attaches no penalty for exceeding that amount. The 
 capital of the banks of Massachusetts exceeds fifty-six 
 millions of dollars, which would allow an aggregate 
 circulation of more than seventy millions of dollars. 
 Some of the banks often exceed their proportion, but 
 no notice has been taken of it, when the published 
 returns have shown any of them to have exceeded 
 the lawful limit of circulation. It appears by the an- 
 nual official return for 1854, that there are near- 
 ly twenty-five millions of the notes of the banks of 
 Massjichusetts in circulation. A large amount, how- 
 ever, of each others' notes is returned as held by the 
 
 10 
 
 mm 
 
 m 
 

 74 
 
 banks themselves. Moreover, there is always a large 
 amount of notes issued by banks in the country, in- 
 stead of checks, which do not really become general 
 circulation, being merely transmitted for payments in 
 large sums, instead of a check or draft, to gain the 
 advantage of a few days in interest, and they are im- 
 mediately sent into the Suffolk or some other bank in 
 Boston, which acts as the agent of the country bank. 
 There are, likewise, large amounts of bills at these 
 agency banks, in Boston, which have been redeemed, 
 but not yet sent back to the country banks taat issued 
 them, and must therefore appear in the returns as cir- 
 culation. Making these allowances, the whole amount 
 of bills actually circulating among the people in Mas- 
 sachusetts, does not probably exceed twelve or fifteen 
 millions of dollars, or about from twelve to fifteen 
 dollars a head for the whole population of the com- 
 monwealth. This conforms very nearly with the issues 
 of bank paper in the State of New York. If the 
 actual amount of paper circulating in Massachusetts 
 amounts to fifteen millions of dollars, since checks and 
 drafts could be advantageously substituted for many 
 of the purposes for which bank-bills are now used, it 
 would not require more than ten millions of coined 
 money, less than the product of California in three 
 months, to supply a soand, uniform, and substantial 
 currency in its place. - . 
 
 When stated in the aggregate, ten millions of dol- 
 lars seems to be a large sum; but so the aggreg/^tes 
 of all articles of general use appear. The number of 
 barrels of flour consumed in Massachusetts in a year, 
 seems enormous to one who has never reflected upon 
 it. If they could be seen piled together in a mass, 
 they would look as if there could not be found store- 
 
76 
 
 ki- 
 tes 
 of 
 jar, 
 Ion 
 
 re- 
 
 houses in the commonwealth to contain them. Ten 
 millions of dollars is only about ten dollars a head for 
 the population, and is less than two per cent, of the 
 amount of taxable property in the State, as returned 
 by the last valuation committee, the amount of which 
 was nearly six hundred millions of dollars; which esti- 
 mates, being made for taxation, are known to be a 
 low valuation. When the aggregate amount of the 
 industry and of the property in Massachusetts is 
 considered, the value of which must be measured by 
 the money or currency in use, whatever it may be, 
 the amount of currency required to perform so im- 
 portant a service seems small in the comparison. 
 Every one has a right to claim that the money which 
 measures that value, shall be of a character to perform 
 the service in the most unvcarying and the most exact 
 manner ; and, above all things, that it shall be as near 
 an approach as is possible at all times to a just measure. 
 
 What would be the cost to Massachusetts of ten 
 millions of the precious metals to use for currency, 
 instead of paper money ? If the $41,197,300 of gold 
 and silver that were exported from the United States, 
 during the single year ending in June, 1854, had 
 remained in the country, at least one tenth part of 
 the amount would have rightly belonged to Massa- 
 chusetts with her extensive commerce and manufac- 
 tures. This would have supplied nearly one half of 
 the amount required in a single year. To the indus- 
 try of Massachusetts, it would have been worth at the 
 least, as much more, by the protection it would have 
 given to her manufactures against foreign competition, 
 by lessening, to that extent, the amounts of foreign im- 
 portations, which it was sent abroad to pay for. 
 
 Again, let it be remembered that coined money is 
 
76 
 
 'I. ■ 
 
 fi 
 
 ii 
 
 r.i 
 
 not consumed by use, like flour or wines or silks, and 
 many other commodities. Once in the possession of a 
 community that will use it for currency, it remains to 
 perform its important service again and again, not only 
 for ourselves, but for future generations. Our manu- 
 facturers, by opposing the use of coined money, or en- 
 couraging the use of paper money in the place of it, en- 
 courage the importation of foreign manufactures. They 
 then ask from the national government high tariffs to 
 protect them against the evil effects of the paper 
 money. The only inducement to use paper money is 
 to render money more plentiful. This plenty cannot 
 exist without causing a rise of price md for that 
 reason it is popular. But the rise of prices will in- 
 crease the cost of domestic productions, and encourage 
 foreign importations. The only remedy for this effect 
 of paper money is a high tariff. Without it, no benefit 
 can be derived by the industry of the country from 
 the increased amount of money in circulation and 
 the high prices produced by it. Paper money and a 
 high tariff should go together. With a low tariff, a 
 substantial currency is indispensable to the industry 
 of the country. With such a tariff, the only one that 
 can hereafter be obtained, and with such a currency 
 of real money, the industry of the country will take 
 care of itself. 
 
 \ With the large quantities of gold that are constant- 
 ly brought from California by the enterprise of the citi- 
 zens of Massachusetts, there could not be any trouble 
 or inconvenience in supplying, by degrees, the place 
 of the present paper money with the precious metals. 
 To avoid trouble and inconvenience, it ought to be 
 done gradually, by a law to prohibit the circulation 
 of any notes below the denomination of ten dollars. 
 
77 
 
 a 
 
 te 
 is. 
 le 
 In 
 
 after one year from the passage of the act. This 
 would give the banks time to recall the notes of 
 smaller denominations, and for the specie to be circu- 
 lated to take the place of them. 
 
 In England and France, the two greatest commercial 
 countries of Europe, paper money can hardly be said 
 to exist, in the sense in which it exists in the United 
 States. For the Bank of England and the Bank of 
 France, both of which are so organized that those gov- 
 ernments exercise great influence in their manage- 
 ment, are not permitted to issue bills of a denomina- 
 tion so small as to be used in the every-day trans- 
 actions of retail purchases and sales. In England, the 
 lowest denomination of bills is five pounds, equal to 
 nearly twenty-five dollars of our money; and in France, 
 until recently, the limit was five hundred francs, near- 
 ly one hundred dollars of our money. The Bank of 
 France has, within a few years, issued bills for one 
 hundred and two hundred francs, equal to about twen- 
 ty and forty dollars. The smallest denomination of 
 bank-notes in England and France are too large for 
 the common use of the people, their use is confined 
 almost entirely to purposes of trade, or for transactions 
 that require large sums of money. 
 
 Since the peace of 1815, the government has been 
 constantly strengthening the currency of England, 
 which had depreciated during the war. Specie pay- 
 ments were resumed. Notes of a smaller denomination 
 than five pounds were abolished. And, when the Bank 
 of England was rechartered in 1844, it was not in- 
 trusted with the unrestricted power to expand and 
 contract the currency, by its issues of paper money. 
 Its issue of paper without a cash foundation, is limited 
 to fourteen millions of pounds sterling, equal to about 
 
78 
 
 sixty-eight millions of dollars, and it is required to 
 keep that amount specially invested in government 
 stocks. The Bank of England must have specie in its 
 vaults for every note issued for circulation beyond that 
 sum. Thus it has no interest in extending the issue 
 of paper beyond the fourteen millions, as it could not 
 loan or invest it, but would be obliged to keep the 
 amount on hand in bullion or coin. No bank organized 
 since 1844, is allowed to issue any bills for circulation, 
 and a limit is fixed to the circulation of all banks or- 
 ganized before that period. 
 
 Paper money has been sometimes used in times of 
 war, for the purpose of giving to government the 
 control and use of the real money of a country. 
 It exists in Austria and some other despotic countries, 
 where the governments can control it, and where 
 they control all property. But it is only in the 
 United States, that communities can be found willing 
 to delegate to individuals and to private corporations 
 the despotic and sovereign and irresponsible power of 
 furnishing and controlling the currency, which meas- 
 ures the value of all the property of the country. 
 
 It seems strange that any community, aware of the 
 nature and the effects of paper money, should be willing, 
 for any consideration, to transfer to private individ- 
 uals, or to corporations, which are in fact managed by 
 private individuals, the right to furnish for the cur- 
 rency of the country any thing but real metallic money. 
 It is true, that the direct cost of paper money is only 
 the expense and the trouble of the printing and the 
 paper ; but wherever it is used, it regulates the price 
 of all the saleable property in the community. In 
 the United States, paper money is at variance, not 
 only with the fundamental law, but with the policy 
 
79 
 
 of the national government. All the eminent states- 
 men of the country have evidently considered the 
 system of paper money as one which "was only to be 
 tolerated for a time, and that we should, at some early 
 period, come back to the constitutional currency, at 
 least for general use among the people. Mr. Webster, 
 in a speech delivered more than twenty years ago, 
 said, "Of all the contrivances for cheating mankind, 
 none has been more effectual than that which de- 
 ludes them with paper money. This is the most 
 effectual of inventions to fertilize the rich man's 
 field with the sweat of the poor man's brow." And 
 on another occasion he said, "My proposition would 
 be, that banks should be restrained from issuing for 
 circulation bills or notes under a given sum, say ten 
 or twenty dollars ; this would diminish the circulation, 
 and consequently the profits, of the banks. But it 
 is of less importance to make banks highly profitable 
 institutions to the stockholders, than that they should 
 be safe and useful to the community." The use of 
 paper money was long since discontinued by the na- 
 tional government, but it has been permitted, and 
 indirectly protected .and sanctioned, by most of the 
 State governments, though it has never been directly 
 recognized or legalized by any of them as real money. 
 Paper money is an excrescence which has grown np 
 illegitimately on the body politic ; but, as it is based 
 on false principles, it cannot be expected to endure. 
 Either its evils will continue to augment until an 
 enlightened public will no longer bear them, or, an 
 intelligent, judicious, and gradual change to a more 
 substantial, and to a more just system will be intro- 
 duced. By the report of the Secretary of the Treas- 
 ury of the United States to Congress, of the condition 
 
IN' 
 
 hi''' 
 
 t'l!-: 
 
 
 I 11 
 
 80 
 
 of the State Banks, dated May 6th, 1854, their circula- 
 tion was $204,689,207. In an estimate for November 
 of the same year,^ the circulation is $171,417,000. 
 Showing a reduction of more than thirtv-three mill- 
 ions, which fully accounts for some portion of the 
 recent scarcity of money and commercial distress. 
 
 1 Number of banks, bank capital, bank circulation, and specie of each State, Novem- 
 ber, IS&i. From the Boston Post of February 15, 1855. 
 
 State. No. of Banks. 
 
 Maine 67 
 
 New Hampshire . . 88 
 Vermont . . . 
 Massachusetts . . 
 Rhode Island . . 
 Connecticut . . . 
 
 . 41 
 168 
 . 87 
 
 65 
 280 
 
 30 
 . 55 
 . 9 
 
 26 
 . 5 
 
 55 
 . 27 
 
 20 
 
 . 18 
 
 3 
 
 . 25 
 
 41 
 
 . 33 
 
 8 
 
 . 5 
 
 1 
 
 . 6 
 
 58 
 . 33 
 1 
 Wisconsin 22 
 
 Total .... 
 
 " April, 1854, 
 
 New York .... 
 New Jersey . . . 
 Pennsylvania . . . 
 Delaware . . . . 
 Maryland . . . 
 District of Columbia 
 Virginia .... 
 North Carolina . . 
 South Carolina . . 
 
 Georgia 
 
 Alabama .... 
 
 Illinois 
 
 Indiana .... 
 
 Kentucky . . . . 
 
 Louisiana. . . . 
 
 Michigan . . . , 
 Mississippi . . . 
 Missouri . . . . 
 
 Ohio ...... 
 
 Tennessee . . . . 
 
 JLexas ..... 
 
 " July, 1850, , 
 « April, 1849, 
 
 1,227 
 
 1,185 
 . 822 
 
 778 
 
 Capital. 
 
 !!^6, 723,000 
 
 3,576,000 
 
 3,570,000 
 
 56,820,000 
 
 17,712,162 
 
 26,565,279 
 
 84,076,022 
 
 4,447,000 
 
 19,712,371 
 
 1,440,000 
 
 10,515,016 
 
 1,282,300 
 
 13,448,600 
 
 5,011,678 
 
 14,336,735 
 
 7,041,190 
 
 2,300,000 
 
 3,714,000 
 
 3,785,108 
 
 11,330.000 
 
 14,792,600 
 
 1,20(',000 
 
 100,000 
 
 1,208,750 
 
 6,146,141 
 
 10,415,197 
 
 322,000 
 
 1,250,000 
 
 $332,751,154 
 
 303,989,000 
 216,000,000 
 212,000,000 
 
 Circulation. 
 
 $5,317,000 
 3,000,000 
 4,000,000 
 
 24,300,000 
 5,060,000 
 6,640,000 
 
 31,000,000 
 4,800,000 
 
 15,000,000 
 
 1,000,000 
 
 4,300,000 
 
 350,000 
 
 12,000,000 
 
 4,600,000 
 
 6,800,000 
 
 5,000,000 
 
 2,000,000 
 
 2,000,000 
 
 5,300,000 
 
 7,000,000 
 
 5,500,000 
 
 600,000 
 
 150,000 
 
 2,200,000 
 
 7,500,000 
 
 4,900,000 
 
 300,000 
 
 800,000 
 
 $171,417,000 
 
 188,000,000 
 137,000,000 
 120,000,000 
 
 Specie. 
 $1,200,000 
 
 180,000 
 
 200,000 
 3,960,000 
 
 312,000 
 
 800,000 
 14,200,000 
 
 750,000 
 6,000,000 
 
 250,000 
 3,000,000 
 
 300,000 
 4,000,000 
 2,000,000 
 1,000,000 
 1,500,000 
 
 800,000 
 
 350,000 
 1,500,000 
 4,000,000 
 5,000,000 
 
 160,000 
 
 50,000 
 
 1,140,000 
 
 2,444,000 
 
 1,800,000 
 
 100,000 
 
 240,000 
 
 $57,226,000 
 
 60,000,000 
 52,000,000 
 48,090,000 
 
 The circulation and specie of the Southern and Western States are in oart estimated. 
 
81 
 
 It is absurd to suppose, that the prosperity of the 
 United States is the result of the use of paper money, 
 as some of the advocates and admirers of it have 
 asserted. The truth is, that the country has pros- 
 pered in spite of such money; and the energy and 
 enterprise of the people have restored prosperity after 
 convulsions of the currency, occasioned by the use of 
 bank-notes, that would have prostrated for a time any 
 other country. Paper money may have been bene- 
 ficial when the country was drained of its wealth and 
 desolated by the effects of long and expensive wars. 
 But forty years of peace p.nd prosperity, that has only 
 been interrupted by violent contractions and expan- 
 sions of the currency, have increased its wealth to a 
 prodigious extent, leaving no .apology for a "cheap 
 currenc}'," which must from its nature constantly fluc- 
 tuate in value and quantity, and operate with injustice 
 upon all tho pursuits of industry. The intelligent 
 and skilful speculator may find his advantage in 
 watching the changes of such a currency, to secure 
 the profits of the delusive prosperity during the times 
 of expansion, and he may ovoid the losses occasioned 
 by the contractions that follow them. But the pub- 
 lic receive no benefit from these fluctuations of cur- 
 rency. Scotland is often referred to as evidence of 
 the successful use of paper money. If the interest of 
 the stockholders of the banks is the only thing to be 
 considered, the success of the Scotch banks would be 
 satisfactory. A bank failure has rarely occurred there. 
 But if the condition of the population, and of the own- 
 ership of the landed property of Scotland is the re- 
 sult of the use of paper money, it would not commend 
 the system to our legislators. Probably fewer than 
 
 11 
 
im 
 
 W^ 
 
 
 82 
 
 twenty individuals possess the fee of more than three 
 quarters of the whole territory of Scotland. It is said 
 of one of them, that he can ride ninety-nine miles in 
 a straight line without going off his own estates. 
 The laws of primogeniture and entail originated this 
 evil, which the use of paper money may have pro- 
 tected and extended. There are in Scotland men 
 of as great wealth and learning and accomplishment 
 as can be found in any part of the world. But 
 the masses of the people, particularly those who are 
 crowded into the narrow streets and closes of Edin- 
 burgh, Glasgow, and other large towns, are poor, igno- 
 rant, and degraded beyond any thing that an Amer- 
 ican can conceive of 
 
 The suspension of specie payments in Great Britain, 
 in 1797, may have been necessary to enable the gov- 
 ernment to use the coin of the country to pay the ex- 
 penses of the w^ar on the continent ; and a similar ne- 
 cessity may exist again, if the present war with Russia 
 is continued. Paper money was useful in the United 
 States, during the war of the Revolution, when the re- 
 sources of the country were exhausted by desolating 
 and expensive hostilities, which rendered it impossible 
 to provide a more substantial currency. The profitable 
 commerce of the country, during the twenty years 
 that followed the peace, and the adoption of the federal 
 constitution, might have supplied a specie currency with- 
 out inconvenience, which would have secured a per- 
 manent benefit by placing the prosperity of the coun- 
 try on a firmer basis. The suspension of specie pay- 
 ments, during the war of 1812, would certainly have 
 been neither expedient nor necessary, if real moncf/ 
 had been previously introduced into the circulation 
 
83 
 
 of the country, in the place of bank paper. The 
 federal constitution prohibits the use of paper money 
 for currency, but, thus far, selfishness has triumphed 
 over that provision of the constitution. 
 
 The Practice of BanJdng, and Effects of the Currency in 
 
 Neio England. 
 
 There are two errors with regard to currency or 
 money, which have been diligently pressed upon the 
 public, by those who advocate the use of paper money, 
 and upon which all their arguments in favor of it are 
 based. The first is, that paper money, so long as it is 
 redeemable on demand in specie, cannot depreciate, be- 
 cause of the demand for specie which its depreciation 
 would produce. But in fact it does depreciate, and 
 the remedy for that depreciation, by which its value 
 may be restored, is the demand for specie. The opera- 
 tion of that demand, when it occurs, drains the country 
 of its coin, checks suddenly all bank loans, reduces the 
 amount of money in circulation, and produces a decline 
 in the value of all kinds of property. It usually brings 
 dismay and ruin to many, particularly to the enter- 
 prising and industrious of limited means, who have 
 been tempted to extend their business by mere appear- 
 ances of prosperity produced by the increase of paper 
 money, and the consequent depreciation of these paper 
 values. 
 
 The second error is, that, by the use of paper money 
 for currency, the coined money of the country is so 
 much additional capital to be invested for the benefit 
 of the industry of the country. In truth, it will be 
 
84 
 
 
 
 found that the coined money, when paper money is 
 substituted for it, is of more value to export. And it 
 always is exported to pay for the importations of the 
 products of foreign labor to compete with the products 
 of domestic industry ; thereby depriving home industry 
 of any benefit from the rise of prices caused by the 
 additions of paper mone}^ to the currency. 
 
 Another favorite assertion made by those not famil- 
 iar with the subject, or by those whose interests have 
 blinded their powers of reasoning, is that, as to the 
 doctrines of mone}^ or currency, experience is better 
 than theory. With all deference to the teachings 
 of a true experience, may not one presume to ask 
 whose experience is referred to as a guide ? because 
 the experiences of men differ. Every one is apt to 
 refer to his own particular experience. In a legislative 
 assembly, an intelligent agent of some corporation, in 
 the absence of a better argument, announces that he 
 is content with experience, and those v/ho please may 
 go back " to the primary school of theory." But what 
 is his experience ? He may be receiving large sala- 
 ries for different agencies, and may well be content 
 with that experience, particularly when it leaves him 
 leisure also to attend to the business of legislation. 
 At the very moment when one of these agents was 
 expressing in the legislature at Boston his satisfaction 
 with his experience, during a discussion of the cur- 
 rency question, the four hundred workmen employed 
 by one of the corporations of which he was the agent, 
 were on a strike to express their dissatisfaction with 
 the value of money, and discontent with their ex- 
 perience, because it differed so much from the agree- 
 ably? experience of their immediate employer. To re- 
 
85 
 
 fer again to Scotland, where the use of paper money 
 is said to have been most successful, we have noticed 
 how different is the experience of some twenty indi- 
 viduals, who possess the fee of more than three fourths 
 of the whole surface of the land, from that of the 
 masses of the people. The proprietor of the estate 
 before mentioned, who can ride nearly a hundred miles 
 in a straight line without going off his own grounds, 
 might be expected to prefer his experience to any 
 theory, unless he possesses less than the usual degree 
 of selfishness. For him, the paper currency of Scot- 
 land may have proved itself " the most perfect in the 
 world." 
 
 In fact, the truth of any theory must always be 
 tested by the light of experience. If the theory is 
 sound and true, it will harmonize with experience. 
 It may occasionally happen, that the prophetic wisdom 
 of a Newton may suggest true theories in advance of 
 facts afterwards explored. But the ordinary course 
 of a true settlement of principles and theories is by 
 a careful examination of known and well-ascertained 
 facts ; and such theories are to be respected as guides 
 and constitutional laws for future action. Whenever 
 the naked argument of the superiority of experience 
 over theory is used, it is too often prompted by the 
 dictatorial spirit of ignorant conceit, or by some inter- 
 ested motive. 
 
 It is often said that the United States is not yet 
 rich enough, — that it does not possess sufficient capi- 
 tal, to have <i eiouud and substantial currency. If this 
 means that there is not sufficient real money in the 
 country to conduct its business, it is true, and it will 
 continue to be" true, so long as the currency of the 
 
I i;; ■ I 
 
 mi- 
 
 m i: 
 
 '^■■ 
 
 86 
 
 country consists, as it does now, of paper money issued 
 by the banks. The capital or property of the country 
 has accumulated quite sufficiently to constitute the 
 nation one of the first class in wealth. The only dif- 
 ficulty is, that too small a proportion of the property 
 of the country consists of real mone?/. An ample, uni- 
 form, and constant supply of money or currency to 
 conduct business, is essential to the highest prosperity 
 of an industrious people. When that currency con- 
 sists of the precious metals, it is one of the most use- 
 ful, and one of the most valuable to the community, 
 of all the different kinds of property that can exist 
 in a civilized and commercial country. 
 
 It is common to speak of the amount of money 
 invested in any enterprise. But, in reference to any 
 enterprise within the country, the amount of money 
 expresses only the value of the labor and materials 
 that have been invested. The money can only be ex- 
 changed for them. It is not consumed, but remains in 
 the country to perform its useful functions again and 
 again. It is only when the money is exported to pay for 
 the products of foreign labor, that it can be said to be 
 consumed, or used, or lost to the country ; particularly, 
 if it is exported to pay for articles of mere luxury, 
 that are consumed by use without adding to the wealth 
 of th*' country. So far as paper money can be substi- 
 tuted for it, the coined money becomes useless at 
 home, and will be exported. The paper money, that 
 supplies its place, will be constantly fluctuating in 
 amount, as the interest or convenience, the confidence 
 or the fears, of those who issue it may dictate. It 
 therefore affords an unstable and unjust standard by 
 which to measure the value of property. It is as if 
 
87 
 
 the bushel, the gallon, the pound weight, and the yard 
 measures of commerce were by law required to be 
 constructed of such materials that their capacity, 
 weight, and measure were invisibly affected by the 
 wonderful electrical changes which are always taking 
 place about us, and constantly expanding or con- 
 tracting their capacity or solidity. In that case, Pro- 
 fessors Silliman, Pierce, Agassiz, and a few other scien- 
 tific men, might understand what they were about 
 when making purchases or sales. But to the rest of 
 the community, all transactions of trading would 
 prove only a modified sort of lottery, in which the 
 adventurers would be quite at the mercy of the man- 
 agers, or, of the accidental condition of the atmos- 
 phere. If paper money is ever useful to a country, it 
 can only be in great emergencies; and it should be 
 reserved as a resource to supply the means for the 
 defence of the country, when other resources are ex- 
 hausted. At such a time, it may be used for the busi- 
 ness transactions within the country, to release the 
 coin from that service, so that it may be used by the 
 government in the exigency for the common welfare. 
 
 In the applications to the legislature for new bank 
 charters, the principal argument that is always urged 
 is, that the existing banks cannot furnish all the loans or 
 discounts that are asked for. An increase of the bank 
 capital to the greatest extent would not relieve that 
 difficulty. For the increase of the bank loans would 
 only cause an increase of currency, and a rise of 
 prices, and, consequently, a still greater demand for 
 money. The creation of new banks and the increase 
 of bank capital is not a creation of money. So fiir 
 as it consists of real capital, it is only investing funds 
 
88 
 
 that are already in existence, and employed in some 
 other way, in a new company, under the control of 
 a certain set of persons for banking purposes. Most 
 business people, particularly those who are inexpe- 
 rienced, or those who are most enterprising and san- 
 guine, are limited in the extent of their business only 
 by the extent of their capital and the additions they 
 can make to it by credits obtained at banks and other- 
 wise. With any possible amount of banking capital, 
 the demand for bank loans would be unlimited, and 
 beyond what could be satisfied, except occasionally, 
 for short periods, when credit has been extensively 
 impaired by one of the periodical depressions of busi- 
 ness occasioned by fluctuations in the currency. It 
 will always happen that, on discount days at the banks, 
 the amount of money applied for greatly exceeds the 
 amount that can be properly loaned. 
 
 The managers of a bank ascertain from experience, 
 that the aggregate amounts of the circulation and of 
 the deposits of the bank, though constantly varying, 
 are very seldom diminished below a certain average. 
 Therefore they can usually loan with safety a portion 
 of the funds derived from these two fluctuating sources. 
 It is partly from the loans made of these funds that 
 the profits are derived beyond the interest on the 
 capital of the bank, to pay the current expenses, rent, 
 salaries. State tax, and something more than simple 
 interest to the stockholders. The great defect in this 
 practice of banking is the inducement it holds out 
 to the banks to increase, in every possible way, the 
 amount of these fluctuating funds derived from the 
 circulation and the deposits, and upon the faith of 
 their continuance, to loan as large an amount of 
 
89 
 
 them as possible. They are thus enabled at the same 
 time to gratify the customers of the banks with lib- 
 eral discounts, and the stockholders of the banks with, 
 large profits. But in doing this, they often encourage 
 speculation and high prices at a time when, for the 
 security of the banks and the protection of the public, 
 they should be endeavoring to counteract them. 
 
 It is often the case that the directors, Avho manage 
 the banks, are among the largest borrowers of its funds. 
 The speculation and high prices which they have en- 
 couraged, cause large importations, and consequently a 
 demand for specie, which is sure to accompany or to fol- 
 low a period of commercial excitement. The specie in 
 the banks then rapidly diminishes. Every dollar that 
 is paid in is required to meet the demands against the 
 bank. All discounts are stopped, and the most rigid 
 contraction of loans is necessary and unavoidable. It 
 is at such a time, when the business community most 
 need bank accommodations, that the funds derived 
 from the circulation and the deposits are reduced to 
 the lowest point, and that the loans, which have encour- 
 aged speculation and produced the high prices, must 
 be paid back. No blame should be imputed to the 
 banks, or to their directors, for the inconvenience and 
 distress which this causes. They have consulted only 
 the interests of the banks. In doing so, they were 
 true to the system. But it is a defect in the system, 
 that it should be for the interest of the banks to ex- 
 tend their loans, and that they should possess the 
 greatest power to do so, at times when the public good 
 would be promoted by reducing their loans. The 
 interest of the banks is at variance with the public 
 interest. The customers of the banks sustain the loss, 
 
 12 
 
i'.' 
 
 m 
 
 Hi , 
 
 li'N 
 
 90 
 
 whilst the banks have had the profit. At the same 
 time, it must be admitted that the banks could not do 
 otherwise for their own safety than to insist on the 
 payment of all debts as they become due. The banks 
 will presently be relieved by the sacrifices which their 
 customers are obliged to make to meet their engage- 
 ments under this evil and mistaken system. • 
 
 Every business man who owes money to the banks, 
 at those times when it is absolutely necessary for their 
 safety to reduce their loans, should be ready to make 
 every possible effort to fulfil his promises. To pre- 
 vent the commencement and increase of any embar- 
 rassment, he ought to yield to the demands of money- 
 lenders, whatever they may be, if it is necessary to 
 enable him to protect his indorsers. When the crisis 
 is past, it may be well for those business men who 
 have survived it, to consider whether a system of 
 banking, which actually induces such rapid contrac- 
 tions of currency, and such sudden convulsions of the 
 money market, which baffles the prudence and fore- 
 sight of all who use credit in their business, is in fact 
 what it is often declared to be, " the most perfect sys- 
 tem of currency and banking in the world." Should 
 they seriously doubt the merit of " the system," they 
 may wish to encourage some change that will render 
 it better and more useful. Should they seriously de- 
 sire a more rational and a more permanently pros- 
 perous business, and a currency more uniform and 
 more stable, they may be willing to take the risk of 
 rendering it for a time less easy to borrow money. 
 
 Banks and bankers are convenient and useful, not 
 only to merchants and traders, but to the public. In 
 the minds of many, particularly in the New England 
 
91 
 
 States, banks are so much associated with paper money, 
 that it seems to them impo!?isib]o that they should 
 exist without it. The power to issue notes to be 
 used for currency or money is not a necessary attri- 
 bute of a bank ; for banks exist in all commercial 
 countries, and perform all their useful functions as 
 well, and perhaps better, without the power to issue 
 their notes for money, because their action is then 
 more uniform. If the right to issue notes to circulate 
 for currency were taken away from every bank in the 
 United States, the banks would be continued wher- 
 ever they were really useful to the public, and would 
 carry on the business of hanJdng for proper business 
 purposes, and not as mere traders in circulation. The 
 effect of restricting their issues of notes would be to 
 diminish the profits of the banks by reducing the 
 amount of their loans. The effect upon the currency 
 would be, that the j < ious metals would supply the 
 place of the bank-notct as the} were withdrawn from 
 circulation, and the currency would then afford a more 
 permanent measure of value. The opportunities to 
 loan money at exorbitant rates would not so constant- 
 ly occur, but capitalists and the public would become 
 accustomed to receive and to pay the lawful rates 
 for the use of money, and would soon be well satis- 
 fied with the present leg d rate of interest on loans 
 and on their bank-stocks. We should then no longer 
 hear of petitions for the repeal of the usury laws, which 
 are now almost the only safeguard against the rapacity 
 of money-lenders. 
 
 An excess of bank capital and of bank loans^ only 
 stimulates trading and speculation. Such an excess 
 is of no public benefit, though individuals may there- 
 
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 by enrich themselves. The effect of too much bank 
 capital upon the industry of the country is injurious, 
 by encouraging the investment of money in temporary 
 loans for p\irposes of speculation, instead of inducing 
 permanent and productive investments, such as the 
 improvement of lands, the building of ships, railroads, 
 manufactories, and other objects, which give employ- 
 ment to the industry of the country, and are the foun- 
 dations of all useful trade. The object of banks should 
 be to facilitate, by temporary loans, the distribution 
 among the consumers of the products of industry ; but 
 those products are the results of more permanent in- 
 vestments of capital. 
 
 Another bad efiect of an excess of bank capital is 
 its tendency to concentrate the business of the com- 
 munity in the hands of a few large houses, whose 
 wealth and character give them influence in the con- 
 trol of the loans of the banks, enabling them to monop- 
 olize many branches of business through the amount 
 of money which they can temporarily control. The 
 advantage of the possession of great wealth, particu- 
 larly when it is united with the possession of intelli- 
 gence and a general and well-deserved reputation for 
 integrity, will always be as great as should belong to 
 any private individuals. Surely, to the same indi- 
 viduals should not be granted in addition the advan- 
 tages derived from the control of the banks, and the 
 funds supplied by the paper money that is used for 
 the currency of the country. 
 
 Currency or money, when it consists of the precious 
 metals, is one of the items of the property of a coun- 
 try. But it is not property or wealth when it con- 
 sists only of promises to pay money, unless such prom- 
 
93 
 
 ises are the substitute and representative of coin or 
 bullion that is actually held in reserve for the pay- 
 ment of such promises. It is not true, when paper 
 money is substituted for coined money, that the paper 
 is so much additional capital to be invested for the 
 benefit of domestic industry ; but the reverse of it is 
 true ; for the only use that can be made of the coin 
 is to send it abroad to pay for the products of foreign 
 labor. It may increase, for a time, the amount of 
 loans for purposes of speculation ; but it will not in- 
 crease the amount of capital that can be permanently 
 invested for the benefit of industry. 
 
 With a paper currency, property may accumulate, 
 but an accumulation of money is hardly possible. For 
 bank-notes may be hoarded, or may be deposited in 
 the banks ; in the one case they would increase the cir- 
 culation of the bank, and in the other case, the deposit 
 of the bank ; and in either case, the amount is loaned 
 by the bank to be used by others. When deposits are 
 demanded for any purpose by the owners, the bank 
 must withdraw the amount from the use of those to 
 whom they have loaned it. The advocates of paper 
 money claim as its great advantage, that it leaves no 
 money idle in the community ; that there is no money 
 that is not earning something, either for its owner, or 
 for some one who knows better how to employ it. 
 But more important questions are, the purpose for 
 which the money is to be employed? and, is it 
 true, to any great extent, that those who do not 
 own money know better how to employ it than 
 those who do own it ? The owner, rather than ftllow 
 it to remain for a long time idle and unproductive, 
 will seek some useful and permanent mode of investr 
 
94 
 
 
 ■fe' 
 
 ing it. The temporary possessor of it by a loan 
 from a bank may invest it in some speculation in 
 stocks or in merchandise, which he foresees, or fan- 
 cies, some one will need and be obliged to purchase 
 of him at a higher price before he is required to pay 
 back the loan. It is of no kind of importance or 
 benefit to the public, whether the money during this 
 time lays idle or not; but it is of importance and a 
 great benefit to individuals and to the public, that 
 when any important public improvement is to be 
 made, the^e should be capital unemployed that can be 
 usefully and profitably invested. 
 
 So far as paper money is only a substitute and 
 representative of the precious metals, its circulation 
 can neither be of benefit to those who issue it, nor 
 to the public who circulate it ; except that it may be 
 sometimes convenient to use, from the fact that it. is 
 more portable and more easily counted. The profit 
 on the issue of paper money is derived from the 
 amount of the excess of it that can be circulated be- 
 yond the amount of coin that must be kept on hand 
 to meet the demand for its redemption. 
 
 The object of laws to regulate banks which have 
 the right to issue bills for currency, is, to establish a 
 system that will diminish the dangers, and avoid the 
 evil effects, of their imprudent or fraudulent manage- 
 ment. Their paper, which circulates as money, is 
 based on public confidence, and if that confidence 
 should for any reason be impaired or withdrawn, 
 there is great danger that the most prudently man- 
 aged banks would be involved in the ruin, which 
 would be certain to fall upon those which had been 
 conducted in a fraudulent or unskilful manner. To 
 
 J? 
 
 M 
 
95 
 
 be convinced that there is danger of this, it is only 
 necessary to look at the annual reports of the condi- 
 tion of the banks. According to the report for 1854, 
 of the condition of the banks in Massachusetts, their 
 debts, including circulation, deposits, and balances due 
 to other banks, amounted to over fifty-one millions 
 of dollars, payable on demand in specie, of which there 
 was less than four millions in all the banks of the 
 commonwealth. 
 
 If the public suffer by the insecurity of the bills in 
 their possession because of bank failures, it is only on 
 the amount of the bills which they happen to hold; 
 but the inflations and contractions of the currency 
 affect the whole property of the community. An 
 inflation of the currency, and the consequent rise of 
 prices, suddenly enriches those who hold large amounts 
 of property ; and on the other hand, a contraction of 
 the currency, and the consequent fall in the value of 
 property, often renders them bankrupt. Mr. "Web- 
 ster says, "Do these violent fluctuations of currency 
 do good to him who depends upon his daily labor for 
 his daily bread ? They may gratify the greediness for 
 sudden gain, or the rashness of sudden speculation, 
 but they can bring nothing but injury and distress to 
 the homes of patient industry and honest labor. Who 
 are they that profit by this state of things ? They are 
 not the many, but the few ; they are the speculators, 
 brokers, dealers in money, and lenders of money at 
 exorbitant interest." An increase of the amount of 
 money in circulation, by the increase of prices which 
 it produces, may stimulate production ; and if it is an 
 increase of real money, this effect may be of a perma- 
 nent character, and advantageous to the community. 
 
90 
 
 But if it is only an increase of paper money, its effects 
 are usually sudden and rapid. Before any benefit can 
 be derived from the enterprise which it has stimulated, 
 a contraction of the currency too often occurs, entail- 
 ing loss and perhaps bankruptcy on those who have 
 been tempted into new adventures. Any benefit that 
 may result from such a course of business is reaped by 
 money-lenders. 
 
 I 
 
 
 ' 'Hi' 
 
 , ^' 
 
 Facility of establishing Netv BanJcs in Massachusetts ^ and the 
 evil Effects produced hj the large issues of their Notes. 
 
 When an application is made to the legislature for 
 a new bank charter, it cannot be for the purpose of 
 investing money that is lying idle, for such a state 
 of things can hardly exist under the present system 
 of currency and banking in the United States. There 
 is always most demand for the creation of new banks 
 when money is most plenty, because then prices are 
 rising, and many are therefore disposed to increase 
 their business, and for that purpose to increase their 
 facilities for borrowing money. The premium at which 
 bank-stock sells at such a time, is another inducement 
 to subscribe for the stock of new banks. 
 
 In Massachusetts, it is usual for the legislative com- 
 mittee to whom an application for a new bank is re- 
 ferred, to ask for the subscription list for the capital 
 stock. The chairman of the committee examines it 
 with much gravity, Jind with as much intelligence as 
 if he were trying to decipher the hieroglyphics on an 
 Egyptian monument. The petition may be for a bank 
 in Boston, and the chairman of the committee may 
 
 ji 
 
97 
 
 }s it 
 
 as 
 
 an 
 
 )ank 
 
 I may 
 
 happen to be a politician from the interior of the 
 State, specially selected for his peculiar fitness to pre- 
 side over the committee, because entirely unacquainted 
 with business men and with banking. His impartiality 
 may therefore be taken for granted, and he should be 
 presumed to have no prejudices or previously formed 
 opinions on the subject that would prevent him from 
 adopting such views as parties interested may wish 
 him to sustain. 
 
 There is never any trouble in getting a complete 
 subscription list for the stock of a new bank, as it is 
 not necessary either that the parties who subscribe 
 should take the stock, or that they should furnish any 
 money to pay for their subscription if they do take it. 
 If the petition for the charter is granted, before the new 
 bank can be organized, money will probably have 
 become scarce in consequence of the previous rise of 
 prices. And the scarcity will be increased by with- 
 drawing money from other uses, to pay in as capital 
 for the new bank ; that is to say, so far as any money 
 is paid in for the new capital. Fortunately, there are 
 some subscribers to almost every new bank who prefer 
 to pay in the money for their subscriptions. 
 
 It is not necessary that any money should be paid 
 by the subscribers of the capital stock of a new bank. 
 Their subscriptions can be paid by checks drawn on 
 the new bank, and the discounts, made on the same 
 day for the parties who have drawn the checks, being 
 placed to their credit will make the checks good. Or, 
 the checks may be drawn on another bank, and the 
 notes of the new bank paid out for the discounts made 
 on the same day, being deposited at the other bank, will 
 make those checks good. If the checks are sent to the 
 
 13 
 
98 
 
 11'' 
 
 I> 
 
 K 
 U 
 
 lib ' 
 
 i 
 
 i' 
 
 other bank on which they are drawn, and payment 
 demanded at the counter, they must by law be paid 
 in cash or in their notes. 
 
 The statement of the condition of a new bank estab- 
 lished in this way, without the actual payment of any 
 money by the subscribers of the capital stock, would 
 show, at the close of business on the first day, that 
 "the capital" had all been paid in according to law. 
 It would also show a considerable amount on hand of 
 *'ikc bills of other banks ** which had been received for 
 checks drawn on other banks to pay for subscriptions 
 to the capital. And these notes of other banks, being 
 payable on demand in specie, can be called "specie 
 funds." Besides, there would be a respectable " loan" 
 amounting perhaps to one half more than the capital, 
 consisting of the notes that have been discounted for 
 the directors, the subscribers, and other friends of the 
 new bank. Moreover, there would appear a large 
 " amount of deposits" considering that the bank has been 
 in operation only one day, consisting for the most part 
 of the excess of the discounts that have been made 
 beyond the amount paid for checks drawn to pay for 
 subscriptions to the capital stock. The notes of the 
 bank, paid out for checks drawn against deposits, will 
 have made ^^the circulation" a fair one, and it will be 
 daily increased by the efforts of the various friends 
 of the new bank to get the notes into general cir- 
 culation by paying them out in small sums, and in 
 distant places. Some of them will be sent to Mich- 
 igan and other distant States, where they will circulate 
 for a time. But, in such cases, they are usually sent 
 back again "to plague the inventors," just at the times 
 when it is most inconvenient to the bank to see them 
 
99 
 
 return. The shares of the capital stock of this new 
 bank can also be used by the subscribers as security 
 for loans of money from savings banks, trust companies, 
 and other institutions, that never make loans without 
 a pledge of stocks in addition to personal securities. 
 Among the assets of savings banks, there are usually 
 found a large amount of the stocks of new banks held 
 as security for loans. 
 
 Thus, it may he that not one dollar of actual money 
 has been paid into this new bank for its capital. All 
 that is necesmry to establish such a bank, is an act of 
 incorporation. "There is no difficulty in setting a 
 bank in operation with no capital. The character of 
 such a bank rests entirely on the character and re- 
 sponsibility of the debtors to the bank. If managed 
 with prudence and skill, no difficulty occurs. But 
 such institutions, under the best management, are not 
 the proper basis of a general circulating medium." ^ 
 
 The prjsent system of currency, consisting of a 
 constantly fluctuating amount of paper money, is an 
 unjust one. The artificial wealth which it creates, 
 is unfavorable to labor and to capital. It gives a 
 fictitious and uncertain value to property of every 
 kind, which enables the adroit and skilful speculator 
 to take undue advantage of his neighbor. And it robs 
 labor of a portion of its just earnings by increasing the 
 cost of the necessaries of life, thereby depriving the 
 laborer of many of those articles, which he would 
 enjoy with a sounder currency. "It is a mistaken 
 idea that there is any antagonism between labor and 
 capital. They are mutually dependent on each other, 
 
 ^ Hon. Nathan Appleton. 
 
100 
 
 I'" 
 
 W'i'i 
 
 I* 
 
 II: 
 
 hfJ|;lU 
 
 *;#;■! 
 
 and mutually helpers of each other; and he is no 
 friend to the general interests of the State, or to any 
 portion of the people, who would strive to foment a 
 spirit of hostility between them." ^ 
 
 Capital supplies the raw materials, the tools, the 
 shelter, and the food for labor, until its products are 
 completed and disposed of, when it is paid back by 
 their sale. Ex.amine, for example, the investment of 
 the capital of one of our great manufacturing corpora- 
 tions. It is invested in the buildings and machinery 
 which are for the shelter and the tools of the persons 
 who perform the labor, in the necessary stock of raw 
 materials, and in the wages for their work until it is 
 completed and sold. Those persons who perform the 
 labor, agree to take, as wages or salaries, specified and 
 fixed sums for their share of the products. Whatever 
 there may be over, when the products are sold, goes 
 to replace the capital employed, and for profit to the 
 owners of it. If this is a fair statement of the arrange- 
 ment between capital and labor, and if the arrange- 
 ment is fairly carried out, the interests of both are 
 identical. But if, after this arrangement is made, an 
 inflation of the currency is produced by additional 
 issues of paper money, by which the prices of all 
 articles are enhanced, the share of the profits which 
 goes to the owners of the capital will be greatly in- 
 creased, while the value of that which those who per- 
 form the labor have agreed to take as wages or salaries 
 will be greatly diminished by the increased cost of 
 the various supplies needed for the support of their 
 families. 
 
 m 
 
 
 •-■■ri- 
 
 1: 
 
 » Gov. Clifford's Message, 1853. 
 
101 
 
 The most simple way to deprive the mechanics and 
 the laborers of their rightful share in the general 
 prosperity of the country, would be to reduce their 
 wages; and it would be the fairest, because it would 
 be readily understood. But an increase of the amount 
 of money in circulation, which will increase the prices 
 of all kinds of commodities, is quite as effectual, and 
 more easily accomplished, because it is not so quickly 
 comprehended. What great difference can it make 
 to the mechanics and laborers, whether the amount 
 of their wages is reduced, or whether the cost is in- 
 creased of the food, clothing, rent, and other necessary 
 supplies for their support ? It is said they are " as 
 tvell off" when prices are advanced, because they get 
 more for their labor. But that is not true. Commerce 
 regulates, to some extent, the price of labor. The first 
 maxim of trade is to buy where goods are cheapest. 
 If the price of labor is advanced, the cost of production 
 will be increased, and the merchant will then find it 
 more profitable to import goods than to pay higher 
 wages for labor to manufacture them at home. For that 
 reason, and because the profits of manufacturing depend 
 as well upon distant as upon local commerce, wages do 
 not rise in proportion to other things when the currency 
 is extended. Adam Smith has devoted many pages 
 of his " Wealth of Nations," to an explanation of the 
 causes why the wages of labor do not rise equally with 
 other things, when a general rise of prices occurs. He 
 takes it for granted that no one can honestly doubt the 
 fact that wages do not rise equally with other things. 
 The manufacturer, the trader, and the merchant inr 
 crease their profits for a time by the high prices pro- 
 duced by an expansion of the currency ; but the same 
 

 
 ill! 
 
 m 
 
 ii:! 
 
 Hh: 
 
 102 
 
 prices for labor will not supply the same quantities of 
 those necessaries and conveniences, which the laboring 
 classes have been accustomed to have. This produces 
 discontent ; and then commence those " strikes " among 
 workmen, which always occur during seasons of specu- 
 lation and high prices. 
 
 The capital in a country may be distributed in the 
 possession of many persons. Much of it may be pos- 
 sessed by the laborers themselves, as it is in the United 
 States. Or, it may be in large masses in the posses- 
 sion of a few individuals, as it is generally in Great 
 Britain. In either case, the capital is necessary to the 
 industry of the country, for it furnishes the necessary 
 support of labor until Its products are prepared for 
 sale and ready for use. Active capital consists of 
 many different kinds of property, and portions of it 
 in the possession of individuals are constantly varying 
 in form by exchanges, or sales and purchases. The 
 possession of such capital is the possession of the tools 
 and machines to employ, and of the means to support, 
 for a given time, those who perform a certain quantity 
 of labor. 
 
 All labor must derive its support from capital in the 
 possession of the laborer or of his employer, until the 
 labor is completed, and until the object of the labor 
 is ready for sale. No income can be derived legitimate- 
 ly from capital, except by employing it directly or in- 
 directly for the support of industry. Is it expedient, 
 therefore, to sanction the use of an artificial money or 
 capital, that will give its possessor the power to control 
 the supplies necessary for the support of labor ? 
 
 The bill of rights says, " no man, nor corporation, or 
 association of men have any other title to obtain ad- 
 
103 
 
 •ol 
 or 
 
 vantages, or particular and exclusive privileges distinct 
 from the comnumity, than what arises from the con- 
 sideration of services rendered to the public." Banks 
 now acquire, under their charters, the right to issue 
 their promises to pay money on demand to be used as 
 currency or money. This is a right, which is withheld 
 from ati other persons. What services have the banks 
 rendered to the public to entitle them to the particular 
 and exclusive privilege of furnishing the currency? 
 What is it but a monopoly, to say to one set of citi- 
 zens. You may issue promises to pay money on de- 
 mand under certain restrictions, to be used as money 
 by the community, and to refuse this right to issue 
 such promises to another set of citizens, who ask for it 
 on exactly the same conditions ? If it is not the in- 
 tention to establish bank monopolies, but to treat all 
 the citizens of the commonwealth alike, why should 
 not banks, and all other business corporations be, as 
 far as it is possible, established under general laws, 
 which should be free to all who choose to avail of their 
 provisions, and to conform to their restrictions ? There 
 are now on the statute-book in Massachusetts, general 
 laws for the establishment of banks, and of business 
 corporations. If those laws are not perfect, render 
 them so by additional legislation, and require new 
 banks and new business corporations to be formed un- 
 der them, instead of granting special acts ; and amend 
 the laws affecting the existing banks and corporations 
 established by special acts, so that they may conform 
 to the general laws for the establishment of similar 
 corporations. 
 
 The amount of taxes paid by the banks is by some 
 considered a fair remuneration to the State for the 
 
104 
 
 
 m 
 
 I:' 
 
 privileges granted by their charters. That the tax on 
 the banks is not excessive, is evident from the eager- 
 ness with which many of them have recently been ask- 
 ing to increase the amount of their taxes, by enlarging 
 their capitals, and from the constant applications to 
 the Legislature for new banks. The amount of their 
 dividends proves that they can well afford to pay the 
 bank tax. The wisdom of this mode of taxation may 
 be doubted j it is somewhat analogous to the exploded 
 systems of farming taxes,^ and of selling monopolies ; 
 and it is an indirect mode of taxing the labor and en- 
 terprise of the country, rather than the property. 
 
 Laws providing for any changes that will improve the 
 currency and affect property, should be prospective. 
 Ample time ought to be afforded to make the necessary 
 preparations, so that the public may suffer as little 
 inconvenience as is possible. With regard to any 
 changes affecting the currency, particular care should 
 be taken to select the proper time. They should not 
 be urged when the banks are pressed by an active 
 demand for specie, to meet which all their resources 
 may be required. This would temporarily increase the 
 difficulty to the banks and the pressure on the trading 
 portions of the community. Nor should it be attempt- 
 ed at the time when the banks, by increasing their 
 loans and circulation, have commenced another infla- 
 tion of the currency. Because the change to a decline 
 of prices, and the scarcity of money which would fol- 
 low, may at such a period be ascribed to the change of 
 
 m 
 
 ^ It is customary in some countries for the government to farm the reve- 
 nues, — the taxes, imposts, or excise, — to individuals, generally rich bank- 
 ers, who collect them, and pay to the government an amount agreed upon 
 l}($forehand> or a percentage of the amount collected. 
 
 Wm 
 
105 
 
 the laws. The best time to reinforce the currency, and 
 to make any changes in the laws affecting it, with the 
 view of rendering the currency more stable and uni- 
 form in value, will be, after the banks are relieved from 
 a pressure consequent upon a previous inflation of the 
 currency. Probably no better time will ever occur to 
 commence it, and to improve and invigorate the cur- 
 rency, than during this present year of 1855. The 
 severe pressure in the money market of the previous 
 year has diminished the loans and circulation of the 
 banks, has increased their amounts of specie, has re- 
 duced the foreign exchanges below the rates which 
 render the export of specie profitable, and has checked 
 the importations of the products of foreign labor. An 
 improved currency would do much to obviate the com- 
 plaints of the interference of foreign labor with our 
 domestic industry, for it would strike at the root of the 
 difficulty which causes those complaints. 
 
 In proportion to the population, the aggregate of 
 property in the United States probably exceeds that 
 of any other country, if in the estimate of property, 
 the banks and stocks and government debts are omitted, 
 which are only evidences of debt from one portion of 
 the people to another, and therefore do not add to the 
 wealth of the country. The property in our country is 
 spread over a greater surface, than in Europe, being 
 more subdivided, and in possession of greater numbers, 
 instead of being concentrated in large masses in the 
 possession of a few. Our commerce, both foreign and 
 domestic, now exceeds that of any country in the world, 
 except Great Britain. With the precious metals in 
 large quantities from California, and from other quar- 
 ters, which that commerce brings into the country, 
 
 14 
 
106 
 
 ll:"' 
 If 
 
 m 
 
 p. 
 m ' 
 
 i 
 
 I 
 
 ll 
 
 and with a rapidly increasing population devoted to 
 industrial and productive pursuits, the United States, if 
 possessed of a currency of a substantial character, 
 should become the actual, as they are the geographical 
 centre of the monetary affairs of the civilized world. 
 Now, their monetary affairs are controlled by the policy 
 of the Bank of England, and the condition of the Lon- 
 don money market. All that is needed to render the 
 country as independent of Europe in its financial 
 concerns, as it is in its political relations, is to have a 
 larger amount of the wealth of the country invested in 
 the precious metals to be used for currency instead of 
 the paper money that is now substituted for them. The 
 gold and silver of the country, which are now annually , 
 exported to be exchanged for the products of foreign 
 labor, would then be retained in the country, and 
 supply a substantial currency, to be used by our own 
 people, in the conduct of the proper business of our 
 own community. 
 
 The export of specie from the United States during 
 the last four years has been one hundred and eighty- 
 five millions of dollars. The estimate of the amount of 
 bank-notes in circulation in November, 1854, was one 
 hundred and seventy-one millions of dollars. The bank- 
 notes are certainly a cheap currency/, for it does not cost 
 much to manufacture them. It is in consequence of 
 their use, instead of coin, for money, that so much gold 
 has been sent abroad, and the products of foreign labor 
 brought back in exchange for it. If coin had been used 
 instead of bank-notes during the last four years, a great 
 part of the gold that was exported would have been 
 retained in the country, and would be at this time so 
 much addition to the substantial wealth of the country. 
 
 m 
 
107 
 
 It may therefore be said that the use of the bank-notes, 
 instead of coin, for money during those four years, has 
 cost the community an amount in gold more than equal 
 to all the bank-notes in circulation throughout the 
 United States. 
 
 The States of Massachusetts, Connecticut, and Ehode 
 Island are now the great manufacturers of banks and 
 paper money. In proportion to population, the capital 
 and circulation of the banks in each of these States, is 
 more than double that of any other State in the Union. 
 During the last war with Great Britain, when the 
 New England States alone possessed a specie currency, 
 they were the centre of the commerce, and, in a great 
 measure, controlled the trade of the country; and 
 when the United States possess a stable and substantial 
 currency of the precious metals, in connection with their 
 other great commercial advantages, they will become 
 the commercial centre, and may control, in a great 
 measure, the commerce of the world. 
 
 The national government has already done its part 
 to effect the necessary reform of the currency. All 
 that remains to be done is, that the State governments 
 should follow the example, by enacting intelligent and 
 judicious laws for the purpose of introducing gradually 
 the change to a sounder condition of currency. Some 
 of the States have already commenced it, but none 
 have done less towards it than the New England States. 
 The first step in this reform may be, to require all 
 banks to be organized under a general banking law, 
 which would take from them the unpopular stigma of 
 monopolies, and would require the notes used for cir- 
 culation to be obtained from State officers, and govern- 
 ment stocks to be pledged for them, thereby giving to 
 
108 
 
 !' I 
 
 I 
 
 the government of the State a proper security over 
 the currencv of circulation. - . 
 
 The issue of all bank-notes of a smaller denomination 
 than ten dollars, should be prohibited. Gold and silver 
 would be immediately substituted for them with great 
 advantage to the public, and without inconvenience 
 at this time, when large quantities of gold are sent 
 abroad, because there is no use made of it at home. 
 Having gone thus far, if it were found that the benefits 
 of increased stability and uniformity in the currency 
 were obtained, and that there existed a sufficient 
 amount of money for the proper conduct of the business 
 of the community, and increased facility in borrowing 
 monoy at the legal rates of interest, and such would cer- 
 tainly be the result, it might be well then to consider, 
 whether for remittances and for payments of large sums, 
 checks and drafts could not be substituted without in- 
 convenience, and perhaps with some benefit, for many 
 of the purposes for which bank-notes of large denomi- 
 nation are now used. And, in fact, whether any paper 
 money for general circulation, is beneficial to the pub- 
 lic, or to anybody, except the individuals or corpora- 
 tions that issue it. . • 
 
 The effect of withdrawing from circulation the bank- 
 notes of a denomination below ten dollars, would be 
 to produce a temporary reduction of the amount of 
 money in circulation. This would cause a correspond- 
 ing decline in the price of merchandise. Such a 
 decline of prices would diminish for some time the 
 inducements to import foreign merchandise, and leave 
 the precious metals which are now exported to pay 
 for them, to supply the place of the small notes with- 
 drawn from circulation. The decline of prices being 
 
109 
 
 a general one, would tend to stimulate the domestic 
 industry of the country by diminishing the cost of 
 production ; and the consumption of the products of 
 domestic industry would be increased by the lower 
 prices at which they could be afforded. There would 
 still remain the annual .supply of imported necessaries 
 and luxuries, which are paid for by the exports of the 
 surplus products of the country, — the cotton, tobacco, 
 flour, and other articles. And the demand for these and 
 other domestic products to export would be stimulated 
 and increased by the necessity of exporting them to 
 pay for the foreign imports, when the specie of the 
 country could no longer be used for that purpose. 
 
 A considerable proportion of the wealth of the 
 country, at any given period, consists of those com- 
 modities which are consumed by use, such as articles 
 of food and clothing, of which by far the greater part, 
 particularly such as are usually deemed necessaries 
 of life, are the products of domestic industry. While 
 those articles that are less necessary, and which are 
 usually considered as luxuries, are imported from 
 abroad. This is particularly true with regard to the 
 United States, where the diversity of soil and climate, 
 and the active industry of the people, supply most of 
 the wants of the community. Low prices would not 
 diminish the quantity of those common necessaries of 
 life which are supplied by domestic industry, but, on 
 the contrary, would tend to increase their supply by 
 diminishing the cost of producing them. The low 
 prices, caused by the use of the precious metals for 
 currency, would reduce only the supply of imported 
 luxuries, as the gold that is now exported to pay for 
 thorn would be required to take the place of the paper 
 
110 
 
 
 money withdrawn from circulation. That gold would 
 thereby become a part of the permanent wealth of the 
 country. It would be an addition to the wealth of the 
 country that would contribute to the benefit of all 
 classes of the community, and, most of all, to the bene- 
 fit of those who live on wages and salaries. 
 
 To diminish for a few years the supply of imported 
 luxuries, is, in truth, the only sacrifice required to 
 secure to the country a permanent and substantial cur- 
 rency of real money, in place of the paper money that 
 is now used. The benefits of it would extend to the 
 whole public, whereas the paper money, which now 
 constitutes almost our whole currency, in the New 
 England States, benefits only the comparatively few 
 who are connected with the banks that supply it, and 
 operates as an evil and an injury to the community. 
 
 The currency of a country, when it consists of real 
 monei/, operates as a just and natural regulator and 
 controls the extent of business. If the country is 
 prosperous, the currency expands, because the pros- 
 perity, being the result of the profitable employment 
 of the people, increases the amount of money in cir- 
 culation, and diffuses it among the industrious and the 
 enterprising. The prices of commodities and the ex- 
 tent of business are always influenced by the amount 
 of money in circulation ; therefore, when the currency 
 consists of real money, the increased' quantity of money 
 in circulation, and the rise of prices are indications of 
 increased prosperity. Such an increase of money and 
 of ability to purchase are not artificial. They cause 
 prices to rise, and encourage and strengthen all branch- 
 es of industry. If at any time that effect becomes 
 excessive, the demand for specie to export, which it 
 
Ill 
 
 produces, will gradually contract the currency by dimin- 
 ishing the amount of it, and thereby gradually reduce 
 prices and business to just, natural, and proper limits. 
 
 The amount of paper money in circulation is not 
 controlled by any general principles or laws. From 
 its very nature it must, be constantly fluctuating in 
 amount, and the changes must be comparatively ab- 
 rupt and excessive. The increase of it stimulates busi- 
 ness, and produces sudden and artificial enhancement 
 of prices ; but the quantity of it is usually diminished 
 even more suddenly and unexpectedly than it was in- 
 creased, causing often bankruptcy and ruin to many. 
 
 It has been well remarked, that the measure of in- 
 fluence and of actual power is not so much to be 
 reckoned by that which is seen and known to be ex- 
 erted, as by what is supposed to be held in reserve. 
 So the power of currency or money should be, under 
 the control of good laws, not so much in the common 
 and daily power of usefulness that is exerted, but in 
 its actual reserves of power and resources to meet 
 any emergencies. No machine or engine can always 
 be kept in movement at the highest tension of all its 
 faculties and powers. The unreasonable strain would 
 break down the most powerful combinations of mate- 
 rials, if the exertion at all times was fixed at the 
 highest possible capacity and speed. Yet such are 
 precisely the conditions required by the admirers and 
 advocates of our present banking system. It is the 
 very quality for which they admire it. Our banking 
 system is perfect, they say, because under it not one 
 single dollar of coin or of credit can exist in the com- 
 munity that we cannot lay our hands upon and bor- 
 row at some rate or other j leaving no reserves of 
 
112 
 
 IH!'! 
 
 currency for the unforeseen events or accidents of 
 foreign or domestic commerce, — for the possible effects 
 of short or overabundant harvests, — for the sudden 
 breaking out of war, or the equally sudden conclu- 
 sion of peace, — for the expansions and contractions 
 of speculative business seasons, that must under any 
 system occasionally recur, — for innumerable contin- 
 gencies in all parts of the world, which may suddenly 
 become known, and seriously operate upon the money 
 and currency of all commercial nations. 
 
 The object of these pages is to protest against the 
 doctrines and conclusions of those who proclaim our 
 method of banking and currency to be the best in the 
 world, to the end that the evils and disadvantages of 
 the existing system may be examined and remedied. 
 Perhaps in the present interval between the extrava- 
 gant speculations of past years, and the projects of 
 future adventures, it may happen that public atten- 
 tion will be attracted to the important questions that 
 have been considered, and that grave discussion may 
 be excited in respect to them, and some practical and 
 useful results may be obtained. 
 
 If the writer of these few and imperfect pages shall 
 have contributed facts, arguments, or opinions to aid 
 in the establishment of a more complete and rational 
 system of banking and currency, he will have accom- 
 plished his object. Such views as have been set forth 
 are not uncommon among our merchants. It is to be 
 hoped that they may be maintained and upheld by 
 more eloquent and practised writers, though they can 
 hardly obtain the support of any one more sincere- 
 ly convinced of their importance and truth than their 
 present advocate. 
 
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