THE LEGAL TENDER 
 PROBLEM 
 
 By PERCY KINNAIRD
 
 UNIVERSITY OF CALIFORN 
 AT LOS ANGELES
 
 The LEGAL TENDER 
 PROBLEM 
 
 By Percy Kinnaird 
 
 Of the Nashville Bar 
 
 CHICAGO 
 
 AINSWORTH & COMPANY 
 1904
 
 Copyright, 1904 
 By PERCY KINNAIRD
 
 PREFACE 
 
 The author desires to state that he has relied upon the 
 following Government publications in the preparation of 
 his work ; viz., the Messages and Papers of the Presidents ; 
 the Report of the Silver Commission of 1876; the Reports 
 of the International Monetary Conferences of 1867 and 
 1878, and notes by Mr. Dana Horton ; the Reports of the 
 International Ivlonetary Conferences of 1881 and 1892; the 
 Madison Papers ; the Laws relating to Loans,, Currency, 
 Banking, and Coinage, 1886; the History of the Currency 
 of the Country, and the reports of the Decisions of the Su^ 
 preme Court of the United States. 
 
 For such matter in his discussion of the Dartmouth 
 College case as is not to be found in the reports, he is in- 
 debted to the pamphlet of Judge Otis, of the Chicago Bar. 
 
 He desires to acknowledge his indebtedness to Stephen 
 J. CoWell's "Ways and IMeans of Payment" for his obser- 
 vations upon the Bank of Venice and the Money of Account, 
 and to " Our Money Wars " for its many suggestive facts. 
 
 ;i8S033
 
 " 5 ! «' ' 
 
 
 : t c t 
 
 ' -< I r
 
 CONTENTS 
 
 PAGE 
 
 Introduction 7 
 
 Financial and Economic Errors 31 
 
 The Bank of Venice 39 
 
 Colonial Finance 49 
 
 The War for Independence 61 
 
 The Bank of North America 74 
 
 The Four Years' Struggle 78 
 
 Constitutional Convention 91 
 
 Statement of the Debt 99 
 
 The First Bank of the United States 104 
 
 "Money of Account" 113 
 
 State Banks 130 
 
 The War of 18 12 and the Treasury Notes 137 
 
 3. The Origin of th e Factio nal Parties 144 
 
 The National-Bank Faction 147 
 
 The Second Bank of the United States 155 
 
 The Fight Against the Treasury Notes Continued 160 
 
 ^The War of the Banks 165 
 
 ^Dartmouth College vs. Woodaro 170 
 
 McCullough vs. State of Maryland 187 
 
 ,,j!i^~^EPbRT OF W. H. Crawford .^ 209 
 
 A Change in Finance 228 
 
 ■-Missouri Bills of Credit .:. 240 
 
 The Death of the Second Bank of the United 
 
 States 246 
 
 5
 
 6 ConteJits 
 
 PAGE 
 
 The Change from 15 to i to 16 to i 248 
 
 President Jackson's Farewell Address 254 
 
 President Van Buren's Administration 256 
 
 — The Supreme Court Saves the State Banks.'. .. 261 
 
 ^^The First Independent Treasury 266 
 
 The Propertyj:Ri.ghts Faction in Control 268 
 
 The Warfare of the Bank of the United States 
 
 Against President Tyler 270 
 
 Forced to Issue Treasury Notes . . K^. 274 
 
 President Polk's Administration 279 
 
 From a Republic to an Empire 290 
 
 Administrations of Taylor and Fillmore 295 
 
 Lincoln's Financial Method. 305 
 
 The Conspiracy of the Bankers 313 
 
 The Negro in Finance 319 
 
 >he Political Duty of the Negro 331 
 
 " Index 337
 
 INTRODUCTION 
 
 The economic, social, and political life of man is deter- 
 mined by the method of procedure adopted by the Govern- 
 ment for the production of commodities, and by the method 
 of procedure adopted for the distribution or dispersal of 
 the surplus commodities among the people. 
 
 The method of procedure for the production of com- 
 modities is very easily arranged, and the arrangement is 
 simplified by allowing every one to choose any profession 
 or follow any pursuit that his taste, inclination, and means 
 may prompt. 
 
 This liberty of action may be termed Individualism, 
 Industrial Freedom, or Liberalism, and is the generally 
 accepted method in all civilized countries. While theoret- 
 ically this is true, it is evident that equality of right and 
 opportunity is not secured to the individual in practise ; for 
 under the governmental and economic policies in operation, 
 all opportunity to make a profit, if not a living, in many 
 fields of production has disappeared. Not only has equality 
 of right and opportunity disappeared in many fields of 
 production, but it is becoming evident that it will, in the 
 course of time, under the trend of present practises, dis- 
 appear in all. 
 
 The imminence of this danger has become alarming, and 
 the doctrinaires have for years been calling attention to the 
 results of the cause, and are endeavoring to show how its 
 final termination — the serfdom of the people — may be 
 warded oflF, without being able to point out the true cause. 
 
 The cause which operates to withhold equality of right 
 and opportunity in practise from the many, in both the crea- 
 
 7
 
 ^ Introduction 
 
 tion and exchange of products, notwithstanding they may 
 have said equahty |in theory, may be found in the method 
 of procedure adopted for the distribution or exchange of 
 products. This cause has not been, and it seems can not 
 be, ascertained by the economists ; and in their inability to do 
 so they are content, as one class, to accept the present method 
 and tinker with it, or, as another class, to take advantage 
 of its abuses and advocate Socialism, or Government owner- 
 ship, as the logical sequence. 
 
 The Socialists have long since disparaged their intellec- 
 tual capacity in the cessation of their efforts to ascertain 
 the true cause ; but realizing, under its operation, that the 
 favored few are fast becoming owners of all the wealth of 
 the country, they flatter themselves that they are evangels of 
 economic and political light in the announcement that the 
 state, or the collective people, must purchase or take from 
 the favored few the wealth they have absorbed, and hold it 
 for the use and benefit of all. 
 
 This phantasm of economic nightmare dreamers has been 
 the bane of the centuries, and has caused more and bloodier 
 revolutions than all other economic principles ; but when 
 the revolutions had spent their force, the unknown but pro- 
 voking cause remained to drive conditions on to other and 
 similar revolutions. The undetected dominant cause must 
 be ascertained and removed before permanent relief can be 
 secured. The indirect effect only of the practical workings 
 of the cause appears in the creation of products. Neither 
 the cause nor its direct effect is to be found there, for its 
 operation is retroactive. 
 
 This conclusion is forced by the consideration that no 
 better method of procedure for the creation of products 
 could be devised, thought of, or originated than to secure 
 to each individual the privilege to labor in such fields of pro-
 
 Introduction 9 
 
 duction as his taste, talents, capacity, and means would 
 incline him. Liberty of action in the exercise of man's 
 endowments is all that the individual needs, is all that he 
 could ask, is all that should be given him ; for what more 
 could he use, if more could be given? 
 
 Since only the effect of the cause could, therefore, appear 
 in the creation of products, — and there are only two general 
 principles involved in man's economic, social, and political 
 existence, viz., the method of procedure for the creation, 
 and the method of procedure for the exchange or distribu- 
 tion, of the surplus products, — it is evident that the unknown 
 cause must be found in the latter. 
 
 If the cause is to be found in the method of procedure 
 for the exchange of products, it is important, in order that 
 the erroneous cause may be detected, to determine what is 
 the best and scientific manner in which products should be 
 exchanged. All economists agree that the exchanges should 
 be made equitably ; that is, the producer should receive a full 
 and fair equivalent for his labor upon the product 
 
 The scientific method of procedure for the exchange of 
 the surplus products is, therefore, the solution of the prob- 
 lem : How can the surplus be so exchanged as to secure to 
 the producers a full and fair equivalent for the value of 
 the labor expended in creating the product? If securing to 
 the producers a full and fair equivalent for the value of 
 their labor is the sole object in devising a method of pro- 
 cedure for the exchange of the surplus products, then labor 
 is the source of all value ; and by the value of labor, the value 
 of everything else should be determined and regulated. 
 
 But how is the value of labor to be determined? and 
 after it is determined, how is it to be expressed? Political 
 economists are of the opinion that labor is the source of all 
 value, and that the value of every other thing should be
 
 lo Introduction 
 
 determined and measured by its value, but they have been 
 unable to determine and express the value of labor. 
 
 In order that the value of labor, and " words " convey- 
 ing the ideas of those labor values, might be determined 
 upon, it was necessary to establish a unit of labor value, and 
 coin a " word " to represent the unit and convey its idea 
 of labor value, and also to coin " words " to represent its 
 multiples and subdivisons. 
 
 No economist has been able to do this. They admit 
 that it is an impossibility ; and since they are not able to 
 devise a method of procedure for the exchange of products 
 without the use of a unit of labor value, and since they^can 
 neither coin nor discover a word or expression that could 
 be used to represent or convey the idea of the unit of labor 
 value, they are compelled, as they admit, to reduce products 
 to their money values, in order that their exchange may be 
 arranged and effectuated. They have, therefore, adopted 
 the money unit as the unit of value, and have taught, and 
 to-day teach, that the method of procedure for the equitable 
 exchange, or distribution, of products should be based upon 
 the values of the products after they have been reduced to 
 their money value. 
 
 The solution of the problem of the scientific method of 
 procedure for the exchange of products is involved in 
 determining what has been done, when the products have 
 been reduced to their money values, before and in order that 
 their exchange may be effected. 
 
 Syllogistically expressed, the matter would be as fol- 
 lows : — 
 
 Labor is the source of all value, and by its value the 
 value of every other thing should be determined and regu- 
 lated. 
 
 Products are the result of labor, and their values are the
 
 Introduction u 
 
 value of the labor that has been expended upon them in pre- 
 paring them for man's use and enjoyment. 
 
 The value of products can only be legally expressed in 
 dollars, dimes, cents, and mills, in the United States; ergo, 
 dollars, dimes, cents, and mills are expressions of labor 
 value. But the expressions, or words, dollars, dimes, cents, 
 and mills, are the language of finance, or " the money of 
 account " of the United States. 
 
 The unit of value of the " money of account " of the 
 United States is the " word " dollar ; ergo, the " word " dol- 
 lar, the unit of the " money of account " of this country, is 
 the labor unit of value, inasmuch as dollars, dimes, cents, 
 and mills are labor expressions of value, and the only way 
 in which the value of products can be expressed. 
 
 In scientific accuracy of expression, has the labor value 
 of products been expressed in money when the values of 
 products have been reduced to their expressions of value 
 in the "words" dollars, dimes, cents, and mills? The 
 products have only been expressed in their labor values when 
 they have been reduced to their expressions of value in dol- 
 lars, dimes, cents, and mills — our " money of account." 
 
 " Money of account," or the language of finance, is com- 
 posed of the " words " coined by tjie people to indicate and 
 determine the labor values of their products ; for " money of 
 account ' is the growth of a vocabulary among a people to 
 express their abstract idea of the labor value of their prod- 
 ucts, which was necessary to enable them intelligently and 
 equitably to effect exchanges. 
 
 This scientific truth, so important in forming a method 
 of procedure for the exchange or distribution of products, 
 has escaped the penetration of the economic writers of the 
 past, and is ignored by, or unknown to, those of the present 
 day. Protracted ignorance of this scientific truth (due to
 
 12 Introduction 
 
 fetish worship of the metals gold and silver) accounts for 
 the erroneous financial system in operation. 
 
 If the " words " that constitute the " money of account " 
 are but the abstract expressions of labor values, and if it is 
 necessary to reduce the value of products to the expressions 
 of their labor value to make equitable exchanges, and if it 
 is also necessary that tokens, counters, or representatives 
 of these abstract expressions of labor values should be 
 emitted to effect those exchanges, is it not essential that 
 they shall be so issued, or emitted, as to preserve the labor 
 values in which they are emitted? Herein lies the solution 
 of the scientific issue of tokens, counters, or the represent- 
 atives of the abstract expressions of labor values, or what 
 is commonly known as money, or what more scientifically 
 may be called the method of procedure for the exchange or 
 distribution of products, — the second of the two grand divi- 
 sions of all economic, social, and political principles. 
 
 The representatives of the abstract expressions of labor 
 values should be so issued that they will secure that equality 
 of right and opportunity in the exchange of products that 
 is secured by industrial freedom, or liberalism, in the cre- 
 ation of products ; and it is evident that this can not be 
 accomplished unless they are so issued that they will retain 
 the labor expressions of value in which they are necessarily 
 emitted. 
 
 Inasmuch therefore as labor is the source of all value, 
 value, as an abstraction, may be defined as the relative util- 
 ity or exchangeability of products to each other, considering 
 only the labor that has been expended in preparing the 
 products for man's use and enjoyment, and which finds its 
 expression in the " words " coined and used to express this 
 relative utility or exchangeability. 
 
 Since representatives conveying the meaning of the labor
 
 Introduction I3 
 
 value inherent in the " words " that are used to name them, 
 have to be issued to aid in the exchange of products, it is 
 evident that they should and must be so issued as to retain 
 and preserve the value implied by the use and inherent in 
 the " words " they represent. 
 
 It is proper now to consider how the representatives of 
 the " money of account," or the representatives of the 
 abstract labor expressions of value, are issued. Under the 
 financial system that has been in operation for centuries, 
 the metals, gold and silver, have been given the exclusive 
 right to act as representatives of the " money of account " 
 of the different nations. Is the expression of labor value, 
 in which the representatives of the " money of account " 
 are always issued, preserved when they are made out of 
 gold and silver? 
 
 The effect of bestowing upon gold and silver the sole 
 and exclusive right to act as the representatives of the 
 "money of account," operates to change the value of the 
 representatives from their expressions of labor value to the 
 value of gold and silver. 
 
 Therefore when gold and silver are used, and the abstract 
 expressions of labor value are represented by concrete ex- 
 pressions of gold and silver legal-tender coins, value, as a 
 concretion, may be defined as the relative utility or exchange- 
 ability of products to each other, considering only the labor 
 that has been expended in securing and preparing the gold 
 and silver for man's use and enjoyment, and which finds its 
 expression in the coins bearing the name of the " words " 
 of the " money of account " that are used to express this rel- 
 ative utility or exchangeability. 
 
 This change in the value of the representatives of the 
 " money of account " from their scientific and natural ex- 
 pression of the labor values they were originated to express,
 
 14 Introduction 
 
 to the enacted and artificial value of the gold and silver coins 
 they are made to convey, works all that injustice to the pro- 
 ducers, and all that undue advantage of the favored few, that 
 has so sorely afflicted the world for centuries. 
 
 Adam Smith saw, but did not comprehend, the disastrous 
 workings of the change. Its practical operation completely 
 nullified the efficiency of his otherwise great work, " The 
 Wealth of Nations." Instead of detecting the error, and 
 consequent abuses inherent and involved, in changing the 
 representatives of the " money of account " from their ex- 
 pressions of labor value to the concrete value of gold and 
 silver, he, in his ignorance of " money of account " and the 
 history of its origin and growth, accepted the heresy of the 
 centuries ; viz., that gold and silver were the only substances 
 fit to be used as the representatives of the " money of 
 account ; " or, as he understood and termed it, they were 
 the only substances fit to be used as money. 
 
 Mr. Smith, however, insisted that labor was and should 
 be the source of all value, and by its value the value of 
 other things should and must be measured and regulated; 
 but as he had no comprehension of " money of account," 
 nor knowledge of what the " words " that compose it were 
 originated to convey, or that its unit was the labor unit of 
 value, he was compelled to make the mistake of accepting 
 as the unit of value the concrete gold and silver expressions 
 of that unit. 
 
 It is impossible for the human intellect, however pro- 
 found, to change for the better that which, in the necessity 
 of things, a people have been compelled to originate and 
 develop, as the chief ingredient of their prosperity, in their 
 progress along the pathway of civilization. 
 
 The labor unit of value, and its multiples and subdivi- 
 sions, as set forth in the " money of account " of a people, is
 
 Introduction i5 
 
 the growth, born of their necessities, of their highest intclH- 
 gence ; and it is unwise for it to be ignored and set aside 
 for a substitute devised by man, to assist and promote a 
 heresy that avarice and hist for power has foisted upon civ- 
 iHzation. 
 
 Mr. Smith, ignoring the fact that the unit of the " money 
 of account " was the labor unit of value, endeavored to 
 devise an honest and scientific substitute labor unit of value 
 in order that an equitable exchange of products might be 
 made. This he was unable to do; and he therefore was 
 driven, as all economists, prior and subsequent, have been, 
 to reduce products to their expressions of labor value as set 
 forth in the "money of account," but which, he erroneously 
 supposed and assumed, was their money value, or value 
 measured by gold and silver. 
 
 Mr. Smith was an economic student and teacher, endeav- 
 oring to ascertain and set forth the nature and causes of the 
 wealth of nations. His purpose was to analyze the processes 
 of the method of procedure for the creation and exchange 
 of products, in order that he might detect and point out the 
 errors of the system in operation, and indicate the correct 
 method. 
 
 His acceptance of the heresy that gold and silver should 
 have the exclusive right to act as the representatives of the 
 " money of account," or that gold and silver coins were 
 money, and therefore value that measured and regulated the 
 value of all other things, vitiated his reasoning. The injus- 
 tice and oppression arising out of the natural, legal, and 
 practical operation of such a system confronted him; but 
 as he neither knew nor comprehended the cause, he endeav- 
 ored to explain or adjust his reasoning to meet these con- 
 ditions. 
 
 In discussing the measure or value of products, he writes :
 
 i6 Introduction 
 
 " Every man is rich or poor according to the degree in 
 which he can afford to enjoy the necessaries, conveniences, 
 and amusements of human hfe. But after the division of 
 labor has once thoroughly taken place, it is but a very small 
 part of those with which a man's own labor can supply him. 
 The far greater part of them he must derive from the labor 
 of other people, and he must be rich or poor according to 
 the quantity of labor which he can command, or which he 
 can afford to purchase. The value of any commodity, there- 
 fore, to the person who possesses it, and who means not 
 to use or consume it himself, but to exchange it for other 
 commodities, is equal to the quantity of labor which it 
 enables him to purchase or command. . . . Labor, therefore, 
 is the real measure of the exchangeable value of all com- 
 modities." — "Wealth of Nations," Vol. i, page 45. 
 
 The statement that labor is the real measure of the 
 exchangeable value of all commodities, was the conclusion 
 of Mr. Smith's previous examination of the subject, and has 
 not and can not be successfully refuted. The application 
 of the principle is wherein Mr. Smith failed; and this was 
 solely due to his acceptance of the error that gold and silver 
 were and should be money, and therefore the value that 
 measured the exchangeable value of all commodities. 
 
 If labor is and should be the real value with which the 
 value of other things should be measured and regulated in 
 making exchange of products, and gold and silver are the 
 value by which they are measured and regulated, then gold 
 and silver coins should represent the value of labor, and be 
 its equivalent at all times, in order that exchanges might be 
 equitable. 
 
 Mr. Smith realized this; and though he saw that the 
 measure of the value of commodities was being made by 
 gold and silver, and not by labor, he writes : " In order to
 
 Introduction i? 
 
 investigate the principles which regulate the exchangeable 
 value of commodities, I shall endeavor to show, first, what 
 is the real measure of this exchangeable value, or wherein 
 consists the real price of all commodities ; secondly, what are 
 the different parts of which this real price is composed or 
 made up ; and, lastly, what are the different circumstances 
 which sometimes raise some or all of these different parts of 
 price above, and sometimes send them below their natural 
 or ordinary rate ; or what are the causes which sometimes 
 hinder the market price, that is, the actual price of com- 
 modities, from coinciding exactly with what may be called 
 their natural price.'" — "Wealth of Nations," Vol. i,pp. 44, 45. 
 
 In his effort to ascertain what is the real measure, he 
 writes : " But though labor be the real measure of the 
 exchangeable value of all commodities, it is not that by 
 which their value is commonly estimated. It is often diffi- 
 cult to ascertain the proportion between two different kinds 
 of labor. . . . 
 
 " Every commodity besides, is more frequently ex- 
 changed for, and thereby compared with, other commodities 
 than with labor. It is more natural, therefore, to estimate 
 its exchangeable value by the quantity of some other com- 
 modity than by that of the labor which it can purchase. 
 The greater part of people, too, understand better what is 
 meant by a quantity of a particular commodity than by a 
 quantity of labor. The one is a plain, palpable object; the 
 other an abstract notion, which, though it can be made suffi- 
 ciently intelligible, is not altogether so natural and obvious." 
 — Id., pages 48, 49. 
 
 This abstract notion which Islv. Smith dismisses as not 
 so natural and obvious, was the " money of account," which 
 speaks in the expressions of labor value whenever a value is 
 given products. Continuing his search for the real measure,
 
 i8 Introduction 
 
 he writes : " But when barter ceases, and money has become 
 the common instrument of commerce, every particular com- 
 modity is more frequently exchanged for money than for 
 any other commodity. . . . Hence it comes to pass, that the 
 exchangeable value of every commodity is more frequently 
 estimated by the quantity of money than by the quantity of 
 either labor or of any other commodity which can be had 
 in exchange for xt:'— "Wealth of Nations," Vol. i, page 49. 
 
 Mr. Smith has very evidently overlooked two very im- 
 portant things, and the failure to recognize and take them 
 into consideration at once proves embarrassing. He over- 
 looked the fact that the language of finance, to which he 
 reduced the products to ascertain their value, is the labor 
 expressions of their value, and not their value in gold and 
 silver coins; and he also overlooked the fact that ninety- 
 seven per cent of all exchange of commodities is merely 
 exchanging commodities with commodities, after reducing 
 them to their expressions of labor value in the " money of 
 account," and that only three per cent of the exchanges are 
 made by exchanging commodities for gold and silver coins, 
 or money. 
 
 He realized the trouble he was drifting into when he 
 decided that the real measure of the exchange value of all 
 comriiodities was concrete money, as he thought, when in 
 fact it was merely expressions of labor value ; and, in a foot- 
 note, he defines the sense in which he used the word 
 " money," as follows : " The most accurate, and at the same 
 time the most familiar and easily understood, definition of 
 money is given by considering it entirely as a measure of 
 value, in the same manner that an inch or a foot is the 
 length of an object. It is best, in the consideration of 
 metal, as money, to think nothing of intrinsic value, then the 
 idea becomes more simple and clear than when there is a
 
 Introduction i9 
 
 confusion between the money as a measure and as mer- 
 chandise." 
 
 If intrinsic vakie of the metals is ehminated, then money 
 is the mere representative of the abstract expression of labor 
 value, or " money of account ; " but if not, then to the extent 
 that- the intrinsic value of the metal operates in the meas- 
 urement of values, it is error, according to Mr. Smith's def- 
 inition of the sense in which money should be considered. 
 
 Confronted by the element of intrinsic value in the real 
 measure he was forced to accept, he, in his ignorance of 
 " money of account," continues as follows : " Gold and silver, 
 however, like every other commodity, vary in their value ; 
 are sometimes cheaper and sometimes dearer, sometimes of 
 easier and sometimes of more difficult purchase. The quan- 
 tity of labor which any particular quantity of them can pur- 
 chase or command, or the quantity of other goods which it 
 will exchange for, depends always upon the fertility or bar- 
 renness of the mines which happens to be known about the 
 time when such exchanges are made. . . . But as a meas- 
 ure of quantity, such as the natural foot, fathom, or handful, 
 which is continuously varying in its own quantity, can never 
 be an accurate measure of the quantity of other things, so 
 a commodity which is itself continually varying in its own 
 value can never be an accurate measure of the value of 
 other commodities. ... 
 
 "Labor alone," he adds, "therefore, never varying in 
 its own value, is alone the ultimate and real standard by 
 which the value of all commodities can at all times and 
 places be estimated and compared. It is their real price; 
 money is their nominal price only." — "Wealth of Nations," 
 Vol. I, pages fjo, 5/. 
 
 The above shows that Mr. Smith fully appreciated, 
 though he did not understand, the discrepancy that arose
 
 20 Introduction 
 
 in practise between the labor value in which products are 
 created and should be exchanged, and the gold and silver, 
 or money value, in which they are exchanged. In his fetish 
 worship of gold and silver, as money, he is content to desig- 
 nate the labor value of commodities as their real and natural 
 price, and their exchangeable value as their market, money, 
 or nominal price, meaning thereby the legal-tender money 
 products will command under the system he accepted. 
 
 " Labor, like commodities," he writes, " may be said to 
 have a real and a nominal price. Its real price may be said 
 to consist in the quantity of the necessaries and conveniences 
 of life which are given for it : its nominal price is the quan- 
 tity of money. The laborer is rich or poor, is well or ill 
 rewarded, in proportion to the real, not the nominal, price 
 of his labor. The distinction between the real and the nom- 
 inal price of commodities and labor is not a matter of mere 
 speculation, but may sometimes be considerably used in prac- 
 tise. The same real price is always the same value ; but on 
 account of the variations in the value of gold and silver, the 
 same nominal price is sometimes of very different values." 
 — "Wealth of Nations," Vol. i, page 52. 
 
 This makes it incumbent upon him, in order that he may 
 pursue his examination of the subject, to define the word 
 " price," which he does as follows : " The real price of every- 
 thing, what everything really costs to the man who wants 
 to acquire it, is the toil and trouble of acquiring it." — Id., 
 page 46. 
 
 This is only another way of asserting that the labor 
 expended in creating the product is its real price or value. 
 
 " What everything is really worth to the man who has 
 acquired it, and who wants to dispose of it or exchange it 
 for something else, is the toil and trouble which it can save 
 to himself, and which it can impose upon other people " — Id.
 
 Introduction 21 
 
 This statement involves two transactions ; one, Mr. Smith 
 had no comprehension of, and the other, he misconceives 
 and distorts. 
 
 The exchange between the man who produced and the 
 man who acquired may be made without the aid of gold and 
 silver coins. It is done by the use of the expressions of 
 labor value, or " money of account," to determine the dif- 
 ferent values of the products of each ; and the difference, if 
 any, stands as a balance of labor value due by one to the 
 other, expressed in the " money of account," for which a 
 note or other evidence of debt may be given, to be paid in 
 the future by an equivalent labor value in some product. 
 
 It is only in such transactions that real price means " the 
 toil and trouble which the acquired can save to himself," for 
 in such cases both have acquired the products of the other 
 through the use of " money of account," which was neces- 
 sary to express the labor value of the products of each, in 
 order that they might intelligently effect an equitable ex- 
 change. This was accomplished without the aid of, or with- 
 out any reference to, gold and silver coins as the measure of 
 value of the products. 
 
 In its more varied and larger operations this class of 
 transactions is conducted by " the credit system," or book- 
 keeping, wherever there is a mutual exchange of products at 
 their labor expressions of value ; of which an account is kept 
 by each upon books in " money of account," or labor ex- 
 pressions of value, and the balances only are settled with 
 gold and silver coin, or actual legal-tender money. 
 
 Representatives of the labor expressions of the value of 
 the products are issued as aids to " the credit system," or 
 bookkeeping, as it is called, and they are notes, inland and 
 foreign bills of exchange, drafts, bills of lading, warehouse 
 receipts, and other devices employed. Ninety-seven per cent
 
 22 Introduction 
 
 of all exchanges, or of the volume of business, are conducted 
 by the credit system, aided by representatives of the labor 
 expression of the value of the products, and only the bal- 
 ances are settled in actual or legal-tender gold and silver 
 money. 
 
 The manner in which ninety-seven per cent of the vol- 
 ume of business is conducted was ignored or not under- 
 stood by ]\Ir. Smith, and he makes its success dependent 
 upon the second class of transactions involved in the last 
 clause of the paragraph, which reads, " and which it can 
 impose upon other people." 
 
 This second class of transactions includes those who pur- 
 chase with gold and silver coins, or legal-tender money, the 
 surplus products. Mr. Smith stated but half a truth when 
 he wrote, " What everything is really worth to the man who 
 has acquired it, and who wants to dispose of it or exchange 
 it for something else, is the toil and trouble . . . which it can 
 impose upon other people." He 'could have rounded his 
 sentence into a full truth by the statement that what every- 
 thing is really worth to the man who has acquired it by 
 purchase with gold and silver coins, or legal-tender money, 
 is the sacrifice of toil and trouble he can and does impose 
 upon the producer, from whom he purchases, and under cer- 
 tain conditions the toil and trouble he imposes upon the con- 
 sumer, to whom he sells. 
 
 Mr. Smith evinces no appreciation nor comprehension 
 of the half truth his enforced observation, or may be his 
 experience, compelled him to admit ; for in his desire to be 
 true to his conclusion that " labor is the real measure of 
 the exchangeable value of all commodities," he writes that 
 " what is bought with money, is purchased by labor, as much 
 as what we acquire by the toil of our body. That money 
 . . . indeed saves us this toil. They contain the value of a
 
 Introduction 23 
 
 certain quantity of labor, which we exchange for what is 
 supposed at the time to contain the value of an equal quan- 
 tity." — "IVcalth of Nations," Vol. i , pai^cs 46, 47. 
 
 It does not follow as a non sequitur, that because that 
 which a man purchases with his legal-tender money con- 
 tained the value of a certain quantity of labor, the metal in 
 the legal-tender money had been obtained only upon the 
 expenditure of an equal quantity of labor ; nor does Mr. 
 Smith contend that it does. He is satisfied with the state- 
 ment that it is supposed at the time to contain an equal 
 quantity of labor. 
 
 Mr. Smith's supposition was based upon the use that had 
 been made of gold and silver through the centuries, but he 
 overlooked the fact that it required the full power of the 
 Government, as expressed and enforced by its legal-tender 
 enactments, to make the producer part with his product for 
 the money at that supposed value. 
 
 The power of legal tender, when bestowed as an exclusive 
 right upon gold and silver, forces the people to purchase 
 with their products from the owners of gold and silver the 
 metal representatives of their " money of account," in order 
 that they may first create and then exchange their products 
 in their efifort to make a living. 
 
 Dependent for their existence upon the use of represent- 
 atives of their " money of account," and denied the right 
 by the Government to issue legal-tender representatives, the 
 people are compelled to issue their representatives at the 
 labor expressions of value, and purchase all the legal-tender 
 representatives of the " money of account " they may need 
 at such valuation as the owners of the metals may see fit to 
 exact. 
 
 Nor is this all ; though they are compelled to issue repre- 
 sentatives of the " money of account " at their labor expres-
 
 24 Introduction 
 
 sions of value in order that they may carry on business and 
 make a Hving (and the more business they- do, the more 
 representatives they issue), it is in the conscious dread 
 that the owners of gold and silver — those who have the sole 
 right to issue legal-tender representatives of the " money 
 of account " — are getting possession of their labor repre- 
 sentatives, and have the right to demand, and the judicial 
 power of the country to enforce, their payment in the legal 
 tenders which they own and issue. 
 
 The scarcity of gold and silver, throughout the centuries, 
 has been such that they have never been sufficient to supply 
 the demand for the coins needed in the small proportion 
 of the volume of business they are used to conduct. This 
 has been made to enure to the advantage of the metal 
 owners ; for, instead of changing the system, and devising 
 a method that would provide for the issue of enough repre- 
 sentatives, the theory of banking was originated. 
 
 Under the banking system the owners of gold and silver 
 supply the demand by the issue of bank-notes, as represent- 
 atives of the " money of account," upon the theory that they 
 are substitutes for gold and silver coins, and will be re- 
 deemed in the coins upon demand. Since the Government 
 grants them, as bankers, the right it withholds from the 
 people, the people are under the necessity of purchasing 
 the bank-notes from the gold and silver owners in order 
 that they may make a living. It is well known, however, 
 that only three per cent of the volume of the business of 
 the country is conducted with the use of gold and silver 
 coins and bank-notes. 
 
 The balance, ninety-seven per cent of the volume of 
 business, it is equally well known, is conducted without the 
 use of legal-tender gold and silver coins, and their assistants, 
 bank-notes. This ninety-seven per cent is conducted by the
 
 Introduction 25 
 
 aid and use of the representatives of the " money of account " 
 that the people have issued at their labor expressions of 
 value, but which are not given legal-tender value. 
 
 Without the use of these non-legal-tender representatives, 
 people could not transact ninety-seven per cent of their busi- 
 ness, and stagnation, starvation, and death would soon visit 
 them. 
 
 The periods of prosperity are due to what is called 
 excessive issues of these representatives at their expressions 
 of labor value. It is contended that these excessive issues 
 are the cause of the panics which bring loss and suffering 
 upon the people. 
 
 It is by the use of those representatives that improve- 
 ments are made, industries increased, homes are built, debts 
 are paid, and all are employed at remunerative wages. It 
 is by the use of these representatives, though new debts are 
 being made, that the old accumulated debt that has hung 
 like a nightmare upon the neck of honesty industry, is paid. 
 If such a condition does not indicate prosperity, then what 
 is prosperity? and how may a people know when they are 
 prospering? And yet these excessive issues, at their ex- 
 pressions of labor values, are the sure precursors of the 
 panics that occasion the greatest loss ; and the amount of 
 loss and the sufferings of the people is in strict proportion 
 to the excessive issue. 
 
 The certainty of a panic following upon the excessive 
 issues is so well known, and an intelligent people have 
 been so often and so sorely afflicted, that they deny the evi- 
 dence of their senses, and denominate the periods of their 
 greatest prosperity as the periods of the wildest speculation. 
 They regard the effect of the cause as the cause, and have 
 therefore failed to ascertain and remove the cause, though 
 they suffer from the panics at regularly recurring periods.
 
 26 Introduction 
 
 The cause of the panics that invariably follow upon the 
 excessive issues, is solely and altogether due to the fact that 
 the Government gives the right and power to the owners of 
 the gold and silver coins to demand and enforce the payment 
 of all the non-legal-tender representatives, issued at their 
 labor expressions of value, in the value that the owners of 
 gold and silver see fit to place upon their coins. 
 
 The endeavor to force the payment of the non-legal-ten- 
 der representatives, or the issues of labor values, in the legal- 
 tender representatives, or gold and silver coins, is an impos- 
 sibility; for the vast quantity of non-legal tenders that have 
 been issued at their labor expressions of value to conduct 
 ninety-seven per cent of the volume of business can not be 
 paid, or redeemed, in the limited number of legal-tender 
 values, or coins, that conduct only three per cent of the vol-" 
 ume of business. 
 
 Though it is an impossibility, the demand for payment 
 is made at regularly recurring periods ; and if it is not com- 
 plied with, the judicial power of the Government is invoked 
 to enforce the payment. Decrees are rendered in favor of 
 the holders of the non-legal tenders to the amount of the 
 face value of the labor representatives held by them, and if 
 those who issued them can not secure legal tenders, or gold 
 and silver coins, to satisfy the decree, their property is sold 
 for any price it will bring under such a condition of affairs. 
 
 The result is that the creditors take from the debtors, — 
 or rather the owners of gold and silver take from the 
 producers, who issue the non-legal tenders, — all the prop- 
 erty they have, and frequently hold a judgment, or decree, 
 for the unsatisfied balance. When the producer, at the 
 height of his prosperity, is suddenly and without warning 
 deprived of all he has by legislation, which.changes the labor 
 value of his representatives of the " money of account " to
 
 I nlroJiK lion 27 
 
 the value of legal-tender gold and silver coins, and has a 
 judicial decree against him that enables the owners of the 
 judgment, or decree, to seize his future earnings, he gives 
 up all hope, and abandons himself to despair, for all incentive 
 to further efifort, in many instances, is gone. To remave 
 his despair, and make of him a good citizen, the Government 
 comes to his relief, and passes bankrupt laws for his benefit, 
 if he wishes to incur the odium. 
 
 The governmental power of legal tender, and the bank- 
 ing system bestowed upon the owners of gold and silver, 
 has been the source and cause of that "empire of misery" 
 that has for so long a time been the heritage of humanity. 
 
 The New World was hailed as a Mecca where the down- 
 trodden and the oppressed of the Old World could escape 
 the injustice and tyranny of such a system for the creation 
 and dispersal of products. The oppressed were in ignorance 
 of the true cause of their sufferings. They did not compre- 
 hend that the science of the just and equitable distribution 
 of products depended upon and was controlled by the method 
 in which the representatives of their " money of account '* 
 were issued. They did not comprehend that " money of 
 account " was the language originated and used to express 
 their ideas of labor values, and that representatives of these 
 ideas, or expressions, of labor value should be so issued as 
 to retain and preserve the labor values. 
 
 In ignorance of these essential and scientific truths the 
 inhabitants of the New World endeavored to form a Gov- 
 ernment that would protect them and their posterity from 
 such impositions and injustice as they had fled from; but 
 they unconsciously adopted the same financial system, or the 
 same system for the exchange or distribution of products, 
 that had been the cause of their llight. 
 
 It is the tragedy of the centuries, that though our fore-
 
 28 Introduction 
 
 fathers issued the representatives of the "money of account" 
 at their labor expressions of value, in order that they might 
 clear up the country, establish themselves, and gain their 
 independence, the ignorant greed of some of the leaders 
 was such that they induced the people to ignore its enjoyed 
 benefits, and brought the severest distress upon themselves 
 and posterity by adopting the European heresy. 
 
 The capitalistic class, who have ever been the dupes 
 of their greed and lust for power even during the contest 
 for independence, though it was evident that the issue of 
 the representatives of their " money of account " at their 
 expressions of labor values was winning their independence, 
 nearly defeated the effort by the refusal to give them legal- 
 tender value. 
 
 For if those representatives, issued at their expression of 
 labor value, had been given legal-tender value, that value, 
 as it is protected by the power of the Government and will- 
 ingly used by the people, would have preserved their labor 
 values ; but when that was refused, and it was enacted that 
 the owners of gold and silver should have the exclusive 
 right to legal-tender value, and the additional right to de- 
 mand payment of the representatives of the " money of 
 account " in their gold and silver legal-tender coins, the 
 effort to gain their independence came near failing. 
 
 The fact that the representatives of the " money of 
 account " were not given legal-tender value so that their 
 labor expressions of value might be preserved, but, on the 
 contrary, were so issued that the capitalists could demand 
 their payment at any time in the value of gold and silver 
 coins, or refuse to receive them, caused their depreciation, 
 until they were worthless. After this had been accom- 
 plished, the people were forced to submit to the inaugura- 
 tion of a bank of issue, as an aid to gold and silver to
 
 Introduction 29 
 
 supply the representatives of the " money of account " neces- 
 sary to win their inclei)endence. 
 
 With this experience in the struggle to escape from the 
 tyranny and oppression of the Old World, caused by the 
 heresy of bestowing upon gold and silver the monopoly of 
 legal-tender value, which gave the capitalists the right to 
 demand and the power to compel the payment of all labor 
 values in the value of their gold and silver, it is unaccount- 
 able that they should adopt the same heresy, and make it the 
 policy of the Gdvernment they founded.
 
 Financial and Economic Errors 
 
 The financial and economic errors operating so oppress- 
 ively upon the people for the benefit of the privileged few, 
 are always due to the influence of intellectual and inhuman 
 avarice, aided, as it is, by the chicanery and hypocrisy of 
 the culture of a higher civilization, and they are more diffi- 
 cult to explain and eradicate than any other class of evils 
 from which humanity suffers. 
 
 This is due, in great part, to the fact that this same intel- 
 ligent and heartless greed is always in control of the Gov- 
 ernment, or is the beneficiary of class legislation to such an 
 extent, that it is enabled to have undue infiuence upon the 
 education of the country in such particulars as most pro- 
 mote and assist its schemes of spoliation by enactments. It 
 is further due to the many theories assumed, and the 
 agencies employed in fostering and inculcating its teachings. 
 
 It is possible, by reason of these instrumentalities and 
 false teaching, for the corrupt theories of the avaricious, 
 which have a fair semblance of utility and essentiality, to 
 inaugurate a system of finance that is not only fatal to the 
 prosperity of the people and the nation, but cherished as a 
 benefit. 
 
 It is not possible to clearly expose the processes of the 
 impure motives that cause the growth of these abuses upon 
 the body politic by synthetic process, for the reason that the 
 facts, expediencies, and policies are so intricate, so depend- 
 ent, and so variable that the intellect can not correllate them 
 into anv stable system which can be accepted as a correct 
 
 31
 
 32 
 
 The Legal-Tender Problem 
 
 basis upon which to formulate rules of action for the eov- 
 ernment of the nations. 
 
 Therefore, though experimental philosophy in economics 
 and finance has held sway for so long a time in the policies 
 and practises of the more civilized nations, its justness, util- 
 ity, and wisdom are more seriously questioned now than 
 ever before, and doubt keeps pace with the injustice and 
 suffering that is being inflicted upon the people. 
 
 An analysis, however, of the subject of finance for the 
 double purpose of (i) ascertaining the cause of and neces- 
 sity for its origin, the method of its growth in a pure form, 
 and the benefits that accrue to a people and a nation from the 
 practise of a scientific system; and (2) detecting and noting 
 the impure motives, and the consequent emanation of all 
 the unjust and perverting abuses that have been engrafted 
 upon the system, — should prove highly instructive, and be 
 instrumental in removing much of the obscurity, the result 
 of false teaching, that now envelopes the question, and tend 
 to expose the iniquity of the present system. 
 
 The accepted theory, which is based upon gold and silver 
 as money of final redemption, nas been dominant in this 
 country since its first formation, and has, at recurring 
 periods, produced the natural panics and heavy losses that 
 such a system always guarantees. 
 
 The limitation of the money of final redemption to gold 
 alone is progressing to its logical and inevitable conclusion 
 — the enrichment of the favored few and the pauperization 
 of the oppressed many — with the inexorableness of fate. 
 
 The history of the growth of a people, as well as the 
 history of the growth of governments, is necessarily a his- 
 tory of the growth of their circulating medium ; for it is sus- 
 ceptible of demonstration that there can be no advanced 
 civilization without great diversity of occupation and future
 
 Financial and Economic Errors 33 
 
 contracts, and there can be no great diversity of occupation 
 and settlement of future contracts witliout the exchange of 
 a large amount of products, and there can be no large and 
 varied exchange of products without a medium of exchange. 
 
 There are three antagonistic classes to be considered in 
 the formation of a financial system. 
 
 (i) Those who are neither creditors nor debtors, or. if 
 either, are persons of such fairness and justice that they 
 desire to maintain the stability of value of the medium of 
 exchange, and also desire to maintain a circulating medium 
 that will at all times supply the demands of the people and 
 remove the necessity for resorting to barter. They desire 
 to preserve the equities in the settlement of future contracts, 
 and are always ready and willing to increase the circulation 
 to meet increase of business and increase of population, and 
 thereby keep the mediums of payment at a stable value. 
 
 (2) Those who are debtors, and who wish to increase 
 unduly the amount of the circulating medium in order that 
 they may be enabled the more easily to pay their debts. 
 This desire of the debtors is, in many instances, only seem- 
 ingly unfair to the creditor, and received more considera- 
 tion in the past than at the present time. 
 
 In former times after long-protracted and destructive 
 wars, service in battle, destruction of property, and loss of 
 time, the citizens became unable to meet their contracts, and 
 a natural and humane equity called for relief on the part of 
 the Government they had served. This governmental relief 
 was granted in various ways, sometimes by a change to a 
 substance more plentiful, so that the number of tokens 
 could be increased, and consequently the value of the circu- 
 lating medium be decreased ; by abatement of part of the 
 debt ; by debasing the coin, i. e., reducing the quantity of 
 the metal in the coin so that the same quantity of metal, by 
 
 3
 
 34 The Legal-Tender Problem 
 
 coining a larger number of equal value with the coin 
 reduced, would pay a larger amount of the debt. 
 
 So long as this policy was pursued, and the humanity 
 of Government responded to the distress and suffering of 
 the people, history fails to show a single instance where a 
 nation died ; but on the other hand, the disappearance of 
 nations from the map of the world can be shown to be due 
 to a failure of the exercise of this humanity, and a decreas- 
 ing circulating currency. 
 
 (3) Those who are creditors, and who desire to reduce 
 the quantity of the circulating medium in order that they 
 may receive, in the collection of their debts, a greater value 
 than was contracted. The greed for accumulation is the 
 sole motive by which this class is actuated ; no idea of fair- 
 ness, justness, or equity ever enters their souls. 
 
 No humanity, nor sympathy on the part of the creditors 
 for those whose ability to pay has been lessened by patriotic 
 conduct in fighting the battles of the country, has ever 
 prompted the abatement of one jot or tittle of their claims. 
 On the contrary, for ages past the people have been taught 
 that debasing the coin, even in their own interests after dis- 
 astrous war, was a process by which the rulers robbed them ; 
 and for centuries the creditors have induced the people to 
 give them the exclusive right to the value of legal tender, 
 and have so framed constitutions that it was impossible to 
 take it from them and secure relief until the consent of the 
 Government, controlled as it is by these self-same creditors, 
 was first obtained. 
 
 The adoption and practise of the first two ideas — based 
 as they are upon the desire of the Government to provide a 
 medium of exchange for the accommodation of the people, 
 and grant relief in extreme cases — ensures its growth to 
 maturity and fullness of power, when all the people are
 
 Financial and Economic Errors 35 
 
 prosperous land owners and on terms of comparative 
 equality. 
 
 The abandonment of the idea and practise that a medium 
 of exchange is solely for the accommodation of the people, 
 and the adoption of the theory and practise that it is to 
 enhance the value of the substance used to make the me- 
 diums, and thereby Increase in value the debt due the cred- 
 itor, and only secondarily and incidentally accommodate the 
 people in the exchange of products, inevitably leads to the 
 undue prosperity of the creditor and the destruction of the 
 prosperity of all others. It causes the owners of land to 
 decrease in numbers, the many to become tenants, and all 
 the land becomes the property of the few. It destroys all 
 comparative equality; the few become fabulously wealthy, 
 and the many, workers for daily existence. 
 
 This perversion of the correct theory, this abandonment 
 of the idea that the circulating medium should be issued 
 solely for the accommodation of the people in creating and 
 exchanging their products, this inauguration of the selfish 
 and inequitable system which enhances the value of the 
 circulating medium, and consequently increases the value 
 of all debts, has invariably been brought about by the crafty, 
 the unscrupulous, and the avaricious. 
 
 The fact that the necessities of an advancing civiliza- 
 tion made barter and trade an impossibility, and a circu- 
 lating medium indispensable : that the intricacies of the 
 exchange of products generated bills, drafts, notes, balances, 
 and settlements ; that the demand for banks for the pur- 
 poses of exchange, discount, and deposit was imperative ; 
 that the mintage of coin was for a long time not under the 
 control of Governments, but was carried on by the indi- 
 vidual, and therefore the coins were so various, and so often 
 changed, that only a few experts could keep posted as to
 
 36 The Legal-Tender Problem 
 
 their value, — all this made it possible for the money brokers, 
 usurers, and exchangers to alter the original theory of a 
 financial system until they developed the system of legalized 
 robbery that prevails to-day, and has prevailed throughout 
 the world for centuries. 
 
 The history of Rome abundantly illustrates the sound- 
 ness of the foregoing propositions. From its infancy 
 through its early struggles and growth to the period of 
 its greatest power and splendor, its progress kept pace with 
 the observance of the just and humane conception of money, 
 due to the influence of the first two classes heretofore men- 
 tioned ; while its decline, beginning with the domination of 
 the third, or creditor, class, was accelerated to its fall and 
 ultimate extinction by their growing and insatiable avarice 
 and lust for power. 
 
 The many measures adopted for the relief of the needy 
 and distressed debtors previous to the year 600 a. u. c, were 
 offset by the refusal to permit anything but gold and silver 
 to be used as money, and by a system of the most intoler-- 
 able oppression, exercised by the money power in the period 
 intervening between that date and the accession of Caligula, 
 embracing two and a quarter centuries, during which time 
 the efforts of the people to protect themselves and their lib- 
 erties resulted in a destruction of life, property, morals, and 
 government unparalleled in the history of the world. 
 
 Referring to this period the historian Ferguson writes : 
 " The military and political virtues which had been exerted 
 in forming this empire having finished their course, a gen- 
 eral relaxation ensued, under which the very forms which 
 were necessary for its preservation were in progress of time 
 neglected. As the spirit which gave rise to those forms was 
 gradually spent, human nature fell in a retrograde motion 
 which the virtues of individuals could not suspend ; and men.
 
 Financial and Economic Errors 37 
 
 in the application of their faculties, even to the most ordinary 
 purpose of life, suffered a slow and insensible, but almost 
 continual, decline. 
 
 " Human nature languished for some time under a sus- 
 pension of national exertions, and the monuments of former 
 times were, at last, overwhelmed by one general irruption 
 of barbarism, superstition, and ignorance. The effect of 
 this irruption constitutes a mighty chasm in the transition 
 from ancient to modern history, and makes it difficult to 
 state the manners and transactions of the one in a way to be 
 read and understood by those whose habits and ideas are 
 taken entirely from the other." 
 
 A more philosophic survey of Roman history might have 
 led the historian to see that the advancement and develop- 
 ment of that nation, in spite of its wars, its internal dissen- 
 sion, and their attendant proscription and changes of prop- 
 erty from class to class, were justly attributable to the fact 
 that the supply of money among the masses constantly kept 
 pace with the demands of a healthy progress. 
 
 If the supply of copper and silver became insufficient in 
 quantity to facilitate the exchange of products, or to enable 
 the people to discharge their debts, as was the case during 
 the republic when those metals constituted the money, the 
 volume of currency was increased by debasing the coinage. 
 After the discovery in large quantities of both gold and sil- 
 ver, the supply for a time exceeded the demand. There- 
 fore, notwithstanding legislative manipulation by which this 
 wealth was concentrated in the hands of the moneyed class 
 and in the public treasury, it was nevertheless not only suffi- 
 cient to support the privileged classes in the greatest luxury, 
 but at the same time it enabled them, in addition to the 
 marble palaces built for themselves, to provide costly struc- 
 tures for the amusement of the populace, construct a system 
 
 ^89033
 
 38 The Le^al-Tender Problem 
 
 of public works of extraordinary magnificence throughout 
 Italy, mobilize armies, and donate large sums to the soldiers. 
 
 So long as this condition of the currency continued, 
 Rome advanced in greatness, in art, literature, science, and 
 public improvements, notwithstanding the injustice of the 
 Government toward its citizens, its favoritism to the priv- 
 ileged few, its invasion by hordes of barbarians, its change 
 from a republic to an empire, the insane expenditure of its 
 revenue by such tyrants as Caligula and Nero, its degrada- 
 tion in morals and virtue ; and the nation only entered upon 
 its decline and proceeded to its decay as gold and silver dis- 
 appeared, and it refused to give legal-tender value to any- 
 thing else, or to debase the coinage. 
 
 "At the Christian Era, in the year 752 from the found- 
 ing of Rome, the metallic money of tlie Roman Empire 
 amounted to $1,800,000,000. By the end of the fifteenth 
 century it had shrunk to less than $200,000,000." — Report 
 of the Silver Commission of 18 yd.
 
 II 
 
 The Bank of Venice 
 
 There was one exception to the decadence of this period, 
 and that was the Rcpuhhc of Venice. It exempHfied in the 
 management of the Bank of Venice from 1171 to 1797 the 
 correct theory and practical development of a pure financial 
 system, and demonstrates the correctness of the views herein 
 advanced. It also exposes the falsities of the present sys- 
 tem, and is instrumental in discovering the growth of those 
 abuses that have been engrafted upon the system, and which 
 tend to enrich the favored few at the expense of the needy 
 multitude. 
 
 The plan of the bank had its birth in the direst necessity 
 of the nation, and the benefits conferred were so keenly 
 appreciated, and an intelligent spirit of humanity, encour- 
 aged by widespread commercial prosperity, amended and 
 improved it to such perfection, that the wonder is that all 
 subsequent systems have not been modeled after it. 
 
 The history of the bank is meager and indefinite for 
 the first two hundred and fifty years ; and though after the 
 lapse of that period there is a fuller and more definite ac- 
 count of its regulations and methods, yet there are many 
 things unexplained and left to conjecture. It appears from 
 the more trustworthy accounts of the bank that in the year 
 1 171 a Venetian fleet was sent to avenge an outrage per- 
 petrated by the Grecian emperor upon Venetian merchants 
 in his empire. This fleet humbled the pride of the Grecian 
 emperor, and compelled him to give satisfaction. The con- 
 test is only memorable for having given origin to the Bank 
 
 39
 
 40 The Legal-Tender Problem 
 
 of Venice. For the republic being oppressed by the charges 
 of war against the emperor of the East, and at the same 
 time involved in hostilities with the emperor of the West, 
 after having exhausted every other financial resource, was 
 obliged to have recourse to a forced loan from the most 
 opulent citizens, each being required to contribute accord- 
 ing to his ability. 
 
 The citizens who made the loans were given credit upon 
 the books of the bank for the amounts advanced by them. 
 These credits bore four per cent annual interest, and were 
 redeemable at some future time in coins. Inasmuch as they 
 were interest-bearing obligations of the Government, re- 
 deemable in specie, they were then, as now, a safe invest- 
 ment. In addition to being a safe investment they were 
 transferable upon the books of the bank in payments, how- 
 ever large or small, with almost equal facility as the giving 
 of a bank check, aijd they were exempt from execution. 
 
 Impressed with these characteristics they were first-class 
 investments, and they were highly efficient as mediums of 
 payment for the trading and commercial public. The Gov- 
 ernment did not authorize them to be used aB mediums of 
 payment, — in other words, they were not made legal ten- 
 ders, — but it appears they dropped into this use by general 
 agreement, from custom, because it was an accommodation 
 to the trading public, and the Government was pleased to 
 make provision for such use of them. 
 
 The experiment with the bank in the methods practised 
 from 1 171, the date it was founded, to 1423, the date the 
 credits were made legal tender, demonstrated that the debt 
 of the Government in the form of bank-credits, when used 
 to pay debts, was worth more to the trading and commercial 
 people than to the investors, and that they were too valuable 
 in use to be held as investments, since they commanded a 
 premium over gold and silver.
 
 The Bank of Venice 41 
 
 It was evident that the loan whicli the citizens were 
 forced to make, and take in exchange therefor a credit upon 
 the books of the Bank of Venice, bearing four per cent inter- 
 est, had been, as mediums of payment, so acceptably and so 
 profitably used, that it had ceased to be regarded as a debt. 
 This is evident from the fact that the bank-credits com- 
 manded a premium of thirty per cent over gold and 'silver 
 coins because they were used as mediums of exchange and 
 solvents of debt, and not because they bore interest and were 
 payable in coin. 
 
 The fact that the people had ceased to collect the interest 
 on the bank-credits or present them for payment, but on the 
 contrary were paying a premium for them to be used as 
 mediums of payment, showed conclusively that the bank- 
 credits were too vahiable in use to be regarded as a debt, 
 or held as an investment. 
 
 This treatment of the bank-credits had its effect upon 
 the officials of the Government ; and when it was finally real- 
 ized that the credits were so valuable, as solvents of debt, 
 that they were no longer considered or treated as an obli- 
 gation of the Government, the conclusion was irresistible 
 that the debt IkuI been in effect liquidated. 
 
 When in addition to this the officials saw that the cred- 
 it^, as solvents of debt, were commanding a premium of 
 thirty per cent, they very wisely came to the conclusion that 
 it was best for the Government, and for the people, to sell 
 additional bank-credits, and use the proceeds to defray the 
 expenses of the Government. 
 
 This was done by the following legislation passed in 
 1423 : " That all bills of exchange payable in Venice, domes- 
 tic as well as foreign, all payments in gross or in wholesale 
 transactions (unless otherwise stipulated), should be pay- 
 able at the bank."
 
 42 The Legal-Tender Proble 
 
 m 
 
 This legislation conferring upon the bank-credits the 
 exclusive privilege of paying all wholesale transactions, 
 made them legal tenders, and it was decided to sell addi- 
 tional credits to the trading and commercial population to 
 be used indefinitely as solvents of debt. 
 
 Under the legislation of 1423, it was understood that 
 the debt which had been contracted in 1171, and subsequent 
 to that time, as shown by the books of the bank, was liqui- 
 dated by conferring upon the outstanding credits the quality 
 of legal tender, and that the Government would in the 
 future sell additional credits for certain coins that were 
 given the right to purchase them. It was also understood 
 that the republic was to use the coins to defray the expenses 
 of the Government, and that the value of the bank-credits 
 depended entirely upon their right to be used as legal ten- 
 ders, for they were in no sense to be regarded as a debt of 
 the Government, nor was the bank ever to redeem them. It 
 was understood to be a fair exchange of legal-tender value 
 by the Government to the citizens for an equivalent in value 
 of coins. 
 
 Thus was a currency provided for the wholesale busi- 
 ness of the country. The decision to sell additional credits 
 should, in a short while, since they were commanding a 
 premium, have caused the sale of enough credits to have 
 reduced the premium to par, if there was no undue scarcity 
 of the coin that had the right to purchase the credits. 
 
 The history of the bank, however, is that the premium 
 did not recede, but laws were passed in vain to restrain the 
 premium from advancing higher than twenty per cent. It is 
 unfortunate that the history of the bank leaves the reason 
 for this inability to control the premium to conjecture. 
 
 Since the bank-credits were only a legal tender for the 
 payment of bills of exchange and in wholesale transactions,
 
 The Bank of Venice 43 
 
 it was incumbent upon the Government to furnish a cur- 
 rency for the retail trade and the smaller transactions. This 
 was done by the organization of a secondary, or co-ordinate, 
 bank, whereby it was provided that if any one deposited 
 coins in it, he should have the right either to withdraw the 
 coin or use his credit as solvents of debt by transfer upon 
 the books of the bank in any sum, however small. 
 
 That there was no undue scarcity of coins is evidenced 
 by the fact that this secondary, or co-ordinate, bank at all 
 times had a large amount on deposit, and more than once 
 loaned all its deposits to the main bank without producing 
 any effect upon its working operation, so great was the con- 
 fidence in the ability of the main bank to repay the loan as 
 soon as the crisis was passed. 
 
 It is evident, since the main bank sold its credits at par, 
 that those who needed bank-credits would have bought the 
 coins deposited in the secondary bank to be exchanged for 
 the credits of the main bank if they could have been used 
 for that purpose. Inasmuch as this was not done, notwith- 
 standing the credits of the main bank commanded a premium 
 of thirty per cent, it is evident that for some reason they 
 could not be used for that purpose. 
 
 The conjecture is that only a certain coin issued from 
 the mint could be used to purchase credits of the main bank, 
 and the exchange of these coins for legal-tender credits 
 must have been limited by the number that could be secured, 
 since the Government was passing laws to restrain the pre- 
 mium to twenty per cent. This coin must have been the 
 ducat and its nuiltiples and subdivisions, since their names 
 are the language of the "money of account" of that republic. 
 
 There is reason for such a conjecture in the fact that 
 foreign coins were only allowed to be introduced into the 
 city of \'enice under very special regulations. Dealing in
 
 44 The Legal-Tender Problem 
 
 coins by private or pviblic banks was prohibited under severe 
 penalties, and failure to submit all coins brought into the 
 city to be inspected by an officer of the mint subjected them 
 to forfeiture. 
 
 It is reasonable to conclude that the republic in its wis- 
 dom made a separation of the currency that was used in the 
 retail trade, from that used in the wholesale trade and the 
 payment of bills of exchange, by giving to the ducat the 
 exclusive right to purchase credits from the main bank, 
 and the foreign coins the exclusive right of deposit in the 
 secondary bank. 
 
 It is evident, if the coins set apart to the use of the one 
 system could be used in the other, that all of the coins would 
 have been appropriated to purchasing the credits of the 
 main bank, and none have been left to the retail trade. It 
 appears, therefore, that governmental regulations and 
 supervisions, under severe penalties, were necessary to keep 
 the coins appropriated to the one use or the other from being 
 perverted as interest and greed might incline. 
 
 The statesmanship of that republic realized that the 
 expansion and enlargement of the wholesale business was 
 entirely dependent upon credits and their increase ; and as 
 the prosperity of the republic increased by means of its 
 transactions in gross and the larger ventures, the demand 
 for additional issues of credit also increased, and caused the 
 premium for the credits of the main bank to advance as 
 high as thirty per cent. 
 
 It appears that the statesmanship of that republic real- 
 ized that the wholesale, or large, operations are carried on, 
 not by the use of currency or money, but by a system of 
 bookkeeping, or the " credit system," and that the only use 
 it has for coins is in the settlement of balances. It is also 
 apparent that it was realized that the retail trade and the
 
 The Bank of Venice 45 
 
 small transactions arc carried on by cash and credit, or per- 
 sonal confidence, and that as this credit is enlarged or 
 extended, it has a tendency to break down the personal con- 
 fidence and destroy business. 
 
 The financiers and statesmen of that republic recognized 
 the irreconcilable antagonism that exists between the two 
 methods of conducting business when the mediums of pay- 
 ment in each were dependent upon and redeemable in the 
 same money ; for it was evident that as the wholesale and 
 large business prospered under enlarged and increasing 
 credits, the retail and small transactions became jeopardized 
 as personal confidence waned, until it finally grew so weak 
 that if demand for the payment of the credits in coin was 
 made, a panic would ensue, and the labor and accumulations 
 of years would be destroyed. 
 
 Appreciating as intensely as the officials must have done 
 this antagonism between the two systems, and that it was 
 irreconcilable, the statesmanship of the republic saw the 
 necessity of completely separating the mode and manner of 
 carrying on business under the two systems. 
 
 This could only be accomplished by giving to each a 
 separate and distinct currency, or mode of payment, wherein 
 the mediums of payment for the one were not dependent 
 u]-)on or in any sense redeemable in the other. Therefore, 
 after two hundred and fifty years of experience with the 
 bank-credits as mediums of payment (adopted to protect 
 itself from destruction by the emperors of the East and the 
 West), the republic w^as enabled to put into practise the true 
 theory of the science of finance. 
 
 Experimental philosophy had taught the humane states- 
 manship of the republic that the value of legal tender is " a 
 property right " held in trust by the Government for the 
 benefit of all the people, and that it should be sold and the
 
 46 The Legal-Tender Problem 
 
 proceeds used to defray the expenses of the Government, 
 and save to that extent the burden of taxation which bears 
 so heavily upon the people. 
 
 This is the first and only instance in the history of the 
 civilized world where it was demonstrated in practise that 
 Government credits, when made sole legal tenders, were so 
 " valuable in use," as solvents of debt, that they commanded 
 a premium over gold and silver coins so long as they re- 
 tained that pre-eminent quality ; and in the case of the Bank 
 of Venice they retained that superior value until 1797, when 
 Napoleon in his ignorant cupidity destroyed the republic 
 and the bank in his desire to secure the accumulation of 
 specie that he supposed was held in the bank vaults. 
 
 Colwell, in his work entitled " Ways and Means of Pay- 
 ment," wherein he gives the history of the Bank of Venice, 
 in discussing its methods and practise (overlooking the ad- 
 vantage that was bestowed upon the bank-credits by giving 
 the people the right to use them as mediums of payment, 
 and in 1423 making them sole legal tenders), sums up his 
 account of the efficiency of the institution from its first 
 organization in 1171 to 1797 in the following: "The great 
 feature of the bank, that which required all bills of exchange 
 in the great commercial city to be paid at the bank, appears 
 at first blush to be an arbitrary requirement, if not a most 
 unjust one. It was giving a forced currency to the bank 
 deposits, consisting merely of debts due by the Govern- 
 ment." 
 
 Colwell seemed to be unable to grasp the fact that after 
 1423 the bank-credits were no longer a debt due by the 
 Government, but that it had been a sale of legal-tender value 
 to the citizens for a full equivalent in gold and silver. He 
 states : " It was soon found to work so well in practise that 
 it brought an immense accession of business to the city, and
 
 The Bank of Venice 47 
 
 to tlic bank. . . . Bills of exchange became of increased 
 use in all the neighboring commerce, and a vast concentra- 
 tion of the payments took place at Venice, and in the bank. 
 . . . The money brought in to pay bills was taken by the 
 Government as it was received, until the amount of the de- 
 posit was adequate, by rapid circulation, to the current pay- 
 ment of commerce. This made the bank a great clearing- 
 house, or place of adjustment, for merchants of many coun- 
 tries. Venice was for centuries the greatest entrepot of 
 commerce in Europe, if not in all the world. 
 
 " The chief payments or liquidation of the trade were 
 effected at the bank. . . . The bank then became a place of 
 liquidation ; merchants made their bills payable where there 
 was the greatest circulation of means to pay them, and 
 where it was most for their advantage to receive payments. 
 . . . Those who had occasion for gold or silver purchased 
 with their deposits what was required ; and with slight ex- 
 ceptions for more than four hundred years the precious 
 metals were at a discount, compared with bank funds. . . . 
 the demand for that which would pay bills of exchange 
 being greater than gold or silver for any special use to 
 which they could be applied. 
 
 " The great mass of the purchases of commerce were 
 made, in the first instance, by bills of exchange, and the 
 great operation of payments consisted in liquidating those 
 bills. The demand therefore for the bank-credits with 
 which they were paid was as incessant as the movements of 
 commerce itself." 
 
 It is well for the financial student to analyze the methods 
 of the Bank of Venice to discover those principles that oper- 
 ated to change a debt, when used as mediums of payment, 
 into legal tenders ; that made it possible and practicable to 
 sell those legal tenders for gold and silver which was used
 
 48 The Legal-Tender Problem 
 
 by the Government to defray its expenses ; that made those 
 legal tenders, though they were not a debt of the Govern- 
 ment, bore no interest, and were not redeemable, so " valu- 
 able in use " that for centuries they commanded a premium 
 of twenty per cent, and more, over gold and silver coins, 
 and saved the republic of Venice throughout the life of the 
 bank (from 1171 to 1797) from the visitation *of such evils 
 as a redundancy and then a scarcity of money has period- 
 ically inflicted upon all subsequent periods. 
 
 The methods, practises, growth, and evolution of the 
 Bank of Venice, when understood, are highly instrumental 
 in exposing the iniquity and injustice of the present system 
 of legalized robbery ; and from a study of its experience and 
 operation a system can be formulated that will be in har- 
 monious accord with the equity, humanity, and Christianity 
 that ought to dominate in the control of human affairs. 
 
 In order to ascertain what application has been made by 
 the civilization of the world of the financial principles here- 
 inbefore set forth, and exhibit to some extent at least the 
 cause of the growth of the perverting abuses that have been 
 engrafted upon the system as it is exploited to-day, the 
 motives, practises, and expedients that dominate will now 
 be investigated
 
 Ill 
 
 Colonial Finance 
 
 It is unnecessary to consider the first two hundred 
 years of our financial experience further than to state that 
 it consisted of all sorts of barter, and the use of the most 
 primitive methods of supplying a circulating currency ; that 
 as the country gradually took on the form and assumed the 
 habits and manners of an advanced civilization, it enlarged 
 its purchases from Europe. 
 
 This necessitated the use on the part of the colonists 
 of money similar to the money of Europe, and the demand 
 for gold and silver became imperative. This demand for 
 coin first affected Massachusetts, because it was the most 
 advanced in civilization ; and in 1649 ^^^'^^ colony was forced 
 to demonetize beads, which, by an enactment, had been cur- 
 rent money. 
 
 So great was the demand for coin at that time in the 
 colony of Massachusetts that business relations with the 
 buccaneers of the Spanish main were encouraged, in order 
 that the necessary coin might be secured. The demand 
 for coin to carry on the increasing trade w^ith Europe was 
 such that even the complete surrender of Puritan principles 
 to the debasing and degrading association with the buc- 
 caneers, did not secure the necessary amount for that and 
 local purposes, and in 1690 the colony was forced to issue 
 $35,000 of paper money. 
 
 The occasion of this issue was the return of an unsuc- 
 cessful expedition against the French in Canada. The issue 
 was made to secure money with which to pay the soldiers 
 4 49
 
 50 The Legal-Tender Problem 
 
 who had returned in a destitute condition, without any spoil 
 of war, and were clamorous for their pay. The paper money 
 issued for local purposes was redeemable in any stock that 
 at any time might be in the treasury, and for twenty years it 
 circulated at par until redeemed. — "History of the Cur- 
 rency," page y. 
 
 In the year 1703, the colony of Massachusetts made a 
 second issue of $75,000 of paper money, which was made 
 legal tender for private debts so that it could be used for 
 local purposes. — Id., page 7. 
 
 In 17 16 an issue of $750,000 of paper money was author- 
 ized on real estate security for ten years at five per cent per 
 annum. 
 
 In the year 1720 an issue of $250,000 of paper was made, 
 a total in thirty years of $1,110,000 issued by a young and 
 struggling colony for local purposes so that the coin could 
 be free to be used in trade with Europe. 
 
 In 1748 the paper money of Massachusetts amounted to 
 $11,000,000. — Id., page p. 
 
 The Bank of England, which had been organized in 1691, 
 and upon the theory that its notes were redeemable in coin, 
 was forced to suspend payment in 1723; and in its prepara- 
 tion and effort to resume, the coin of the American Colonies 
 was drawn across the ocean in the same peremptory man- 
 ner that the East drew coin out of the South and West in 
 1893 to keep their banks from suspending. 
 
 The colony of Pennsylvania lost all of its coin, notwith- 
 standing the passage of a law raising its value. It was 
 therefore forced in 1723 to issue treasury notes to supply 
 the demand for local currency, and the notes were made a 
 legal tender, redeemable only in the payment of taxes to 
 the colony. All of the other colonies were forced for sim- 
 ilar reasons to issue paper money.
 
 Colonial Finance 5i 
 
 Between 1740 and 1750 the demand for more currency 
 was so pressing in Massachusetts, notwithstanding its pre- 
 vious issues, that a desperate efifort was made to get addi- 
 tional currency by estabhshing a land bank. This attempt 
 was defeated by the governor, who claimed that it was 
 unlawful and pernicious, contrary to the action of Parlia- 
 ment and to his instructions. The people of Massachusetts 
 were beginning to feel the iron hand of the financiers of 
 England. 
 
 In 1745, with some little assistance from the other col- 
 onies, they captured Louisburg, on Cape Breton, from the 
 French. The English Parliament so highly approved of 
 this exhibition of buccaneering propensities dominating 
 Puritanic professions, that it decided to purchase Louis- 
 burg by the payment of a large sum of silver and copper 
 to the colonics. — " History of the Currency," page p. 
 
 Thereupon Massachusetts decided to go to a sound- 
 money basis, and commenced to call in and redeem its paper- 
 money issues. This action of Massachusetts had the efifect 
 of transferring a large portion of the trade of the other col- 
 onies to itself, and consequently depreciated the value of the 
 paper issues of the other colonies ; for in the struggle to 
 secure coins for foreign trade, the products of other colonies 
 and the trade with all the colonies went to ^Massachusetts, 
 instead of being generally distributed. 
 
 It was most disastrous to New Hampshire and Rhode 
 Island, for on account of their close proximity they were 
 the heaviest losers of their trade. This loss of trade was 
 calculated to check the progress of the other colonies, and 
 to that extent lessen the demand for the use of their paper 
 money. It deprived them of such specie as the trade neces- 
 sarily brought with it. and the natural consequence was that 
 the demand for the specie increased and the demand for
 
 52 The Legal-Tender Problem 
 
 their paper issue decreased. Under these circumstances 
 their paper money depreciated in vahie and went to discount, 
 while specie was increasing in value', and all of it going to 
 Massachusetts. 
 
 This was Massachusetts' first taste of the blood of 
 humanity, drawn by financial buccaneering instead of the 
 buccaneer's sword, and it was so efficient, and so much 
 more in accordance with their professed Puritanic prin- 
 ciples, that they have held to it ever since. 
 
 Appreciating thoroughly the advantage that accrued to 
 the colony from the money received from the sale of Louis- 
 burg, and indifferent then as now to the wail of suffering 
 mankind, if the outcry is caused by schemes that advance 
 their prosperity, or increase their wealth, can it be doubted 
 that the avariciousness of Massachusetts began to incite, 
 or at least agree with, the fiananciers of England, that the 
 colonies should not be permitted to issue paper money? 
 
 By the use and enjoyment of a full supply of legal- 
 tender paper money from 1690 to 1748, and then the cap- 
 ture and sale of a city for a sufficient sum of copper and 
 silver to enable it to call in and pay its paper issues, and 
 the use of both kinds of money as it slowly proceeded to a 
 specie basis, Massachusetts succeeded in clearing up and 
 bringing to a high degree of utility its sterile lands and 
 rocky wastes, and was far advanced on the road to per- 
 manent prosperity and great riches. 
 
 Understanding, as the citizens must have, the disadvan- 
 tages under which they had labored in their trade relations 
 with England from the scarcity of coins, and realizing that 
 the issues of paper money for foreign trade was the chief 
 cause of their prosperity and success, it would naturally be 
 supposed, in their ])resent comfort and mortgage on the 
 future, that their solicitude for the younger, weaker, and
 
 Colonial Finance 53 
 
 struggling colonies would have prompted them to take no 
 action that would injure or be in the least detrimental to 
 their sister colonies. On the contrary, however, they at 
 once proceeded to use the proceeds from a looted city to go 
 to a specie basis, conscious that in so doing they were 
 applying to their sister colonies similar impositions to those 
 England had so long applied to them, in the hope that they 
 would mulch from the colonies a full equivalent for past 
 losses. 
 
 The action of the colony of Massachusetts in going to a 
 specie basis, thereby depriving the other colonies of a large 
 part of their trade, enured so much to its advantage that 
 by 1773 all of the paper issued had been paid and retired. 
 What the colony of Massachusetts had gained, the other 
 colonies had in great part lost, for the effect of going to a 
 specie basis had been to deprive the other colonies of much 
 of their trade, a great part of their coin, and decrease the 
 value of their paper issues. 
 
 The colony of Massachusetts had been aided in the effort 
 to decrease the value of the paper issues and get the trade of 
 her sister colonies by an act of the English Parliament in 
 1 75 1 prohibiting the colonies from issuing paper money. 
 This .prohibitive act seems to have had only the effect that 
 was intended ; viz., the depreciation of the value of the 
 paper issues and the enlargement of the volume of trade of 
 the colony of Massachusetts ; for its passage did not deter 
 the colony of Virginia from making its first issue of paper 
 money in 1755. 
 
 The colonies — even Massachusetts, which did not reach 
 a specie basis until 1773 — continued to use the paper issues, 
 and in some cases issued more, because it was impossible 
 to secure sufficient coins to carry on the business, and addi- 
 tional currency was an imperative necessity. This refusal,
 
 54 The Le^al-Tender Problem 
 
 or failure, to comply with the act of 1751, caused the Brit- 
 ish board of trade in 1764 to protest to Parliament against 
 the action of the colonies in using legal-tender paper money, 
 for the stated reason that " every medium of exchange 
 should have an intrinsic value ; " and all colonial acts for 
 issuing paper money were declared void. — "History of the 
 Currency," page 11. 
 
 The English financier understood as well in 1764 as he 
 does to-day, that the more people who used the precious 
 metals, the greater the demand, and the greater the demand, 
 the greater their value ; therefore there was no intention 
 of permitting the colonies to make their local currency by 
 issuing paper money, and to that extent decrease the value 
 of their gold and silver, and enhance the value of the prod- 
 ucts of the colonies, which the English were buying. 
 
 The interests of the financiers and the members of the 
 boards of trade are identical. The financiers lose in the loss 
 of the value of their metals ; the members of the board of 
 trade, though they may secure the coins from the finan- 
 ciers at less value, lose this profit, and more besides, when 
 they come to purchase the products of a community where 
 there is a full supply of local currency. 
 
 Where there is a full supply of local currency, the pro- 
 ducer is master of the situation, and in the sale of his prod- 
 ucts demands a price that will cover the cost of production, 
 and give him a fair profit. The financiers and the members 
 of the board of trade are struggling for the little profit that 
 is left; and inasmuch as the financier has the position of 
 advantage, in that he is the lender of both money and credit 
 to the board of trade men, he has ever been able to force 
 them to do his bidding. The result has always been that 
 the financiers have compelled the boards of trade to join 
 with them in denying the right to a people to get money by
 
 Colonial Finance 5 5 
 
 governmental iss^^ies, or in any way except through the 
 agency of the financiers. It is due to this fact that the 
 British board of trade in 1764 was protesting so vigorously 
 to Parliament against the use of legal-tender paper money 
 by the colonists. 
 
 The boards of trade in 1764 were actuated by the same 
 motives and were impelled by the same force as those of 
 to-day which are so persistently calling for the demonetiza- 
 tion of silver because it does not have a full intrinsic value. 
 
 The English board of trade and the financiers of the 
 Bank of England, incited and aided by the colony of Mas- 
 sachusetts, finally succeeded in their resolve to deprive the 
 colonies of the use of paper issues, as money; for " in 1773 
 the English Parliament passed an act which took away from 
 the colonies their representative money; commanded under 
 penalties that no paper should be issued ; that all such issues 
 should cease to be a legal tender, or receivable in the pay- 
 ment of debts, and demanded the payment of all taxes in 
 silver." 
 
 This was the first contraction of currency in this coun- 
 try, and was as drastic in its effects and as fatal in its appli- 
 cation as any that have succeeded, and they have been many. 
 
 The chief difficulty with the colonies had been to secure 
 a sufficient number of mediums of exchange to take advan- 
 tage of the opportunities that the fertility of the soil and 
 the munificence of the New World returned to enterprise 
 and labor. The condition of the colonies at that time was 
 due in great part to the fact that they had a full supply of 
 paper money for local purposes, and were thereby enabled 
 to use such coins as they could secure in purchasing sup- 
 plies from Europe. The result was that they were in a 
 flourishing condition, and their prosperity was increasing. 
 So soon, however, as they were deprived of the use of all
 
 5^ The Legal-Tender Proble 
 
 m 
 
 paper money, and were forced to conduct business and 
 settle debts with coins, " general bankruptcy ensued, and 
 business was paralyzed. 
 
 " Ruin seized upon these flourishing colonies ; and the 
 most severe distress was brought home to every interest 
 and family; discontent was urged on to desperation; till at 
 last, ' human nature,' as Dr. Johnson phrases it, ' arose' and 
 asserted its rights.' " 
 
 It is well to adduce just here some testimony as to the 
 condition and prosperity of the colonies from the use of 
 legal-tender paper money. 
 
 Thomas Pownall, M. P., of England, who had acted as 
 governor and commander-in-chief of the provinces, in a 
 book written by him in 1768, says in regard to the colonial 
 system of money : " I will venture to say that there never 
 was a wiser and better measure, never one better calculated 
 to serve the use of an increasing country, and never was a 
 measure more steadily pursued or more faithfully executed 
 for forty years together, than the loan offices in Pennsyl- 
 vania, formed and administered by the Assembly of that 
 province. In a country under such circumstances, money 
 lent to settlers created money. Paper money thus lent upon 
 interest will create gold and silver principal, while the inter- 
 est becomes a revenue that pays the charges of the Govern- 
 ment. This currency is the true Pactolean stream which 
 converts all into gold that is washed by it." 
 
 In 1764 Dr. Franklin, writing in England in defense of 
 the paper money of the colonies, says : " On the whole, no 
 method has hitherto been framed to establish a medium of 
 credit in lieu of money equal in all its advantages to bills of 
 credit, founded on sufficient taxes for discharging them, or 
 land securities double the value for repaying them at the end 
 of the term, and in the meantime made a general legal ten-
 
 Colonial Finance 57 
 
 der. The experience of nearly half a century in the middle 
 colonies (New York, New Jersey, and Pennsylvania) has 
 convinced them of it among themselves, by the great in- 
 crease of their settlements, number of buildings, improve- 
 ments, agriculture, shipping, and commerce." 
 
 The desperation caused by the destruction of colonial 
 currency, and the realization that the colonies would soon 
 lose all their possessions and become serfs of the English 
 owners of gold and silver, very naturally brought on the 
 Revolution. 
 
 The English owners of gold and silver, in the folly of 
 their mad avarice, and upon the false assumption that if 
 the colony of Massachusetts could go to a specie basis the 
 other colonies could also, made the Revolution a certainty 
 and a virtue by the following act of Parliament passed in 
 1773: "That all promissory or other notes, bills of ex- 
 change, or drafts, or undertakings in writing being nego- 
 tiable or transferable, for the payment of any sum or sums 
 of money less than the sum of twenty shillings in the whole, 
 shall be and the same are hereby declared void and of no 
 effect." By a subsequent act two years later the above was 
 made far more effective by increasing the amount to five 
 pounds. The effect of the enactment was to force all trans- 
 actions of whatsoever nature, under five dollars in amount, 
 to a cash basis, and to that extent increase the demand for 
 gold and silver coins. This denial of the use of all methods 
 of credit in trades or transactions under the value of five 
 dollars, forced all the people, and especially the poor, to 
 make personal and daily use of all the cash they could com- 
 mand, and thus made it more difficult to secure coin to pay 
 for foreign products. 
 
 The result was that those who needed gold and silver 
 were forced into the keenest competition with the people to
 
 58 The Legal-Tender Problem 
 
 secure a sufficiency to supply their demands. This forced 
 additional use of gold and silver tended to unduly enhance 
 the value of the metals, and comparatively depreciated the 
 value of all products ; and it was more than Massachusetts 
 could tolerate, though it was on a specie basis. 
 
 A sound-money basis of her own selection, that w-as giv- 
 ing her people an advantage over the people of the other 
 colonies in drawing to her marts the cream of all the trade, 
 and enriching them at the expense of the people of the other 
 colonies, was highly appreciated, and she doubtless approved 
 of the wise financial policy that denied the right to the col- 
 onies to use paper money. But when Parliament ordered 
 that all transactions under five dollars' should be in cash, 
 and it was realized that in its practical application it was 
 detrimental to her people and their interests, and was trans- 
 ferring to the people of England all the profit which they 
 had expected to reap from their sister colonies, Massa- 
 chusetts emitted the first growl of the Revolution at English 
 oppression and tyranny. 
 
 The colony of Massachusetts had made her arrange- 
 ments for a sound-money basis under a system of import 
 duties that had long prevailed, and during the time she had 
 been fighting for their repeal or revision, had had the ben- 
 efit of paper money. Notwithstanding the disadvantage 
 under which she had so long labored she was enabled finally 
 to command enough gold and silver to pay all import dues 
 and carry forward her growing and prosperous business. 
 That her sister colonies were not prepared for such action, 
 and could not forego the use of paper money without great 
 loss and intense suffering, caused her no hesitation ; but to 
 the contrary, it now appears that the consciousness that 
 she would reap great profit from the distress of the other 
 colonies, induced her to hasten to a specie basis before she
 
 Colonial Finance 59 
 
 had a safe margin against the adverse or hostile legislation 
 of Parliament. For the history of the commencement of 
 the Revolution is, that when Parliament placed tea upon 
 the list, and demanded the payment of the duty in silver, 
 this act, insignificant enough in itself, fired the Puritan soul 
 to such a degree of indignation that the tea was cast into 
 the sea, and the Revolution was on. 
 
 The truth of the matter is that the act requiring all 
 transactions under five dollars to be in cash, had more than 
 exhausted Massachusetts' margin of protection in going to 
 a specie basis, and her people, in the scarcity of money that 
 was becoming more and more apparent in the conduct of 
 their business, were growing revolutionary. 
 
 Appreciating fully that every dollar paid on import dues 
 deprived them of that much of the specie with which they 
 were carrying on their business, they were petitioning His 
 Most Gracious Majesty George the Third, to relieve them 
 by repealing some of the import dues, while the patriots 
 were preparing for war, knowing too well that the repeal 
 of a part of the import dues that would bring relief to specie- 
 paying Massachusetts would not avail them. 
 
 When, however, instead of repealing part of the import 
 dues, tea was added to the list, and payment of dues on the 
 same in silver was demanded, the colony of Massachusetts 
 realized that the indifiference and inhumanity she had pre- 
 pared to exercise toward her sister colonies was to be 
 visited upon her as well as the other colonies, by English 
 greed, she decided to take her chance in a Revolution, and 
 free herself and her prey from the avarice of the unnatural 
 mother, and right well did she succeed, as every line and 
 page of our financial history only too well attests. 
 
 The people of IMassachusetts made good soldiers in the 
 war of the Revolution, for they fought for the right to
 
 6o The Legal-Tender Proble 
 
 m 
 
 despoil and loot their sister colonies, by any and all schemes 
 their avarice and ingenuity could devise, without future 
 interference on the part of England's greed. This is clearly 
 evidenced in the influence of that colony over the Conti- 
 nental Congress in its method of procedure for the issuance 
 of paper money to carry on the Revolution, in the conduct 
 of its representatives in framing the financial portion of the 
 Constitution of the United States, and in the action of her 
 public men in Congress and official station throughout the 
 entire financial legislation of the country. 
 
 The Southern, the Middle, and the Western States, in 
 the century and a quarter of existence as a nation, have 
 needed much money to open up and settle those vast terri- 
 tories, but instead of generously permitting them or the 
 Government to issue paper money for that purpose to meet 
 local demands, as Massachusetts and the other States did, 
 they have been forced to borrow the sorely needed money 
 from the East, with the inevitable result of making: the 
 East wealthier than the South and the West combined; 
 and it is now, through the instrumentality of the system, 
 absorbing in great part their annual production. 
 
 After the passage of the Act of Parliament depriving 
 the paper money of the colonies of legal tender, and forbid- 
 ding any further issues, and the acts forcing the colonists 
 to use cash in all transactions under five dollars and to pay 
 the tax on tea in silver, it was realized that they must either 
 fight for freedom from such oppression or become serfs to 
 English landlordism.
 
 IV 
 
 The JVar for Independence 
 
 TiiEREuroN a general Congress was organized, com 
 posed of delegates from each of the colonies, to petition for 
 the restoration of their rights, and to prepare for war if 
 their demands ^vere not granted. 
 
 The general Congress, as formed and empowered, was 
 merely an advisory council to the different colonies. It 
 possessed no power to impose or collect taxes or duties ; it 
 had no authority to emit bills of credit and make them a 
 legal tender ; it had no right to coin money or issue bonds, 
 nor could it receive in the payment of taxes, or in any man- 
 ner redeem the paper issues it might emit. 
 
 Nevertheless, in response to a suggestion embodied in a 
 letter from Joseph Warren, president of the Provincial 
 Congress of Massachusetts Bay, Congress on June 22, 1775, 
 passed the following resolutions : — 
 
 "Resolved, That a sum not exceeding two millions of 
 Spanish milled dollars be emitted by the Congress in bills 
 of credit, for the defense of America. 
 
 " Resolved, That the twelve Confederate Colonies be 
 pledged for the redemption of the bills of credit now 
 directed to be emitted." 
 
 On June 23, 1775, Congress passed the following reso- 
 lutions : — 
 
 "Resolved, That the number and denominations of the 
 bills to be emitted be as follows : 49,000 each of bills of 8, 
 7, 6, 5, 4, 3, 2, and i; and 11,800 bills of $20; in all 
 $2,000,000." 
 
 61
 
 62 The Legal-Tender Problem 
 
 " Resolved, That the form of the bills be as follows : 
 
 No ) Continental Currency. ( Dollars, 
 
 This bill entitles the bearer to receive Spanish 
 
 milled dollars, or the value thereof in gold and silver, ac- 
 cording- to the resolutions of the Congress, held at Phila- 
 delphia, on the loth day of May, a. d. 1775." — "Elliott's 
 Debates," Vol. i, page 48. 
 
 The notes, emitted by the Continental Congress one 
 year before the Declaration of Independence, were not 
 receivable for taxes or dues, were not legal tenders, were 
 not to be paid or redeemed by Congress, but were simply 
 thrown on the troubled and oppressed country in the hope 
 that they would be received and used by a patriotic people 
 without question as to whether Congress had the power to 
 make them obligations of the different colonies. 
 
 It seems, in accordance with their calculations, that 
 they w^ere received without question, for on July 25, suc- 
 ceeding, another act was passed authorizing the issue of 
 another $1,000,000 of these notes; and on November 29 
 of the same year, a third act was passed providing for the 
 issuance of $3,000,000 more, a total of $6,000,000 in the 
 year 1775. — Id., Vol. i, page 4p. 
 
 In addition to the notes issued by Congress, the colonies 
 were also issuing notes ; and by December 26 some doubt 
 must have arisen, either as to the ability of the colonies 
 to redeem the share apportioned to them or of the power 
 of Congress to bind the colonies, for on that date Congress 
 passed an act that each colony should provide ways and 
 means to retire the portion of the issue accredited to it. 
 
 The act sets out that each colony was to commence 
 redeeming the notes in 1778, and complete the retirement 
 of all issues charged to it by 1783, and it was to be done 
 in the following manner : the colonies were to impose a
 
 The War for Independence 63 
 
 special tax to take up the notes, but they were not to be 
 received for any other tax. If, in the payment of this spe- 
 cial tax, coin should be used instead of notes, the coin was 
 to be used in the purchase of the notes if they could be had. 
 If the notes could not be secured in exchange for coin, then 
 the treasurer of the colony must turn over to the national 
 treasury both the coins and notes received in payment of 
 the special tax. The notes so turned over were to be de- 
 stroyed, and the coins used to redeem the outstanding notes. 
 
 This was virtually a scheme to carry on the war by 
 direct taxation, for as fast as the notes were issued they 
 were to be taken up and retired. Therefore they were not 
 given any of the characteristics or qualities of money. To 
 have done so would have defeated the iniquitous intention, 
 and left them in the channels of circulation to compete with 
 gold and silver. 
 
 If the colonies had complied with the provisions of the 
 act, and retired the notes by special tax, the expenses of the 
 war would have been paid as it progressed, and in a short 
 time after its termination none of the issues would have been 
 in circulation. If the colonies should fail to pay the notes 
 on the ground that Congress had no power to bind them for 
 their payment, and the exigencies of the war should require 
 the issue of a large quantity, the holders of the notes, at the 
 termination of the struggle, would be the losers, for there 
 would be no valid obligation on either the colonies or the 
 nations that could be enforced. 
 
 Congress knew that it had no power to bind the colonies 
 for the payment of the notes, and the colonies eventually 
 refused to recognize or assume the obligation imposed upon 
 them. It now appears to have been a clever financial 
 scheme to euchre the patriotism of the country into fighting 
 the war of independence without in the least affecting the
 
 64 The Le^al-Tender Problem 
 
 sound-money basis that Massachusetts had secured, and 
 leaving it intact in a short while after the termination of 
 the war. 
 
 The notes, as issued, were a clever temporary war sub- 
 stitute for money ; made the more tempting by the promise 
 to pay in Spanish milled dollars, addressed to the ignorant 
 and patriotic credulity of the people. If the notes were 
 retired by the levy of the special tax or repudiated after 
 the war, the result was the same ; the specie basis was pre- 
 served. 
 
 The scheme was assisted by the act of Congress passed 
 January ii, 1776, that all persons refusing to receive the 
 Continental bills of credit in payment, or who should ob- 
 struct or discourage the currency circulation, be denounced, 
 published, and treated as enemies of the country, and be 
 precluded from all trade and intercourse with the inhabitants 
 of the colonies ; but they were not given the legal-tender 
 quality. 
 
 Additional issues were now made, and on the 17th of 
 February, 1776, the sum of $4,000,000 in bills of credit were 
 emitted ; and on the 6th of May it was resolved that ten 
 millions of dollars be raised for the purpose of carrying on 
 the war for the year 1776. 
 
 On the 9th of May a resolution passed for the emission 
 of five millions of dollars, in bills of credit, in part of the 
 ten millions voted for the service of the year 1776, making 
 a total of eleven millions issued before the Declaration of 
 Independence. — "Elliott's Debates," Vol. i, pages 52, 55. 
 
 After this time the issues were enlarged to $241,552,280, 
 at the close of November 29, 1779, according to the state- 
 ment of Mr. Poor, on page 457 of " Money, Its Laws, etc." 
 
 The warfare made upon the bills of credit by that class 
 who were advocates of gold and silver, aided by the knowl-
 
 The II ar for Independence 65 
 
 edge that they were not binding obligations upon either 
 the colonies or the nation, and that their payment or 
 redemption by either would be resisted by the financiers, in 
 and out of office, was highly instrumental in breaking down 
 the faith of the people in them, and they receded in value 
 from par at the date of the Declaration of Independence, 
 to two for one at the close of 1776, and to eight for one at 
 the close of 1778. 
 
 Congress therefore, on the 26th of December, 1778, 
 passed an act providing that new notes were to be exchanged 
 for old, and that the holders of the old notes should be 
 allowed interest to be paid in new notes ; but the new 
 notes were not given the legal-tender quality. No issues 
 were made under this act, nor were any new notes issued 
 to take up the old notes until 1780. The legislative cajolery 
 and the patriotism of the people induced them to accept and 
 use the notes until the close of 1779. 
 
 On the 9th of July, 1778, the Articles of Confederation 
 superseding the Continental Congress were adopted. 
 
 Whereas the Continental Congress had no powers, and 
 was merely an advisory council to the colonies, organized 
 for the double purpose of securing peace with England, or 
 if that were not accomplished, to make preparations for 
 war, the Articles of Confederation were the formation of a 
 sovereign nation coming into existence under great diffi- 
 culties. The declaration of the intention to throw off the 
 swaddling clothes of a colony and assume the vestments 
 of a nation, necessitated a reorganization for fuller and 
 more power to meet the exigencies of the hour. 
 
 Under Article 8 of said Confederation is found the fol- 
 lowing : — 
 
 "All charges of war, and all other expenses that shall be 
 incurred for common defense or general welfare, and al- 
 5
 
 66 The Legal-Tender Problem 
 
 lowed by the United States in Congress assembled, shall be 
 defrayed out of the common treasury, which shall be sup- 
 plied by the several States in proportion to the value of 
 any land, within each State. . . . 
 
 " The taxes for paying that proportion shall be laid and 
 levied by the authority and direction of the Legislature of 
 the several States, within the time agreed upon by the 
 United States in Congress assembled." 
 
 Under Article 9 the following powers are set forth : — 
 
 " The United States in Congress assembled shall have 
 authority ... to ascertain the necessary sums of money 
 to be raised for the service of the United States, and to 
 appropriate and apply the same for defraying public ex- 
 penses ; to borrow money or emit bills of credit on the credit 
 of the United States; transmitting every half a year, to the 
 respective States, an account of the sums of money so bor- 
 rowed or emitted." 
 
 Article 12 : "All bills of credit emitted, moneys bor- 
 rowed, and debts contracted, by or under the authority of 
 Congress, before the assembling of the United States in 
 pursuance of the present Confederation, shall be deemed 
 and considered as a charge against the United States, for 
 the payment and satisfaction whereof the said United States, 
 and the public faith, are hereby solemnly pledged." 
 
 The amount of the notes issued by the Continental 
 Congress before the adoption of the Articles of Confedera- 
 tion was $52,500,000. 
 
 Notwithstanding the Articles of Confederation gave 
 Congress the power to emit bills of credit, — impliedly con- 
 ferring the power to make them a legal tender, — and obli- 
 gated the United States to pay them and all previous issues, 
 no change was made in the method of their issue, but the 
 subsequent issues were emitted just as the Continental notes 
 had been.
 
 The War for Independence ^7 
 
 This neglect, or refusal, on the part of Congress, after 
 the Articles of Confederation were adopted, to issue the 
 bills of credit as legal tenders in accordance with the power 
 conferred upon it, and its. persistence in issuing them, as 
 was done under the uncertain and irresponsible power of 
 the Continental Congress, aroused the suspicion of the peo- 
 ple as to the bona fides of its intention ; and the report that 
 gained circulation in the year 1779 that Congress never 
 intended to redeem them, when coupled with the fact that 
 the colonies, as States, were not complying with the order 
 of Congress to commence their retirement, reduced their 
 value from 8 to i at the close of 1778 to 40 to i at the close 
 of 1779. 
 
 To meet this charge, that in the light of subsequent 
 events seems to have been true, and to sustain the value of 
 the notes. Congress on December 28, 1779, dented the 
 charge, and passed an act pledging the faith of the United 
 States for the payment of the bills, but it failed to make 
 them legal tenders. 
 
 On December 31, 1779, it endeavored to carry out its 
 pledge of good faith in the following act, ordering that the 
 bills of credit issued before the Declaration of Independence, 
 and charged to the different colonies, be paid by them, and 
 that the time for paying the balance of the $241,552,280 be 
 extended to eighteen years instead of four, heretofore 
 granted, and that the amount of each annual payment be 
 limited to $6,000,000, commencing in 1780. 
 
 This action of Congress tended to depreciate, instead of 
 sustain, the value of the notes, for it was becoming evident 
 that its pledge that it would pay the notes was illusive, 
 and had been merged in its order to the colonies to pay 
 them in eighteen years. 
 
 It was known that there was a powerful hard-money
 
 68 The Legal-Tender Problem 
 
 party in Congress ; that it had forced the notes to be issued 
 payable in silver; that it had refused to allow them to be 
 made a legal tender, because they did not intend that they 
 should come in competition with gold and silver. 
 
 It was further known that if the notes were retired by 
 the special tax, as was first intended, the war would have 
 been sustained by a direct tax ; and it had long been sus- 
 pected that the notes were originally issued in such a way 
 that if they were not retired by the special tax, they would 
 never be paid. This issue was as well defined, as serious, 
 and was fought as bitterly, as the war of the Revolution. 
 It is little cause of wonder, then, that by the close of 1779 
 they were only worth 40 for $1.00 in silver. 
 
 The party of promise in Congress was a good majority, 
 as is evident from the many assurances given that all bills 
 of credit* emitted would be paid. The party of performance 
 was a small minority, and Congress could take no action 
 in keeping its pledges, until it was to the interest of the 
 party of promise to do so. 
 
 The war was at its lowest ebb in 1780; money was 
 scarce, and it was almost impossible to borrow any from 
 Europe. A circulating currency was indispensably neces- 
 sary to carry forward the war, and with the past issue of 
 notes depreciated in value to two and one-half cents on the 
 dollar, and growing more valueless each month, it was evi- 
 dent that they were no longer of any use, and that it was 
 folly to issue more. Some arrangements had to be made 
 to secure a circulating currency, or to give value to the 
 notes outstanding, or the war would have to close, and the 
 colonies again become dependencies of England. 
 
 The contemplation of such an idea, and the fear that 
 English greed would be far more exacting than in 1775, 
 forced the hard-money party, or party of promise, in Con-
 
 Tlie J Far for Independence 69 
 
 gress to agree that the following liheral (?) legislation 
 might be passed. 
 
 By a resolution " Congress authorized that silver be 
 received at the rate of i to 40 ; " that all bills of credit turned 
 into the treasury at this rate should be destroyed ; that new 
 certificates bearing five per cent interest, not to exceed in 
 nominal value one twentieth of the bills thus destroyed, were 
 to be issued in their stead ; that funds were to be established 
 by the individual States for the redemption of these new 
 certificates, and the faith of the United States was again 
 pledged as an additional security. 
 
 These certificates were to be in the following form: — 
 
 " The possessor shall be paid Spanish 
 
 milled dollars by the 31st of December, 1786, with interest, 
 in like money at the rate of five per cent per annum, by the 
 State of , according to an act of the Legis- 
 lature of the State of , the day of 
 
 , 1780." 
 
 The endorsement of Congress was : — 
 
 " The United States insures the payment of the within 
 bill, and will draw bills of exchange, annually, if demanded, 
 according to a resolution of Congress of the i8th of IMarch, 
 1780;" but it is most significant they were not made legal 
 tenders. — "History of the Currency," page ij. 
 
 In this manner the many promises heretofore made by 
 Congress to redeem or to pay the $241,552,280 bills of 
 credit, were to be carried out. It was to be the funding of 
 this sum into the fortieth part ; viz.. $6,038,807, bearing five 
 per cent interest annually, and no better secured than the 
 $241,000,000. It was hoped that the five per cent interest 
 would prove inviting enough to induce all of the holders of 
 the $241,000,000 of the bills of credit to surrender them for 
 cancelation in exchange for the new certificates.
 
 70 The Le^al-Tender Problem 
 
 If this should be done, it is evident that Congress thought 
 it could, with the $6,000,000 additional issues provided by 
 the act, carry on the war ; and it was provided that in the 
 issuance of these new certificates six tenths of the issues 
 were to be delivered to the States in due proportions, and 
 four tenths were to be reserved for the use of Congress. 
 
 This manifestation of the influence of the hard-money 
 party over Congress, verifying the general report that it 
 never intended to pay the bills of credit, must have disgusted 
 the people, for only a few availed themselves of the privilege. 
 
 This complete distrust of Congress was more effectually 
 shown in the fact that such new emissions as were made 
 soon sank to one eighth of their nominal value, notwith- 
 standing they bore five per cent annual interest, so that the 
 holder of $320 in Continental paper money who received 
 $8 in the new certificates, had only the value of $1 in silver. 
 — "History of the Currency/' page 15. Notwithstanding 
 the Articles of Confederation gave Congress the power to 
 emit bills of credit, and therefore the implied right to make 
 them a full legal tender, it is noticeable that it was not 
 done. 
 
 This persistence in Congress in and under every neces- 
 sity for a circulating medium, when it was known that there 
 was not enough gold and silver to supply the demand, not 
 to give the quality of legal tender to bills of credit, is unde- 
 niable evidence that the sound-money men kept in mind the 
 reason that forced specie-basis Massachusetts to commence 
 the war. 
 
 There has been no similar manifestation of such an 
 implacable and deadly purpose, under such embarrassments 
 and tribulations, in the history of the world, and no such 
 gain and profit has ever waited upon such fixity of purpose 
 as has accrued to capitalists of the East and their posterity.
 
 The War for Independence 7^ 
 
 Tlie depreciation in value of the Continental currency, 
 and the equal reduction in value of the new certificates, 
 was due, in addition to the distrust of the intention of the 
 hard-money party to ever allow either to be paid, to the fact 
 that large issues, independent of funding, were being made, 
 both of Continental bills and the new certificates. 
 
 In 1780 there was issued of the old emissions $82,908,- 
 320.47, and of the new emissions $891,236.80. These 
 figures would seem to indicate that the scheme to fund the 
 $241,000,000 of Continental bills of credit into $6,000,000 of 
 five-per-cent certificates having fallen through. Congress, 
 still under the influence of the hard-money party, which 
 never intended to make the issues a legal tender to come in 
 competition with gold and silver, as the circulating currency, 
 recklessly continued to issue the Continental bills of credit 
 and the new certificates. 
 
 In 1781 there was issued $11,408,095, of the old emis- 
 sions, and they had receded in value to a thousand for one, 
 when, as Mr. Jefferson in his works, \"ol. LX, page 248, 
 writes, " It then expired without a single groan. Not a 
 murmur was heard among the people. On the contrary, 
 universal congratulation took place on their seeing the 
 gigantic mass, whose dissolution had threatened convulsions 
 which should shake their infant confederacy to its center, 
 quietly interred in its grave." 
 
 Sumner, of Yale, writes thus superciliously of it. indica- 
 ting only too clearly the Alasssachusetts idea and concep- 
 tion : — 
 
 " The paper was worth more for advertisement, or a 
 joke, than for any prospect of any kind of redemption. A 
 barber's shop in Philadelphia was papered with it. and a 
 dog. coated with tar, and the bills stuck all over him, was 
 paraded in the streets."
 
 72 The Le^al-Tender Problem 
 
 When it is recalled that the colonists knew how to issue 
 paper notes as money, so that they would be effective as 
 a circulating currency and retain their value, and that it 
 had been done by Massachusetts and Pennsylvania in a 
 way that had proved wise, beneficent, and safe, it is evident 
 that the Continental currency was issued as it was, either to 
 be retired by a special tax or repudiated. 
 
 It is now apparent that it was never intended that they 
 should be issued as full legal tenders, and usurp for the 
 time of war, and for years after its termination, the monop- 
 oly that gold and silver .thus early in the history of the 
 country was claiming. 
 
 The fact that there was not in the entire country more 
 that five or ten million dollars in specie, and that this would 
 be inadequate to conduct the war, was acknowledged by 
 every one ; but instead of acting upon this knowledge, and 
 making the notes a legal tender for all debts public and 
 private, with the understanding that at the end of the war 
 they could be exchanged for interest-bearing obligations 
 as fast as gold and silver could be secured to take their 
 place, they were issued as the merest temporary substitute, 
 without any of the characteristics or qualities of money 
 whatever. No such financial chicanery was ever practised 
 upon a people before in the preparation for a struggle for 
 libertv. 
 
 It was not the method that was adopted by some of the 
 colonies in making the notes a full legal tender for all debts 
 public or private, or redeemable in State stock, as was the 
 first issue of Massachusetts. It was not the method that 
 might have been devised from an acquaintance with the 
 experience of the Bank of Venice, wherein the sale of the 
 legal-tender quality by the Government defrayed its ex- 
 penses, fought its battles, and sustained its trade and com-
 
 The J Far for Independence 73 
 
 merce for three hundred years, without a single financial 
 reversion. It was the unscrupulous and unpatriotic attempt 
 of a buccaneering- set of financiers, attitudinizing as revolu- 
 tionists, to make the people bear, by a direct tax, the expenses 
 of the war, in order that Massachusetts might be enabled to 
 reap all the advantage from her sister colonies that she had 
 calculated upon in 1773, when she reached a specie basis.
 
 V 
 
 The Bank of North America 
 
 The hard-money faction in Congress was so far trium- 
 phant. It had succeeded in issuing $241,552,280 of Con- 
 tinental currency previous to 1780, and it had endeavored 
 to fund this sum into one fortieth of its nominal value in 
 five-per-cent certificates. 
 
 Failing in this attempt to reduce at the same tinie the 
 circulating medium and the obligations it had pledged its 
 faith to pay, it recklessly, in 1780 and 1781, issued an addi- 
 tional $94,316,415.47 of the Continental currency, and $2,- 
 070,485 of the five-per-cent certificates, a total of $337,939,- 
 191.27. This conduct, evincing an utter disregard of its 
 many promises, and indicating the intention of the money 
 faction to neither allow Congress to make the bills of credit 
 a legal tender nor a legal obligation, completely destroyed 
 the value of this immense sum, both as a circulating medium 
 and as an obligation, and it went out of existence. 
 
 The original intention either to pay the expenses of the 
 war by a direct tax or to repudiate the bills of credit, was 
 accomplished by the destruction of the bills of credit, both 
 as a circulating medium and as obligations. 
 
 The war was not over, however, and the only circulating 
 money in existence was some $5,000,000 or $10,000,000 in 
 specie, and $200,000,000 in paper currency issued by the 
 States since 1775. 
 
 This paper-money issue of the States was not under the 
 control of Congress, and the disposition of it, either by pay- 
 ment or repudiation, was safely left to the hard-money party 
 
 74
 
 The Bank of North America 75 
 
 in each State. It received no recognition by Congress, not- 
 withstanding the great stress that was upon that body to 
 supply a circulating medium. 
 
 The hard-money faction in and out of Congress was as 
 much determined on its destruction, and that it should not 
 circulate as mediums of payment, as they were toward the 
 Continental currency. Under these circumstances, it being 
 incumbent upon Congress to furnish a circulating currency 
 to prosecute the war, the organization of a bank to issue 
 notes was advocated. 
 
 It was insisted that under the Articles of Confederation, 
 Congress had the power to charter a bank. Congress did 
 have explicit power to emit bills of credit, and that right 
 carried with it the implied power to make them a legal 
 tender. Congress had no power to grant charters of incor- 
 poration, arid therefore no right to create such institutions. 
 This was finally admitted after full argument, as will be 
 seen in a letter of Mr. Madison's ; and yet the hard-money 
 party wielded such influence that Congress exercised a 
 power it did not have to the exclusion of one that was 
 specifically conferred upon it. The granting of a charter 
 for a bank was obtained under the pretense of assisting the 
 States in their struggle for independence. 
 
 Air. Madison's letter, dated January 8, 1782, addressed 
 to Edmund Pendleton; is as follows : - 
 
 " Dear Sir : Yesterday was opened for the first time the 
 bank instituted under the auspices of Congress. ... It is 
 pretty analogous in its principles to the Bank of Eng- 
 land. . . . 
 
 " The competency of Congress to such an act had been 
 called in question in the first instance; but the subject not 
 Iving in so near and distinct a view, the objection did not 
 prevail. On the last occasion, the general opinion, though
 
 76 The Legal-Tender Problem 
 
 with some exceptions, was, that the Confederation gave no 
 such power, and that the exercise of it would not bear 
 forensic cHsquisition, and consequently would not avail the 
 institution. 
 
 " The bank, however, supposing that such a sanction 
 from Congress would at least give it a dignity and pre-emi- 
 nence in the public opinion, urged the engagement of Con- 
 gress ; that on this engagement the subscription had been 
 made, and that a disappointment would leave the subscribers 
 free to withdraw their names. 
 
 " These considerations were re-enforced by the super- 
 intendent of finance, who relied on this institution as a 
 great auxiliary to his department ; and, in particular, ex- 
 pected aid from it in a payment he is exerting himself to 
 make to the army. . . . 
 
 " You will conceive the dilemma in which these circum- 
 stances placed the members who felt on one side the impor- 
 tance of the institution, and on the other a want of power, 
 and an aversion to assume it. 
 
 " Something like a middle way finally produced an 
 acquiescing, rather than an affirmative, vote. A charter of 
 incorporation w^as granted, with a recommendation to the 
 States to give it all the necessary validity within their respect- 
 ive jurisdictions. As this is a tacit admission of a defect of 
 power, I hope it will be an antidote to the poisonous tendency 
 of precedents of usurpations." — " Madison's Papers," Vol. 
 I, page 104. 
 
 The necessities of the army in the field was the pressure 
 brought to bear upon Congressmen by the conspirators to 
 carry out their nefarious plans. 
 
 The bank organized in 1781 was known as " The Bank 
 of North America." Its capital stock was at first $400,000, 
 and was afterward increased to $2,000,000. Congress sub-
 
 The Bank of North America 77 
 
 scribed for part of the stock, and the balance was taken by 
 individuals. The bank was authorized to issue notes, and 
 these notes were made a Icg^al tender for all debts due the 
 Government. This made the bank-notes mediums of pay- 
 ment in the settlement of all debts due the Government, and 
 virtually made them obligations of the Government, which 
 were redeemed as often as they were accepted by the Gov- 
 ernment in payment of dues, taxes, and debts of whatsoever 
 nature. This one characteristic bestowed upon the bank- 
 notes was the one thing that the hard-money faction would 
 never permit to be given the Continental currency. 
 
 The efifect of making the bank-notes a legal tender in 
 the payment of the debts due the Government was to give 
 them such general circulation that very few were presented 
 to the bank for payment in coin. In fact they were pre- 
 ferred to coin, as paper money always has and always will 
 be when it is made legal tender, and can be used in making 
 payments. 
 
 Another effect was that the coin, which had been estima- 
 ted to be only some $5,000,000, now came from its hiding 
 place, and soon increased to $10,000,000. The policy of the 
 hard-money faction had been to keep their coin out of cir- 
 culation, knov.'ing that they intended to destroy or repudiate 
 the Continental currency, and now, that having been accom- 
 plished, and the banking scheme being in operation, they 
 readily exchanged their coin for bank-notes, and in addi- 
 tion deposited large amounts in the bank. The bank-notes 
 were preferable for use in all local transactions, and the 
 coin was not used except for small change. 
 
 The war was fought to a successful termination in 1783, 
 and the financiers reaped the benefit of the double battle, — 
 the physical one against English soldiers, and the financial 
 one against paper issues.
 
 VI 
 
 Four Years' Struggle to Secure the Payment 
 
 of the Debt 
 
 After the termination of the war, and the independence 
 of the country was assured, Congress, under date of April 
 i8, 1783, issued an address to the States urging upon them 
 the necessity of making provision to pay the debts con- 
 tracted, and calHng attention to the want of power in the 
 Articles of Confederation to accomplish this purpose. The 
 following table, from " History of the Currency," page 17, 
 show the amounts and kinds of monev issued : — 
 
 
 CONTINENTAL 
 
 CURRENCY. 
 
 
 
 Year. 
 
 Old Emissions. 
 
 
 
 
 Total. 
 
 1775 
 1776 
 
 $6,000,000 J 
 5,000,000 \ 
 
 Issued before Declaration 
 of Independence 
 
 \ 
 
 $11,000,000 
 
 1776 
 
 5,000,000 
 
 
 
 
 5,000,000 
 
 1777 
 
 13,000,000 
 
 
 
 
 13,000,000 
 
 1778 
 
 23,500,000 
 
 
 
 
 23,500.000 
 
 $52,500,000 Issued before the Articles of Confedera- 
 tion were signed. 
 
 New Emissions. 
 
 1778 $ 40,000,000 $ 40,000,000 
 
 1779 140,052,280 140,052,280 
 
 1780 82,908,320 $ 891,236 83,799,556 
 
 1781 11,408,095 1,179,249 12,587,344 
 
 $326,868,695 $2,070,485 $328,939,180 
 
 78"
 
 The Four Years' Struggle 79 
 
 PAPER MONEY ISSUED BY THE STATES DURING THE WAR. 
 
 Massachusetts $ 3,868,000 
 
 Rhode Island 714.000 
 
 Connecticut 1,516,500 
 
 New York 1,161,250 
 
 New Jersey 1,618,000 
 
 Pennsylvania 4,324,000 
 
 Delaware 146,500 
 
 Maryland 950.000 
 
 Virginia 128,441.000 
 
 North Carolina • 33,225,000 
 
 South Carolina 33,458,926 
 
 $209,524,776 
 
 It will be noticed a.s significant of the intluence the hard- 
 money faction attempted to exercise over Congress, that 
 on February 3, 1781, it endeavored to force the passage of 
 the following resolution : — 
 
 " That it be recommended to the several States as indis- 
 pensably necessary that they vest a power in Congress to 
 levy, for the use of the United States, a duty of five per cent 
 advalorem, at the time and place of importation, upon all 
 goods, wares, and merchandise, of foreign growth and man- 
 ufacture, which may be imported into any of the said States 
 from any foreign port, island, or plantation, after the ist 
 day of May, 1781, except . . . 
 
 "Also a like duty of five per cent on all prizes and prize 
 goods, condemned in the courts of the admiralty of any of 
 those States as lawful prizes. That the moneys arising 
 from said duties be appropriated to the discharge of the 
 principal and interest of the debts already contracted, or 
 which may be contracted, on the faith of the United States 
 for supporting the present war. That the said duties be 
 continued until the said debts shall be fully and finally dis- 
 charged."— "ir///o//'.y Debates," Vol. i, page pj.
 
 8o The Legal-Tender Problem 
 
 It appears that just so soon as the Continental currency 
 had virtually been repudiated, and money to prosecute the 
 war must be had from some source, the hard-money faction 
 decided that it would supply the necessary amount, if the 
 States would empower Congress to collect import dues, and 
 pledge these dues to the payment of the loans. 
 
 It is evident that the tactics of the hard-money faction 
 in Congress had premeditatedly made a condition of afifairs 
 where the patriots in that body were forced to grant them 
 their unconstitutional bank. They knew that the success of 
 the bank and the making of their fortunes depended on the 
 success of the Revolution and in getting control of the 
 import dues, even before the close of the war. This is evi- 
 denced by the following : — 
 
 The State of Rhode Island on November 30, 1782, 
 appears to have entered a solemn written protest against 
 such an extension of the powers of Congress as is embodied 
 in the resolutions of February 3, 1781, and on December 
 16, 1782, Congress issued a reply to the protest. 
 
 Among many other reasons advanced by Congress 
 against the position taken by Rhode Island and other States 
 is the following : " The measure proposed is a measure of 
 necessity. Repeated experiments have shown that the 
 revenue to be raised within these States is altogether inade- 
 quate to the public wants. The deficiency can only be sup- 
 plied by loans. Our applications to foreign powers, on 
 whose friendship we depended, have had a success far short 
 of our necessities. The next resource is to borrozu from 
 individuals. These will neither be actuated by generosity 
 nor reasons of State. It is to their interest alone zve must 
 appeal. To conciliate these, we must not only stipulate a 
 proper compensation for zvhat they lend, but we must give
 
 The Four Years' Struggle 8i 
 
 security for the performance. We must pledge an ascer- 
 tained fund, simple and productive in its nature, general in 
 its principle, and at the disposal of a single will. There 
 can be little confidence in a security under the constant 
 revisal of thirteen different deliberations. It must, once for 
 all, be defined and established on the faith of the States 
 solemnly pledged to each other, and not revocable by any 
 without a breach of the general compact." — ''Elliott's De- 
 hates," Vol. I, page 102. 
 
 This nnist have surprised a patriotic people that had 
 accepted the millions of Continental currency to fight Eng- 
 lish txrannv, and had chccrfullv made a gift of it to the 
 nation, and who had accepted $209,000,000 of State issues 
 in payment for effort made in the same cause with but little 
 hope of its ever being paid, and who were yet willing to 
 accept more if they were issued in such a manner that they 
 could have paid debts with them. 
 
 The reply of Congress to the objections of Rhode Island 
 adds further : " The United States have already contracted 
 a debt in Europe and in the country, for which their faith is 
 pledged. The capital of this debt can only be discharged 
 by degrees ; but a fund tor this purpose, and for paying 
 the interest annually, on every principle of policy and jus- 
 tice, ought to be provided. The omission will be the deep- 
 est ingratitude and cruelty to a large number of meritorious 
 individuals, who, in the most critical periods of the war, 
 have adventured their fortunes in supporting our independ- 
 ence. It would stamp the national character with indelible 
 disgrace." — "Elliott's Debates," Vol. i, page 104. 
 
 It was no reflection uj)on the Government to repudiate 
 the Continental currency, but it would be an indelible dis- 
 grace not to pay the millions the bankers had loaned it, 
 6
 
 82 The Legal-Tender Problem 
 
 That same idea dominates this country to-day, and has con- 
 trolled its action through all its financial legislation. 
 
 Congress closes its reply as follows : — ■ 
 
 "After the most full and solemn deliberation, under a 
 collective view of the public difficulties, they recommend a 
 measure which appears to them the corner stone of the pub- 
 lic safety; they see the measure suspended for nearly two 
 years ; partially complied with by some of the States ; re- 
 jected by one of them, and in danger, on that account, to 
 be frustrated ; the public embarrassments every day increas- 
 ing; the dissatisfaction of the army growing more serious; 
 the other creditors of the public clamoring for justice; both 
 irritated by the delay of measures for their present relief or 
 future security ; the hopes of our enemies encouraged to 
 protract the war; the zeal of our friends depressed by an 
 appearance of remissness and want of exertion on our part ; 
 Congress harrassed ; the national character suffering, and 
 the national safety at the mercy of events." — Id., page io6. 
 
 Congress was not successful in getting the States to give 
 it the extension of the powers for the purposes so pathet- 
 ically set forth. But it was not discouraged, and on April 
 i8, 1783, it addressed itself to the matter again in somewhat 
 better shape. On this day it passed the following resolu- 
 tion : — 
 
 "Resolved, By nine States, that it be recommended to 
 the several States, as indispensably necessary to the restora- 
 tion of public credit, and to the punctual and honorable dis- 
 charge of the public debt, to invest the United States in 
 Congress assembled with a power to levy, for the use of 
 the United States, the following duties upon goods imported 
 into the said States from any port, island, or plantation. . . . 
 
 " Provided, that none of the said duties shall be applied 
 to any other purpose than the discharge of the interest or
 
 The Four Years' Struggle 83 
 
 principal of the debts contracted, on the faith of the United 
 States for supporting the war, agreeably to the resolution of 
 the 1 6th day of December last, nor to be continued for a 
 longer term than twenty-five years." — "Elliott's Debates," 
 Vol. I, page pj. 
 
 " That it be further recommended to the several States 
 to establish for a term limited to twenty-five years, and to 
 appropriate to the discharge of the interest and principal of 
 the debts contracted on the faith of the United States for 
 supporting the war, substantial and effectual revenues . . . 
 for supplying their respective proportions of one million 
 five hundred thousand dollars, annually, exclusive of the 
 aforementioned duties." — Id., page 95. 
 
 In support of their action, and to influence a grant of 
 the power to Congress, an address was made to the States 
 on April 26, 1783, to accompany the act of April 18, 1783. 
 The language used in the act was general, and in the 
 fear that it might be thought that all the debts heretofore 
 set out were included, and their payment be insisted upon, 
 this address was particular to set forth what part of the debt 
 was intended. 
 
 It will be seen that only so much of the debt hereafter 
 set forth, under the head of " Debt Proper," as was in 
 existence at that date, was intended to be provided for. The 
 portion of said report that it is deemed necessary for the 
 purpose in view is as follows : — 
 
 " The prospect which has for some time existed, and 
 which is now happily realized, of a successful termination 
 of the war, . . . has made it the duty of Congress to review 
 and provide for the debts which the war has left upon the 
 United States, and to look forward to the means of obvia- 
 ting dangers which may interrupt the harmony and tranquil- 
 lity of the Confederacy.
 
 84 The Legal-Tender Problem 
 
 " The first measure recommended is, effectual provision 
 for the debt of the United States. The amount of these 
 debts, so far as they can now be ascertained, is $42,000,375. 
 To discharge the principal of this aggregate debt at once, 
 or in any short period, is evidently not within the compass 
 of our resources. . . . The amount of the annual interest 
 is computed to be $2,415,956. Funds, therefore, which will 
 certainly and punctually produce this annual sum, at least, 
 must be provided. In devising these funds. Congress did 
 not overlook the mode of supplying the common treasury, 
 provided by the Articles of Confederation, but, after the 
 most respectful consideration of th.at mode, they were con- 
 strained to regard it as inadequate and inapplicable to the 
 form into which the public debt must be thrown. . . . Some 
 departure, therefore, in the recommendation of Congress, 
 from the Federal Constitution, was tmavoidable ; but it v/ill 
 be found to be as small as could be reconciled with the object 
 in view, and to be supported besides by solid considerations 
 of interest and sound policy." — "Elliott's Debates," Vol. i, 
 page ()6. 
 
 These are the views now held by the faction which had 
 so framed the Continental Congress and the Articles of Con- 
 federation that the bills of credit emitted either had to be 
 taken up by a direct tax or repudiated. 
 
 It appears strange at this day, that when the five-per-cent 
 certificates to fund the Continental currency were issued, 
 the deficiency of the Articles of Confederation was not ap- 
 parent. It is stranger still that the issue of Continental 
 currency under the defective Articles was continued until 
 so many were issued that they became entirely worthless, 
 and it became necessary to charter a bank. And it is aston- 
 ishing, that after a domestic debt of $28,858,180.65 was
 
 The Four Years' Struggle 85 
 
 created through the agency of this bank by the loan of gold 
 and silver to the Government, when there was not ten mil- 
 lions of tlie metals in the country, they should all at once 
 have such clear ideas as to how they could secure the pay- 
 ment of the principal and the interest. 
 
 The policy proposed to the States by Congress was to 
 devote the tax on imports to the payment of the interest on 
 the debt for twenty-five years ; and " to render the fund as 
 productive as possible, and at the same time to narrow the 
 room for collusions and frauds, it has been adjudged an 
 improvement of the plan, to recommend a liberal duty on 
 such articles as are most susceptible of a tax according to 
 their quantity, and are of most general consumption, leaving 
 all other articles, as heretofore proposed, to be taxed accord- 
 ing to their value. The amount of the fund is computed to 
 be $915,956. The residue of the computed interest is $1,- 
 500,000, and is referred to the States to be provided for by 
 such funds as they may judge most convenient. The neces- 
 sity of making the two foregoing provisions one and indi- 
 visible act, is apparent."— "£///o//'.f Debates," Vol. i, page 
 
 97- 
 
 After explaining more in detail the workings of the plan. 
 
 and stating the reasons for insisting upon the provisions 
 being made indivisible and irrevocable, the address recom- 
 mends a constitutional change of the rule by which a parti- 
 tion of the common burdens is to be made among the States. 
 It states : " The plan thus communicated and explained 
 by Congress must now receive its fate from their constitu- 
 ents. All the objects comprised in it are conceived to be of 
 great importance to the happiness of this Confederated 
 Republic — are necessary to render the fruits of the Revo- 
 lution a full reward for the blood, the toils, the cares, and
 
 86 The Legal-Tender Problem 
 
 the calamities which have purchased it. But the object, of 
 which the necessity will be particularly felt, and which is 
 peculiarly the duty of Congress to inculcate, is the provision 
 recommended for the national debt. Although this debt is 
 greater than could have been wished, it is still less, on the 
 whole, than could have been expected ; and when referred to 
 the cause in which it has been incurred, . . . ought to be 
 borne not only with cheerfulness, but with pride. 
 
 " But the magnitude of the debt makes no part of the 
 question. It is sufficient if the debt has been fairly con- 
 tracted, and that justice and good faith demand that it 
 should be fully discharged. Congress had an option between 
 different modes of discharging it. The same option is the 
 only one that can exist with the States. The mode which 
 has, after long and elaborate discussion, been preferred, is, 
 we are persuaded, the least objectionable of any that would 
 have been equal to the purpose. Under this persuasion, we 
 call upon the justice and plighted faith of the several States 
 to give it its proper effect, to reflect on the consequences 
 of rejecting it, and to remember that Congress will not be 
 answerable for them." — "Elliott's Debates," Vol. i, page 
 
 99- 
 
 When it is recalled that this same Congress had repu- 
 diated all the currency issued to fight the war of independ- 
 ence, in order that the banking scheme might be forced 
 upon the country, the special pleading in the address reads 
 like the essence of human gall and insolence, , and especially 
 the clause which reads, " It is sufficient if the debt has been 
 fairly contracted, and that justice and good faith demand 
 that it should be fully discharged." 
 
 As if answering the suspicion in their own minds that 
 the people would see through the thin veneer of- fair deal- 
 ing they were attempting to throw about the financial legis-
 
 The Four Years' Struggle 87 
 
 lation of the Revolution, they grouj) the honest foreign debt 
 and the debt due the soldiers with the debt due them which 
 had been contracted through the agency of the bank. 
 
 "If other motives than that of justice," the report states, 
 " could be requisite on this occasion, no nation could ever 
 feel stronger ; for to whom are the debts to be paid ? To an 
 ally, in the first place, who, to the exertion of his arms in 
 support of our cause, has added the succors of his treasury ; 
 who, to his important loans, has added liberal donations. . . . 
 To individuals in a foreign country, in the next place, who 
 were the first to give so precious a token of their confidence 
 in our justice, and of their friendship for our cause. . . . 
 Another class of creditors is that illustrious and patriotic 
 band of fclloiv citizens whose blood and wdiose bravery have 
 defended the liberties of their country. . . . 
 
 " The remaining class of creditors is composed partly 
 of such of our fellow citizens as originally lent to the pub- 
 lic the use of their funds, or have since manifested most 
 confidence in their country by receiving transfers from the 
 lenders; and partly of those whose property has been either 
 advanced or assumed for the public service. To discrim- 
 inate the merits of these several descriptions of creditors 
 would be a task equally unnecessary and invidious. If the 
 voice of humanity pleads more loudly in favor of some than 
 of others, the voice of policy, no less than of justice, pleads 
 in favor of all. A wise nation will never permit those who 
 relieve the wants of their country, or who rely most on its 
 faith, its firmness, and its resources, when either of them is 
 distrusted, to sufifer by the event:'— "Elliott's Debates," Vol. 
 I, pages pp, 100. 
 
 The address closes with the following homily upon gov- 
 ernmental morals: "If justice, good faith, honor, gratitude, 
 and all the other qualities which ennoble the character of a
 
 88 The Legal-Tender Problem 
 
 nation, and fulfills the ends of Government, be the fruits of 
 our establishments, the cause of liberty will acquire a dig- 
 nity and luster which it has never yet enjoyed, and an 
 example will be set which can not but have the most favor- 
 able influence on the rights of mankind. If, on the other 
 side, our Governments should be unfortunately blotted with 
 the reverse of these cardinal and essential virtues, the great 
 cause for which we have engaged to vindicate will be dis- 
 honored and betrayed, the last and fairest experience in 
 favor of the rights of human nature will be turned against 
 them, and their patrons and friends exposed to be insulted 
 and silenced by the votaries of tyranny and usurpation." — 
 Id., page 100. 
 
 All this wall happen if their domestic debt of twenty- 
 eight millions is not secured" and eventually paid ; for the 
 payment of that sum was the only thing they were really 
 interested in, and to secure the payment of the same the 
 address was framed as it was. 
 
 Notwithstanding these dire predictions, it appears that 
 the people were not moved to take the action necessary to 
 authorize the hard-money faction in Congress to secure the 
 payment of their debt and interest, and on January 21, 1786, 
 the General Assembly of Virginia passed the following 
 resolution : — 
 
 " That be appointed commission- 
 ers, who, or any five of them, shall meet such commissioners 
 as may be appointed by the other States in the Union, at a 
 time and place agreed on, to take into consideration the trade 
 of the United States ; to examine the relative situation and 
 trade of said States, to consider how far a uniform system 
 in their commercial regulations may be necessary to their 
 common interest and their permanent harmony, and to
 
 The Four Years' Struggle 89 
 
 report to the several States such an act relative to this great 
 object as, when unanimously ratified by them, will enable 
 the United States in Congress assembled, effectually to pro- 
 vide for the same." — " Elliott's Debates," Vol. i, page 
 116. 
 
 " In response to this call, delegates from seven of the 
 States met at Annapolis, Md., on September 11, 1786, and 
 adjourned September 14, because they did not conceive it 
 advisable to proceed on the business of their mission under 
 the circumstances of so partial and defective a representa- 
 tion." — /(/., page iiy. 
 
 The report then makes the acknowledgment upon the 
 part of all the commissioners of the defects in the Articles 
 of Confederation, and the importance of calling a convention 
 to cure these defects, and grant the Government enlarged 
 powers in accordance with the suggestions that have here- 
 tofore been the subject of public discussion. — Id., page up. 
 
 They therefore recommended that the States appoint 
 commissioners to meet in Philadelphia on the second Mon- 
 day in May, 1787, " to take into consideration the situation 
 of the United States, to devise such further provisions as 
 shall appear to them necessary to render the Con'stitution 
 of the Federal Government adequate to the exigencies of 
 the Union." 
 
 The commissioners sent a copy of the report to Con- 
 gress, and on February 21, 1787, that body had under con- 
 sideration the following : — 
 
 "Resolved, That Congress, having had under consider- 
 ation the letter of John Dickerson, Esq., chairman of the 
 conmiissioners who assembled at Annapolis during the last 
 year ; also the proceedings of said commissioners ; and en- 
 tirely coinciding with them as to the insufficiency of the
 
 90 The Legal-Tender Problem 
 
 Federal Government, and the necessity of devising such fur- 
 ther provisions as shall render the same adequate to the 
 exigencies of the Union, do strongly recommend to the dif- 
 ferent Legislatures to send forward delegates, to meet the 
 proposed condition, on the second Monday in May next, at 
 the city of Philadelphia."-^ Id., pages up, 120.
 
 VII 
 
 Constitutional Convention 
 
 This time they were successful, and the Convention 
 which met at Philadelphia on the second Monday of May, 
 1787, framed the Constitution of the United States of 
 America. 
 
 After the strenuous efforts of the hard-money faction 
 for the past four years to make provision for the payment 
 of the debts contracted during the war, a large part of 
 which they owned, it may be expected that they would 
 secure strong representation in the Convention. 
 
 The people under the separate Governments, as free and 
 independent States, obligated to act in unison by the Articles 
 of the Confederation, remembering the loss that they had 
 sustained in the conduct of the war, were not concerned 
 about the immediate payment of the balance of the obliga- 
 tions incurred, especially the domestic debt. They had, 
 therefore, paid no attention to the appeals of the hard-money 
 faction to convene and make provision for the payment of 
 their debts, but had taken a breathing spell in order that 
 they might deliberate and experience the workings of their 
 practical existence as a free people, before they would take 
 final action for all the future. In fact the demands of the 
 moneyed class, who had so managed the issuance of the 
 Continental currency that they forced the unconstitutional 
 grant of a charter for a bank from Congress as the price of 
 their assistance, and through the agency of which they had 
 been enabled to convert their coin and credit into the obli- 
 ge
 
 92 The Legal-Tender Problem 
 
 gations of the Government, was calculated to defer the time 
 of final action. 
 
 But four years after the war the people were willing that 
 effort should be made to establish a more perfect union of 
 the States, and frame a form of government that would 
 secure to them forever the benefits and advantages they 
 had fought for and were entitled to. 
 
 The subsequent history of the country bears evidence 
 that they succeeded in securing and providing for every- 
 thing that would contribute to their future welfare, except 
 in the instances that the hard-money faction cheated them 
 out of and secured to themselves. 
 
 The war for freedom from English tyranny was over. 
 The fight for freedom from the greed of the hard-money 
 faction, which had its home and highest expression in 
 Massachusetts and her system of finance, was on. 
 
 One of the chief contentions in the Convention was upon 
 the proposition that they should guarantee the payment of 
 the repudiated obligations of the States and Congress which 
 were held by the speculators. This was resisted. 
 
 Mr. King, of Massachusetts, speaking in favor of the 
 guarantee, said he thought that the matter was of more con- 
 sequence than the objectors seemed to do. " Besides," he 
 said, "the considerations of justice and policy which had 
 been mentioned, it might be remarked, the State creditors, 
 an active and formidable party, would otherwise be opJDOsed 
 to a plan which transferred to the Union the best resources 
 of the States without transferring the State debts at the 
 same time. The State debts were probably of greater 
 amount than the Federal." — "Madison Papers," Vol. j, 
 page 1357. 
 
 Mr. Gerry, of Massachusetts, also advocating the propo- 
 sition, " enlarged upon the merits of this class of citizens
 
 Constitutional Convention 93 
 
 and the solemn faith wliich had been pledged under the 
 existing Confederation." " If this should be changed," he 
 said, "as here proposed, great opposition would be excited 
 against the plan." — "Madison Papers," Vol. j, pai!;e 1378. 
 
 Mr. Butler, of South Carolina, answering, said, " It 
 would conipel pa3'ment to blood-suckers who have specu- 
 lated on the distress of others, as well as to those who had 
 fought and bled for their country. He wanted to discrim- 
 inate between the two classes" (Id., page 141 2), and there- 
 fore he opposed the guarantee of payment. 
 
 j\Ir. IMason, of Virginia, said " there was a great dis- 
 tinction between the original creditors and those who pur- 
 chased fraudulently of the ignorant and distressed. . . . He 
 was sensible of the difficulty of drawing the line in the case, 
 but he did not wish to preclude the attempt " (Jd., page 
 142.}), and therefore he opposed the guarantee. 
 
 j\Ir. Gerry, of Massachusetts, replied " that the frauds 
 on the soldiers ought to have been foreseen. . . . These 
 poor, ignorant people could not but part with their secu- 
 rities. ... As to stock jobbers, he saw no reason for the 
 censures thrown on them. . . . They keep up the value of 
 the paper." — Id., page 14^3. 
 
 The result was that they guaranteed the part payment 
 of both the repudiated debts of Congress and of the States, 
 to the speculators and stock jobbers. 
 
 The second contention was over the clause giving Con- 
 gress the right and power to emit bills of cretlit. This 
 po\\ cr had been given Congress under the Articles of Con- 
 federation, but was not allowed to be exercised by the money 
 power to the extent of making them legal tender, because 
 they wanted to make a condition of affairs that would force 
 Congress to charter a bank. 
 
 It was not to the interest of the hard-nionev faction ever
 
 94 The Legal-Tender Problem 
 
 to recognize this right, or accede the power to the Govern- 
 ment to issue a full legal-tender paper money direct to the 
 people. They therefore condemned the theory of paper 
 issues by Congress, and cited the experience of the Con- 
 tinental Congress, in their resistance to the grant of such 
 power by either the States or the General Government. 
 
 The warfare against paper money is no modern fight, 
 as will appear from the citations from speeches made in the 
 Constitutional Convention upon the motion of Gouverneur 
 Morris, of Pennsylvania, to strike out of the report of the 
 " Committee on Detail," the clause granting Congress the 
 right and power to emit bills on the credit of the United 
 States. 
 
 Air. Aladison asked " if it would not be sufficient to pro- 
 hibit the making them a tender?" "This will remove," he 
 said, "the temptation to emit them with unjust views; 
 and promissory notes in that shape may, in some emer- 
 gencies, be best." — "Madison Papers," Vol. j, page 1344. 
 
 Mr. Gouverneur Morris said, " Striking out the words 
 will leave room still for notes of a responsible minister, 
 which will do all the good without the mischief. . . . The 
 monied interest will oppose the plan of Government, if paper 
 emissions he not prohibited." — Id., page 1344. 
 
 Mr. Ellsworth, of Connecticut, " thought this a favor- 
 able moment to shut and bar the door against paper money. 
 The mischief of the various experiments which had been 
 made, were now fresh in the public mind, and had excited 
 the disgust of all the respectable part of America. By 
 withholding the power from the new Government, more 
 friends of influence would be gained to it than by almost 
 anything else. Paper money can in no case be necessary. 
 Give the Government credit, and other resources will offer. 
 The power may do harm, never good."
 
 Constitutional Convention 95 
 
 Mr. Wilson, of Pennsylvania : " It will have a most salu- 
 tary inrtuence on the credit of the United States to remove 
 the possibility of paper money. This expedient can never 
 succeed whilst its mischiefs are remembered. And as long 
 as it can be resorted to, it will be a bar to other resources." 
 
 Mr. Read, of Delaware, " thought the words, if not 
 stricken out, would be as alarming as the mark of the beast 
 in Revelation." 
 
 Mr. Langdon, of New Hampshire, "had rather reject 
 the whole plan than retain the three words, ' and emit bills.' " 
 
 Mr. Randolph, "notwithstanding his antipathy to paper 
 money, could not agree to strike out the words, as he could 
 not foresee all the occasions that might arise." — "Madison 
 Papers," Vol. 3, page 13^3. 
 
 Mr. Mercer, of Maryland, " was a friend to paper 
 money, though in the present state and temper of America 
 he should neither propose nor approve such a measure. He 
 was consequently opposed to a prohibition of it altogether. 
 It will stamp suspicion on the Governmeii(; to deny it a dis- 
 cretion at this period. It was impolitic, also, to excite the 
 opposition of all those who were friends of paper. The 
 people of property would be sure to be on the side of the 
 plan, and it was impolitic to purchase their further attach- 
 niciit with the loss of the opposite class of citizens." — Id., 
 page 1344. 
 
 Mr. Luther Martin, of Maryland, said. " It would be 
 improper to deprive Congress of that power ; that it would 
 be a novelty unprecedented to establish a Government which 
 should not have such authority : that it was impossible to 
 look forward into futurity so far as to decide that events 
 might not happen that should render the exercise of such a 
 power absolutely necessary ; and that he doubted whether, 
 if a war should take place, it would be possible for this
 
 96 The Le^al-Tender Problem 
 
 country to defend herself, without having recourse to paper 
 credit ; in which case there would be a necessity of becom- 
 ing a prey to our enemies, or violating the Constitution of 
 our Government." — "Secret Proceedings and Debates of the 
 Convention of i/S/," page 3j. 
 
 The hard-money patriots were successful, the clause was 
 stricken out, and the power to emit bills of credit was with- 
 held from Congress. The States were also prohibited from 
 issuing them, and they succeeded in making the idea of 
 paper issues by the Government the worst of heresies, even 
 to this day, although the war of 1812, the Mexican war, and 
 the war of 1861, necessitating their issue, demonstrated the 
 truth of Luther Martin's prophecy, commended Randolph's 
 caution in his inability to foresee that it would be necessary, 
 and disproved the utterances of Morris and the others. 
 
 They were also successful in securing the guarantee 
 that the new Government would pay in part to the spec- 
 ulators both the repudiated debt of Congress and the States ; 
 and that gold and silver shbuld have the exclusive monopoly 
 of furnishing all the circulating currency of this country. 
 
 The Massachusetts theory of finance prevailed ; and when 
 it was decided that no State should make anything but gold 
 and silver a legal tender, the absolute control of the money 
 system of the entire country was turned over to the owners 
 of gold and silver. 
 
 All that was now needed to perfect their plans to com- 
 mand entire control of the resources of the country, through 
 legislation, was the aid of banks having the power to issue 
 notes. To enable them to do this, they must secure to Con- 
 gress the power to grant charters of incorporation. There- 
 fore, Mr. Madison, who seems to have been the friend, or 
 dupe in some instances, of the moneyed class, presented, 
 among the powers he wished granted to Congress, one to
 
 Constitutional Convention 97 
 
 grant charters of incorporation in cases when the pubHc 
 good may require them, and the authority of a single State 
 may be incompetent. 
 
 The committee left out said power in their report ; and 
 when the report was under discussion, a motion was made 
 to add the power "to provide for cutting canals when deemed 
 necessary." 
 
 Mr. Madison again endeavored to secure to Congress 
 the power to grant charters of incorporation, by suggesting 
 an enlargement of the motion into a power " to grant char- 
 ters of incorporation where the interest of the United States 
 might require, and the legislative provisions of individual 
 States may be incompetent." — "Madison Papers," Vol. 3, 
 page 1576. 
 
 Even Mr. King, of Massachusetts, at that time was sat- 
 isfied with what had been secured, and the experience with 
 banks during the Revolution, for in his speech he said : — 
 
 "The States will be prejudiced, and divided into parties. 
 Tn Philadelphia and New York it will be referred to the 
 establishment of a bank, which has been a subject of con- 
 tention in those cities. In other cities it will be referred to 
 the mercantile monopolies." — Id., page 1577. 
 
 " Col. Mason was for limiting the power to canals. He 
 was afraid of monopolies of every sort." — Id., page I577- 
 
 Mr. Madison's amendment, as restricted by Mr. Mason, 
 was defeated by a vote of eight States to three, so great was 
 the dread of the baneful eflfects and influence of corporations 
 upon the future development of the Government. 
 
 The Constitution, giving gold and silver the sole right 
 and privilege to circulate as money or pay debts, and with- 
 holding from Congress the right or power to grant charters 
 of incorporation or to emit bills of credit, was approved 
 by the people, and became the supreme law of the land. 
 7
 
 98 The Legal-Tender Problem 
 
 This legal-tender monopoly given to gold and silver was 
 further strengthened by prohibiting the States from emit- 
 ting bills of credit, and by requiring a vote of three fourths 
 of all the States to alter or amend the Constitution. 
 
 The hard-money party, looking only to the immediate 
 future, realized that the collection of their debts, when gold 
 and silver were the only circulating currency, would operate 
 to transfer the greater part of the property of the country 
 into their hands. With not more than ten millions of specie 
 in the country, and with a large war debt to be paid, in addi- 
 tion to the private debts of three millions of people, and the 
 demand for money to carry on business, a Constitution lim- 
 iting the circulating currency to gold and silver was adopted. 
 
 It was essentially incumbent upon the new Government 
 at that time, after the national and State issues were made 
 worthless, to furnish the money necessary to enable the 
 people to recuperate from the debt and ravages of the long 
 war, in order that by thrift, enterprise, and economy they 
 might be enabled to save from their creditors the little they 
 had left. On the contrary, however, they were restricted 
 by the terms of the Constitution to $3.33 1/3 or less per 
 capita, until more gold and silver came from Europe, or 
 was brought from the mines. 
 
 Such governmental indifference to the prosperity and 
 welfare of the people, and such tender consideration for the 
 moneyed, or creditor, class, tended in a great degree to bring 
 disaster and deprivation upon the country.
 
 VIII 
 
 Statement of the Debt, and Provision for Its 
 
 Payment 
 
 Bv the adoption of the Constitution, June 2, 1788, the 
 United States of America was launched upon its career as 
 one of the nations of the world. It went into operation as a 
 Government with the inauguration of George Washington 
 as president, April 30, 1789. 
 
 The following statement, from " History of the Cur- 
 rency of the Country," page 20, shows the indebtedness 
 proper of the United States at the organization of the pres- 
 ent form of Government, including arrearages of interest 
 to January i, 1790: — 
 
 Loan from Farmer's General of France, balance $ 153.688.89 
 
 French loan of 18,000,000 livres 3,267,000.00 
 
 Loan from Spain in 1781 174,017.13 
 
 French loan of 10,000,000 livres 1,815.000.00 
 
 Holland loan of 1782 2,000,000.00 
 
 Jrrench loan of 6,000,000 livres 1,089.000.00 
 
 Holland loan of 1784 800,000.00 
 
 Holland loan of 1787 • 400,000.00 
 
 Holland loan of 1788 400,000.00 
 
 Total principal of foreign debt $10,000,000.00 
 
 Balance due France for militarj^ supplies 24,332.86 
 
 Arrearap:es of interest to January i, 1790 1,760,279.08 
 
 Debt due foreign officers in Revolutionary war 186,988.97 
 
 Arrearages of interest to January i, 1790 1 1,219.32 
 
 Total foreign debt and interest $12,081,524.06 
 
 99
 
 loo The Legal-Tender Problem 
 
 Principal of the domestic debt (estimated) $28,858,180.65 
 
 Arrearages of interest to January i, 1790 (estimated).. 11,398,621.80 
 
 Total domestic debt and interest (estimated) $40,256,802.45 
 
 Add arrearages and claims outstanding against the late 
 
 Government, since paid 450.395-52 
 
 Making the total debt, January i, 1790 $52,788,722.03 
 
 The Treasury Department was created by act of Con- 
 gress, September 2, 1789, and on the eleventh of the .month 
 Alexander Hamilton was appointed secretary. There was 
 no money in the treasury, and the secretary was forced to 
 borrow on his own responsibility until such time as the 
 ''evenue from duties on imports and tonnage began to 
 come in. 
 
 In obedience to a resoltition of the House of Represent- 
 atives, passed September 21, 1789, Secretary Hamilton, on 
 January 9, 1790, made a report of the debts of the old Gov- 
 ernment, and those of the several States, and submitted a 
 plan for supporting the public credit. 
 
 His recommendations were adopted and embodied in the 
 Act of August 4, 1790. This act, after setting aside six 
 hundred thousand dollars to defray the expenses of the Gov- 
 ernment, appropriates in — 
 
 Section i. All revenue in excess of this amount to the 
 payment of the interest and principal of the foreign debt 
 that is now or may hereafter be contracted. 
 
 Section 2 authorizes the president to borrow a sum not 
 exceeding twelve million dollars to be used in paying the 
 arrears, instalments, and principal of the foreign debt. 
 
 Section 3. That a loan to the full amount of the domes- 
 tic debt be, made ; that books be opened for subscriptions to 
 said loans, and that said subscriptions should be payable in 
 certificates heretofore issued by authority of Congress,
 
 Statement of Debt loi 
 
 according to their specie value, and interest to be computed 
 on all those bearing interest to December 31, 1790. 
 
 And the bills of credit issued by the authority of the 
 
 United States in Congress assembled, at the rate of one 
 
 'hundred dollars in the said bills, for one dollar in specie. 
 
 Section 4 provides that certificates shall be issued to 
 the subscribers to the loan as follows : Two thirds in six- 
 per-cents, and one third in deferred six-per-cent certificates. 
 
 Section 5 provides that to those subscribers to the loan 
 who paid in the interest of the loan of the domestic debt 
 computed to December 31, 1790, three-per-cent certificates 
 are to be issued. 
 
 Sections 13, 14. and 15 provide for a loan of twenty- 
 one million and five hundred thousand dollars to pay the 
 debts of the respective States, and that subscriptions to 
 said loan are payable in the principal and interest of 
 the certificates, or notes issued by the respective States 
 prior to January i, 1790, in the prosecution of the war and 
 in defense of the United States, as follows : four ninths in 
 six-per-cents, two ninths in deferred six-per-cents, and one 
 third in three-per-cents. 
 
 The number of six-per-cent and three-per-cent certifi- 
 cates issued will show the amount paid by the new^ Govern- 
 ment in assuming the domestic debt of the Continental Con- 
 gress, the debts of the States, and the debts of the Confed- 
 eration — principally owned by the bank and the speculators. 
 
 The amount of six-per-cents issued was $30,088,397.75 
 
 The amount of deferred six-per-cents issued was 14,649.328.76 
 
 The amount of three-per-cents issued was i9,7i9,-37-39 
 
 Total amount issued $64,456,963.90 
 
 Tlie amount issued to pay debt of the States 18,271,786.47 
 
 The amount issued to pay the Domestic debt of 
 
 Congress $46,185,177.43
 
 102 
 
 The Legal-Tender Problem 
 
 Inasmuch as Congress borrowed large sums of foreign 
 nations, the payment of which was completed by the issu- 
 ance of $12,000,000 in bonds for that purpose, and the Con- 
 tinental Congress issued bills of credit to the amount of 
 $359,547,027.35 (according to the highest estimate, that of 
 the register of the treasury of 1790), which, at 100 for i, 
 were redeemable by the issue of $3,595,470.27 of the six- 
 per-cents and three-per-cents, no large amount of six-per- 
 cent and three-per-cent certificates would be issued to redeem 
 at specie value the other evidences of debt enumerated under 
 Section 3, that was not the property of the bank, and yet 
 there is $64,456,963.90 of six-per-cents and three-per-cents 
 to be accounted for. 
 
 It is evident that this sum, less the amount of six-per- 
 cents and three-per-cents that were issued to redeem the 
 other evidences of debt enumerated in Section 3, owned by 
 the officers, soldiers, and contractors, represents the profits 
 of the hard-money faction — the bloodsuckers, as they were 
 denominated by Mr. Butler, of South Carolina. It is also 
 evident, inasmuch as gold and silver had since 1781 been 
 the only circulating currency, or legal tender, that their own- 
 ers had through the necessity and demand for their use, and 
 through the agency of the bank, acquired at their own 
 price the greater portion of the $64,456,963.90 of six-per- 
 cent and three-per-cent certificates issued to pay the debts 
 of the Continental Congress, the States, and the Confed- 
 eration. 
 
 The payment of this sum is further secured in Sections 
 20, 21, and 22 by appropriating all the money that may arise 
 under the revenue laws that have been or may be passed 
 in the session to the purposes set out in said act, and pledg- 
 ing that all such money shall be reserved and inviolably 
 pledged for this purpose, and shall not be diverted until
 
 Statement of Debt 103 
 
 the principal aiul interest are both paid ; and also pledged 
 all the proceeds of the sale of the lands in the western terri- 
 tory now belonging, or that may hereafter belong, to the 
 United States. 
 
 The determination of the hard-money faction to remain 
 on the specie basis which Massachusetts had found so 
 advantageous, and the fight against the Continental cur- 
 rency which had so seriously impeded the progress of the 
 Revolution, bore down all opposition. 
 
 In desperation and total disregard of all consequences 
 it precipitated such a state of afifairs during the war that 
 the people were forced to lose all the circulating currency 
 that had been issued, and accept in lieu thereof the bank- 
 ing scheme of 1781, which Mr. Madison writes was forced 
 upon Congress. 
 
 It has heretofore been shown how tireless and indefat- 
 igable the financiers were after the war in their endeavors 
 to secure the payment by a new Government of the debts 
 contracted during and subsequent to the war, solely because 
 they were the ow^ners and holders of most of the evidence 
 of this debt. They were not satisfied with securing the 
 payment of the sums loaned by them from 1781 to the 
 passage of the act, but made provision to collect $21,500,000 
 for the surrender of the worthless State issues, and $3,595,- 
 470.27 for the surrender of the worthless Continental issues.
 
 IX 
 
 The First Bank of the United States 
 
 The effort of the hard-money faction was so successful 
 that it was overreaching in its effects, and forced the execu- 
 tion, on the part of the Government, of the very poHcies 
 that had been inhibited, and withheld from Congress, in 
 forming the Constitution. 
 
 The specie basis which had been irrevocably secured, as 
 was supposed, by the inhibition to the States to emit bills of 
 credit, or to make anything a legal tender except gold and 
 silver, and by withholding from Congress the right or power 
 to emit bills on the credit of the Government, or to grant 
 charters of incorporation, was soon found to be insufficient 
 to supply the money necessary to preserve the life of the 
 nation, to say nothing of the welfare and prosperity of the 
 people. 
 
 In this dire contingency, and under the acknowledged 
 stress of an insufficient number of mediums of payment, 
 the Government was forced to take some action to furnish 
 the currency so essentially needed. 
 
 Recalling the efficiency and the value in use of the credits 
 of the Bank of Venice and the notes of the colonists, it is 
 evident that if the Constitution had been so framed that gold 
 and silver had only been given the sole right to purchase 
 the paper legal tenders of the Government, the domestic 
 debt could have been paid by the issue of $65,000,000 in 
 legal-tender notes and the foreign debt by the issue of $12,- 
 000,000 in bonds. The two desirable and essential requisites 
 104
 
 The First Bank of the United States 105 
 
 — the payment of the debts and the issue of a full supply of 
 legal-tender currency — would have been accomplished. 
 
 The fact that the treasury notes would have been legal 
 tenders in the payment of all debts public and private 
 throughout the United States, would have insured their par 
 value until they were deprived of this quality, without any 
 provision for their redemption ; and if it had been provided, 
 in the event the Government should ever see proper to 
 deprive them of this quality, that they should be redeemed 
 in six-per-cent bonds, this would have protected them from 
 depreciating in value from fear of any such action. Such 
 financial lesfislation would have been in the interest of the 
 people, as well as in the interest of the creditors and 
 wealthy class. 
 
 The creditors and the bankers w^ould not have been 
 enabled to so manage and manipulate the Government that 
 they could live off the six-per-cent and three-per-cent issues, 
 as non-producers and drones, a scourge upon the body pol- 
 itic, haunting, influencing, and corrupting the halls of legis- 
 lation throughout all the future. 
 
 Notwithstanding all this, the fact that the hard-money 
 faction had overreached itself, and the issue of additional 
 money, either by treasury notes or chartering a bank with 
 the risfht to issue notes, was a necessitv, that faction was so 
 influential that it forced the Government to abandon the idea 
 of issuing treasury notes, and to charter a bank known as the 
 Bank of the United States. This, the " First Bank of the 
 United States," was chartered by Congress February 25, 
 1 79 1, notwithstanding the power to grant a charter of incor- 
 poration was withheld from Congress ; and this bank was 
 given the power to issue notes, notwithstanding the exercise 
 of such a power was withheld from Congress in the refusal 
 to give it power to emit bills on the credit of the Government.
 
 io6 The Legal-Tender Problem 
 
 What must be thought of a system of finance which so 
 soon proved so defective that the Constitution had to be, 
 in two of its most material inhibitions, set aside and over- 
 ridden in the first five years of the existence of the Govern- 
 ment? This unconstitutional act of Congress is. excusable 
 to some extent when the necessity for additional currency 
 is considered. 
 
 If there had been no abuse by the Supreme Court of the 
 power conferred upon it, the bank might have flourished, 
 and relieved the distress by the issue of notes until the 
 development of the gold and silver mines, and the importa- 
 tion of gold and silver, furnished a full supply of money. 
 Congress could then have repealed the act granting the 
 charter, or, if it had expired by limitation, refused to grant 
 another charter, on the ground that it was unconstitutional, 
 and thus have preserved the integrity of that instrument in 
 that particular. Doubtless the members of that Congress 
 recalled the action of the Continental Congress in passing 
 a similar measure, and felt assured that when a full supply 
 of gold and silver had removed the necessity for the further 
 continuance of the unconstitutional institution, a subsequent 
 Congress would do away with it ; and, if Congress should 
 prove derelict, the Supreme Court would decide, if the ques- 
 tion came before it, that the grant of the charter was in 
 excess of the powers of Congress. 
 
 The imperative necessity for additional currency was 
 officially made known to Congress by the secretary of the 
 treasury in April, 1791. He stated that the nation could 
 not depend upon coin for its circulating currency — that 
 ten millions of coin could not be collected in the country. It 
 was then urged, as there was not enough for the business 
 of the country, that it was the duty of Congress, since it 
 was entrusted by the Constitution with the power " to make
 
 The First Bank of the United States 107 
 
 money and to regulate the value thereof," to issue such 
 paper money clothed with the name and authority of the 
 United States as would supply the place of hard money 
 which could not be obtained. 
 
 It seems strange, since it was so soon demonstrated that 
 the avaricious and unscientific system of finance was totally 
 unfitted to subserve the purpose for which it was intended, 
 and Congress was called upon to take action under the gen- 
 eral power " to make money and regulate the value thereof," 
 that the qualities and characteristics of money were not more 
 closely analyzed. 
 
 When it is recalled that money, or a medium of ex- 
 change, is a growth arising out of the necessity of expedi- 
 ting and making easy the exchange of products, and unless 
 the system adopted subserves this purpose, that it is an 
 imposition upon the people, it becomes evident that the specie 
 basis of the United States, which was complained of by the 
 secretary of the treasury, should have been abandoned, and 
 not merely supplemented, as was done. This becomes more 
 apparent when an analysis shows what elements of value 
 there are in money, and how easy it is to be led into the 
 adoption of a false system when avarice and greed are per- 
 mitted to have any influence in formulating the plan. 
 
 Money, or a medium of exchange, has two separate and 
 distinct elements of value ; and it is essential to know this, 
 and what they are, before the difference between one system 
 of finance and another can be appreciated. 
 
 The first element of value in money is the value of the 
 fiat of Government that forces every one to accept it in pay- 
 ment as a solv^it of debt, at its labor expression of value ; 
 and the second clement of value is the value of the com- 
 modity upon which the fiat of the Government is stamped. 
 The value of the commoditv out of which the legal-tender
 
 io8 The Legal-Tender Problem 
 
 money is made, varies, as does every other commodity, with 
 the demand for and supply of that commodity ; but the legal 
 tender or labor value is one hundred cents for each dollar 
 as long as it is a legal tender. The value of the commodity 
 as long as it is a legal tender, is dormant, and held in sub- 
 jection to the legal tender or labor value of one hundred 
 cents. 
 
 It is axiomatic that this primary or labor element of value 
 impressed upon the commodity by the stamp of the Govern- 
 ment, making it legal tender, would be the same as to every 
 substance which may be endowed with the exclusive priv- 
 ilege of being used as legal tender. Therefore, the only dif- 
 ference there could possibly be in the adoption of the one 
 or the other substance to be used as money, would be the 
 difference in the cost of the commodity, if the money is 
 issued bv the Government. 
 
 This first cost, the cost of the commodity, is always paid 
 by the people, and is an unnecessary expense ; but when, in 
 addition, they are forced to pay the owner of the commodity 
 the value of the one hundred cents that is stamped upon it 
 by the Government fiat, and which value arises from the 
 incessant use the people are compelled by the law of legal 
 tender to make of it, the imposition becomes a financial and 
 political crime. 
 
 When the Government issues legal-tender notes to the 
 people at their labor expressions of value, it is at the 
 minimum cost to them ; for notwithstanding they give to 
 the Government a full equivalent for every dollar they 
 receive, they get it back when they part with it at the same 
 expression of value at which they received it. When the 
 Government issues gold coins, it is at the maximum of cost 
 to the people. 
 
 In the case of gold, the Government receives the gold of
 
 The First Bank of the United States 109 
 
 the individual, mints it into coin, and returns the coin, en- 
 hanced in vakie by the legal-tender quality given it, which 
 forces the people to i)urchase them from the owner at their 
 enhanced value. In the case of gold all the value of legal 
 tender goes into the pockets of the owner of the metal, and 
 no value whatever goes into the treasury for the benefit of 
 the people ; and when the owner of the gold parts with the 
 coin, he has virtually sold his metal for the enhanced value 
 given it by legal tender. The owner of the metal always 
 refuses to part with it for even the enhanced value, but 
 endeavors to retain it. and issues through the agency of 
 banks three or more dollars of paper for every dollar of 
 metal, and thus trebles the value of his metal, or the usu- 
 fruct arising therefrom. 
 
 The one is a pure financial system, and its merit is based 
 upon its ability to subserve in the highest degree the pur- 
 pose for wdiich it was intended ; viz., the easy and friction- 
 less exchange of products, and at the same time in great 
 part defray the expenses of the Government, thereby saving 
 the people from much of the burden of taxation, and from 
 the distress of recurring periods of expansion and contrac- 
 tion. The other is an avaricious abuse of a pure and scien- 
 tific system, in that it always fails to subserve the purpose 
 for which it was intended ; abandons the country and the 
 people in every danger ; produces periods of depression and 
 loss by corrupt contraction, or going to other countries for 
 greater profit ; and finally and inevitably gathers to the own- 
 ers of the metal the entire wealth of the country. 
 
 The history of the finances of the United States is a his- 
 tory of the subterfuges and corruption practised upon the 
 people, to keep them from adopting the one system, and 
 driving the other out of contemplation. 
 
 The specie basis adopted by the Constitution having so
 
 no The Legal-Tender Problem 
 
 soon proved worthless, it would very naturally be supposed 
 that the issue of notes by the government at their labor 
 expressions of value, would now be made, to give the people 
 and the nation the relief that was so sorely needed ; but the 
 hard-money faction in Congress was too powerful for any 
 such action to be taken. 
 
 The power to emit bills on the credit of the Government 
 was withheld from Congress, and they did not intend to 
 permit any violation of that instrument which would prove 
 detrimental to their interests. They therefore induced Con- 
 gress to issue the additional currency through the agency of 
 a bank, with a capital of ten million dollars, and the right 
 to issue thirty millions of notes, all of which were made 
 legal tender for all debts of every description due the United 
 States. 
 
 The Government was to have two millions of the stock, 
 and individuals were to subscribe for the balance; and to 
 insure the success of the institution, it was given a monopoly 
 for twenty years. 
 
 Notwithstanding the notes were issued by the bank, and 
 were redeemable on demand in gold and silver, they were 
 virtually issued on the credit cf the Government, because 
 they were received by the Government in the payment of any 
 and all debts due the Government. By reason of this pro- 
 vision, the bank was enabled to issue and keep afloat the 
 thirty millions of notes authorized, for the notes were pre- 
 ferred to coin, not only at home, but in other countries. 
 Under the law all the Government money was placed in the 
 bank, where it remained subject to the warrants of the 
 treasurer. The bank received the Government revenues and 
 paid the Government debts. 
 
 In reality the bank was the treasury; and so far as 
 finance was concerned, the bank was the Government — all
 
 The First Bank of the United States m 
 
 the coin of the country eventually found its way to the 
 bank. The notes of the bank being receivable for twenty 
 years for all debts due the Government, were received in 
 all transactions, private as well as public, and there was 
 little or no demand for coin in business. The notes circu- 
 lated among the people, and the coin remained in the bank. 
 
 Under this scheme the hard-money faction, with their 
 ten millions of specie deposited in the bank, were enabled, 
 by the law making the notes of the bank a legal tender for 
 public debts, to issue and keep afloat three dollars of paper 
 for every dollar of specie they owned. The notes of the 
 bank were then loaned to the people at such rates of interest 
 as the bank saw fit to exact ; for by the retirement into the 
 bank of all the specie, there was no currency left to transact 
 business, except the bank-notes, and there would be no addi- 
 tional currency for the next twenty years, if the Constitution 
 and the obligation not to charter another bank should be 
 respected. 
 
 It is evident that the scheme of the bank was nothing 
 but a legalized process which authorized the hard-money 
 faction to treble or quadruple their capital by coining their 
 credit into money, so that they might receive three or four 
 times the regular rate of interest upon their specie. 
 
 Through the instrumentality of banks of issue, the law 
 of legal tender has the power to enable the hard-money 
 owners to turn their credit into currency to be loaned the 
 people, and though the notes may theoretically be redeem- 
 able in specie, every one knows that three dollars in paper 
 can not be redeemed with one dollar in specie. This con- 
 stituted in brief the theory of the banking system, and its 
 success was dependent upon the legislation which made the 
 bank-notes receivable for public debts ; but if they are not 
 given the legal-tender quality, the success of the bank
 
 112 The Le^al-Tender Problem 
 
 depends upon the fact that the people treat and use them 
 as legal tenders, instead of presenting them for redemption. 
 
 The banks do not hesitate to issue notes, even when they 
 are not legal tenders, and have no fear that they will be 
 presented for redemption ; for they are never issued until 
 the Government has been influenced to retire so nmch of 
 the currency that the distress is such the people are glad 
 to get the notes to be used as mediums of payment in order 
 that they may make a living. 
 
 The consciousness of the hard-money faction that the 
 scarcity of currency, made by legislation, will force the peo- 
 ple to use their bank-notes, and not present them for redemp- 
 tion, is the main theory upon which laws authorizing bank- 
 ing are passed ; and a maximum issue is generally provided 
 to keep the greed and avarice of individuals from destroy- 
 ing the scheme by overissue. 
 
 By forcing Congress to ignore the Constitution, and 
 grant a charter to a bank, giving that bank the privilege to 
 emit bills of credit, the hard-money faction secured to 
 themselves the right to exploit the nation. 
 
 It is now essential that the Government should establish 
 mints for the coinage of money ; that the proportion of value 
 between gold and silver should be decided ; that the language 
 of price and the language of payment, and the name and 
 value of coins should be uniform ; and in order that this 
 might be done, a " money of account " must be selected and 
 enacted into a law.
 
 "Money of Account'' 
 
 To demonstrate the necessity that existed for the estab- 
 lishment of a " money of account," attention need only be 
 called to the fact that the population consisted of people 
 speaking the English, German, French, Italian, Portuguese, 
 and other European languages, and that in their business 
 transactions and trades each used his own language and the 
 " money of account " of his own country to price his prod- 
 ucts. To a great extent, trade between people of the same 
 State and of different States was accompanied with the same 
 difficulty as trades are now with Germany or France. 
 
 In order that an American may appreciate and under- 
 stand the value that a German is placing on his wares when 
 stated m the " money of account " of Germany, he has to 
 go through the arithmetical calculation or process of redu- 
 cing the German expressions of value to dollars, dimes, and 
 cents. On the other hand, the German, to appreciate and 
 understand the value that an American is asking for his 
 wares when stated in American expressions of value, has to 
 reduce them to German " money of account." Though the 
 American may have no idea of the value a German is putting 
 on his goods when they are priced in the German " money 
 of account," and can not determine whether or not he is 
 willing to give that price for them, he knows instantly when 
 he has gone through the mathematical process of reducing 
 the German expressions of value to their equivalent value in 
 dollars, dimes, and cents. 
 
 It is not necessary that the actual, or metal, dollars, 
 
 8 113
 
 114 The Legal-Tender Problem 
 
 dimes, and cents be seen by the American for him to know 
 the value of the wares the German is proposing to sell. The 
 mere stating the amount in the words of the " money of 
 account " gives him all the idea of value that can be con- 
 veyed to his mind much more fully and clearly than if he 
 was shown the money, or coins. For if shown the concrete 
 money he would still have an uncertain idea of its value 
 until he had classified and counted it and ascertained its 
 value in dollars, dimes, and cents. 
 
 It is evident, then, that an American can have no cor- 
 rect idea of the value of American money until he has 
 reduced the coins to their expressions of value in the 
 " money of account." As soon, however, as he has classified 
 and counted it, and knows the sum total of the actual or 
 concrete dollars, dimes, and cents, he undergoes an uncon- 
 scious mental calculation, and becomes intensely conscious 
 of the value of the pieces of money. 
 
 A mental calculation similar to the one that assures him 
 of the value of the pieces of money, when he has ascertained 
 the sum total of the dollars, dimes, and cents, as it is ex- 
 pressed in the language of " money of account," assures him 
 of the value the German is placing on his wares, as soon as 
 he has reduced the German expressions of value to their 
 equivalent value in dollars, dimes, and cents. 
 
 This idea of value conveyed to the mind of a person by 
 the language of his country's " money of account " is an 
 abstraction or a concept. It arises as a growth of the 
 relation of the value of products to each other, crystal- 
 lized into language ; and that language is " the language 
 of price, of books of account, of prices current ; it is the 
 mode of expression employed in all money securities, to 
 denote the amount for which they are given ; and. in fine, it 
 is the very language of finance."
 
 ''Money of Account" 115 
 
 Therefore, when a Government undertakes to mint coins, 
 it ascertains the quantity of metal that is the vakie of the 
 concept that the name to be given the coin means, or con- 
 veys to that people. Originally, and until late years, there 
 was no piece of metal in England known or called the 
 pound ; and yet Englishmen have no other idea of value 
 than such as is conveyed by the word " pound," and every 
 piece of money they have ever had only conveyed the idea 
 of value determined from its relation to the idea of value 
 conveyed by the use of the word " pound." 
 
 The English sovereign, when coined, was said to be of 
 the value of one pound ; and as the metal out of which the 
 sovereign was made varied in value, so has the sovereign. 
 This has been shown by its being below or above par, the 
 par value being the idea of labor value conveyed by the 
 word " pound." 
 
 " Money of account " is, therefore, that growth of the 
 intelligence of a people which finally crystallizes their ideas 
 of the relative values of products to each other, considering 
 the labor that has been expended upon the products, into 
 words that accurately express the value of the labor ex- 
 pended. 
 
 As Colwell, in his " Ways and Means of Payment," so 
 well states, " To leave ' money of account ' out. when the 
 whole subject of currency, banking, and credit is involved, 
 is like leaving arithmetic out of mathematics. 
 
 '"It is for the want of attention to the real agency of 
 ' money of account,' that such expressions as the power of 
 money are often used, when only the power of credit is 
 intended. 
 
 " When a merchant inquires the price of a hundred bags 
 of coffee, learns the rate, and makes the purchase, giving his 
 note for the amount, money has exercised neither power
 
 ii6 The Legal-Tender Problem 
 
 nor influence in the transaction. It was the power of credit 
 which made the purchase, and the power of the ' money of 
 account ' which enabled the parties to understand each other, 
 make the transaction, and take the note for the amount of 
 the purchase. The greatest power in the commercial world 
 is commercial integrity, and the confidence of credit which 
 it inspires. This is the power which moves nine tenths of 
 the commodities found in the channels of trade and industry. 
 
 " JVIoney, by which we intend coins of gold or silver, is 
 neither a standard of value, a measure of value, nor a repre- 
 sentative of value. 
 
 " The precious metals are commodities of value, and 
 do not, of course, lose that quality, though they gain another 
 by being coined." 
 
 By coinage and the law of legal tender, they become 
 standards of payment. 
 
 " Every man may, by law, claim payment in coins ; that 
 is, for any commodity previously sold, for any debt due, 
 every person may exact the expressed equivalent in the 
 commodity of gold and silver assayed and coined at the 
 mint in denominations agreeing with the ' money of ac- 
 count,' " because it is made a solvent of debt by the law of 
 legal tender. "All debts are thus payable; and it is only 
 because the parties agree to other modes of payment that 
 all debts are not thus paid." 
 
 In some instances, however, it is due to the fact that the 
 Government limits the legal tender of the money issued. 
 
 "The men of trade and industry, who receive money 
 in large amounts only to pass it off in the same way, are 
 more concerned to escape trouble, risk, and expense in the 
 matter of payment, than anxious to employ only gold and 
 silver which have passed through the mint. 
 
 "At the present time the precious metals are employed
 
 "Money of Account" 117 
 
 only as the standard of payment, or legal tender; as the 
 medium of the merest retail trade ; as a reserve or security 
 ior their issues by banks of circulation ; and as the medium 
 of paying balances of trade both foreign and domestic — 
 all these together do not make five per cent of the operations 
 of industry and trade in this country, or in Great Britain. 
 All the rest is accomplished by means of credit, and the 
 many processes of the ' credit system.' 
 
 " It must Jdc a great and mischievous fallacy, then, to 
 regard gold and silver coins as a sort of model medium of 
 exchange, to the characteristics and incidents of which all 
 other modes of interchange must be made to correspond. 
 This is nothing less than an attempt to fasten upon industry 
 and commerce the very shackles and inconveniences which 
 they have long been struggling to cast away. 
 
 " There are many ways of making payments without 
 using coins, each of which may stand for what it is worth, 
 and be employed according as it may be available, without 
 being tortured to work as coins would have been worked, if 
 they had been employed. 
 
 " When two men of business deal largely together, keep- 
 ing the record in their books of account, which once in three 
 months are balanced, and the mutual debts thus paid with- 
 out the use of coins, there is no possible sense in which the 
 mutual payments thus effected could be made more effectual 
 by any reference to coins than by this simple and economical 
 method of balancing the sums of the various entries, debts, 
 and credits, expressed in ' money of account,' the one against 
 the 'other. 
 
 " This mode of payment needs no aid in theory, in prac- 
 tise, or by analogy, from any employment of coins ; but this 
 mode of payment is one of the main devices of the ' credit 
 svstem.' As the debts of men of business find their wav into
 
 ii8 The Le^nl-Tender Problem 
 
 the banks, so do their credits ; and the functions of the banks, 
 stripped of their many compHcations, consist chiefly in bal- 
 ancing and thus extinguishing the debts and credits of their 
 customers. There is no ground, we think, for the doctrine 
 that the incidents and characteristics which attend a cur- 
 rency of gold and silver should be imitated, or even referred 
 to, in the process of the ' credit system,' much less regarded 
 as laws. 
 
 "All are equally agents or processes of commerce, and 
 must be considered and judged upon their respective merits, 
 and be employed according to the opinion and sound discre- 
 tion of the parties concerned." 
 
 Coins become indispensable only when given the exclu- 
 sive privilege of being legal tender and made the only 
 solvent of debt. 
 
 The advantages which accrue to a people from the use 
 of a " money of account " and the " credit system " are 
 turned into tyranny and oppression when the only solvent 
 of debt is the legal-tender coins of gold and silver, and all 
 amounts due under the credit system and all currency are 
 payable in them. 
 
 The theory of the Bank of Venice and its practise is the 
 only instance in all history where the payment of the debts 
 contracted under the " credit system " were not dependent 
 upon the legal-tender coins, and it is also the only instance 
 in all history where for any length of time there were no 
 recurring periods of financial expansion and contraction 
 with its attendant loss and misery. 
 
 " Money of account," as heretofore set forth, is alto- 
 gether separate and different from money; and by its aid 
 alone the value of money is ascertained, even though the 
 money is made a legal tender. The danger attendant upon 
 ignorance of this distinction arises from the possibility of
 
 "Money of Account" 119 
 
 the designing and crafty changing the value of the mediums 
 of payments by the manipulation of the laws of legal tender, 
 until, in the course of time, they force the people to change 
 their conception of the value of their " money of account " 
 to the value of the metal in the representatives of the "money 
 of account." While this process, necessarily slow in its 
 operation, is taking place, all the creditors are reaping a 
 harvest, and all the debtors arc being pauperized. 
 
 " Sir James Stewart, in whose works we first find dis- 
 tinctly set forth the existence and uses of a ' money of ac- 
 count,' did not speak of it nor propose it as a currency ; he 
 did not regard it as money." We give his own words : — 
 
 " Money which I call ' money of account ' is no more 
 than a scale of equal parts, invented for measuring the 
 respective value of things vendible. ' Money of account ' 
 is, therefore, quite a different thing from money coin, and 
 might exist although there were no such thing in the world 
 as any substance which could become an adequate and pro- 
 portional equivalent for every commodity. 
 
 " ' Money of account ' performs the same office, with 
 regard to the value of things, that degrees, minutes, seconds, 
 etc.. do with regard to angles, or as scales do to geographical 
 maps, or to plans of any kind. In all these inventions there 
 is some denominative taken for the unit. In angles, it is the 
 degree ; in geography, it is the mile ; in plans, foot, yard ; 
 in money, it is the pound, livre, florin, etc. The degree has 
 no determinate length, so neither has that part of the scale 
 upon the plans or maps which mark the unit ; the usefulness 
 of all these being solely confined to the marking of propor- 
 tions. Just so. the unit in money can have no invariable 
 determinate projjortion to any part of value ; that is to say, 
 it can not be iixcd in perpetuity to any partieiilar quantity 
 of gold or silver, or any other comnwdity.
 
 120 The Legal-Tender Problem 
 
 " The value of commodities depending upon circum- 
 stances relative to themselves, their value ought to be con- 
 sidered as changing with respect to one another only ; con- 
 sequently, anything which troubles or perplexes the ascer- 
 taining these changes of proportion by the means of the gen- 
 eral determining and invariable scale must be hurtful to 
 trade ; and this is the infallible consequence of every vice in 
 the policy of money or coin." 
 
 It is the study of the philologist to explain why in the 
 formation of a language certain words were developed to 
 describe certain objects, and other words to convey the 
 impressions and workings of the mind. Certain it is, how 
 ever, in the progress of each nation and the growth and 
 development of language, w^ords were originated to convey 
 the idea of value for labor, effort, and energy expended, and 
 privation undergone in securing products, ^nd for the 
 relative value of the different products when they were 
 exchanged. 
 
 This language conveying ideas of the labor value inher- 
 ent in products, etc., was the language of finance and the 
 " money of account." 
 
 The words conveying the ideas of value, indicating the 
 price asked and the price offered, were concepts or abstract 
 expressions of value in comparison, and when expressed 
 concretely, took the shape of coins. 
 
 The size and shape of the coin was determined from its 
 convenience for the purpose and its fitness for the use in- 
 tended ; and its quantity and quality from the/ value of the 
 metal as a commodity measured by the unit of the " money 
 of account." Therefore only so much of the metal was put 
 into the coin as was supposed to be the equivalent in value 
 of the abstract idea of labor value inherent in and conveyed 
 by the " word " that was to be given the name of the coin.
 
 "Money of Account" 121 
 
 In view of the foregoing considerations, — which were 
 thoroughly appreciated \>y such statesmen as Jefferson and 
 Hamilton, who understood the science of finance, and knew 
 the necessity for a " money of account," if we were in the 
 course of time to become a homogeneous people, speaking 
 one language, — Congress, under their advice, in the act of 
 April, 1792, established a " money of account." 
 
 The act reads as follows : Section 20. " That the ' money 
 of account ' of the United States shall be expressed in dollars 
 or units, dimes or tenths, cents or hundredths, and mills or 
 thousandths ; a dime being the tenth part of a dollar, a cent 
 the hundredth part of a dollar, etc., and that all accounts 
 in the public offices, and all proceedings in the courts of the 
 United States, shall be kept and had in conformity to this 
 regulation." 
 
 It will be seen from the reading of the above, it was 
 arranged that the unit of the " money of account " should 
 be the " word " dollar : and in Section 9 of the same act it 
 was provided that dollars or units were each to be of the 
 value of a Spanish milled dollar as the same is now current. 
 
 According to Colwell, in his " Ways and Aleans of Pay- 
 ment," page 140, " This is, perhaps, the first time that a 
 ' money of account ' was ever enacted or established by any 
 public authority as an act of power." 
 
 " Money of account " had in all nations grown up in 
 the commercial and mental habits of the people, and was 
 the language originated to express the relative value of the 
 energy, effort, and labor expended and privation undergone 
 in fitting and bringing into proper form for man's use the 
 products of nature. 
 
 " The dollar was employed by the Spanish nation as a 
 term of the " money of account," and the Spanish silver 
 coin known as the dollar had been in frequent use in this
 
 122 The Legal-Tender Problem 
 
 country, and was familiar to many people of the United 
 vStates, before and after the struggle for independence. 
 It was wisely chosen, because no other could have been 
 brought into general use so soon," and because of the great 
 need of having one uniform system of reckoning and keep- 
 ing accounts, if we were to become one homogeneous race. 
 
 The use of the Spanish milled silver-coin dollar had 
 established in the minds of those people who had been 
 handling them, the concept of their value ; and if there had 
 not been such a number of the people who had not used 
 them, and had no idea whatever of the labor value intended 
 to be conveyed by the " word " dollar, it would not have 
 been necessary to have ever minted a coin and called it 
 the dollar. If all the people had had the concept of the 
 labor value the " word " dollar was intended to convey, it 
 would have been better never to have minted a coin and 
 named it the dollar. In such a case we would have escaped 
 the abuse of a pure financial system that invariably occurs 
 when the coins of payment bear the same name as the unit 
 of the " money of account." For wherever that is the case, 
 the variation in value of the commodity out of which the 
 coins are made, is constantly changing the value of the 
 coins ; and as the value of the coins of payment change, the 
 labor value of the unit of the " money of account " changes 
 with it. This is understood and taken advantage of by the 
 avaricious, and has been a great incentive to much of the 
 vicious financial legislation we have suffered. 
 
 The people never have any conception of what is going 
 on, until in the payment of their obligations they realize, 
 contrary to all experience and information, that they are 
 continually and unavoidably losing the little they have. As 
 an illustration of this, the English sovereign, which is the 
 value of a pound sterling, varies in value with the com-
 
 ''Money of Account" 123 
 
 modit)' out of wliicli it is made, and may be above or below 
 par ; par being the pound, the abstract idea of labor value 
 to every Englishman in his knowledge of the relative labor 
 value of products to each other, even though one of the 
 products may be the metal out of which the sovereign is 
 made. 
 
 Unfortunately for the people of the United States it was 
 not possible to form a pure financial system, because they 
 had no infancy as a nation, no language that had grown 
 from their necessities, but were a congregated people from 
 all nations, and many of them had no idea of the value 
 intended to be conveyed by the use of the " word " dollar, 
 the unit of the " money of account." It was therefore 
 incumbent upon the Fathers to give a concrete expression in 
 some commodity of universally known, if varying, value 
 to the " word " dollar. This was done by taking one thou- 
 sand Spanish milled silver-coin dollars, fresh from the mint, 
 melting them into a mass, removing all alloy, and ascertain- 
 ing how much pure silver there was in the one-thousandth 
 part of this mass. The experiment, made by the aid of such 
 instruments for assaying as were in use at that time, indi- 
 cated that there w^ere 371 4/16 grains of pure silver in one 
 one-thousandth. of the mass. 
 
 It was thereupon enacted by Congress, in Section 9 of 
 the act of April 2, 1792, that the value of the " coin " dollar 
 should be 371/4 grains of pure, and 416 grains of standard, 
 silver, and that it should be a legal tender, thereby making 
 it the standard dollar of payment, but not the standard of 
 value, for that was restricted to the abstract idea of labor 
 value conveyed by the " word " dollar. 
 
 This concrete expression of the " word " dollar, — viz., 
 37134 grains of the commodity silver, — was the value neces- 
 sarily conveyed by the " word " dollar when used in making
 
 124 The Legal-Tender Problem 
 
 contracts payable in dollars ; and the legal-tender quality 
 given it was a guarantee that whatever the payee might 
 claim, the payer could never be compelled to pay more than 
 this value, in contracts calling for the payment of dollars, 
 so long as this statute stood unrepealed. This determina- 
 tion of the value of the dollar of payment remained intact 
 until 1873, when the attempt was made to change it from 
 371^ grains of pure silver to 25 8/10 grains of standard 
 gold. 
 
 It is evident that if the coinage of dollars had been re- 
 stricted to silver, there would never have been any variation 
 in value between the dollars of payment and the idea of 
 value intended to be conveyed by the use of the " word " 
 dollar in pricing products, or making contracts, from the 
 fact that the " word " dollar, not being a growth of the lan- 
 guage of the people, would have had no generally accepted 
 and controlling abstract idea of value, but would have, per- 
 force, only conveyed, whenever used, the value of 371^ 
 grains of pure silver. Therefore, the meaning of the 
 " word " dollar, being altogether dependent upon the stat- 
 ute, would have been controlled in its meaning of value 
 by the value of 371^4 grains of silver in the coin dollar, 
 and hence varied in value with silver. 
 
 It is a financial truism, not generally accepted, however, 
 that the value of the dollar of payment depends more upon 
 the possible numbers that can be coined than upon the 
 number that are coined. This was thoroughly appreciated 
 and understood by Jefferson, Hamilton, and the members 
 of the first Congress, and was deemed a necessary palliative 
 in restricting the money of the country to gold and silver. 
 
 Notwithstanding the dominance of the Massachusetts 
 hard-money faction forced the country to, a specie basis, and 
 it had been secured, as was supposed, for all time to come.
 
 ''Money of Account" 125 
 
 or until the Constitution was amended ; and notwithstanding 
 it was well known that there was not more than ten millions 
 of specie in the country, the fact that all the gold and silver 
 in Europe, as well as all the gold and silver mined in the 
 future, could come to the mints to be coined, it was hoped, 
 would make the possible number of dollars so uncertain, so 
 indeterminate, so uncontrollable, and so incalculable that the 
 evil effects of a scarcity of the circulating medium would 
 not oppress the people seriously, and certainly not for any 
 great length of time. 
 
 Having provided for the minting and coinage of silver, 
 it was necessary to make similar provision for the minting 
 and coinage of gold. 
 
 First, it was necessary to determine the relative value 
 of gold and silver. The experiments made indicated that 
 one weight of gold was equal in value to fifteen weight of 
 silver, and, therefore, the ratio of value between the two 
 metals was i to 15. The names given the gold coins were 
 the eagle, the half-eagle, and the quarter-eagle. The value 
 given the eagle was the equivalent of ten dollars ; the half- 
 eagle the equivalent of five dollars; and the quarter-eagle 
 the equivalent of two and one-half dollars. The amount of 
 gold put in the eagle was one fifteenth the quantity of silver 
 put in ten dollars ; the quantity of gold put in the half-eagle 
 was one fifteenth the quantity of silver put in five dollars, 
 etc. The gold coins were made, equally with the silver 
 coins, a legal tender, and both w-ere mediums of payment; 
 the silver coins, dollars of payment, and the gold coins, the 
 equivalent of the dollars of payment, but not " dollars " of 
 payment. It is evident that the value of the dollars of pay- 
 ment, the silver coins, and the value of the equivalent of the 
 dollars of payment, the* gold coins, would vary as the value 
 of the two metals varied.
 
 126 The Legal-Tender Problem 
 
 If the " word " dollar, the unit of the " money of ac- 
 count," had had an independent, controlling, abstract idea 
 of value that was inherent in and a part of the consciousness 
 of the people, as the " word " pound is with the English, the 
 variation in the value of either the gold or silver coins 
 would have been shown in its relation to this value, and 
 they would have been either above or below par ; but the 
 value of the " word " dollar being by statute dependent 
 upon the value of the silver in the silver-coin dollar, the 
 variation in value only of the gold coins appeared to the 
 people, and the value of the silver dollar appeared to be 
 stable and unchanging, as does the value of the gold coins 
 to-day when they are called the standards of value. 
 
 Ignorance of these essential and elementary principles, 
 causes many writers who pose as authority upon matters 
 financial, to continuously vociferate that gold never changes 
 in value ; that it is an absurdity to suggest such an idea, for 
 it is the standard of value, and can no more change than does 
 the yardstick. 
 
 It is true that in one sense they are correct ; and it is this 
 defect in the system of this country that enables the avari- 
 cious to work out their schemes of spoliation, and which 
 must be corrected if the country would escape the fate of 
 the dead nations. For it is impossible under a system which 
 makes gold and silver coins the only solvent of debt, to 
 restrain the designing from so manipulating specie at unex- 
 pected times as to destroy the ratio of value between it and 
 all products, wares, real estate, and property ; so that when 
 settlement and payment in these legal-tender coins, that have 
 acquired such an undue value, is made, all the debtors are 
 heavy losers, and all the creditors are gainers of the loss. 
 
 The fact that the only change th^t has occurred to make 
 this radical disturbance of relative values has been in the
 
 "Money of Account" 127 
 
 gold and silver coins, and that it is the enhancing or doub- 
 ling their value which occasions the destruction of values, 
 does not appear, because the poiver of legal tender, making 
 them the only solvent of debt, has the practical efYect of 
 forcing the acceptance of the realization that, however it 
 may be in fact, in law and practise the value of gold and 
 silver has remained the same, and the value of everything 
 else has changed. 
 
 In this sense only is it true that the value of gold and 
 silver coins do not vary, and are ignorantly termed standards 
 of value. The advantage that accrued to the people under 
 the financial plan of the Constitution, and the acts of Con- 
 gress, aro.se out of the fact that both gold and silver coins 
 were given the exclusive right to legal-tender value, and 
 that the value of the " word " dollar would never be over 
 371 14 grains of silver. 
 
 Therefore, the manipulation of one of the metals did not 
 affect the right of the people to pay debts with the coins 
 made out of the other ; and so long as silver was a legal 
 tender, had free access to the mint, and 371^4 grains was 
 the value of the unit, it was impossible for the creditor to 
 compel the debtor to pay more than the value of S7^% 
 grains of silver per dollar, in contracts calling for pay- 
 ment in dollars. It was possible, however, for the debtor 
 to pay in dollars which w^ere of less value than 371 M gi^'iins 
 of silver, when gold coins were at a discount, and this was 
 because the gold coins were a legal tender, and the debtor 
 could use them to pay debts. It was natural, therefore, that 
 the debtor would always exercise the option of paying in 
 the cheaper dollar, whether it were gold or silver. 
 
 In this option lay the only redeeming feature of our 
 orioiinal financial system ; and though in the early history 
 of the country the scarcity of gold and silver was such that
 
 128 The Legal-Tender Problem 
 
 the loss and suffering for want of the necessary circulating 
 currency forced Congress to charter a bank with authority 
 to issue notes, yet a day did come when the quantity of gold 
 and silver was such that the resultant effect was the pros- 
 perity of the entire nation. 
 
 The prosperity that naturally accrued from the right to 
 pay all debts, contracts, etc., in the dollar of 371 >4 grains 
 of silver, or a cheaper dollar, if gold should be cheaper, as 
 the silver and gold increased in supply, was the only heritage 
 in the financial system secured to the people by the Consti- 
 tution and the Coinage Act of 1792. 
 
 The people enjoyed this advantage to their great benefit, 
 notwithstanding the perverting abuses and impositions that 
 were at times practised by the creditors and the hard-money 
 faction during the entire history of the country, until the 
 money power endeavored to deprive the people of the use 
 of silver under the construction given the following clause 
 in the act of 1873 : " The gold coins of the United States, at 
 the standard weight of 25 8/10 grains, shall be the unit of 
 value." 
 
 After this change- by construction of the unit of the 
 "money of account" from a dollar of the value of 371 M 
 grains of silver or 25 8/10 of gold, to a dollar of the value 
 of 25 8/10 grains of gold only, the " word " dollar has 
 meant in payment the value of 258/10 grains of gold, 
 though it was used in making the contract as of the value 
 of 371,^4 grains of silver. 
 
 This one fact, aided by the additional value that was 
 given gold coins by limiting the legal tender of the silver 
 dollar, was instrumental in transferring the property of 
 the debtor to the creditor, and was the process by which 
 the rich were made richer and the poor, poorer. The callous 
 avariciousness of the motives of the creditors has only been
 
 ''Money of Account" 129 
 
 surpassed by the shameless liypocrisy of their professions, 
 as will appear hereafter. 
 
 At the time of the establishment of a mint (1792) for 
 the coinage of silver into dollars, and subdivisions of a dol- 
 lar, naming the coins in the language of the " money of ac- 
 count," and the coinage of gold into eagles, and subdivisions 
 of the eagle, the only coins in use were foreign coins. It 
 was essential that these coins should be deprived of their 
 foreign names and value, and be Americanized. This 
 could only be done by recoining them into dollars and sub- 
 divisions of the dollar, if they were silver, and into eagles 
 and subdivisions of the eagle, if they w^ere gold. Inasmuch 
 as they were needed for mediums of payment until this 
 could be done, Congress, on February 9, 1773, regulated 
 their value, made them legal tenders for the value assigned 
 them, and gave them three years to be recoined at the mint, 
 when, if not recoined, they should no longer be legal tenders.
 
 XI 
 
 State Banks 
 
 Congress, through the agency of the Bank of tha» United 
 States, its issue of notes, the renewal of Government loans, 
 and the regulation of the value of foreign coins, provided a 
 circulating currency for it and the hard-money faction. 
 
 No provision whatever had been made to furnish the peo- 
 ple with the sorely needed mediums of exchange. Congress 
 would grant them no relief, for it acted upon the assump- 
 tion that it was morally obligated to respect the pledge of 
 the prior Congress, that no other bank would be granted a 
 charter for twenty years. 
 
 The people were therefore forced to rely upon the ten- 
 der mercies of the hard-money faction and their bank, since 
 the Constitution prohibited the State Legislatures from 
 making anything a legal tender except the gold and silver 
 coins of the United States, and also prohibited them from 
 emitting bills of credit. 
 
 If the General Government could have exercised the 
 power at that time to enforce a strict observance of the 
 Constitution, the people would have been compelled to com- 
 pete with each other to the verge of desperation for the 
 legal-tender money of the hard-money faction, and the 
 accumulation of wealth would have taken place much earlier 
 than has been the case. Fortunately the States were yet 
 powerful, for the General Government was in the first 
 stages of experimentation. 
 
 Since Congress, in chartering the Bank of the United 
 130
 
 State Banks 131 
 
 States — with the monopoly to issue notes for twenty years 
 — exercised powers which had been withheld from it, the 
 State Legislatures — which had the undisputed right to 
 grant charters of incorporation — exercised in the interest 
 of the coin owners, upon the pretext of assisting the people, 
 the unconstitutional power of authorizing their banks to 
 issue notes. 
 
 Therefore by 1806 there were many State banks in oper- 
 ation, whose notes were being used by the people to their 
 great advantage and prosperity, and were also protecting 
 their property from the spoliation of the hard-money faction 
 that w^ould have resulted if the supply of money had been 
 restricted to the limited issue of the first bank. 
 
 The first bank of the United States, as is now apparent, 
 was a close combine, organized in the interest of some .mem- 
 bers of Congress and a few individuals on the outside, and 
 the Government was taken in as co-partner to give its notes 
 circulation, and to protect their interests. 
 
 The State banks were originated by that class of the 
 hard-money faction who could not get into the United 
 States Bank deal, and . their number was augmented, and 
 they were made more powerful as a faction, by the owners 
 of such additional gold and silver as came into the country 
 to share in the rich harvest that the financial system, as 
 exploited, guaranteed. 
 
 The scheme of finance put into operation by the Gen- 
 eral Government was so unfair and unjust to the people, and 
 so partial and advantageous to the wealthy, that it made 
 necessary and fully justified the system of State banks, 
 unwholesome and unsound as they were. 
 
 The theory upon which the State banks were organized 
 was similar to that of the Bank of the United States. It 
 was claimed for them, as it was for the Bank of the United
 
 132 The Legal-Tender Problem 
 
 States, that all the notes issued were redeemable in specie, 
 and that those issued in excess were fully protected by the 
 fact that they were so necessary as mediums of payment 
 that the small amount of coin held in the bank vaults would 
 always be ample to redeem all notes presented. 
 
 Under such a condition of affairs and such a system of 
 finance, it is not surprising that but little supervision was 
 exercised by the States over the banks, for it stands to 
 reason that those highest in authority, their favorites, friends, 
 and kindreds, were the chief officers and beneficiaries of the 
 institutions. 
 
 This interested neglect upon the part of State officials 
 also encouraged the adventurers and the speculators to go 
 into the business of State banking with no capital except 
 their credit and their daring. 
 
 So long as their banks passed State inspection, though 
 there was no specie in their vaults to redeem the notes, 
 they were as efficient mediums of payment as were the notes 
 of banks which had only specie enough to redeem a part of 
 their notes. 
 
 Until attention was called to the fact that the banks 
 could not 'redeem their notes, they were current with the 
 people, and served the purpose for which they were issued 
 as well and as efficiently as any other money, and would 
 have so continued in their usefulness. But when it was 
 once whispered that there was no money in the vaults to 
 redeem them, the value of the notes declined as the whisper 
 spread, until they became worthless. 
 
 This always entails a double loss upon a community ; 
 the smaller and more immediate loss is the loss to the last 
 holder of the note ; the larger but less apparent loss arises 
 from the decrease in the price of products that always accom- 
 panies a decrease in the circulating currency.
 
 State Banks I33 
 
 The detection and advertisement of the fact that certain 
 banks could not redeem their notes, was always due to the 
 avarice of the hard-money faction whenever and so soon as 
 the notes interfered with or came into active competition 
 with their specie and bank-notes, and began to reduce their 
 profits. The fact that the circulation and use of the State 
 bank-notes may have been beneficial in furnishing a full 
 supply of money, and instrumental in keeping the hard- 
 money faction from exacting from the people an imdue 
 quantity of products in the sale of their money, was always 
 fatal to the longer use of the State bank-notes, when that 
 consideration alone should have entitled them to continuous 
 circulation, since such a system had been imposed upon the 
 people. 
 
 Under such a system, where the notes of the banks, — 
 representing only twenty-five or less cents in specie value — 
 pass as of the value of one hundred cents, it is impossible 
 for the Government to keep either gold or silver coins in 
 the country. Both the owners of gold and silver refused to 
 carry their metals to the mint to be coined into legal-tender 
 dollars of equal value with a bank-note that was the repre- 
 sentative in actual specie of only twenty-five cents, for the 
 same reason that the owners of silver refused to carry their 
 silver to the mint to be coined into a legal-tender dollar only 
 equal in value to a gold dollar when the bullion value of the 
 silver in the dollar was more valuable than the bullion value 
 Df gold in the gold coin. 
 
 Therefore for the same reason that in the earl\- history 
 of the country silver was used as local money and gold went 
 to Europe, silver was driven to Europe by the cheaper bank- 
 notes as their volume of issue was increased. It is evident 
 then that the system of issuing bank-notes encouraged or 
 forced the owners of specie to ship it to Europe for the
 
 134 The Legal-Tender Problem 
 
 higher value they could get for it there; and the only gold 
 or silver that remained in the country was what the precau- 
 tionary wisdom of the bankers retained in seeming idleness 
 in their vaults to redeem their notes when presented. 
 
 The only restraint upon the greed of the bankers to issue 
 three dollars of paper for one of specie, and then sell the 
 specie for export, was their precautionary wisdom and gov- 
 ernmental inspection and regulation. The history of bank- 
 ing shows that no reliance can be placed upon the precau- 
 tionary wisdom of the bankers, and the interest of State 
 officials in the banks kept them from exercising any but 
 the most perfunctory inspection. 
 
 Mr. Jefferson realized, since gold left the country because 
 silver was cheaper, and silver was leaving because the bank- 
 notes were cheaper, that all the specie was leaving the coun- 
 try, and if demand should be made for payment, of the bank- 
 notes in specie, under such circumstances, the country would 
 be ruined. The State-bank faction was so strong at that 
 time that he could do nothing with it, nor cause the proper 
 regulation of their banks, and the only action left him was 
 to issue the silver coins in denominations less than the dol- 
 lar, in the hope that the people would use them so inces- 
 santly that they could not be secured by the speculators to 
 be exported. 
 
 He, therefore, in 1806, influenced Congress to pass a 
 law to cease the coinage of the silver dollar, — which was 
 exported as fast as issued from the mint, — and coin only the 
 subsidiary coins which it was hoped would remain in cir- 
 culation. 
 
 It appears that by 1809 the notes of the State, banks were 
 seriously interfering with the profits of the Bank of the 
 United States, and " the Legislature of Rhode Island was 
 induced to cause an examination into the affairs of one of
 
 State Banks i35 
 
 its banks, — The Farmer's Exchange Bank of Gloucester, — 
 and it was found that the bank had $580,000 of its notes in 
 circulation, and only $86.16 of specie in its vaults with which 
 to redeem the notes issued." 
 
 The advertisement of this fact had the desired effect ; 
 the $580,000 notes of the bank were made worthless, as a 
 circulating currency ; the currency of the country was re- 
 duced to that extent, and to the extent that the volume of 
 currency was curtailed, to that extent was the value of the 
 remaining currency enhanced. 
 
 The warfare against the State banks was kept up by 
 the hard-money faction and the Bank of the United States, 
 and by the end of the year there was a general suspension 
 of all the State banks of New England. The result of these 
 suspensions was immediate loss to the holders of the notes 
 of the suspended banks, for they had to await the winding 
 up of the affairs of the bank in order to collect whatever of 
 value there might be in the notes. It is apparent that the 
 people lost and the hard-money faction gained to the extent 
 that the volume of currenc}- was reduced by driving State 
 bank-notes out of circulation. 
 
 Expressed in a financial axiom, the reduction of the vol- 
 ume of currency decreases the price of products, and en- 
 hances the value of the money that is left in circulation, in 
 the proportion of the reduction to the volume. 
 
 This warfare continued until 181 1, and drove the adven- 
 turers and speculators out of the banking business. 
 
 It appears that by 181 1, the number of notes issued and 
 in circulation by the State banks was twenty-eight millions, 
 notwithstanding the warfare that had been waged against 
 them by the Bank of the United States. 
 
 In the warfare the State-bank faction won ; and at the 
 expiration of the charter of the Bank of the United States
 
 136 The Legal-Tender Problem 
 
 in 181 1, Congress was induced to refuse it a new charter. 
 It was therefore forced to go into liquidation, and redeem 
 its notes. Under these circumstances, and with this false, 
 inefficient, and unscientific system of finance, the Govern- 
 ment found itself at war with England in 18 12. 
 
 After Congress refused to recharter the Bank of the 
 United States, many additional State banks sprang into 
 existence ; and, as the notes of the Bank of the United States 
 were redeemed and retired from circulation, the notes of 
 State banks took their place, until they were the principal 
 money of the country.
 
 XTT 
 The JVar of l8l2 and the Treasury Notes 
 
 The State banks were called upon to furnish the money 
 necessary to fight the war, and they agreed to exchange the 
 notes of the banks for the bonds of the Government, taking 
 them at the value of eighty cents on the dollar. 
 
 The iniquities of a financial system wherein bank issues 
 are based upon redemption in specie, and the abuses which 
 are practised, appear most vividly in times of war. 
 
 It is proper to ascertain the specie value of the bank-notes 
 in order that the patriotism of the hard-money faction may 
 be made to appear. 
 
 Under any and all banking systems an issue of three 
 dollars in paper for one of specie was the minimum, and 
 the maximum issue depended either upon the regulation of 
 the Government or the prudential avarice of the bankers, if 
 there was no restriction. 
 
 It can safely be assumed, at that time, and imder those 
 circumstances, that there was an issue of four dollars of 
 paper for one of specie by every bank which had notes out- 
 standing, making the notes the representatives of twenty- 
 five cents only in specie. Therefore the exchange would be 
 as follows : On $ioo in specie there was issued $400 of bank- 
 notes, and at eighty cents on the dollar for the six-per-cent 
 bonds the $400 of bank-notes would exchange for $500 of 
 the six-per-cent bonds ; an annual interest of thirty per cent 
 on the $100 of specie so long as the bond was unpaid, and 
 $400 profits when the bond of $500 was paid in specie. 
 
 137
 
 138 The Legal-Tender Problem 
 
 This is a fair sample of the self-sacrificing spirit always 
 displayed by the hard-money faction whenever the country 
 is threatened \vith the dangers of war; and if they are not 
 permitted to exercise this liberality, and the Government 
 should resort to some other plan to raise money, which is 
 not equally advantageous to them, they invariably endeavor 
 to discredit the issues so that the Government will be forced 
 to accede to their terms ; and they then have the effrontery 
 to pose as the saviors of the country. 
 
 This proposition of the State banks was being acted upon 
 by the Government when Congress was induced to issue 
 treasury notes on January 30, 1812, to the amount of $5,000,- 
 000. These treasury notes were only to run one year, bear 
 live and two-fifths per cent interest, and were receivable for 
 all debts due the Government. They were also to be paid to 
 all public creditors and other persons willing to receive them. 
 
 The treasurer was authorized to borrow, at not less 
 than par, such sums, from time to time, as the president 
 might deem expedient ; and for this purpose authority was 
 given to deposit them in such banks as would receive them 
 at par with accrued interest, and give credit to the treasurer 
 of the United States. 
 
 It was further provided that the commissioners of the 
 sinking fund should pay and retire said treasury notes at 
 the times named in said act. Under this arrangement it is 
 evident that the banks would hold the interest-bearing nptes 
 of the Government, and pay out their own notes upon the 
 order of the treasurer. 
 
 Inasmuch as the bank-note of one dollar was the rep- 
 resentative of only twenty-five cents of specie, it is evident 
 that when it was exchanged for a one-dollar treasury note 
 bearing five and two-fifths per cent annual interest, every 
 dollar of specie upon which bank-notes were issued was
 
 Treasury Notes of l8l2 i39 
 
 drawing four times that much interest, or twenty-one and 
 three-fifths per cent per annum. 
 
 The treasury notes were not intended to circulate as 
 money, and nothing is said in the act about the denomina- 
 tions in which they were to be issued ; and though it was 
 provided that they might be used in the payment of all Gov- 
 ernment dues and taxes, they were given that right only 
 to enhance their value with the bankers. 
 
 It is difficult to understand why Congress, if it was not 
 dominated by the State-bank faction, did not authorize the 
 issue of the treasury notes in small denominations, as legal 
 tenders in the payment of all debts, public and private, direct 
 to the people without the assistance of the banks. 
 
 This could have been done as an experiment, trusting 
 that the patriotism of the people would sustain them during 
 the crisis, even if they had to make provision to pay them 
 after the termination of the struggle by their gradual ex- 
 change for interest-bearing obligations. If the notes had 
 been issued impressed with these characteristics, they need 
 not have borne interest ; and if they had retained their full 
 legal tender until they were presented by the people for 
 bonds, they would be in circulation to this day. 
 
 That they would have been a much safer issue than the 
 bank-notes is necessarily true from the fact that the bank- 
 notes were good only because they were claimed, to be 
 redeemable in coin, while the treasury notes would have 
 been g-ood because thev were receivable for all Government 
 dues, taxes, and obligations, and were legal mediums of pay- 
 ment for all private debts. 
 
 The history of the finances of every nation which has 
 issued notes, making them a full legal tender and not redeem- 
 able in coin, fails to show a single instance Avhcre the value 
 of the note decreased below the value of specie, so long as
 
 140 The Legal-Tender Problem 
 
 they were a legal tender in' the payment of public and private 
 debts ; but on the contrary they were always at par, and 
 frequently at a premium over specie, so long as they were on 
 an equal footing before the law with gold and silver coin. 
 
 The history of every nation which has authorized banks 
 to issue notes, based on redemption in specie, shows fre- 
 quent instances where, from inability or failure from some 
 cause, the banks have not redeemed their notes, and the peo- 
 ple have borne the loss. 
 
 An exposure of the motives which control in the issuance 
 of the notes by the one system or the other, should be suffi- 
 cient to convince any unprejudiced and unselfish individual 
 which is the purest and most natural. 
 
 In the issue of bank-notes it is the avarice and greed of 
 the owners of the specie that always controls. The owners 
 of the specie claim that they have the right to the monopoly 
 of using their gold and silver as money, and that they are 
 protected in their claim against adverse legislation, by the 
 Constitution; that if at any time the scarcity of gold and 
 silver should make it necessary to issue additional cur- 
 rency, they only have that right, and should be permitted 
 to meet the exigencies of the occasion by issuing three or 
 more dollars of paper on every dollar of specie, through 
 banks of issue ; that this extra issue of paper money, made 
 through the instrumentality of their banks, meeting the 
 demands of the people and fulfilling the requirements of 
 trade and commerce, justifies them in exacting six per cent 
 interest on every dollar of their paper loaned, though it does 
 not represent in value more than twenty-five cents in specie, 
 and in many cases a much less amount ; that this right and 
 privilege is secured by the Constitution, and if it had not 
 been there would have been no Constitution nor independent 
 Government ; that the sole exercise of this privilege was the
 
 Treasury Notes of l8l2 141 
 
 price they exacted for securing the independence of the 
 country, and thereby guaranteeing the freedom which has 
 so long been enjoyed ; that they only permitted the Govern- 
 ment to be formed and the Constitution framed, upon this 
 condition, and that there shall be no violation of their vested 
 rights ; that whenever there is a violation on the part of the 
 Government of these enforced conditions, w^hich are calcu- 
 lated to deprive the gold and silver owners of the profits 
 of the privilege secured, they no longer owe the Govern- 
 ment any allegiance, and have the right to oppose such 
 action of the Government in any way that best subserves 
 their purpose. Standing in this attitude of constitutional 
 hostility to the Government, it is essentially necessary that 
 they should control the legislation and officials of the United 
 States. 
 
 The motives which should control in the issuance of 
 treasury notes should be the desire of the Government to 
 relieve the people from the suffering and loss that an insuffi- 
 cient supply of money always causes, or to so aid the people, 
 whenever an enemy is invading the country, that they may 
 be encouraged and enabled to repel the invasion. 
 
 These are the underlying and controlling considerations 
 that make it impossible to secure a Congress which will issue 
 treasury notes at all, or, if it is forced to issue them in the 
 hour of danger, issues them in such a manner that it is more 
 to the advantage of the coin owners than to the advantage 
 of the people and the Government. These reasons are never 
 advanced, however, for a correct understanding of the mat- 
 ter by the people would cause them to put a stop to the prac- 
 tise of the iniquitous abuse upon them and their prosperity. 
 
 The argument which is most universally presented to 
 the people, and has proved most conclusive and controlling, 
 is that Congress can not be trusted to issue treasury notes,
 
 142 The Legal-Tender Proble 
 
 m 
 
 for it would in the course of time issue so many that it would 
 destroy the value and use of all the issues, and thus cause 
 the greatest disaster. 
 
 The hard-money faction teach that the weakness and 
 instability of man, and consequently of Governments man- 
 aged by men, has always been and always will be such that 
 they can not be entrusted to discharge this governmental 
 duty. In fact they claim that no class of men ever have or 
 ever will faithfully, impartially, and justly discharge this 
 function of Government, and that nature, in its arbitrary 
 treatment of humanity, is the only safe reliance. Therefore 
 they claimed, inasmuch as the experience of the centuries 
 had demonstrated that nature has not given to mankind 
 more than enough gold and silver to furnish an equitable 
 and just supply of money, that gold and silver are the only 
 commodities which have the right to be used for that pur- 
 pose. 
 
 This doctrinal error was supposed to be safely incorpor- 
 ated into the Constitution of the United States, and was 
 guarded by denying to the States the right or power to emit 
 bills of credit, or make anything a legal tender except the 
 gold and silver coins of the United States ; and further pro- 
 tected by withholding from Congress the right or power to 
 emit bills on the credit of the Government, or to charter 
 banks. 
 
 Therefore, on occasions when the supply of gold and 
 silver is not sufficient to discharge the duties required of a 
 circulating medium, and this scarcity has to be augmented 
 by an additional issue, the hard-money faction resent any 
 independent action of irresponsible and weak Congresses 
 tending to such an end, and demand that the entire matter 
 shall be turned over to them. This demand has always been 
 acceded to, and the money and currency of the country has
 
 Treasury Notes of 1 8 12 i43 
 
 been and is issued on the assumption that what could not be 
 left to the discretion of Congress could be safely turned over 
 to the avarice of the hard-money faction. 
 
 It should not be a cause of surprise that the history of 
 the finances has been that of a redundant and contracted 
 currency at such times as the avarice of individuals has 
 decided was most advantageous for their interest, even to 
 the despoilment of the people. 
 
 It is a most serious reflection upon the stability and 
 integrity of the form of Government, and a challenge to 
 its right of longer continuance, that it can not be en- 
 trusted to exercise the most essential act of sovereignty ; 
 an act that it is absolutely necessary to exercise, and exer- 
 cise properly and justly, to preserve the prosperity and lib- 
 erty of the people, and which in hours of deadly peril to 
 the Government it is only allowed to exercise in such a 
 manner as the hard-money faction will permit. 
 
 This digression has been made to exhibit the influence 
 and power, and the causes therefor, of the hard-money fac- 
 tion over Congress ; and to show that though under the ex- 
 citement of a declaration of war with England it could not 
 be restrained from issuing treasury notes, yet it could be in- 
 duced to issue them in such a manner that they bore twenty- 
 one and three-fifths per cent interest, and were to be retired 
 so soon as the crisis was past. 
 
 On February 25, 1813, Congress passed an act author-^ 
 izing an issue of ten millions of treasury notes upon the same 
 terms and with similar provisions for their payment and 
 cancellation as the first issue.
 
 XIII 
 
 The Origin of the Factional Parties 
 
 The first bank of the United States, in which the finan- 
 ciers of Massachusetts invested their money, and which was 
 chartered by Congress when it was under their influence and 
 control, expired by Hmitation in 1811. 
 
 When the Massachusetts hard-money class secured the 
 charter, there may have been difference in opinions as to the 
 policies to be pursued, but no division of the people into fac- 
 tions. The Patriots were in the ascendant, the Tories had 
 disappeared, and the people were united, except for the 
 aggressive and greedy activity of the hard-money faction in 
 its efforts to control legislation in order that it might exploit 
 the country. 
 
 The inhuman selfishness, as manifested in its manipula- 
 tion of the constitutional convention and early Congresses, 
 and its manifest intention to make the United States Govern- 
 ment a strong centralized power to serve their purpose of 
 self-aggrandizement, caused and created an opposition party ; 
 and in 1801 the opposition, under the name of the Republican 
 party, elected Thomas Jefferson president, and took charge 
 of the Government. 
 
 By the election of Mr. Jefferson, the control of the Gov- 
 ernment was taken out of the hands of the Massachusetts 
 hard-money faction, and many reforms that enured to the 
 benefit of the people were inaugurated, and their principles 
 are the basic ideas of the Democratic party to-day ; but none 
 could be instituted in the finances because of the restrictions 
 144
 
 The Origin of the Factional Parties 145 
 
 of the Constitution, and the opposition of both hard-money 
 factions. 
 
 If Mr. Jefferson had been wilhng to extend the privilege 
 of national banks to meet the demands for a circulating cur- 
 rency, he could not have done so, because of the pledge 
 exacted from Congress that it would not grant any other 
 bank a charter until 181 1. 
 
 If he was opposed to the State Legislatures' granting 
 charters to banks, and empowering them to do what the 
 States were prohibited from doing, he was equally power- 
 less ; for the necessity and demand for additional currency 
 that forced this radical action of the State Legislatures, 
 had so strengthened the State-bank faction that he was 
 dependent upon and indebted to their assistance for such 
 reforms as he was able to secure. 
 
 A statesman who respected the Constitution, a strict con- 
 structionist of that instrument, an advocate of the sov- 
 ereignty of the States, and opposed to a strong centralized 
 Government, Mr. Jefferson preferred affiliation with the 
 State-bank faction in the management of the affairs of the 
 Government. From principle and construction he was op- 
 posed to the State-bank system. From principle, construc- 
 tion, and experience he was opposed to the national-bank 
 system. He resisted the contention that because the Consti- 
 tution did not give the power to Congress to emit bills of 
 credit, it had no right to exercise such power ; but claimed 
 that such an exercise of power was an essential and neces- 
 sary act of sovereignty, inherent and inalienable. 
 
 He was indignant that any class of men, actuated by 
 motives of avarice, could be so inhuman and indifferent to 
 the public and private weal that they were willing to so use 
 their influence over Congress as to cause it to refuse to issue 
 treasury notes, when additional currency was imperative, 
 
 ID
 
 146 The Legal-Tender Problem 
 
 on the unsound pretext that said power had not been dele- 
 gated to Congress ; and yet could use their influence to have 
 that body grant a charter of incorporation to a bank with 
 power to issue notes, when neither of the powers were dele- 
 gated to it. 
 
 Under these circumstances Mr. Jefferson had much more 
 toleration for the State-bank faction which had come into 
 existence, not so much from the greed of its own members 
 as from the policies of the Massachusetts hard-money fac- 
 tion ; and he was willing to affiliate with them in order, first, 
 that he might remove the fangs of the national bankers from 
 the throat of the country, and bide his opportunity to free 
 the people from the imposition of the State-bank system. 
 
 A purist in thought, reason, and action, he kept severely 
 aloof from both systems in theory, and only committed him- 
 self to a present policy of expediency, in associating with the 
 State-bank faction, in the hope and for the purpose of being 
 enabled to correct and reform the abuses that had been 
 forced upon the Government by the financiers of the East. 
 He endeavored to inaugurate and put into the practise and 
 policy of the Government, principles, which, if preserved 
 and enforced, will insure the prosperity of the country and 
 the enjoyment of liberty for all future time. 
 
 The overthrow of the Eastern financiers, the destruction 
 of their financial system, and the stoppage of their wholesale 
 spoliation of the people, was wormwood and gall to the 
 money-making patriots of the East, and they denounced 
 Jefferson, and have reviled his principles and their advocates 
 from that day to this.
 
 XIV 
 
 The National-Bank Faction 
 
 ]\Ir. Jefferson was succeeded in office by Mr. Madison 
 in 1809, and he, aided by the State-bank faction, was in con- 
 trol when war was declared against England in 1812, and 
 treasury notes were being issued and turned over to the 
 State banks in exchange for their notes. 
 
 Under this condition, all the money that was being made 
 out of the necessities of the Government and the people in 
 the conduct of the war, was going into the pockets of the 
 State-bank faction ; and there being no profit in the war for 
 the Massachusetts hard-money faction, they bitterly opposed 
 it, and continued their opposition until it became treasonable. 
 
 \\'hen war was declared, the New England Federalists, 
 with Josiah Quincy, of Massachusetts, as leader in Congress, 
 denounced it as unnecessary, unjust, and undertaken from 
 the most criminal motives. So malicious and scurrilous were 
 these attacks that ]\Ir. Clay felt called upon to answer them 
 on January 8, 1813. and after quoting Quincy's former senti- 
 ment in favor of disunion, declared his conviction that no 
 man who had paid any attention to the tone of certain prints, 
 and to transactions in a particular quarter, of the Union 
 (New England) for several years past, could doubt the ex- 
 istence of a plot to dismember the Union. — "Randall's Life 
 of Jefferson," Vol. ?, page 376. 
 
 "The Boston Daily Advertiser recommended that the 
 New England States form a separate peace, urging that it 
 was lawful and proper to do so; and if Congress should 
 
 147
 
 148 The Legal-Tender Problem 
 
 refuse its assent, it would be for wise and prudent men to 
 decide what ought to be done." — "Randall's Life of Jeffer- 
 son," Vol. 3, page 383. 
 
 " The executives of Massachusetts and Connecticut had 
 refused to submit the mihtia of those States to orders issued 
 by the President." — Id., page 384. 
 
 " In November, 1813, Chittenden, governor of Vermont, 
 by proclamation, ordered home the militia of his State from 
 Canada. 
 
 " The officers answered that they regarded the governor's 
 proclamation with mingled emotions of pity and contempt 
 for its author. 
 
 " The reply of the soldiers and the resolutions in Con- 
 gress to instruct the attorney-general to prosecute Chittenden 
 for attempting to induce desertion, though withdrawn at the 
 request of the Republican representatives from that State, 
 did not restrain the Legislature of Massachusetts from pledg- 
 ing that State to the support of Vermont, or any other State, 
 whose constitutional rights were invaded." — Id., page 384. 
 
 After this the warfare was conducted by the banks ; and, 
 " according to Matthew Carey in his ' Olive Branch,' the 
 Boston banks in the latter part of 18 13 and the early part of 
 1 8 14, entered vigorously upon an attempt to stop the wheels 
 of Government by draining the banks in the Middle and 
 Southern States of their specie, and thus producing an utter 
 disability to fill the loans which the Government was attempt- 
 ing to effect." — Id., page 387. 
 
 The amount of specie withdrawn in eight months was 
 between seven and eight millions of dollars, and the result 
 was that the banks from New York to Norfolk inclusive, as 
 well as most of them to the westward, were literally drained 
 of their specie; and when the Government, early in 1814, 
 called upon the banks for a further loan, they were forced to 
 decline unless they were allowed to suspend specie payment.
 
 The National-Bank Faction I49 
 
 The New England financiers, in their dcterminaticin to 
 break down the State banking system, and force the Gov- 
 ernment to grant them a charter for a national bank, refused 
 to let their specie circulate or be used in the United States. 
 
 " The Federal press and pulpit of Massachusetts so vio- 
 lently denounced the citizens of the State who should take 
 any part of the Government loans, that the agents of the 
 Government were compelled to advertise that the names of 
 subscribers should be kep secret." — "Randall's Life of Jef- 
 ferson," Vol. J, pai:^c ^88. 
 
 The Massachusetts hard-monev faction was so imbued 
 with this fell spirit, and their warfare against the State 
 banks was so uncompromisingly hostile, that notwithstand- 
 ing the country was at war with England, " they invested 
 their specie in the bills of the English Government which 
 had been drawn in Quebec." — Id., page 388. 
 
 It was at the time this war of extermination between 
 the two hard-money factions was being waged in reckless 
 disregard of the welfare of the country, that the Govern- 
 ment found it necessary to issue treasury notes to resist the 
 aggression of English tyranny. 
 
 But however bitterly the factions might wage war for 
 supremacy in the control of the finances, they were too con- 
 scious of the ultimate benefit to them for either to join with 
 Mr. Jeflferson against the other in the enforcement of his 
 theories, and they joined forces to preserve to the victor all 
 the spoils, and forced Congress to issue treasury notes in 
 the manner hereinbefore set forth. Therefore the act of 
 March 14, 18 14. authorized the issue of ten millions addi- 
 tional notes, similar to those heretofore issued, and that they 
 should be placed to the credit of the Government in the 
 suspended State banks. 
 
 The national bank preferred even this — advantageous 
 as it was to the State banks, which they had good cause to
 
 150 The Legal-Tender Problem 
 
 think they had destroyed — to the adoption of the theories of 
 Mr. Jefferson, and they bided their time and awaited their 
 opportunity. 
 
 On December 26, 18 14, Congress authorized the issue 
 of twenty-five milUons in treasury notes, in the place of a 
 loan of that amount previously authorized ; ten millions to 
 be used in the payment of ten millions previously borrowed. 
 These notes were to run only for one year, were to bear five 
 and two-fifths per cent interest, were a legal tender in the 
 payment of all debts to the Government, and to be otherwise 
 like previous issues. 
 
 On February 24, 181 5, Congress authorized the issue 
 of twenty-five millions in treasury notes, in addition to the 
 other issue, and it appears from Sections 3 and 5 that ]\Ir. 
 Jefferson's influence was prevailing over Congress, notwith- 
 standing ulterior influences. Section 3 of the act reads as 
 follows : — 
 
 " That the treasury notes shall be prepared of such 
 denominations as the secretary of the treasury, with the 
 approbation of the president of the United States, shall 
 from time to time direct ; and such of the said notes as shall 
 be of a denomination less than one hundred dollars, shall be 
 payable to the bearer, and be transferable by delivery alone, 
 and shall bear no interest ; and such of the said notes as shall 
 be of the denomination of one hundred dollars or upwards, 
 may be made payable to order, and transferable by deliv- 
 ery and assignment, indorsed on the same, and bearing in- 
 terest from the day on which they shall be issued at the rate 
 of five and two-fifths per cent per annum ; or they may be 
 made payable to bearer, and transferable by delivery alone, 
 and bearing no interest, as the secretary of the treasury, 
 with the approbation of the president of the United States, 
 shall direct."
 
 The National-Bank Faction 151 
 
 Section 4 of said act provides that the holders of the 
 non-interest-bearing treasury notes may present them at any 
 time in sums of not less than one hundred dollars at the 
 treasury of the United States for redemption in certificates 
 of funded seven-per-cent stock, and those bearing interest 
 for the redemption in certificates of six-per-cent funded 
 stock. 
 
 Section 5 provides that all treasury notes so surrendered, 
 as well as those received in the payment of taxes, duties, or 
 demands, in the manner hereinafter provided, shall be re- 
 issued. 
 
 These notes were made legal tenders for all debts of the 
 United States, but not for private debts. They were issued 
 to circulate as money, and to take the place of the notes of 
 the suspended banks. They were not redeemable in coin, 
 for they were issued to aid the coins in effecting exchange 
 of products ; and if at any time they should not be needed 
 for that purpose, they could be exchanged for interest-bear- 
 ing bonds, or funded stock, as it was then called. 
 
 The denominations in which they were to be issued was 
 left to the secretary and the president ; and when the notes 
 were received by the Government, they were not to be can- 
 celed, but were to be reissued indefinitely. The only defect 
 in the last issue was the failure to make them legal tenders 
 in the payment of private debts. 
 
 The hard-money factions were conscious that the use 
 which could and would be made of these treasury notes, as 
 mediums of payment, by the people, would be so valuable 
 to them that they would be preferred to bank-notes, and on 
 account of the superior convenience in handling them, they 
 would be preferred over gold and silver coins. 
 
 The fact that they were issued by the Government, and 
 were received by the Government in payment of dues and
 
 152 The Legal-Tender Problem 
 
 taxes, made them such safe mediums of payment, and so 
 satisfactory to the trading and commercial people, that, as 
 in the case of the credits of the Bank of Venice, they were 
 too valuable as mediums of payment for the wealthy to 
 secure them to be exchanged for Government securities. 
 
 The result would have been that these notes would have 
 remained actively and continuously in circulation, excluding 
 from circulation just that many bank-notes ; and their effi- 
 ciency and general acceptance, as mediums of payment, 
 would have demonstrated the propriety and wisdom of the 
 Government's issuing enough to supply the demand for a 
 circulating currency, and have done away with the artificial 
 necessity for the issue of bank-notes. 
 
 There was, therefore, a combination of the hard-money 
 faction, the bankers, and the capitalists to drive these notes 
 out of circulation and create a demand for money, in order 
 that they might issue more bank-notes. 
 
 The first move to that end was made by the First Bank 
 of the United States, which was in process of liquidation. 
 
 A large debt was still due this bank, and, though pressing 
 for payment of its debts, it refused to receive these treasury 
 notes. Inasmuch as they were not a legal tender for the pay- 
 ment of private debts, the bank had the right to refuse them. 
 This action compelled those who owed the bank to refuse 
 them, and so they were forced to a discount. It is only too 
 evident that this was done to drive the treasury notes out 
 of circulation, and thereby create such a demand for currency 
 as would force Congress to grant them a charter for a bank 
 to issue notes, and that it was not done from any sense of 
 the insecurity of the value of the treasury notes, which were 
 exchangeable for a six- or seven-per-cent Government obli- 
 gation. 
 
 If the notes had been given the quality of legal tender for
 
 The National-Bank Faction i53 
 
 the payment of private debts as well as public dues, this 
 could not have happened; but as it was, the omission was 
 fatal. 
 
 Their purpose of discrediting the treasury notes having 
 been accomplished, Congress, instead of passing an act mak- 
 ing the notes a legal tender for private debts, granted them 
 a charter for a bank. The charter provided that the bank 
 should take from the Government, as part of its capital, fif- 
 teen millions of these same treasury notes, in order that they 
 might be kci)t out of circulation. 
 
 Mr. Madison, in vetoing this bill, stated in his message 
 of January 30, 1815, that " the direct effect of this operation 
 is simply to convert fifteen millions of treasury notes into 
 fifteen millions of six-per-cent stock ; " and that " the bank 
 as proposed to be constituted can not be relied on during 
 the war to provide a circulating medium, nor to furnish 
 loans or anticipations of public revenue." 
 
 Peace was formally declared February 18, 1815, and the 
 president, in his seventh annual message, dated December 5, 
 1815, stated "that the national debt on the first of October 
 last was $120,000,000; $39,000,000 of which was the debt 
 before the commencement of the war, $64,000,000 the 
 funded debt contracted during the war, and $17,000,000 
 the unfunded and floating debt, including the various issues 
 of the treasury notes that are gradually being paid. 
 
 " That a uniform national currency should be restored to 
 the community. . . . That the absence of the precious metals 
 will, it is believed, be a temporary evil, but until they can 
 again be rendered the general medium of exchange, it 
 devolves on the wisdom of Congress to provide a substitute 
 which shall equally engage the confidence and accommodate 
 the wants of the citizens throughout the Union. 
 
 " If the operation of the State banks can not produce this
 
 154 The Legal-Tender Problem 
 
 result, the probable operation of a national bank will merit 
 consideration : and if neither of these expedients be deemed 
 effectual, it may become necessary to ascertain the terms 
 upon which the notes of the Government (no longer required 
 as an instrument of credit) shall be issued upon motives of 
 general policy as a common medium of circulation." 
 
 This classification of Mr. Aladison that, while the country 
 was awaiting the return of gold and silver, he would be will- 
 ing to again experiment with the unconstitutional State-bank 
 system, and then with the equally unconstitutional national- 
 bank system, before he would undertake to ascertain the 
 terms upon which the Government would be allowed to issue 
 its notes, would seem strange coming from a president of 
 the United States, under the experience of the preceding 
 twenty-five years, did we not recall his questionable con- 
 duct while a member of the Constitutional Convention, and 
 the language in his veto of the bank charter, which dis- 
 missed the question of the constitutional authority of Con- 
 gress to establish an incorporated bank, because of repeated 
 recognitions of the validity of the institution by acts of 
 the legislative, executive, and judicial branches of the Gov- 
 ernment, accompanied as they have been by indications in 
 different modes of a concurrence of the general will of the 
 nation. 
 
 These observations were untrue so far as the judicial 
 branch of the Government was concerned, for the question 
 of the constitutionality of neither State nor national banks 
 had been before the Federal court of last resort ; nor is he 
 justified in construing the enforced necessity for Congress 
 and the States to authorize banks to issue notes, and the 
 acquiescence of the people therein because of the conditions 
 that unwise, selfish legislation had placed about them, as a 
 " concurrence of the general will of the nation."
 
 XV 
 The Second Bank of the United States 
 
 Encouraged by the expression of these sentiments from 
 a retiring chief executive, the hard-money faction pressed 
 Congress so vigorously to grant them a charter for a bank, 
 that the FederaHsts, with the assistance of enough Repub- 
 Hcans of the ilk of Mr. Madison, succeeded in giving them 
 one on April lo, i8r6. 
 
 The capital of $35,000,000 was composed of $21,000,000 
 of the funded interest-bearing debt of the United States and 
 $7,000,000 in coins, to be paid by the subscribers to the 
 stock ; the balance, $7,000,000, was taken by the Govern- 
 ment, and paid in coin. 
 
 The charter provided that no other bank should be estab- 
 lished by any future law of the United States for twenty 
 ye'krs, and it authorized the issue of notes in denominations 
 not less than five dollars as legal tenders in payment of all 
 taxes and dues to the United States. 
 
 The most distinguished feature of the charter is " that 
 in consideration of the exclusive privileges and benefits 
 conferred by this act upon the said bank, it shall pay to the 
 United States $1,500,000." 
 
 The obligation of the Government to provide for the 
 welfare of the people seems to have been fully resolved when 
 the Government was taken into copartnership with the 
 bankers, and paid $1,500,000, in consideration of its taking 
 $7,000,000 of the bank-stock, and agreeing to deposit all its 
 collections in the bank, and receive the notes of the bank in 
 payment of all dues and taxes. 
 
 155
 
 156 The Legal-Tender Problem 
 
 The act granting the charter to the second bank was 
 drafted to meet the decision that Chief Justice Marshall had 
 previously rendered in the case of the First Bank of the 
 United States vs. Deveaux, at the February Term, 1809. — 
 5 Cranch's R., page 61. 
 
 The facts in that case are as follows: In 1805, the State 
 of Georgia passed a law taxing the branch bank of the First 
 Bank of the United States at Savannah. The bank refu- 
 sing to pay the tax, the State officers entered the bank, and 
 seized two thousand dollars, the amount of the tax. 
 
 The bank thereupon sued the officers, Deveaux & Rob- 
 ertson, in the Circuit Court of the United States. The 
 defendants plead want of jurisdiction upon the part of that 
 court ; the plea was sustained, and the bank appealed the 
 case to the Supreme Court of the United States. 
 
 On March 15, 1809, that court decided that no right 
 was conferred on the bank by the act of incorporation to 
 sue in the Federal courts, notwithstanding the act read that 
 the bank had the right " to sue and be sued, plead and be 
 implead, answer and be answered, defend and be defended, 
 in courts of record, or any other place whatsoever." 
 
 Even at that early period, before the warfare between 
 the two banking systems had become serious to the national 
 bank, then in control of the management of the financial 
 policy of the Government, it is evident that the court was 
 determined to take care of the interest of the bank, and pro- 
 tect it from State legislation. 
 
 For though the court held that the bank as a corporation 
 could not sue for the recovery of the two thousand dollars, it 
 decided that the officers and stockholders, as citizens of 
 another State than the State of Georgia, could sue the de- 
 fendants, citizens of the State of Georgia, for the recovery 
 of the two thousand dollars seized.
 
 The Second Bank of the U. S. i57 
 
 It was held by the court, that though a corporation might 
 not be a "citizen" in the sense in zvhich the zvord "cit- 
 izen " had been used in the Constitution in giz'itig the cit- 
 izens of one State the right to sue the citizen of another 
 State in the Federal courts, it would look beyond the cor- 
 poration as a faculty, and determine from its members 
 whether it was composed of citizens of another State. 
 
 In doing this, inasmuch as it appeared that the citizens 
 of Pennsylvania owned the stock of the bank, the Court 
 decided that they had the right to bring the action against 
 the defendant in the Federal courts ; and since they had this 
 right as citizens of another State, it was not error to bring 
 the suit in the corporate name of the bank. 
 
 Chief Justice Marshall was fully aware that the framers 
 of the Constitution would not give Congress the power to 
 create a corporation ; that they would not let the word or 
 idea of a corporation appear in the Constitution for fear 
 it would be abused by chartering a bank ; that they depre- 
 cated the fact that the States had the power to create cor- 
 porations, and would permit no regulation over the exercise 
 of that power ; and that it was the intention of the framers 
 of the Constitution in using the word " citizen " or " cit- 
 izens," in describing those who had the right to sue in the 
 Federal courts, to exclude corporations. 
 
 And yet he availed himself of the first opportunity, in 
 his intention to take care of the interest of the money power, 
 to judicially legislate into the meaning of the word " cit- 
 izen " the construction that the wisdom of the framers of 
 the Constitution had excluded. 
 
 That Mr. Marshall was conscious of what he was doing, 
 but regardless of the consequences, so that he took care of 
 the Bank of the United States, is evident from the follow- 
 ing:—
 
 158 The Legal-Tender Problem 
 
 In 1809, it was deemed sufficient to reimburse the bank 
 for the money that had been forcibly collected by the State 
 officers ; therefore nothing was said about the right of the 
 State to impose a tax. This was virtually admitted, and it 
 was only a question of the method of procedure on the part 
 of the States to collect the tax. 
 
 It became different after 181 1, when the renewal of the 
 charter was refused by Congress, and the owners of the 
 institution experienced not only the effect of the influence 
 and teachings of Mr. Jefferson, but realized the possibility 
 of its destruction by such action as the assessment of a tax 
 and a decree of the Supreme Court of a State for its collec- 
 tion. The decision of the Supreme Court of the United 
 States, though it saved the owners of the bank from the loss 
 of the two thousand dollars, failed to realize the necessity of 
 holding that the States did not have the power to assess and 
 collect the tax. 
 
 In view of this decision, wherein the Court was forced 
 to hold that it did not have jurisdiction, and resorted to 
 the legal subterfuge of deciding that it would look beyond 
 the corporation as a faculty, and determine from its mem- 
 bers whether it was composed of citizens of another State, 
 the act of April 10, 1816, granting a charter to the Second 
 Bank of the United States, endeavors to confer jurisdiction 
 upon the Federal courts in the following : — 
 
 " To sue and be sued in all State courts having 
 
 competent jurisdiction, and in any Circuit Court of the 
 United States." 
 
 It will be seen in subsequent pages how material were 
 these words, " in any Circuit Court of the United States," 
 to the interest of the owners of the bank, notwithstanding 
 Chief Justice Marshall had said, " If the Constitution would 
 authorize Congress to give the courts of the Union juris-
 
 The Second Bank of the U. S. I59 
 
 diction in this case, in consequence of the character of the 
 members of the corporations, .then the judicial act ought 
 to be construed to give it." 
 
 It is evident, that if the Constitution did not intend to 
 give Congress the power to create a corporation from the 
 fear that it would be abused by the creation of a bank, it 
 did not intend " to authorize Congress to give the courts of 
 the Union jurisdiction in this case in consequence of the 
 character of the members of a corporation " that it had with- 
 held the power from Congress to create.
 
 XVI 
 
 The Fight Against the Treasury Notes 
 ■ Continued 
 
 The supremacy of the State banks from 1811 to 1816, 
 and the use of treasury notes during the war with England, 
 awakened the national-bank faction to an intense realization 
 of what the loss of the control of the Government was to 
 their interest ; and, as has been shown, they made herculean 
 efforts to overthrow both the State-bank and treasury-note 
 systems, and force their own once more upon the country. 
 They entertained a far more wholesome fear of the issuance 
 of treasury notes than they did of the issuance of notes by 
 State banks. 
 
 Under the influence of Mr. Jefferson, Congress was 
 being educated to a proper understanding of the subject 
 of the finances, and the right and duty of the Government 
 to furnish directly to the people, without the intervention 
 of a bank, State or national, a full supply of circulating 
 currency. 
 
 Congress had improved and progressed in the method 
 of the issuance of treasury notes until it had authorized 
 their issue in small denominations, non-interest-bearing, non- 
 redeemable in coin, legal tenders for all Government dues 
 and taxes, and only redeemable by surrender and exchange 
 for- interest-bearing obligations of the Government, if the 
 people preferred this course to that of using them as medium 
 of payment. 
 
 If they had been made a legal tender for the payment of 
 private debts, they would have proved to be an ideal issue ; 
 160
 
 Fight Against the Treasury Notes i6i 
 
 for it would not have been in the power of the hard-money 
 faction to have affected their use and consequently their 
 value as mediums of payment. It would have been impos- 
 sible for them to have secured the notes to be exchanged for 
 six- or seven-per-cent bonds, because as mediums of pay- 
 ment they would have been so much more convenient to 
 handle than gold and silver coin, and so much safer than 
 either national or State bank-notes, that, like the credits of 
 the Bank of Venice, they would have been too valuable in 
 use to exchange for a mere interest-bearing obligation. 
 
 The heresy that was dominant at that time, and is dom- 
 inant to-day, — that they must not be made a legal tender 
 for private debts, — possessed Congress; and Mr. Jeft'erson 
 unable to induce it to take that step, hoped, by giving them 
 the right to be exchanged for interest-bearing obligations, 
 to affix to them such a value as an investment that the hard- 
 money faction would not exercise their right to refuse them 
 in payment of private debts. 
 
 If this bait thrown to the avarice of the hard-money 
 faction had been accepted, and the treasury notes permitted 
 to show their efficiency as a circulating currency for a few 
 years, it would have been an experience and demonstration 
 that would have educated the people to an understanding 
 and appreciation of the correct manner of supplying them 
 with a full supply of mediums of payment. 
 
 Mr. Jefferson, in the hope that this experience would 
 demonstrate in practise the truth of his theories, was busy 
 teaching that the issue of all treasury notes should be " bot- 
 tomed on taxes ; " in other words, that they should be a pure 
 legal-tender circulating currency for the payment of all 
 debts, public and private, and redeemable only in the sense 
 that as solvents of debts, they are redeemed, so far as the 
 owner is concerned, every time they pay his debt, 
 u
 
 i62 The Legal-Tender Problem 
 
 The members of the hard-money faction were as con- 
 scious and keenly aHve in their far-seeing and intelHgent 
 inhuman avarice, as Mr. Jefferson was in his patriotism and 
 statesmanship, of his heroic efforts to make the Declaration 
 of Independence complete by freeing the people and the 
 Government from the tyranny and oppression of the hard- 
 money cormorants. 
 
 Notwithstanding they had been forced out of the na- 
 tional-bank business since 1811, did not desire to invest 
 their money in State banks, and were importuning Congress 
 to grant them a charter for another bank, they were too 
 intelligently greedy to accept the present offer of a safe inter- 
 est-bearing Government investment, and allow Mr. Jeffer- 
 son's theories of finance to take root, and find lodgment in 
 the practises of the people. 
 
 Mr. Jefferson exerted his influence at a time when he 
 had the right to suppose that he had the presidential 
 power with him, for Mr. Madison was in harmonious 
 accord with his efforts until sometime after January 
 30, 18 1 5, the date he vetoed the act granting a charter 
 to the Second Bank of the United States; but a great 
 change seems to have come over him between that time 
 and December 5, 181 5, when, in his seventh annual mes- 
 sage, he penned the following : " The probable operation of 
 a national bank will merit consideration." On April 10, 
 1816, when he approved the bill granting the charter to the 
 bank, his surrender was complete. 
 
 In his eighth annual message, December 3, 1816, page 
 578, he appears as the tool of the money power, as the fol- 
 lowing discloses : — 
 
 " Upon this general view of the subject it is obvious 
 that there is only wanting to the fiscal prosperity of the 
 Government the restoration of a uniform medium of ex-
 
 Fight Against the Treasury Notes 163 
 
 change. The resources and the faith of the nation, displayed 
 in the system which Congress has estabhshed, insures respect 
 and confidence both at home and abroad. The local accu- 
 mulations of the revenue have already enabled the treasury to 
 meet the engagements in the local currency of most of the 
 States, and it is expected that the same cause will produce 
 the same effect throughout the Union ; but for the com- 
 munity at large, as well as for the purpose of the treasury, 
 it is essential that the nation should possess a currency of 
 equal value, credit, and use wherever it may circulate. The 
 Constitution has intrusted Congress exclusively with the 
 power of creating and regulating a currency of that de- 
 scription, and the measures which were taken during the 
 last session in execution of the power, give every promise 
 of success. The bank of the United States has been organ- 
 ized under auspices most favorable, and can not fail to be 
 an important auxiliary to those measures." 
 
 After the grant by Congress to a national bank of " the 
 power exclusively entrusted to it by the Constitution," and 
 the invitation of the president to force on the country a 
 uniform medium of exchange for the interest of the com- 
 munity at large, as well as for the purpose of the treasury, 
 it should not be cause of surprise that the bank demanded 
 (inasmuch as it had paid the Government $1,500,000 for 
 the monopoly of issuing currency for the next twenty years) 
 that the treasury notes outstanding should be deprived of 
 the legal-tender quality, and retired from circulation. 
 
 In response to this demand. Congress passed, and the 
 president approved, March, 181 7, an act to repeal all laws 
 authorizing the issue of treasury notes, and provided that all 
 treasury notes that should become the property of the Gov- 
 ernment should be canceled, not reissued. Though the 
 treasury notes were not a legal tender for the payment of
 
 i64 The Legal-Tender Problem 
 
 private debts, and were being discriminated against by the 
 hard-money faction and the Government, the people found 
 them so efficient as mediums of payment that they con- 
 tinued to use them for that purpose. 
 
 It appears that a ruhng was made that they would not 
 be received anywhere but at the treasury, and in 1818 a 
 firm in Boston tendered treasury notes in payment of duties 
 on imports. The coUector of the port refused to receive 
 them, notwithstanding they were a legal tender in the pay- 
 ment of all dues and taxes to the United States. 
 
 The Government thereupon was forced to bring suit for 
 the duties ; tender of the treasury notes, with accrued inter- 
 est, was plead; and Judge Story (23 Federal Cases, page 
 1 124) decided that the treasury notes with the accrued inter- 
 est w^ere legal tenders for everything for which the law 
 makes them receivable. The national-bank faction was 
 afraid to appeal from this decision at that time, and the 
 notes continued to be used by the people as mediums of pay- 
 ment.
 
 XVII 
 
 The State Banks Attempt to Destroy the Bank of 
 
 the United States 
 
 The State-bank faction, though defeated and deprived 
 of the control of the Government, did not despair, but was 
 preparing for a fight to the death of one or the other, if 
 not both, of the banking systems, A branch of the national 
 bank had been established at Baltimore, Aid., and in 1818 
 the Legislature of that State passed a law to tax all banks 
 or branches thereof in the State not chartered by the Legis- 
 lature. The Legislature of Maryland was endeavoring to 
 do in behalf of the State bank what Congress has since done 
 for the national bank against the State bank — tax it out of 
 existence. If this could be done by one State, it could be 
 done by all ; and the result would have been that the national 
 bank would have been taxed out of one State after another, 
 as the State banks got control, until it would have been 
 confined to such a limited territory as to greatly impair, if 
 not destroy, its efficiency as a money-making scheme for its 
 promoters. 
 
 The branch bank refused to pay the tax, and one John 
 James, for himself and the State of Maryland, sued McCul- 
 lougli, the cashier. Judgment was given by the State courts 
 against McCullough for the payment of the tax, and tlie 
 case was appealed to the Supreme Court of_ the United 
 States. It was evident that the Legislature of Marvland 
 passed the act taxing the branch bank solely in the interest 
 of the State banks, and that it was the intention to drive it 
 out of the State. 
 
 165
 
 i66 The Le^al-Tender Problem 
 
 The warfare at this time between the two bank factions 
 for control in the affairs of the Government is one of the 
 most crucial periods in the history of the country. If the 
 State-bank faction could succeed in getting the Supreme 
 Court to decide the issues raised, according to correct rea- 
 son, sound logic, and in the interests of the people, the false 
 theory of the national-bank system would be forever elim- 
 inated from the policies of the country. If this had been 
 done, the national-bank faction could, with equal assur- 
 ance of success, have challenged the equally false State- 
 bank system before the bar of the Supreme Court, and upon 
 the application by that tribunal of the same correct reason 
 and honest logic to the issues raised, have eliminated it for- 
 ever from the policies of the country. With both systems 
 eliminated, the Government would have been forced to 
 supply additional currency, in order that it might relieve 
 the people from the evils of a scarcity of money. 
 
 In the consideration of this momentous question the 
 wisdom of Congress could not have overlooked the fact that 
 on the occasion of the war with England, the two systems 
 (one in full operation, and in charge of the Government; 
 the other in operation, but undergoing liquidation) com- 
 bined, assisting gold and silver, were not equal to the emer- 
 gency, and had to summon treasury notes to their aid. 
 
 Under such circumstances the enforced consideration 
 by Congress of treasury notes, — their efficiency as mediums 
 of payments, their continuous use and retention by the peo- 
 ple even against legislative action to retire them, — would 
 have developed the conclusion that the Constitution, in 
 withholding from Congress the power " to emit bills on the 
 credit of the United States," attempted to deprive the Gov- 
 ernment of its most essential act of sovereignty. It would 
 have discovered that all the impositions practised upon the
 
 The IVar of the Banks 167 
 
 people, — depriving them of their i)roperty and retarding 
 their prosperity, — were caused by the officials of the Gov- 
 ernment turning over, first to the national-bank faction 
 and then the State-bank faction, the purely governmental 
 function that should have been exercised by Congress ; viz., 
 that of furnishing a full supply of circulating currency 
 direct to the people. 
 
 One consideration alone would have shown conclusively 
 that the issuance of treasury notes was pure and scientific, 
 both in theory and practise, and that is that in time of war, 
 gold, silver, and Ijank-notes are failures, and treasury notes 
 are invariably resorted tn and relied on. 
 
 An examination of the past history of the country, and 
 especially the history of the framing of the Constitution with 
 a view to perfect the financial system, would have shown 
 that Congress was a body of delegated and not implied 
 powers ; and though the assertion and practise of the doc- 
 trine of implied power would prove necessary and be jus- 
 tified at times, it could never be constitutionally exercised 
 m favor of the power that had been intentionally withheld 
 from Congress against the exercise of the sovereign power 
 that an erroneous attempt had been made to withhold. 
 
 As has heretofore been shown, the power to grant a 
 charter of incorporation was in two instances withheld from 
 Congress, and while it is admitted that an endeavor was 
 made to withhold the sovereign power to emit bills of credit 
 also, it is not understood how Congress could charter a 
 bank and give the bank the right to emit bills of credit, and 
 at the same time deny itself the right to exercise its sov- 
 ereign power of issuing treasury notes upon the ground 
 that it was unconstitutional. 
 
 It would have been ascertained that the thing which the 
 framers of the Constitution most feared from the proposi-
 
 1 68 The Le^al-Tetider Problem 
 
 tion to give Congress the power to grant charters of incor- 
 poration — the creation of a bank — was done in 179!, and 
 that this institution was given the right which had' been 
 withheld from Congress itself. 
 
 It would have been realized that although the owners 
 of the bank turned their credit into money, and loaned it 
 at high rates of interest, it had brought no adequate .relief 
 to the people, nor given profitable prices to products ; but 
 on the contrary, the want of additional currency was such 
 that they had been enabled to rob the people of their 
 property. 
 
 It would have been realized that this condition of affairs 
 forced and justified the States in coming to the relief of the 
 people by authorizing their banks to emit bills of credit. 
 
 It would have been realized that these unconstitutional 
 decisions caused such oppression of the people that Mr. Jef- 
 ferson endeavored to secure relief for them by organizing 
 the Republican party, and with the assistance of the State- 
 bank faction, turn the Bank of the United States faction out 
 of power. 
 
 It would have been realized that the one faction, under 
 the name of Federalist, and under the leadership of Hamil- 
 ton and Chief Justice Marshall, stood for that form of gov- 
 ernment which was best calculated to amass large fortunes 
 for the privileged few, and enhance wealth by corporate 
 activity and governmental aid. 
 
 It would have been seen that this corporate activity 
 and governmental aid is utilized in their interest by pro- 
 tective tariff laws, by the granting of subsidies and fran- 
 chises, by turning over to the favored few the monopoly 
 of supplying the circulating currency through the agency 
 of banks of issue, and by the enactment of any and all laws 
 necessary to nourish and foster these interests, even to the
 
 The JVar of the Banks 169 
 
 extent of invading all personal rights, and, if it should be- 
 come necessary to protect and secure the possession and 
 enjoyment of the ill-gotten property and franchise rights, 
 distort the republic into a strong contralized govcrnnicnt. 
 
 It would have been realized that the other faction, under 
 the name of Republican, and under the leadership of Mr. 
 Jefferson, stood for that form of government which was 
 best calculated to preserve and protect the individual in his 
 person, right of free speech, freedom of conscience, enjoy- 
 ment of the products of his labor, and pursuit of ha])piness, 
 from the avaricious aggressions of the other faction ; and 
 would also necessarily, if incidentally, take care of his prop- 
 erty, and secure to him and his posterity the enjoyment of 
 the same. 
 
 It would have been discovered that the governmental 
 means by which these ends are best attained are tariff" laws 
 for the purpose of raising revenues, with- incidental protec- 
 tion only ; no subsidies whatever, but the most economical 
 expenditure of the people's money ; either the sale of the 
 franchises for a limited period, or if they were given away; 
 that it should be only for the life of the spendthrift gen- 
 eration, so that subsequent people might have the power to 
 protect themselves and their interest, as changed and chang- 
 ing conditions might make necessary, and by the exercise 
 of sovereign ])ower issue all money direct to the people 
 without the intervention of banks of issue, making it a full 
 legal tender, and redeemable only in the sense that can be 
 implied from Mr. Jeff'erson's phrase, "bottomed on taxes." 
 
 The conditions were as hereinbefore set forth when the 
 State-bank faction in Maryland, by the imposition of a tax 
 upon the national bank, forced the Bank of the I'nited 
 States to appeal to the Supreme Court of the United States 
 for the preservation of its existence.
 
 XVIII 
 
 The Trustees of Dartmouth College vs. IVoodard, 
 4 Wheaton (S. C. Rep.), §18 
 
 In the case of McCullo'ugh vs. The State of Maryland, 
 previously referred to, it was contended in behalf of the 
 State that Congress had no power to incorporate the Bank 
 of the United States. 
 
 Assuming that Congress had this power, it was con- 
 tended in behalf of the bank that the State may not tax 
 the branch bank without violating the Constitution. 
 
 The Supreme Court of the United States would be em- 
 barrassed in its desire to aid the money power, even if it 
 held that Congress had the power to incorporate a bank, so 
 long as the case of the Bank of the United States against 
 Deveaux stood unreversed; for in that case the State of 
 Georgia had assessed and collected a tax from a branch of 
 the United States Bank, and the Supreme Court, in an 
 opinion delivered by Air. Chief Justice Marshall, refused to 
 give the bank, as a corporation, relief. 
 
 It was therefore necessary to get this case out of the 
 way, or in some manner circumvent the principles admitted 
 in its decision, before it would do to permit the case of 
 McCullough vs. The State of Maryland to come to a deci- 
 sion, if it was the intention to aid the Bank of the United 
 
 States. 
 
 That it was the intention of the Supreme Court, and 
 those who controlled its decisions at that time in such cases 
 as they desired, to aid the bank, and protect it in the future 
 170
 
 Dartmouth College Case 
 
 171 
 
 from State Legislatures, is evident from a decision of the 
 court on February 2, 18 19, a little over a month prior to its 
 decision in the case of McCullough vs. the State of Mary- 
 land. The case decided on February 2, 18 19, was the cele- 
 brated case of The Trustees of Dartmouth College vs. 
 Woodard. The facts in that case are as follows : — 
 
 In 1769 the king of Great Britain granted a charter to 
 Dartmouth College, in the Province of Xew Hampshire. 
 Under this charter the college was governed by trustees 
 appointed in accordance with its provisions until 1816. The 
 college was originally designed as a charity school for the 
 education of Indians. The charter was an elaborate docu- 
 ment, and pointed out the powers conferred and the man- 
 ner of their exercise wath great minuteness of detail. It 
 fixed the number of trustees and defined their powers and 
 duties, and declared Dr. Wheelock to be the founder and 
 president for life, with power to appoint his successor. Dr. 
 Wheelock died in 1779, and appointed as his successor 
 his son, John Wheelock. After the war of the Revolution, 
 dissensions arose among the trustees, which finally cul- 
 minated in the election of a board hostile to the interests of 
 Dr. John Wheelock. Dr. John W^ieelock, who had been 
 removed from the presidency of the college by tb.e old trus- 
 tees, and declared unfit to hold the ofiice, procured in 1816 
 the passage of acts by the Legislature of the State of New 
 Hampshire, by which the name of Dartmouth College was 
 changed to Dartmouth University, the number of trustees 
 was increased, a board of overseers was appointed, and other 
 radical changes made in its mode of government ; and for 
 the first time in its history the officers were required to take 
 an oath to support the Constitution of the United States 
 and of the State of New Hampshire. 
 
 The real object of the law was to place Dr. Wheelock
 
 1/2 The Legal-Tender Proble 
 
 m 
 
 and his friends in control of the college. The new board 
 obtained control of the property, the books, and the records 
 of college. They promptly elected officers in their interest. 
 The old board determined to test the validity of this law, 
 and suits were brought against William H. Woodard, the 
 treasurer of the new board, for the conversion of the books 
 and records of the college, the common seal of the cor- 
 poration, and its leases and accounts. 
 
 When Dr. John Wheelock was turned out of the office of 
 president, he very naturally supposed that the Legislature 
 of the State of New Hampshire succeeded the king and Par- 
 liament of England in the control of the corporation. His 
 conduct indicated that he did not deem it proper to apply 
 to the courts to be reinstated until he had secured legislative 
 relief, for it was not reasonable to suppose that one set of 
 Americans would be turned out of the official management 
 of the affairs of the corporation to secure to another the 
 unusual personal privileges granted in the charter of King 
 George. 
 
 After the Legislature passed the acts mentioned, the 
 contest for the control of the college involved no important 
 principle, certainly no principle of property rights ; but as 
 soon as it became necessary in the case of McCuUough 
 against the State of Maryland to get around the admission 
 in the case of the Bank of the United States vs. Deveaux, 
 this case attracted the attention of the financial and political 
 factions, and was made the chief issue between the Fed- 
 eralists, under the leadership of Hamilton and Chief Justice 
 Marshall, and the Republicans, under the leadership of 
 Thomas Jefiferson. 
 
 Before general attention was attracted to the fact that 
 the Legislature of New Hampshire had passed a law vary- 
 ing and changing the terms of a charter, Dr. Wheelock
 
 Dartmouth College Case i73 
 
 consulted and retained Daniel Webster, paying him a fee to 
 uphold the right of New Hampshire to exercise control over 
 the institution ; but just as soon as the issue -was made 
 national by the United States Bank faction's manifest in- 
 tention to utilize this case to relieve the situation in the 
 AlcCullough case of the embarrassment caused by the 
 decision in the Deveaux case, Mr. Webster was influenced 
 to withdraw his services and devote them to the interests of 
 the bank. 
 
 In the State court the question principally discussed was 
 whether the law making the changes in the charter was war- 
 ranted by the constitution of New Hampshire. Its conflict 
 with the United States Constitution was not presented as 
 being a strong point in the case. The case was ably argued 
 before the State court, and its decision was unanimous in 
 support of the validity of the acts of the Legislature. 
 
 The syllabus of the opinion, as prepared by the chief 
 justice of the Supreme Court of New Hampshire (New 
 Hampshire Reports, page iii), is as follows: "Third. The 
 charter of the Jcini^ creating the corporation of Dartmouth 
 College, is not a contract within the meaning of that clause 
 of the Constitution of the United States zvhich prohibits 
 States impairing the obligations of contracts." 
 
 " Mr. Webster in a letter to his opponent, Judge Mason, 
 said of it : ' The truth is, the New Hampshire opinion is 
 .able, ingenious, and^plausiblc.' And Chancellor Kent, after 
 carefully examining the opinion, commended it in the high- 
 est terms, and concurred in all its conclusions." 
 
 That the decision was correct, and the reasons given 
 were those of a wise judge, is only too evident in the light 
 of the experience, practises, and abuses that have grown 
 up under its reversal, and the announcement of a contrary 
 doctrine.
 
 174 The Legal-Tender Problem 
 
 The opinion of the New Hampshire Court was as fol- 
 lows : " Contract, as used in the Constitution, must be 
 taken in its ordinary and common acceptation, as an actual 
 agreement between parties, by which something is granted 
 or stipulated immediately for the benefit of the actual 
 parties ; " but that it was never intended to regulate or 
 limit the power of the States in relation to their public 
 servants. 
 
 The Court, in conclusion, says : " If the charter of a pub- 
 lic institution like that of Dartmouth College is to be con- 
 strued as a contract within the intent of the Constitution 
 of the United States, it will, in our opinion, be difficult to 
 say what powers, in relation to their public institutions, if 
 any, are left to the States. It is a construction, in our view, 
 repugnant to the very principles of all government, because 
 it places all the public institutions of all the States beyond 
 legislative control ; for it is clear that Congress possesses 
 no power on the subject." The Court adds: "We are, 
 therefore, clearly of the opinion that the charter of Dart- 
 mouth College is not a contract within the meaning of this 
 clause of the Constitution of the United States." 
 
 The case was taken to the Supreme Court of the United 
 States by writ of error, where its entire charge was en- 
 trusted to Mr. Webster; and its decision was left to the 
 influence of Chief Justice Marshall, who, as one of the 
 leaders of the Federalist party, was expected to take care 
 of the interests of the money power. 
 
 The case of The Trustees of Dartmouth College vs. 
 Woodard lost all of its original personality and individual 
 interest in the Supreme Court, became the most prominent 
 political issue of the day, and was a burning question be- 
 tween the Federalist and Republican parties where Marshall 
 and Jefferson took opposite sides.
 
 Dartmouth College Case i75 
 
 Mr, Webster was retained to advance reasons that would 
 justify the reversal of the decision of the Supreme Court of 
 New Hampshire; and. if necessary, supplement his tower- 
 ing capacity with all his adroitness in fomenting- the inten- 
 sity of the hostility between Chief Justice Marshall and Mr. 
 Jefiferson, in his endeavor to secure a decision that would 
 save the Bank of the United States, and all other corpora- 
 tions, from future interference by State Legislatures. 
 
 In his argument Mr. Webster laid down the broad prin- 
 ciple that " the Legislature of New Hampshire would not 
 have been competent to pass the acts in question, and to 
 make them binding on the plaintiff without their assent, 
 even if there had been, in the constitution of New Hamp- 
 shire, or of the United States, no special restriction on their 
 part ; " because," as he claimed. " these acts are not the 
 exercise of a power properly legislative." 
 
 He argued that " their object and effect is to take away 
 from one rights, property, and franchises, and to grant them 
 to another, and this is not the exercise of legislative power. 
 ... To justify the taking away of vested rights there must 
 be a forfeiture, to adjudge upon and declare which is the 
 proper province of the judiciary;" that "attainder and 
 confiscation are acts of sovereign power, not acts of legisla- 
 tion ; " that " the British Parliament, among other unlimited 
 powers, claims that of altering and vacating charters, not 
 as an act of ordinary legislation, but of uncontrolled author- 
 ity ; " that " this omnipotent sovereign power exercised by 
 Parliament does not belong to any Legislature of the United 
 State§ ; " that " the Legislature of New Hampshire has 
 the same power over this charter which belonged to the 
 king who granted it. and no more, and that the king can 
 not take away from them any rights that had been merely 
 subsisting in them under old charters or prescriptive uses ; "
 
 1/6 The Legal-Tender Problem 
 
 that " it can not be pretended that the Legislature, as suc- 
 cessor to the king in this part of his prerogative, has any 
 power to revoke, vacate, or alter this charter. 
 
 " If, therefore, the Legislature has not this power by any 
 specific grant contained in the Constitution, nor as included 
 in its ordinary legislative powers, nor by reason of its suc- 
 cession to the prerogatives of the Crown in this^particular, 
 on what ground would the authority to pass those acts rest, 
 even if there were no special prohibitory clause in the Con- 
 stitution and the bill of rights ? " 
 
 Mr. Webster sets up a right and power in Parliament 
 to alter, amend, or vacate charters. He denies that the Leg- 
 islatures succeeded to this power; and it is evident that 
 Congress did not, for it was not even given the power to 
 grant charters of incorporation. 
 
 It appears from the reasoning of Mr. Webster that this 
 power of Parliament did not go to the Legislatures of the 
 States. The logic of the principles upon which the Consti- 
 tution was framed is that it did not go to Congress ; and 
 this is borne out by the action of the Fifty-sixth Congress 
 calling for an amendment to the Constitution to confer said 
 power on Congress. The conviction is therefore forced 
 upon one that Mr. Webster's implied argument that this 
 power of Parliament remained in the charter of Dartmouth 
 College, was judicially legislated into the law of the country 
 under the specious plea that " a charter is a contract," and 
 protected by that clause of the Constitution that forbids any 
 State to pass a law impairing the obligations of a contract. 
 
 A careful reading of the debates in the Constitutional 
 Convention shows that some of the framers of that instru- 
 ment knew the effect that corporate activity and greed would 
 have upon the perpetuity of the form of government they 
 were striving to establish, and withheld from Congress the
 
 Dartmouth College Case ^77 
 
 power to grant a charter of incorporation for any purpose, 
 fearing that it would be abused ; and they regretted they 
 could not exercise some control, as a safeguard, over the 
 unlimited power which the States retained to grant charters. 
 It looks like the irony of fate that this fear which they 
 guarded against so well, and which was from necessity left 
 to the uncertainty of the action of the State Legislatures, 
 should have been turned into a more formidable machinery 
 for the oppression of the people and the overthrow of the 
 form of government, by the judicial legislation of the Su- 
 preme Court of the United States, under the influence of 
 Chief Justice Marshall, in his hatred of Thomas Jefferson 
 and his amenability to the money power. 
 
 Mr. Webster, having by implication argued that this 
 power of Parliament to alter, amend, or vacate charters 
 was not possessed by the Legislature of New Hampshire, 
 next addressed his argument to the assumption of the Leg- 
 islature of New Hampshire, which was supported by the 
 Supreme Court of that State, that it did belong to the 
 Legislature. 
 
 He claimed that the action of the Legislature was in 
 violation of the tenth section of the first article of the Con- 
 stitution of the United States, " that no State shall pass . . . 
 a law impairing the obligation of contracts." 
 
 When he comes to argue that a charter is a contract, 
 Mr. Webster, in order that he may get the benefit of the 
 constitutional inhibition upon the States, relies more upon 
 the weight of his assertions than upon correctness of state- 
 ment and application of citations. He leads up to the argu- 
 ment WMth a perversion of an accepted condition of affairs, 
 when he says that " the sober people of America are weary 
 of the fluctuating policy which has directed the puDlic 
 councils. . . . They have seen with regret, and with indig- 
 
 12
 
 ly^ The Legal-Tender Problem 
 
 nation," he says, "' that sudden changes and legislative inter- 
 ference in cases affecting personal rights become jobs in 
 the hands of enterprising and influential speculators, and 
 snares to the most industrious and less-informed part of the 
 community. . . . They have seen, too, that one legislative 
 interference is but a link of a long chain of repetitions ; 
 every subsequent interference being naturally produced by 
 the effects of the preceding." 
 
 All this was feared by the framers of the Constitution, 
 is inherent in every form of government, and was one of 
 the reasons why they refused to give Congress the power 
 to grant charters of incorporation to aid in the iniquitous 
 tendency. To exercise restraint over the Legislatures, and 
 provide against such dishonest action, was one of the most 
 serious problems before that body. The problem was solved, 
 and solved well, by the clause that no State should pass a 
 law impairing the obligations of contracts. 
 
 It was never supposed that the judiciary, upon whom 
 devolved the duty of protecting the citizens from such impo- 
 sitions, would, at the dictation of the money power, inflict a 
 far more serious injury upon the people in deciding that a 
 charter was a contract, and in the sphere of its operations, 
 uncontrollable by either the States or Congress. That this 
 was done, because it was necessary to protect an unconsti- 
 tutional bank from the action of State Legislatures, was the 
 judicial crime of the century. 
 
 Yet Mr. Webster, in his desire to secure this decision, 
 cites the following legal principles : " Upon a change of 
 government, it may be admitted that such exclusive privi- 
 leges attached to a private corporation as are inconsistent 
 with the new government, may be abolished. . . . But 
 that the Legislature can repeal statutes creating private cor- 
 porations, or confirming to them property already acquired
 
 Dartmouth College Case i79 
 
 under faith of previous laws, and by such repeal vest the 
 property of such corporations exclusively in the State, or 
 dispose of the same to such purposes as they please, without 
 the consent or default of the corporation, we are not pre- 
 pared to admit ; and we think ourselves standing on the 
 principles of natural laws of every free Government, upon 
 the spirit and titles of the Constitution of the United States, 
 and upon the decisions of the most respectable tribunals, 
 in resisting such a doctrine." 
 
 No one could object to such an enunciation of the law, 
 for it savors of common honesty, common fairness, and 
 common sense ; and the argument only shows that it was not 
 necessary to declare a charter a contract to secure citizens 
 against the hostile action of the Legislature, for they had 
 full protection, under the law, from such imposition. 
 
 If Mr. Webster had been satisfied with that enunciation, 
 no harm would have been done ; but he would not have suc- 
 ceeded in getting around the principles admitted in the 
 Deveaux case, that a Legislature had a right to tax a branch 
 of the Bank of the United States to raise funds to help bear 
 the expenses of the State. To succeed in this it was neces- 
 sary to carry the Supreme Court to the extent of holding 
 that a charter was a contract ; and if the bank preserved its 
 existence, no thought was given to the harm that might be 
 brought upon the country and the perpetuity of the form 
 of government. 
 
 In the light of the years that have passed, and the expe- 
 rience of the country since under the decision, the follow- 
 ing reflects no credit on Mr. Webster as a statesman : — 
 
 " Much has heretofore been said of the necessity of 
 admitting such a power in the Legislature as has been 
 assumed in this State. J\Iany of possible evils have been 
 imagined, which might otherwise be without remedv.
 
 i8o The Le^al-Tender Problem 
 
 Abuses, it is contended, might arise in the management of 
 such institutions which the ordinary courts of law would 
 be unable to correct. But this is only another instance of 
 that habit of supposing extreme cases, and then of reasoning 
 from them, which is the constant refuge of those who are 
 obliged to defend a cause which upon its merits is indefen- 
 sible. The apprehension of danger is groundless, and there- 
 fore the whole argument falls. Hitherto, neither in our 
 country or elsewhere, have such cases of necessity occurred. 
 The judicial establishments of the States are presumed to 
 he competent to prevent abuses and violations of trusts, in 
 cases of this kind as zvcU as in all others." 
 
 The following description is given by Mr. Goodrich of 
 the close of Mr. Webster's argument : — 
 
 " Sir, you may destroy this little institution ; it is weak ; 
 it is in your hands. I know it is one of the lesser lights in 
 the literary horizon of our country. You may put it out. 
 But if you do so you must carry through your work. You 
 must extinguish one after another all those greater lights 
 of science which for more than a century have thrown their 
 radiance over our land. It is, sir, as I have said, a small 
 college ; and yet there are those who love it. Here his feel- 
 ings mastered him ; his eyes filled with tears, his lips quiv- 
 ered, his voice was choked. In broken words of tenderness 
 he spoke of his attachment to the college, and his tone 
 seemed filled with memories of home and boyhood, of early 
 affections and youthful privations and struggles. 
 
 " The courtroom," says Mr. Goodrich, " during these two 
 or three minutes presented an extraordinary spectacle. 
 Chief Justice Marshall, with his tall and gaunt figure bent 
 over as if to catch the slightest whisper, the deep furrows 
 of his cheeks expanded with emotion, and with eyes suffused 
 with tears; Mr. Justice Washington at his side, with his
 
 Dtirt month College Case i8i 
 
 small emaciated frame, and countenance more like marble 
 than I ever saw on any human being, leaning forward with 
 eager, troubled look ; and the remainder of the court at the 
 two extremities pressing, as it were, to a single point, while 
 the audience below were wrapping themselves around in 
 closer folds beneath the bench, to catch each look and every 
 movement of the speaker's face." 
 
 If this is a correct description of tlje closing moments 
 of Mr. Webster's argument, and its effect upon the court, it 
 only shows the hypocritical acting of the speaker, and the 
 judicial mummery of the court, for it is evident that the 
 interest of the occasion grew out of its bearing upon the 
 Bank of the United States, and not upon Dartmouth Col- 
 lege. Whatever the decision, the college suffered nothing 
 more than a change of officers and name. 
 
 The dramatics of the speaker were not successful in 
 enabling the impressionables on the bench to secure a 
 majority ; and though the case was argued in March, 1818, 
 it' was not decided until February 2, 1819. "Justices INIar- 
 shall and Washington were for deciding that a charter was 
 a contract ; Justice Story was inclined to an opinion favor- 
 able to the power of the State Legislature to pass the laws, 
 but was still open to conviction ; Justices Johnson and Liv- 
 ingston were wholly undecided; and Justices Ford and 
 Duval were against the contract theory." Thus the matter 
 stood, Chief Justice Marshall the eager champion of the 
 theory that a charter was a contract. 
 
 " The announcement was made by the chief justice that 
 in consequence of the disagreement of the judges no opin- 
 ion could be given, and the case must be continued until the 
 next term of the court." This left the matter open for fur- 
 ther argument. 
 
 " The new board had the opinion of Chief Justice Rich-
 
 i82 The Legal-Tender Problem 
 
 ardson, of the Supreme Court of New Hampshire, printed 
 and widely circulated. In reply to this, Mr. Webster pre- 
 pared an elaborate, printed argument, partly in the nature 
 of a brief and partly as a campaign document, which was 
 placed only in the hands of a part of the judges, but was 
 carefully kept from those who were known to be opposed 
 to the theory that a charter was a contract." 
 
 The outside argument of the bank faction was the most 
 persuasive. Even Chancellor Kent, upon reading Mr. Web- 
 ster's argument, admitted that it put " a new complexion 
 on the case ; " though he had previously approved of the 
 opinion of the chief justice of New Hampshire. Justices 
 Johnson and Livingston asked Chancellor Kent for his opin- 
 ion, and for some reason he saw proper to withdraw his ap- 
 proval of the opinion of Judge Richardson. 
 
 Chief Justice Marshall, in delivering the opinion of the 
 court, stated that the points for consideration were : First, 
 Is this contract prohibited by the Constitution of the United 
 States? Second, Is it impaired by the acts under which 
 defendant holds? 
 
 He assumed that a charter was a contract, and decided 
 the case in that assumption ; but he realized that he must 
 limit the meaning of the word " contract " as used in the 
 Constitution " to contracts respecting property," as he stated, 
 " as distinguished from the meaning of the word ' contract ' 
 in its broad sense of comprehending the political relations 
 between the Government and the citizens ; " viz., " offices 
 held in a State for State purposes ; laws concerning civil 
 institutions, which must change with circumstances, and be 
 modified by ordinary legislation, which deeply concern the 
 public, and which, to preserve good government, the public 
 judgment must control; and marriage contracts. . . . Taken 
 in the broad and unlimited sense, the. clause would be an
 
 Dartmouth College Case 183 
 
 unprofitable and vexatious interference with the internal 
 concerns of the State, and would unnecessarily and unwisely 
 embarrass its legislation, and render immutable those civil 
 institutions which are established for purposes of internal 
 government, and which, to subserve those purposes, ought 
 to vary with varying circumstances." 
 
 It is unaccountable that he could see so clearly and ex- 
 press so lucidly the danger of accepting the meaning of the 
 word " contract " in its broad sense, and ignore the equally 
 evident evils that would be visited upon the country in ac- 
 cepting the meaning of the word in the sense he gave it, 
 except upon the hypothesis that he was determined to take 
 care of the bank at any and all hazards. 
 
 The plea of ignorance of the evil effects of the decision 
 which are so sorely afflicting the prosperity of the people, 
 can not be presented in his behalf ; for Judge Richardson in 
 his opinion called attention to the possible evils that would 
 naturally flow from holding that corporations retained in 
 their charters a sovereignty uncontrolled and uncontrollable 
 by either the Legislatures of the State or by Congress, and 
 in the argument these fears were presented so forcibly that 
 Mr. Webster felt compelled to contemptuously refer to them 
 as imaginary and mere pretense. 
 
 The only extenuating feature of the decision was the 
 inadvertent clause of Justice Story that " if the Legislatures 
 meant to claim such an authority [viz., to alter, amend, or 
 repeal charters] it must be reserved in the grant; " and even 
 this was left out of the chief justice's opinion. 
 
 The result has been that the only suggestion which was 
 of the slightest benefit was so well hidden in the uninterest- 
 ing verbosity and tiresome recitations of the opinion, that 
 the States did not for a long time see the necessity for such 
 reservation ; and their territory is filled with corporations
 
 184 The Legal -Tender Problem 
 
 which defy their power, and make fun of the futile attempts 
 of their Legislatures to exercise even the power of taxation 
 over them, except as they please to submit to the same. 
 
 The failure of the States to reserve the right to alter, 
 amend, or repeal, was neglected for such a time that the 
 courts, influenced by the decision in the Dartmouth College 
 case, and fear of corporate power, are judicially legislating 
 from the States such rights as it was originally intended 
 should be retained by the reservation clause in charters that 
 have been granted in late years. 
 
 The chief justice's justification for limiting the mean- 
 ing of the word " contract " to property rights is, " that as 
 the framers of the Constitution could never have intended 
 to insert in that instrument a provision so unnecessary, so 
 mischievous, and so repugnant to its general spirit, the term 
 contract must be understood in its limited sense." 
 
 The wrong that has been inflicted by said opinion justifies 
 the statement that the chief justice virtually said, " In my 
 determination to take care of the bank of the property- 
 rights faction, I will limit the meaning of the word ' con- 
 tract ' to the minimum of provisions unnecessary, mischiev- 
 ous, and repugnant to the general spirit of the Constitution. 
 
 He adds further : " It must be understood as intended 
 to- guard against a power of at least doubtful utility, the 
 abuse of which has been extensively felt ; and to restrain 
 the Legislature in future from violating the right to prop- 
 erty," meaning thereby the taxation of the Bank of the 
 United States ; for in the case under consideration, it was 
 only the supervision and control of the eleemosynary insti- 
 tution that the legislative act affected, not the divesting or 
 altering in the least of any of its property rights." 
 
 "Anterior to the form of the Constitution," he said, " the 
 course of legislation had prevailed in many, if not all States,
 
 Dartmouth College Case i^5 
 
 which weakened the confidence of man in man, and embar- 
 rassed all transactions between individuals, by dispensing 
 with the faithful performance of engagements. To correct 
 this mischief, by restraining the power which produced it, 
 the State Legislatures were forbidden ' to pass any law- 
 impairing the obligations of contracts,' that is, of contracts 
 respecting property under which some individual could claim 
 a right to something beneficial to himself; and that since 
 the clause in the Constitution must receive some limitation, 
 it may be confined, and ought to be confined, to cases of 
 this description, to cases within the mischief it is intended 
 to remedy." 
 
 It should have been known to Chief Justice Marshall 
 that this power of injustice is inherent in all forms of gov- 
 ernment, and that its exercise is restricted only by the 
 morality of a people and a nation, as expressed in the deci- 
 sions of the judiciary. 
 
 He should have known also that the most futile anti- 
 dote for this dishonest tendency was chartering corpora- 
 tions, which, when freed from legislative control and super- 
 vision, become instruments of more formidable injustice 
 than have been exercised by any governing body known to 
 history. 
 
 He should have known that it was the aggregation of 
 men of wealth by corporate enactment, with the license of 
 corporate irresponsibility, and the power of possible cor- 
 porate immensity, that inclines and enables them to influ- 
 ence the action of Legislatures, Courts, Congresses, and 
 Presidents into committing the injustice complained of; and 
 that when and wherever officials are free from those malev- 
 olent influences, they have never been guilty of the prac- 
 tises he was pretending that he was warding off. 
 
 He knew that he had at heart the interests, and was in
 
 i86 The Legal-Tender Problem 
 
 feeling the friend and advocate of, the property-rights fac- 
 tion, bitterly opposed to the personal-rights faction led by 
 Air. Jefferson, and that the strength and success of his 
 faction relied on corporate activity, free from the control of 
 State legislation, and especially the corporate activity of 
 the bank, in order to prevail over the genius of J\Ir. Jefferson. 
 
 No one vv^as more familiar than he with the principles 
 evolved to protect the people from the aggressions and impo- 
 sitions of his faction, and the checks and overthrows received 
 from the superior statesmanship of Mr. Jefferson, who had 
 once driven them from power, and was influencing the 
 policies of the Government. 
 
 No one was more familiar than he with the treasonable 
 conduct of his faction during the war with England, and 
 the manner in which Mr. Madison was induced to desert 
 Mr. Jefferson, and sign the bill granting a charter to the 
 United States Bank. 
 
 No one realized better than he the deadliness of the blow 
 of the State of Maryland when it placed its prohibitive tax 
 upon the operation of the bank in its territory ; and no one 
 was more alive and keener to the fact that now all depended 
 on him and his influence with the members of the court. 
 
 This influence prevailed ; and after he secured the major- 
 ity of the court, the opinion was announced, as it was 
 intended that it should be, when Mr. Webster was directed 
 to change sides, if Chief Justice Marshall could carry the 
 court with him. 
 
 Having discovered that a charter was a contract, and 
 such a contract as was protected by the Constitution of the 
 United States, there was nothing dangerous to the interests 
 of the bank in the case of McCuUough against the State of 
 Maryland, and the hearing of that case was had and the 
 opinion delivered March 7, 1819.
 
 XIX 
 
 McCullough vs. the State of Maryland, 4 Whea- 
 ton {S. C. Rep.), 313- 
 
 In the argument of the case, Mr. Webster developed the 
 main point in the following adroit manner: "The question 
 whether Congress constitutionally possesses the powder to 
 incorporate a bank, might be raised upon the record, and 
 it was in the discretion of the defendant's counsel to agitate 
 it; . . . but it might have been hoped that it was not now 
 to be considered as an open question. It is a question of 
 the utmost magnitude, deeply interesting to the Government 
 itself, as well as to individuals. The mere discussion of such 
 a question may most essentially afifect the value of a vast 
 amount of private property. 
 
 " We are bound to suppose that the defendant in error 
 is well aware of these consequences, and would not have 
 intimated an intention to agitate such a question, but with 
 the real design to make it a topic of serious discussion, and 
 with the view of demanding upon it the solemn judgment 
 of this court. This question arose early after the adoption 
 of the Constitution, and was discussed and settled, as far 
 as legislative discretion could settle it, in the First Congress." 
 
 Mr. Webster knew when he made this statement that 
 the action of the First Congress was caused by restricting 
 the money of the country to gold and silver, and that the 
 distress caused by the scarcity of money was such that it 
 was imperative for Congress to take some action to tem- 
 porarily relieve this suffering. 
 
 187
 
 i88 The Le^al-Tender Problem 
 
 Mr. Webster further knew that a certain chque that con- 
 trolled Congress took advantage of this necessity for addi- 
 tional currency, and influenced that body to grant them a 
 charter for a bank, by means of which they could and had 
 robbed the people. 
 
 Mr, Webster also knew that this clique was so afraid 
 that Congress would confer a similar favor upon others, 
 that they influenced that body to make the pledge that no 
 other charter would be granted for twenty years. 
 
 Mr. Webster also knew that the selfishness of the bank 
 clique had in great part destroyed their calculation, because 
 the distress of the people, even after the bank was in oper- 
 ation, became so grievous that the States were forced to 
 come to their relief by the unconstitutional act authorizing 
 the bank chartered by them to issue notes. 
 
 He knew that the exercise of these two unconstitutional 
 powers, first by Congress and then by the States, had de- 
 veloped two hostile factions, which had been struggling for 
 the control of the Government. 
 
 He knew that the national-bank clique was overthrown 
 in 1811, and that the State-bank faction was overthrown in 
 181 7, and that this effort of the State-bank faction would 
 prove fatal to the national bank, unless the court held that 
 Congress had the power to grant a charter to a bank. There- 
 fore he opened the argument as he did, claiming that acts 
 (which arose out of the distress that had been imposed by 
 the limitations and restrictions of the Constitution) were 
 precedents so numerous, so long, and so generally acquiesced 
 in that they were now constitutional. 
 
 He adds " that arguments drawn from the Constitution 
 in favor of this power were stated, and exhausted in that 
 discussion." Perhaps so, but the arguments drawn from 
 the motives, the facts, and IMachiavellism which caused the
 
 McCullough vs. State of Maryland 189 
 
 abuse of the Constitution, have not been stated, much less 
 exhausted. 
 
 He adds, " They were exhibited with characteristic per- 
 spicuity and force by the first secretary of the treasury in 
 his report to the president of the United States ; " and it 
 may be added that similar violations of the Constitution, in 
 the interests of the national-bank clique, have received the 
 advocacy of their agents while attitudinizing in the office of 
 the secretary of the treasury as servants of the public. 
 
 He states " that the First Congress created and incor- 
 porated the bank, and that nearly each succeeding Congress, 
 if not every one, has acted and legislated on the presumption 
 of the legal existence of such a power in the Government." 
 He made this statement when he knew the pledge given by 
 the First Congress that it should have a monopoly for 
 twenty years, had carried it safely through the succeeding 
 nine Congresses, and that the Eleventh, the first one that 
 was free from the moral obligation, refused to exercise said 
 power. 
 
 He knew that the Eleventh Congress refused the bank 
 the renewal of its charter, and that Mr, Madison vetoed 
 the bill granting a charter to a bank in 1816, and approved 
 the bill in 1817, and yet he makes the following statements: 
 " Individuals, it is true, have doubted, or thought otherwise ; 
 but it can not be shown that either branch of the Legis- 
 lature has at any time expressed an opinion against existence 
 of the power. The executive government has acted upon it 
 [and he might have added both ways], and the courts 
 below have acted upon it. ]\lany of those who doubted or 
 denied the existence of the power, when first attempted to 
 be exercised, have yielded to the first decision, and acqui- 
 esced in it as a settled precedent. 
 
 ** When all the branches of the Government have thus
 
 I90 The Legal-Tender Problem 
 
 been acting on the existence of this power for nearly thirty 
 years,, it would seem almost too late to call it in question, 
 unless its repugnancy with the Constitution were plain and 
 manifest. Congress by the Constitution is invested with 
 certain powers ; and as to these objects, and within the scope 
 of these powers, it is sovereign." 
 
 This last clause is a true and well-stated proposition, 
 and if Mr. Webster, as a statesman and not as the paid 
 advocate, had been honestly seeking the true construction 
 of the Constitution, considering only the present and future 
 welfare of the people, and the perpetuity of the best form 
 of government ever given to man, he would have ascertained 
 what our Supreme Court has three times enunciated, and 
 maintains to-day; viz., that the only sovereign power Con- 
 gress has in reference to the circulating currency is the 
 issue of legal-tender treasury notes (as well as the coinage of 
 specie), that are no more redeemable in gold or silver coin 
 than the coins are redeemable in treasury notes. 
 
 Mr. Webster was too good, a statesman to go on record 
 that Congress was exercising a sovereign power when it 
 granted a charter to a bank, for in his argument he says, 
 "Corporations are the means; they are not the objects of 
 Government. No Government exists for the purpose of 
 creating corporations as one of the ends of its being. They 
 are institutions established to afifect certain beneficial pur- 
 poses, and, as means, take their characters generally from 
 their end and object." 
 
 Air. Webster's argument makes it possible to state the 
 issue so clearly that any one may understand it, and no 
 longer be mystified and confounded by the metaphysical, 
 literary, and governmental distinctions of words, phrases, 
 and powers that have been palmed off as luminous exposi- 
 tions of the Constitution.
 
 McCullough vs. State of Maryland 191 
 
 Congress, under the teaching and influence of Mr. Jeffer- 
 son and the stress of the war with England, exercised the 
 sovereign power of a nation in the bill authorizing the issue 
 of treasury notes, non-interest-bearing, non-redeemable 
 except in exchange for bonds, and legal tender for all debts 
 and dues to the United States. 
 
 President Madison in 1816 vetoed a bill to grant a 
 charter to a bank that was intended to nullify the provisions 
 and the benefits of that act. h'or some unexplained reason, 
 in 18 17 he reversed himself, and approved the bill granting 
 a charter to a bank. 
 
 By the terms of this bill the bank was given a monopoly 
 for twenty years, with the right to issue notes. In addition 
 the bill provided that the bank was to pay the Government 
 $1,500,000 for this exercise of its sovereign power; and the 
 Government was obligated to get its treasury notes out of 
 circulation, so that they would not compete with the notes 
 of the bank. 
 
 The people were so well pleased with the efficiency of 
 the treasury notes that they refused to exchange them for 
 bonds, notwithstanding they were refused by the banks, and 
 notwithstanding the Government refused to receive them in 
 payment of import duties. 
 
 The people, dirough their State Governments, were re- 
 senting the debauchery of their president and Congress. 
 The State of Maryland instituted the fight, and most effi- 
 ciently, by a prohibitive tax upon the branch of the bank 
 established in that State. The Supreme Court of that State 
 sustained the action of the Legislature, and with annihila- 
 tion staring the bank in the face, it appealed to the Supreme 
 Court of the United States for protection. 
 
 The Dartmouth College case was utilized to have the 
 Supreme Court decide that a charter was a contract ; so that
 
 192 The Legal-Tender Problem 
 
 when it was decided that Congress had the power to charter 
 a bank, the principles settled in that case would be decisive 
 of the right of the States to tax the bank, with a view to 
 its destruction. 
 
 INIr. Webster had won one branch of the fight, and he 
 must exert to the full the greatness of his intellect and in- 
 genuity to furnish arguments that would do as a pretext 
 for deciding that Congress could, for a pittance of $1,500,- 
 000, barter away to a bank the exercise of a sovereign power 
 for twenty years. Therefore Mr. Webster, after establish- 
 ing the proposition that Congress by the Constitution is 
 vested with certain powers, and as to the objects and within 
 the scope of these powers it is sovereign, refused to see 
 what the necessity of events, the true theory of government, 
 and the inexorable logic of financial science, has since caused 
 the Supreme Court to announce as the law of the land ; 
 viz., the power and right of Congress to issue treasury notes 
 redeemable only in the sense that they are receivable for 
 all debts, dues, and obligations of the Government, and a 
 legal tender for the payment of private debts. 
 
 If this expression of the true theory of the issuance of 
 money had been accepted by Mr. Webster, he need not have 
 gone off hunting for the implied power which he and Chief 
 Justice Marshall made so much of in their desire to save 
 the machinery of the property-rights faction, and which 
 has been so instrumental in enabling that faction to transfer 
 the property of the people into their possession. 
 
 He knew that the doctrine of implied power did not, and 
 could not, arise, if there was a constitutional or a sovereign 
 power to accomplish the same end. Therefore he, and his 
 faction, contended that Congress had no right to issue 
 treasury notes, because the power had been withheld from 
 Congress ; and as said power had been designedly withheld,
 
 McCullough vs. State of Maryland 193 
 
 they had the right to assume that there was no way to do 
 what was necessary to be done, and sustain what had been 
 done, except to invoke the doctrine of imphed power as a 
 means to an end under the general welfare clause. 
 
 The argument used to induce the Supreme Court to deny 
 the right of Congress to exercise this sovereign power, was 
 reversed in the effort to induce the court to sustain the 
 action of Congress that granted a charter to the bank, and 
 sold the sovereign power to the bank. The grant of a 
 charter to a bank was not an implied or sovereign power, 
 as will appear from the following portion of Mr. Webster's 
 argument : — 
 
 " Even without the aid of the general clause in the Con- 
 stitution empowering Congress to pass all necessary and 
 proper laws for carrying its powers into execution, the 
 grant of powers itself necessarily implies the grant of all 
 usual and suitable means for the execution of the powers 
 granted. Congress may declare war ; it may consequently 
 carry on war, by armies and navies, and other suitable 
 means and methods of warfare. . . . 
 
 " It may of course use all proper and suitable means, 
 not specially prohibited in the raising and disbursement of 
 the revenue. ... It is not enough to say that it does not 
 appear that a bank was in the contemplation of the framers 
 of the Constitution." 
 
 And it seems that it made no difference to Mr. Madison 
 and others then in office, who were in the Constitutional 
 Convention, that a fear that Congress would create a bank 
 was the expressed reason why the power to grant charters 
 was withheld from Congress. Mr. Webster must have 
 known this when he made these statements, though it is 
 admitted that the report of the proceedings of the Conven- 
 tion had not been made public at that time. It is hardly 
 
 13
 
 194 The Legal-Tender Problem 
 
 possible, in the consultations before the argument, that he 
 was not fully informed of what was said in the Conven- 
 tion, if not furnished with a copy of so much of the debate 
 as was preserved. 
 
 Mr. Webster, in accounting for the fact in his statement 
 " that it does not appear that a bank was in the contempla- 
 tion of the framers of the Constitution," says, " It was not 
 their intention, in these cases, to enumerate particulars." 
 Negatively they had enumerated the bank, and been most 
 particular in withholding the power from Congress to grant 
 charters for building canals, because of the well-entertained 
 fear that it would be abused by the creation of a bank. 
 
 Mr. Webster adds further : " The true view of the sub- 
 ject is that if it be a fit instrument to an authorized purpose, 
 it may be used, not being specially prohibited." 
 
 It was a vicious play upon words and hypocritical legal 
 juggling to argue that a power which the wisdom of the 
 Fathers on three occasions refused to bestow upon Congress, 
 was a power that could be implied because it was " not spe- 
 cially prohibited " in the language of the Constitution. 
 
 Judged by the other test laid down by Mr. Webster, 
 "that if it be a fit instrument to an authorized purpose, it 
 may be used," the creation of a bank was unconstitutional 
 and an imposition. The authorized purpose should only 
 have been to furnish the people with a full supply of cir- 
 culating currency with which they could transact business, 
 and secure their merited prosperity. 
 
 It should have been evident to any one but paid advo- 
 cates, partisan judges, and interested parties, that forcing 
 a people to give up efficient and satisfactory treasury notes 
 that they would not exchange for seven-per-cent bonds, and 
 substituting in their stead bank-notes upon which they were 
 forced to pay interest at the rate of twenty or a higher per
 
 McCullougli vs. State of Maryland i95 
 
 cent for every dollar of specie invested, was not in con- 
 sideration of the interests of the people, but solely in the 
 interest of the bankers. Mr. Webster spoke only in the 
 interest of his client, the bank. 
 
 The fitness of the bank, as an instrument to subserve the 
 purpose of the bankers, had been twice demonstrated in the 
 history of the country: first, in the methods, practises, and 
 accumulated wealth of the stockholders of the bank char- 
 tered by the Continental Congress; and, second, by the 
 methods, practises, and success of the stockholders of the 
 first bank chartered by Congress. 
 
 Its authorized purpose, — to enrich the privileged few 
 at the expense of the many,— and its total unfitness to 
 subserve the interests of the people, was equally well known, 
 and therefore the Government was taken into copartnership 
 and given a share of the profits that were being made ofif of 
 its citizens and supporters. 
 
 Mr. Webster's argument betrays that in the close exam- 
 ination he gave the question he was forced to the conclusion 
 that Congress had the sovereign power to issue treasury 
 notes, as had been done, and that its action in "selling the 
 exercise of that power to the bank, and calling in the treas- 
 ury notes was vicious in motive and wrong in the correct 
 theory of government ; but inasmuch as it had been done, 
 and retracing its steps could not, under the circumstances, 
 be safely attempted, or he was not willing under his party 
 obligations and personal ambitions that it should be done, 
 the bank might be a necessary but not a proper instrument. 
 Therefore he contended that " proper," as used in the Con- 
 stitution, only meant " necessary ; " for in the next sentence 
 he adds, " If this be not so, and if Congress could use no 
 means but such as were absolutely indispensable to the 
 existence of granted powers, the Government would hardly
 
 196 The Legal-Tender Problem 
 
 exist ; at least it would be wholly inadequate to the purposes 
 of its formation. A bank is a proper and suitable instru- 
 ment to assist the operations of the Government in the col- 
 lection and disbursements of the revenue, in the occasional 
 anticipations of taxes and imports, and the regulation of 
 the actual currency as being a part of the trade and exchange 
 between the States. It is not for this court to decide whether 
 a bank, or a bank such as this, be the best possible means 
 to aid these purposes of the Government. Such topics 
 must be left to that discussion which belongs to them in 
 the two houses of Congress. Here the only question is 
 whether a bank, in its known and ordinary operations, is 
 capable of being so connected with the finances and rev- 
 enues of the Government as to be fairly within the discretion 
 of Congress, when selecting means and instruments to exe- 
 cute its powers and perform its duties." 
 
 Mr. Webster knew that he was making a misstatement 
 in saying that " the only question is whether a bank, in its 
 known and ordinary operations, is capable of being so con- 
 nected with the finances and revenues of the Government 
 as to be fairly within the discretion of Congress," etc., with 
 a view to mislead the court ; for the main question was, as 
 appears from the record, whether Congress had the power 
 to create a bank. 
 
 It is evident to the most superficial observation that if 
 Congress did not have the power to grant a charter of 
 incorporation, a bank chartered by Congress, however neces- 
 sary and efficient, would not have been constitutional. If 
 Mr. Webster had put his argument for the right and power 
 of Congress to grant charters upon the necessity and fitness 
 of the bank, as the sole instrument for the preservation of 
 the country, he would have gone to record as indirectly 
 denying the power of Congress to use any other means than
 
 McCullougli vs. State of Maryland i97 
 
 a bank. This he was not willing to do. His intellectual 
 honesty was superior to his personal integrity, and he asserts 
 and maintains the one while ignoring the other. 
 
 Conscious that Congress, in the act authorizing the issue 
 of treasury notes, had only exercised an inherent and natural 
 sovereign power, and that the sale of the exercise of this 
 power to the bank was vicious in its effects, but advan- 
 tageous to his clients, and therefore essential and necessary 
 to their interests, he made this statement : " Congress has 
 duties to perform and powers to execute. It has a right to 
 the means by which these duties can be properly performed 
 and the powers executed. Among other means, it has estab- 
 lished a bank ; and before the act establishing it can be pro- 
 nounced unconstitutional or void, it must be shown that a 
 bank has no fair connection with the execution of any power 
 or duty to the national Government, and that its creation is 
 consequently a manifest usurpation." 
 
 However it may have been at that time, when the Govern- 
 ment was a co-partner in the bank, and dependent upon its 
 working, it is now evident that a bank has no fair connection 
 with the execution of any power or duty of the national Gov- 
 ernment. 
 
 The second question for decision, as stated by Air. Web- 
 ster, was "whether, if the bank be constitutionally created, 
 the State -Governments had power to tax it?" "The only 
 inquiry, therefore, in this case is," he stated, " whether the 
 law of the State of Maryland imposing this tax be consistent 
 with the free operation of the law establishing the bank, — 
 which is the supreme law of the land, — and the full enjoy- 
 ment of the privileges conferred bv it." 
 
 Eliminated of the interest that the Government has in the 
 bank, — which was inserted in the act for the double pur- 
 pose of securing the protection of the Government and the
 
 198 The Le^al-Tender Problem 
 
 profits that might be made out of its deposits, — it is evident 
 "that the full enjoyment of the privileges conferred by it" 
 could only apply to the clique who influenced Congress to 
 pass and the president to approve the bill. 
 
 Mr. Webster further stated: "The object in laying this 
 tax may have been revenue to the State. In the next case, 
 the object may be to expel the bank from the State ; but how 
 is this object to be ascertained, or who is to judge of the 
 motives of legislative acts. . . . The Government of the 
 United States has itself a great pecuniary interest in this 
 corporation. . . . Can the State tax this property? . . . The 
 State of ^Maryland might, with as much propriety, tax treas- 
 urv notes." 
 
 It is evident from the last observation that Mr. Webster 
 was fully aware of the governmental abuse which Congress 
 committed when it sold its sovereign power to the bank to 
 issue notes, and endeavored to force its notes out of circula- 
 tion so that the bank-notes could be issued in their stead. It 
 was absurd, if not treasonable, to argue that Congress has 
 the constitutional right to ignore and set aside an essential 
 and recognized sovereign power in order that it might exer- 
 cise, in behalf of a national bank, a doubtful if not clearly 
 unconstitutional power. 
 
 Mr. Webster further argued that " the bank can not exist, 
 nor can any bank established by Congress exist, if this right 
 to tax exists in State Governments. . . . One or the other 
 must be surrendered, and a surrender on the part of the Gov- 
 ernment of the United States would be a giving up of those 
 fundamental and essential powers, without which the Govern- 
 ment can not be maintained." 
 
 Here we have Mr. Webster contending, between the 
 right of the States to exist by the exercise of constitutional 
 power and the right of the bank to exist by the exercise of
 
 McCullough vs. State of Maryland i99 
 
 unconstitutional power, that the States must give way, and 
 upon the false assumption that Congress would be giving up 
 a fundamental and essential power, if it could not preserve its 
 bank. 
 
 It is one of the anomalies of our judicial and congres- 
 sional history that such zeal has been shown in behalf of the 
 power of Congress to charter a bank, when it had no such 
 power, and so much indifiference shown as to the right of 
 Congress to exercise the truly fundamental and essential 
 power to issue treasury notes. 
 
 Mr. Webster admitted that the chartering of a bank by 
 Congress was not the exercise of a fundamental and essential 
 power in the following : — 
 
 "A bank may not be, and is not, absolutely essential to 
 the existence and preservation of the Government. The 
 question," as he was forced to state, " is not whether a bank 
 be useful or necessary, but whether Congress may not con- 
 stitutionally judge of that necessity or utility; and whether, 
 having so judged and decided, and having adopted measures 
 to carry its decisions into effect, the State Government may 
 interfere with its decisions, and defeat the operation of its 
 measures." 
 
 Chief Justice Alarshall, in his opinion, stated " that the 
 first question made in the cause is. Has Congress power to 
 incorporate a bank?" and -not, as :\lr. Webster contended, 
 " whether a bank, in its known and ordinary operation, is 
 capable of being so connected with the finances and revenues 
 of the Government as to be fairly within the discretion of 
 Congress, when selecting means and instruments to execute 
 its powers and perform its duties." 
 
 In the light of what has been written, setting forth the 
 motives and avaricious influences that forced upon the coun- 
 try the abuses made necessary by the unpatriotic and selfish
 
 200 The Legal-Tender Problem 
 
 limitations of the Constitution in the matter of money, Mr. 
 Marshall begins his opinion with a statement that begs the 
 question : — 
 
 " It has been truly said that this can not be considered 
 as an open question, entirely imprejudiced by former pro- 
 ceedings of the nation respecting it. . . . The principle now 
 contested was introduced at a very early period of our his- 
 tory, has been recognized by many successive Legislatures, 
 and has been acted upon by the judicial department, in cases 
 of peculiar delicacy, as a law of undoubted obligation. 
 
 " It zvill not be denied that a hold and daring usurpa- 
 tion might he resisted after an acquiescence still longer and 
 more complete than this. 
 
 "An exposition of the Constitution, deliberately estab- 
 lished by legislative acts, on the faith of which an immense 
 property has been advanced, ought not to be lightly disre- 
 garded. 
 
 " The power now contested was exercised by the first 
 Congress elected under the present Constitution. . . . The 
 bill for incorporating the Bank of the United States did not 
 steal upon an unsuspecting Legislature and pass unobserved. 
 ... Its principle was completely understood, and was op- 
 posed with equal zeal and ability. . . . After being resisted 
 first in the fair and open field of debate, and afterward in the 
 executive cabinet, with as much persevering talent as any 
 measure has ever experienced, and being supported by argu- 
 ments which convinced minds as pure and as intelligent as 
 this country can boast, it became a law. . . . The original 
 act was permitted to expire." 
 
 He omits to add that under the influence of Mr. Jefiferson 
 the bank was refused a renewal of its charter, that the war 
 of England was fought with treasury notes against the treas- 
 onable opposition of this banking clique, and that its second
 
 McCullough vs. State of Maryland 201 
 
 charter was secured in 18 17 through the treachery of Presi- 
 dent Madison ; but instead, stated that " a short experience 
 of the embarrassments, to which the refusal to revive it 
 exposed the Government, convinced those who were most 
 prejudiced against the measure of its necessity, and induced 
 the passage of tlic present law. ... It would require no 
 ordinary share of intrepidity to assert that a measure adopted 
 under these circumstances was a bold and plain usurpation, 
 to which the Constitution gave no countenance." 
 
 It was well known to Mr. Marshall, when he penned the 
 above, that the embarrassments he referred to were caused 
 by the treasonable warfare against the State banks and the 
 treasury notes. And he also knew that the very act of Con- 
 gress he was sustaining had. for the consideration of $1,500,- 
 000, sold to the bank the right and power to issue notes, 
 upon the agreement that it would retire its treasury notes 
 that were being so efficiently and satisfactorily used as 
 mediums of payment. It did require no ordinary share of 
 judicial intrepidity to gloss over in such a manner these 
 well-known facts, in his intention to take care of the 
 bank. 
 
 When one recalls all the motives that dominated the 
 legislation of Congress, the further purposes then in view, 
 and reads such insincere and prejudiced statements in the 
 opening of the opinion, he knows there could have been 
 no doubt in the mind of the most disinterested hearer what 
 the decision would be ; and it occasioned no surprise that 
 Chief Justice Marshall found reasons sufficient to himself 
 for holding that Congress had the power to incorporate a 
 bank. Reasons would have been found even if there had 
 been no ground for the pretexts advanced ; for in the follow- 
 ing clause he adds, " These observations belong to the cause ; 
 but thev arc not made under the impression that, were the
 
 202 The Le^al-Tender Problem 
 
 questions entirely new, the law would be found irreconcilable 
 with the Constitution." 
 
 He thereupon lays down the accepted principle that " the 
 Government of the United States, though limited in its 
 powers, is supreme ; and its laws, when made in pursuance 
 of the Constitution, form the supreme law of the land, any- 
 thing in the constitution or laws of any State to the contrary 
 notwithstanding." This principle, if honestly and logically 
 sustained in accordance with the facts, would have forced 
 the conclusion that the act of Congress was not constitu- 
 tional, for it has been shown by the records that three differ- 
 ent attempts to confer this power on Congress were defeated, 
 and solely because of the fear that it would be abused by 
 chartering a bank. Ignoring and suppressing these facts, 
 Mr. Marshall proceeds as follows : — 
 
 "Among the enumerated powers we do not find that of 
 establishing a bank, or creating a corporation. . . . But 
 there is no phrase in the instrument which, like the Articles 
 of Confederation, excludes incidental or implied powers, and 
 which requires that everything granted shall be expressly 
 and minutely described. . . . Even the tenth amendment, 
 which was framed for the purpose of quieting the excessive 
 jealousies which had been excited, omits the word ' ex- 
 pressly,' and declares only that the powers ' not delegated 
 to the United States nor prohibited to the States, are reserved 
 to the States, or to the people ; ' thus leaving the question 
 whether the particular power which may become the subject 
 of contest has been delegated to the one Government or pro- 
 hibited to the other, to depend on a fair construction of the 
 whole instrument." 
 
 He used the word " fair " when he knew it had been 
 asserted in the debates of the Constitutional Convention 
 that the States had the right to grant charters of incorpora-
 
 McCullough vs. State of Maryland 203 
 
 tion, and would not surrender it. and lliat it was dangerous 
 to give the power to Congress, inasniueh as no one could 
 predict what use would be made of said power by the States, 
 over whose action there was no right of authority in the 
 Government. 
 
 In the teeth of such facts, which Mr. Chief Justice Mar- 
 shall must have known, it is strange that he should assert 
 that " whether the particular power which may become the 
 subject of contest has been delegated to the one Government 
 or prohibited to the other " depends on a " fair " construc- 
 tion of tlie whole instrument, because the word " expressly " 
 was left out of the clause " that the powers not delegated to 
 the United States nor prohibited to the States are reserved to 
 the States or to the people." It is noticeable that a national 
 bank is the only corporation that Congress has seen proper 
 to incorporate under the construction. 
 
 Chief Justice Marshall further stated that "although 
 among the enumerated powers of Government we do not 
 find the words ' bank or incorporation,' we find the great 
 powers to lay and collect taxes, to. borrow money, to regu- 
 late commerce, to declare and conduct war, and to raise and 
 support armies and navies. ... It can never be pretended 
 that those vast powers draw after them others of inferior 
 importance, merely because they are inferior. . . . Such an 
 idea can never be advanced. . . . But it may with great 
 reason be contended that a Government entrusted with ample 
 powers, on the due execution of which the happiness and 
 prosperity of the nation so vitally depend, must also be 
 entrusted with ample means for their execution. ... It can 
 never be the interest, and can not be presumed to have been 
 their intention, to clog and embarrass its execution by with- 
 holding the most appropriate means." 
 
 One reading the above in the consciousness that the
 
 204 The Legal-Tender Problem 
 
 power was withheld from Congress to grant charters for 
 fear that it would be abused by chartering a bank, and that 
 the power " to emit bills on the credit of the United States," 
 an essential and indispensable act of sovereignty, was also 
 withheld, would naturally suppose that the chief justice was 
 referring to the second and not the first power withheld. 
 
 Since the power " to emit bills of credit," according to 
 the implied admission of Mr. Webster, was the exercise of 
 sovereign power, and the power to charter a bank accord- 
 ing to the admissions of both Mr. Webster and Chief Justice 
 Marshall only a " means to an end," or an implied, certainly 
 not a delegated or sovereign, power, it is difficult to under- 
 stand how the chief justice could have been referring to 
 " the means to an end," and not the sovereign, power. 
 
 This is the more difficult to understand when it is recalled 
 that the exercise of the sovereign power had been sold by 
 Congress to the bank in the very act that the chief justice 
 was construing ; and when the further fact is recalled that 
 Congress was endeavoring to force out of circulation the 
 very notes it had issued by virtue of this sovereign power, in 
 order that the bank might issue its notes in their stead and 
 increase its profits. 
 
 In the discussion of the right of the State of Maryland 
 to tax the branch bank, Mr. Marshall stated " that the 
 power of taxing by the States may be exercised so as to 
 destroy, is too obvious to be denied. ... It is admitted that 
 the power of taxing the people and their property is essen- 
 tial to the very existence of the Government, and may be 
 legitimately exercised on the objects to which it is applicable, 
 to the utmost extent to which the Government may choose 
 to carry it. 
 
 " The only security against the abuse of this power is 
 found in the structure of the Government itself. ... In im-
 
 McCullou^h vs. State of Maryland 205 
 
 posing a tax the Legislature acts upon its constituents. . . . 
 This is in general a sufficient security against erroneous and 
 oppressive taxation. 
 
 " The people of a State, therefore, give to their Govern- 
 ment a right of taxing themselves and their property ; and 
 as the exigencies of Government can not be limited, they 
 prescribe no limit to the exercise of this right, resting con- 
 fidently on the interest of the legislator, and the influence of 
 the constituents over their representatives, to guard them 
 against its abuse. 
 
 " But the means employed by the Government of the 
 Union have no such security, nor is the right of a State 
 to tax them sustained by the same theory. . . . Those means 
 are not given by the people of a particular State, nor given 
 by the constituents of a Legislature which claim the right 
 to tax them, but by the people of all the States. . . . They 
 are given by all, for the benefit of all, and upon theory 
 should be subjected to the Government only which belongs 
 to all. 
 
 "It may be objected to this definition," he said, "that 
 the power of taxation is not confined to the people and the 
 property of the State. It may be exercised upon every object 
 brought within its jurisdiction. This is true. . . . All sub- 
 jects over which the sovereign power of a State extends 
 are objects of taxation; but those over which it does not 
 extend are, upon the soundest principles, exempt from tax- 
 ation. . . . The sovereignty of a State extends to every- 
 thing which exists by its own authority, or is introduced by 
 its permission ; but does it extend to those means which are 
 employed by Congress to carry into execution powers con- 
 ferred on that body b\- the people of the United States ? We 
 think it demonstrable it does not. . . . Those powers are 
 not given by the people of a single State. . . . They are
 
 2o6 The Le^al-Tender Problem 
 
 given by the people of the United States, to a Government 
 whose laws, made in pursuance of the Constitution, are 
 declared to be supreme. . . . Consequently the people of a 
 single State can not confer a sovereignty which will extend 
 over them." 
 
 This reasoning which releases the property of those doing 
 a banking business under a charter granted by Congress, 
 from bearing its due share of the burden of State govern- 
 ment, appears strained and crude in the light of the modern 
 practise of the Supreme Court of the United States. 
 
 The influence of the only powerful corporation of that 
 day induced Mr. Marshall to relieve the Bank of the United 
 States from the payment of the State tax, though it was 
 operating within its territory, was dependent upon its pro- 
 tection, and owed its prosperity to the patronage of its 
 citizens. 
 
 The influence of the powerful corporations which have 
 grown up under the decisions in that and the Dartmouth 
 College cases, has caused the Supreme Court to overrule Mr. 
 Marshall in the principle so well stated that " the people of 
 a State give to their Government a right of taxing them- 
 selves and their property ; and as the exigencies of a Govern- 
 ment can not be limited, they prescribe no limit to the exer- 
 cise of this right, resting confidently on the interest of the 
 legislator, and on the influence of the constituents over their 
 representatives, to guard them against its abuse." 
 
 Following his example, and ignoring, as he did, his pre- 
 cept, — 'that the sovereign power of a State to tax, undis- 
 turbed and uncontrolled by any power, extends to every- 
 thing which exists by its own authority, or is introduced 
 by its permission, — • the Federal courts now set aside and 
 regulate the assessment and payment of the State taxes of
 
 McCiillougli vs. State of Maryland 207 
 
 corporations iijion the assumption of its enlarged equity 
 jurisdiction under the fourteentli amendment to the Consti- 
 tution, 
 
 The decision of Chief Justice Marshall in the case of 
 McCullough vs. State of Maryland, that Congress had the 
 power to charter a bank, and that the State of Maryland 
 had no right nor power to tax a branch of said bank, secured 
 to the bank, for the life of its charter, greater immunity than 
 had been thought of when the act of Congress granting the 
 charter was passed. And his decision in the Dartmouth Col- 
 lege case, that a charter was a contract protected by the Con- 
 stitution, and in the exercise of its rights and privileges not 
 amenable to nor under the control of the State, — secured to 
 the money power a commercial machinery which has been 
 phenomenally successful in enabling them to transfer the 
 property of the people to themselves in defiance of the 
 States. 
 
 The argument of Mr. Webster and the reasoning of 
 Chief Justice Marshall in the case of McCullough vs. State 
 of Maryland, was apparently so sincere that many, in read- 
 ing them, would suppose there could not have been any inti- 
 mation at that time of the governmental and financial abuse 
 that the experience of subsequent years has demonstrated 
 was practised upon the people. 
 
 But a single quotation from the report of the legislative 
 committee of the State of New York in 181 8 shows that 
 the evils of such abuses were felt and known in that early 
 period. The quotation is as follows : — 
 
 " Of all the aristocracies, none more completely enslaves 
 the people than that of money ; and, in the opinion of your 
 committee, no system was ever better devised to perfectly 
 enslave a communitv than that of the present mode of con-
 
 2o8 The Le^al-Tender Problem 
 
 ducting banking establishments. Like the siren of the fable, 
 they entice but to destroy. They hold the purse strings of 
 society ; and by monopolizing the whole of the circulating 
 medium of the country, they form a precarious standard by 
 which all property in the country — houses, lands, debts, and 
 credits, personal and real estates of all descriptions — are 
 valued.
 
 XX 
 
 Report of n\ H. Crawford, Secretary of the 
 
 Treasury 
 
 One of the most remarkable papers of this remarkable 
 period is the report of Mr. \Vm. H. Crawford, secretary of 
 the treasury, to the House of Representatives, dated Feb- 
 ruary 12, 1820. It sets out the condition of the Bank of 
 the United States as of September 30, 1819. It shows that 
 the capital stock was $34,987,828.83; notes issued, $13,392,- 
 288.49; tiue individual depositors, $2,631,453.76; due treas- 
 urer of the United States on account of deposits, $1,097,- 
 263.33; ^"6 deposit by public officers, $1,709,899.82; due 
 miscellaneous accounts, $1,365,726.36; a total of $54,465,- 
 
 550.57- 
 
 There was on hand to meet this liability, $3,254,479.91 
 
 of specie; notes of State banks, $1,133,928.86, and notes of 
 its own bank, $10,582,147.09; as a reserve or working cap- 
 ital, $7,252,591.94 interest-bearing funded debt of the United 
 States, and the balance personal loans, bills of exchange, 
 debts due from State bank, etc. 
 
 It will be seen from this statement that the bank had 
 issued four times as many notes as it had specie to redeem 
 them, and was ready to issue about three and one-half times 
 as many more, if it could safely and profitably do so. 
 
 Said report also shows the condition of the banks in the 
 States, Districts, and Territories so far as known. Aggre- 
 gate capital stock, $72.340.770.64 ; notes in circulation, $35,- 
 770,902.41 ; deposits, public and private. $14,583,681.74. 
 
 They had on hand to meet these liabilities, specie, $9,828,- 
 14 209
 
 2IO The Le^al-Tender Problem 
 
 745.21 ; notes of other banks, $7,616,252.54, as a reserve 
 or working capital, and the balance in personal loans, bills 
 of exchange,' etc. It will be seen that the State banks issued 
 nearly four times as many notes as they had specie with 
 which to redeem them. 
 
 The report estimates the entire specie possessed by the 
 State banks at $12,250,000; the specie of the Bank of the 
 United States and offices at $3,250,000 ; the specie in circula- 
 tion at $4,500,000 ; the whole metallic currency of the United 
 States at $20,000,000. 
 
 " Treating only such notes as are in circulation and not 
 held in banks," he said, " as issued, it is probable that the 
 actual circulation, both of paper and specie, is less at this 
 time than $45,000,000." By the same mode of calculation 
 Mr. Crawford estimated the whole amount of discbunts at 
 $156,000,000. 
 
 He then undertook to estimate, from such data as was 
 preserved, the capital stock of the banks, the specie, the cir- 
 culation, and discounts for the 3^ears 1813, 1815, and 1819: — 
 
 YEAR. BANK CAPITAL. SPECIE. CIRCULATION DISCOUNTS. 
 
 1813 $ 65,000,000 $28,000,000 $62,000,000 $117,000,000 
 
 1815 88,000,000 16,500,000 99,000,000 150,000,000 
 
 1819 125,000,000 21,500,000 53,000,000 157,000,000 
 
 He stated that while the bank capital had increased since 
 1 81 3 from $65,000,000 to $125,000,000, the metallic base 
 upon which the circulation of notes rest, had decreased. 
 
 Mr. Crawford did not undertake to ascertain how, in 
 1 81 9, $21,500,000 of specie, through the instrumentality of 
 a bank, could generate $53,000,000 in notes, and through 
 the agency of these notes create a debt of $157,000,000 due 
 the banks. 
 
 In his desire to secure a starting point upon which to
 
 Report of JV. H. Crawford 211 
 
 base his further observations, he assumed that the amount of 
 circulation in 1813 was sufficient to efifect the exchanges of 
 the country with faciUty and advantage. 
 
 Therefore, he reasoned, inasmuch as in the year 18 13 the 
 bank capital was $65,000,000. the specie $28,000,000, the cir- 
 culation $62,000,000, and the discount $117,000,000, any 
 departure from those proportions must be erroneous in 
 finance, and the cause of disaster. 
 
 It is estimated, he stated, that in 18 15 the circulation 
 arose to $110,000,000, and this amount was probably aug- 
 mented in 1816; while at the close of 1819, ii was only 
 $45,000,000. Commenting upon this statement of facts, he 
 writes, "All intelligent writers upon currency agree that 
 where it is decreasing in amount, 'poverty and misery must 
 prevail." The correctness of the opinion is too manifest 
 to require proof. "The united voice of the nation attests 
 its accuracy. . . . As there is no recorded example in the 
 history of nations of a reduction of the currency so rapid 
 and extensive, so but few examples have occurred of dis- 
 tress so general and so severe as that which has been exhib- 
 ited in the United States. . . . 
 
 " During the greater part of the time that has elapsed 
 since the resumption of specie payments, the convertibility of 
 the bank-notes into specie has been rather nominal than real 
 in the largest portions of the Union. . . . The convertibility 
 of bank-notes into specie is becoming real wherever it is 
 ostensible. ... If public opinion does not correct the evil 
 in those States where this convertibility is not even osten- 
 sible, it will be the imperious duty of those who are invested 
 with the power of correction to apply the appropriate 
 remedy." 
 
 The above is, in part, the report of the ablest secretary 
 of the treasury upon the following facts : That for good cause
 
 212 The Le<xcil -Tender Problem 
 
 Congress refused in 1809 to renew the charter of the Bank 
 of the United States ; it was therefore forced into liquidation, 
 the State banks had the field of finance to themselves, and 
 many came into existence. In 18 12 war with England was 
 declared; and though the State banks bravely struggled to 
 assist the Government, at much profit to themselves, they 
 were destroyed by the United States Bank faction withdraw- 
 ing all the specie from their vaults. Congress thereupon 
 issued, in small denominations, irredeemable non-interest- 
 bearing treasury notes, as legal tenders for all debts due the 
 Government. These treasury notes, notwithstanding they 
 were not a legal tender for private debts, withstood the 
 assaults of the bank faction until 18 17, when Congress 
 granted a charter to the Second Bank. In the seventeenth 
 section of this act, the resumption of specie payment was 
 made imperative, and so much of a previous act as made it 
 lawful for the treasurer to cause the treasury notes to be 
 reissued, was repealed. To secure the benefit of this provi- 
 sion, the Second Bank limited its issue of notes to a safe 
 minimum, and refused to receive the notes of any and all 
 State banks, thereby forcing their depreciation in value and 
 retirement, until the circulating currency was reduced from 
 $110,000,000 in 1816 to $45,000,000 in 18 19. 
 
 It is strange that Mr. Crawford could see the results of 
 this class legislation so clearly, and know that it came from 
 a contraction of the currency, and yet have no appreciation 
 of the motives that made it possible and seemingly natural. 
 His remedy is set forth in the following : — 
 
 "As currency is, at least in some parts of the Union, 
 depreciated, it must, in those parts, suffer further reduction 
 before it becomes sound. . . . The nation must continue to 
 suffer until this is effected. After the currency shall be 
 reduced to the amount which, when the present quantity of
 
 Report of JF . H. Crauiord 213 
 
 the precious metals is distributed among the various nations 
 of the world, in proportion to their respective exchangeable 
 values, shall be assigned to the United States; when time 
 shall have regulated the price of labor, and of commodities 
 according to the amount; and when pre-existing engage- 
 ments shall have been adjusted, the sufferings from a depre- 
 ciated, decreasing and deficient currency will be terminated. 
 Individual and public prosperity will gradually revive, and 
 the productive energies of the nation resume their accus- 
 tomed activity. 
 
 " But new changes in the currency, and circumstances 
 adverse to the perpetuity of the general prosperity, may 
 reasonably be expected to occur. So far as these changes 
 depend upon the currency, their recurrence to an extent suffi- 
 cient to disturb the prosperity of the nation would be 
 effectually prevented, if it could be rendered purely metallic. 
 But when currency is metallic, and i)aper convertible into 
 specie, changes to such an extent, it is believed, will fre- 
 quently occur." 
 
 The only remedy Mr. Crawford can suggest to ward off 
 such evils as are always attendant upon a redundancy and 
 then a contraction of the currency, is that the circulating cur- 
 rency should be purely metallic. ^Ir. Crawford's idea 
 seemed to be that the volume of business should be confined 
 to the volume of metallic money that could be secured and 
 retained in the country, and that no business should be en- 
 gaged in that could not promptly meet all payments in cash ; 
 or, if any credit at all was used, it should be so limited that 
 under no possible circumstances would the confidence of 
 the creditor in the ability of the debtor to pay all he owed, 
 be in the slightest disturbed. The adoption of such a system 
 would force all the business of the country to a volume that 
 could be conducted by the cash system, aided by credits,
 
 214 The Le^al-Tender Problem 
 
 or personal confidence, as contradistinguished from the 
 " credit system." 
 
 It is v>cll known that the actual use of money in the settle- 
 ment of the balances of the vast volume of business carried 
 on by the " credit system," and in the business carried on by 
 the cash system, is not more than three per cent of the vol- 
 ume of the two ; and yet, theoretically and legally, this vast 
 amount of credit is payable on demand in specie. It is im- 
 possible, in the first place, to conduct the vast volume of 
 business in the credit system by the use of specie, for the 
 daily handling of the amount needed would create an expense 
 and cause a delay that would destroy all possible profits ; if, 
 indeed, in the second place, the necessary amount of specie 
 could be had. Therefore, the enlarged prosperity of a 
 nation, and its advance along the lines of civilization, Chris- 
 tianity, and the higher arts, depend upon the judicious use 
 that is made of the " credit system " in promoting and aiding 
 all those grand enterprises which make the honor and glory 
 of a country. 
 
 It is evident that the abuses which tend to defeat the effi- 
 ciency of the " credit system " should be warded ofif and pro- 
 vided against, and not fostered and encouraged by the Gov- 
 ernment. It is equally evident that no power, except that 
 of the Government, has the motive and the strength to ward 
 ofi^ the imposition of such abuses as avarice would engraft 
 upon the system. 
 
 An examination, with a view to gather, in its last analysis, 
 the purity of a financial system that would care for and pro- 
 mote the welfare of the people as individuals, and as organ- 
 ized bodies seeking happiness and comfort, would have 
 shown that there was a deadly antagonism between business 
 conducted by the cash system aided by credit — mostly the 
 retail trade of the country — and the large wholesale busi-
 
 Report of IF. H. Crawford 215 
 
 ness conducted by means of " bookkecpinpf." or the " credit 
 system." 
 
 It would have been seen that as the people, by the inces- 
 sant and tireless application of their labor to the reduction 
 of a primeval country to their needs and enjoyments, de- 
 manded and forced in some way the issue of mediums of 
 payment, or tools, with which to work, they were invariably 
 set back, despoiled, and dispirited by the fact that their tools 
 were made worthless, as soon as the cry was raised that there 
 was not enough specie to redeem them. 
 
 The result always is a cessation of all activity, and a rush 
 to cover ; and in this rush every one was only concerned in 
 securing specie to pay his obligations. This competition for 
 specie, by those engaged in the retail trade and those engaged 
 in the wholesale transactions, made it possible for the own- 
 ers to collect three or four times the value of their specie ; 
 and as it passed from one person to another, those who 
 were lucky enough to secure it, saved themselves in part from 
 loss, and as they in turn parted with it, recouped in some 
 degree the loss they sustained ; but inasmuch as the law 
 forced settlement before the debtor was enabled to secure 
 the specie, he in many instances lost all he had. 
 
 The large operations which build up the country, and 
 which become larger and more essential to the prosperity of 
 all enterprise, can not be conducted without the use and con- 
 tinual enlargement of " credits," and are incessantly forc- 
 ing their issues. The retail business and smaller transac- 
 tions conducted by cash and personal confidence, or credit, as 
 distinguished from the " credit system," are jeopardized and 
 made hazardous as credits are increased. Therefore in this 
 natural and unavoidable antagonism of the two separate 
 systems of conducting business, when they are welded to- 
 gether by their dual dependence upon redemption in specie,
 
 2i6 The Legal-Tender Problem 
 
 the enlargement of credits, which causes the prosperity of 
 the large operations, is the jeopardy of both; and the with- 
 drawal of credit money, to a point that insures protection 
 to the retail business, is the destruction of all profit in both. 
 
 The evils that arise from the interdependence of the two 
 systems as the one or the other prevails, — • inflation or con- 
 traction, — has been the history of our finances, and it will 
 continue until the dual dependence of the currency, used in 
 both systems, on specie is changed. Instead of this Govern- 
 ment so legislating that this dual dependence would be re- 
 moved, and the antagonism of the two systems be destroyed 
 or adjusted, it has increased the antagonism, and made both 
 systems of conducting business more hazardous by forcing 
 the currency and credits used in each to a reliance on the 
 gold dollar. 
 
 The trend of the business spirit of this country is irresist- 
 ibly to larger and still larger operations ; and as credits are 
 increased to meet the demand, there will be such accessions 
 of " credit money " to the volimie, that when confidence in 
 the ability of gold to redeem all these evidences of debt has 
 vanished, and demand is made for their payment in gold, 
 the evils of all past panics will pale into insignificance before 
 the horrors of the next one. 
 
 Mr, Crawford appreciated fully the evil, but because the 
 money power had insidiously gotten into the Constitution 
 the heresy that only gold and silver should be the basic money 
 of the country, he saw no remedy except to let the people 
 continue to suffer until a pure metallic currency was reached. 
 If the fate of those who had suffered and were suffering so 
 severely did not operate to constrain a vigorous race to 
 make the most of the opportunities so bountifully presented, 
 by such aid as was offered by the United States Bank and 
 the gold and silver coins, then he saw nothing but similar
 
 Report of JV. H. Crawford 217 
 
 suffering for them in the recurring periods of expansion and 
 contraction that would necessarily and inevitably occur. 
 
 It is strange that so able a financier as Mr. Crawford 
 did not realize that it was the dependence of the two separate 
 and antagonistic systems upon gold and silver that made 
 the conditions of which he complained ; and that he did not 
 suggest a remedy which would have destroyed this dual 
 dependence, and established the independence of each from 
 the other. But instead of doing that, and formulating a 
 system that would have encouraged and sustained the inces- 
 sant and progressive activity of the Anglo-Saxon in his 
 indomitable inclination to labor, Mr. Crawford indulged in 
 the following reflection : — ■ 
 
 " That the establishment of banks in agricultural dis- 
 tricts has greatly improved the general appearance of the 
 country, is not denied. . . . Comfortable mansions and spa- 
 cious barns have been erected ; lands have been cleared and 
 reduced to cultivation ; farms have been stocked and ren- 
 dered more productive, by the aid of ' bank credits.' . . . 
 But those improvements will eventually be found, in most 
 cases, to effect the ruin of the proprietor. . . . The farm 
 with its improvements will frequently prove unequal to 
 the discharge of the debts incurred in its establishment. . . . 
 Such in fact is the actual or apprehended state of things 
 wherever banks have been established in the small inland 
 towns and villages. . . . Poverty and distress are impending 
 over the heads of most of those who have attempted to 
 improve their farms by the aid of the bank credit. . . . The 
 o-eneral svstem of credit which has been introduced through 
 the agency of banks brought home to every man's door, has 
 produced a factitious state of things, extremely adverse to 
 the sober, frugal, and industrious habits which ought to be 
 cherished in a republic. ... In the place of these virtues,
 
 2i8 The Legal-Tender Problem 
 
 extravagance, idleness, and the spirit of gambling adventure 
 have been engendered and fostered by our institutions." 
 
 It is strange that Mr. Crawford should have been led into 
 an attempt to explain away and deny the evidences of his 
 senses, — viz., that these credits, or expressions of labor 
 value, were highly advantageous to the development of the 
 country, — and indulge the erroneous assertion that they 
 fostered extravagance, idleness, and a spirit of gambling. 
 He seems to have had no appreciation whatever of the true 
 cause of the evils he declaimed against, and did not under- 
 stand that the condition of affairs he so much deprecated 
 was due solely to the abuse engrafted upon the financial 
 system in the constitutional heresy which gives and guaran- 
 tees the right to demand the redemption of all paper cur- 
 rency, as well as all credits, in specie, notwithstanding it is 
 an impossibility. 
 
 It is only fair to Mr. Crawford, after the comments that 
 have been made, that he be given a chance to redeem him- 
 self, which h€ does to some extent in that part of his report 
 that is responsive to the request " to report such measures 
 as in his opinion may be expedient to supply a circulating 
 medium in place of specie, adapted to the exigencies of the 
 country and within the power of the Government." 
 
 This last request of the House of Representatives to the 
 secretary of the treasury justified an exhaustive consideration 
 of the financial policy which would best subserve the inter- 
 est of the people ; for, as Mr. Crawford observes, " it 
 assumes by implication the practicability of substituting, by 
 the constitutional exercise of the powers of Congress, a 
 paper currency for that which now exists." 
 
 It will be seen that the clear thinking and pure reason- 
 ing of the secretary, and the conclusions j:hat perforce and 
 logically must be drawn from his expositions and deductions,
 
 Report of JV . H. Crawford 219 
 
 were ignored, because of his sincere but erroneous accept- 
 ance of the heresy engrafted upon the Constitution that only 
 gold and silver coins should be legal tender, or solvents of 
 debts, and the consequent deduction that all paper issues, 
 as well as all credits, were redeemable in specie. He leads up 
 to the discussion with the following observations upon the 
 power of Congress over the currency : — 
 
 " In considering the power of Congress over the currency 
 of the United States, it can not, consistently with the respect 
 that is due to that body, be either affirmed or denied. ... It 
 can not be supposed that the House of Representatives, in 
 adopting the resolution in question, intended, through the 
 agency of an executive department of the Government, to 
 institute an inquiry as to the extent of the constitutional 
 authority of a body, of which it is only a constitutional 
 member. . . . Yet it will necessarily occur to the House 
 that if the power of Congress over the currency is not abso- 
 lutely sovereign, the inquiry, whatever may be its immediate 
 result, must be always without any ultimate result. . . . 
 The general prosperity ivill not be advanced by demon- 
 strating that there is no intrinsic obstacle to the substitution 
 of a paper for a metallic currency, if the poiver to adopt 
 the substitute has been ii.'ithheld from the Federal Gov- 
 ernment." 
 
 He abandons all chance to arrive at a scientific conclu- 
 sion, confounds his reasoning in inextricable confusion, and 
 draws the most illogical deductions by the acceptance of the 
 following predicate : "At the threshold of this inquiry it is 
 proper to observe that it is deemed unnecessary to present 
 an analysis of the motives which led, even in the most re- 
 mote antiquity, to the general adoption by the civilized 
 States of gold and silver as the standard of value, or of the 
 advantages which have resulted from that adoption."
 
 220 The Legal-Tender Problem 
 
 It is evident that if he refrains from an analysis of the 
 motives which led to the adoption of gold and silver as 
 "the standard of value," meaning, it is supposed, standard 
 of payment, he will not ascertain what those motives were; 
 and consequently, having no standard of the correct, he 
 will have no guide to indicate the true, nor a criterion to 
 detect the false, motives which prompt greed to engraft 
 abuse upon the financial system. It is therefore evident 
 that if, in the course of the centuries, abuses have, through 
 the machinations of the designing, become an integral part 
 of the system, he accepted the evil with the good, and gave 
 both the same legal consideration that should only be given 
 the latter. 
 
 " The circumstances to which, in the course of the inves- 
 tigation," he stated, " it will be necessary to advert, is the 
 tendency which a metallic currency has to preserve a greater 
 uniformity of value than any other commodity ; and the 
 facility with which it returns to that value, whenever by any 
 temporary cause that uniformity has been interrupted. . . . 
 No argument will, in this place, be offered in support of this 
 proposition. ... It is founded in the experience of all na- 
 tions. ... Its truth, for the present, will therefore be 
 assumed." 
 
 That " a metallic currency has a tendency to preserve a 
 greater uniformity of value than any other commodity," is 
 true in the sense that it is equal in value to itself; and in 
 the proportion established, gold and silver varied but little 
 at the time he wrote. Since his day, however, legislation 
 favorable to gold and hostile to silver has destroyed the 
 truth of the assertion so confidently stated by him as 
 " founded in the experience of all nations," and demonstrates 
 that the impurity of the motives, which he did not deem it 
 necessary to analyze, has succeeded in breaking down the
 
 Report of JV. 11. Crawford 221 
 
 constitutional safeguard that both gold and silver should be 
 the money of the country. 
 
 That a " metallic currency has a tendency to preserve a 
 greater uniformity of value than any other commodity " as 
 to the value of the products of this country, was as incor- 
 rect a statement then as it is to-day, and as Mr. Crawford 
 proceeds with his report he unconsciously assigns the rea- 
 sons therefor. 
 
 " It is maintained by all intelligent writers upon the sub- 
 ject," he stated, " that the demand for currency, at present, 
 throughout the w^orld, is greater than the supply which the 
 existing quantity of the precious metals will afford, with- 
 out materially depressing the price of all the objects of 
 human industry and human desires. . . . When it is recol- 
 lected that production is regulated by demand, and that 
 both are directly affected by the quantity of currency com- 
 pared with the quantity of articles to be exchanged, it is 
 readily perceived that an increase in the currency of the 
 world by the substitution of paper, even when convertible 
 into coin, will increase the quantity of exchangeable com- 
 modities in the world beyond what would have existed had 
 such increase of currency not taken place. . . . Under such 
 circumstances, a sudden reduction of the currency by the 
 rejection of the paper which had been employed, could not 
 fail to derange all the relations of society by diminishing 
 the quantity of currency, whilst the articles to be exchanged 
 through its agency would suffer no such diminution. 
 
 "An immediate depression in the price of all commod- 
 ities would be inevitable in consequence of an unqualified 
 return to a metallic currency, upon the supposition that the 
 quantity of gold and silver annually produced should remain 
 undiminished. . . . But if this return to a metallic currency 
 should be attempted at a period when the annual product
 
 222 The Legal-Tender Problem 
 
 of these metals, either from temporary or permanent causes, 
 should have considerably decreased, all the great interests 
 of society would be most seriously disordered ; property of 
 every description would rapidly fall in value ; the relations 
 between creditor and debtor would be violently and suddenly 
 changed. . . . This change would be greatly to the injury 
 of the debtor ; the property, which would be necessary to 
 discharge his debts, would exceed that which he had received 
 from his creditor ; the one would be mined zuithout the 
 imputation of crime, whilst the other would be enriched 
 zuithout the semblance of merit. 
 
 " Until the engagements existing at the moment of such 
 a change are discharged, and the price of labor and com- 
 modities is reduced to the proportion which it must bear 
 to the quantity of currency employed as a medium of ex- 
 change, enterprise of every kind will be repressed, and misery 
 and distress universally prevail. . . . When this shall be 
 effected, the relations of society, founded upon a new basis, 
 will be equitable and just, and tend to promote and secure 
 the general prosperity." 
 
 When it is remembered that these departures from a 
 safe metallic base were made necessary by limiting the money 
 of the country to gold and silver, and that the demand for 
 national currency was permitted to be supplied through the 
 agency of banks, which were continually inciting and en- 
 couraging the spirit of enterprise and development among 
 the people by the loan of bank-notes, it seems like more than 
 criminal ignorance to fail to see all this. It is incomprehen- 
 sible that in the factional fight between the national bank 
 and the State banks for supremacy, he failed to appreciate 
 that they precipitated the crisis that was afflicting the 
 country. 
 
 Mr. Crawford continues as follows : " Previous to enter-
 
 Report of IV. H. Crauford 223 
 
 ing upon the immediate discussion of the practicabihty of 
 substituting a paper for a metallic currency, it is proper to 
 observe that gold and silver derive part of the uniformity 
 of value which has been ascribed to them, from the general 
 consent of civilized states to employ them as the standard 
 of value." 
 
 Stated in other words, the general and constant demand 
 of civilized nations for gold and silver to be used as money, 
 when given the value of legal tender, necessarily creates uni- 
 formity in value to the extent of the demand and its con- 
 stancy. 
 
 " Should they cease to be used for that purpose," he 
 stated, " they would become variable in their value, and 
 would be regulated like other articles, by the demand for 
 them, compared with the supply in any given market." 
 
 He proceeds as follows : " Having considered the nature 
 and extent of the variations in value to which a metallic cur- 
 rency is necessarily subject, it remains to examine whether 
 it is practicable to devise a system by which a paper currency 
 may be employed as the standard of value, with sufficient 
 security against the variations in its value, and with the 
 same certainty of its recovering that value when, for any 
 cause, such variations shall have been produced. ... It is 
 distinctly admitted that such paper currency has never ex- 
 isted. . . . Where the experiment has been made directly 
 by Government, excessive issues have quickly ensued, and 
 depreciation has been the immediate consequence." 
 
 The fault with Air. Crawford seems to be that at such 
 times as he should have analyzed the subject, he accepts 
 and asserts doctrinal errors and heresies. If he had exam- 
 ined into the matter, he would have ascertained that though 
 the republic of Venice did not emit paper issues, it created 
 a much more cumbrous system of credits, the best and only
 
 224 The Legal-Tender Problem 
 
 substitute that could be devised before the art of printing 
 was discovered, which, when made legal tender under the 
 manner and /nethod adopted, were never issued in excess, 
 but were for five hundred years at a premium over gold 
 and silver, and during that time there was not a single 
 instance of expansion or contraction of the currency, such 
 as was then disturbing this country. If, with a full compre- 
 hension of the methods of the Bank of Venice, he had 
 endeavored to formulate a system for this country, aided 
 as he was by the art of printing, he would necessarily have 
 seen that the paper issues should in no sense be a debt or 
 obligation of the Government, and, therefore, not redeemable 
 in specie. 
 
 Instead, however, of making such an examination, he 
 continued as follows : " Where the experiment has been at- 
 tempted through the agency of banks, it has invariably 
 failed. ... In both cases, instead of being used as a means 
 of supplying a cheap and stable currency, invariably regu- 
 lated by the demand, for effecting the exchanges required 
 by the wants and conveniences of society, it has been em- 
 ployed as a financial resource, or made the instrument of 
 unrestrained cupidity. ... In no case has any attempt been 
 made to determine the principles upon which such currency, 
 to be stable, must be founded. . . . In the case of banks, the 
 experiments which have been made ivcre intended to be 
 temporary ; they zvere the result of great and sudden pres- 
 sure, which left but little leisure for the examination of a 
 subject so abstruse. . . . The employment of a paper cir- 
 culation, convertible into specie, the favorite system of mod- 
 ern States, having, as has been attempted to be shown in a 
 previous part of this report, the inevitable tendency to pro- 
 duce the necessity of resorting in every national emergency 
 to paper, not so convertible, imposes upon those who are
 
 Report of //'. H. Crawford 225 
 
 called to administer the affairs of nations the duty of thor- 
 oughly examining the subject, with a view, if practicable, to 
 avoid the necessity." 
 
 It is unaccountable that :\lr. Crawford should have con- 
 sidered the exercise on the part of Congress of its sovereign 
 power to issue treasury notes when the country was in peril 
 as the strongest evidence of the falsity of such a system, 
 and as the one thing for which he must examine the sub- 
 ject with a view to be avoided in the future. 
 
 Mr. Crawford finally comes to the conclusion that to 
 insure the possibility of employing such a currency with 
 advantage it is necessary that the power of the Government 
 be absolutely sovereign. He comes to the conclusion that a 
 paper currency wall not meet the above requirements for 
 the following reasons : " That notwithstanding coinage and 
 the regulation of money, it may well be doubted whether a 
 sovereign power over the coinage necessarily gives the right 
 to establish a currency, and that any doubt as to the legality 
 of the exercise of such an authority could not fail to mar 
 any system which human ingenuity could devise." He ig- 
 nored the fact that Mr. Webster, in the argument of 
 McCullough vs. the State of Maryland, admitted that Con- 
 gress had the sovereign power to issue treasury notes, and 
 that it was not denied by Chief Justice Marshall. He seems 
 to have had no comprehension of the financial truism that 
 has since been announced by our Supreme Court in Juillard 
 vs. Greenman, no U. S. Rep., 421, as follows: — 
 
 " It appears to us to follow, as a logical and necessary 
 consequence, that Congress has the power to issue obliga- 
 tions of the United States in such form, and to impress upon 
 them such qualities, as currency for the purchase of mer- 
 chandise and the payment of debts as accord with the usage 
 of sovereign Governments. . . . The Governments of Europe, 
 15
 
 226 The Legal-Tender Problem 
 
 acting through the monarch, or the Legislature, according 
 to the distribution of powers under the respective constitu- 
 tions, has and have as sovereign a power of issuing paper 
 money as of stamping coin." 
 
 Under this decision, and in accordance with the science 
 of finance, the legal-tender value bestowed by fiat of Govern- 
 ment is "a property right " held in trust by the Government ; 
 and it is a financial and political crime to give it to any spe- 
 cial class, and force the people to purchase it in order that 
 they may be enabled to carry on business and make a living. 
 
 It is disheartening to see the fetish worship for gold and 
 silver produce that degree of financial infatuation which can 
 see so clearly that it is legal-tender value conferred upon 
 the metals by all the civilized nations that secures their uni- 
 formity and stability of value, and can not comprehend that 
 the stability and uniformity of value is the resultant, and not 
 the active, cause of the use of the metals as legal-tender 
 money. 
 
 It is incomprehensible why this vast and powerful 
 " property right " of legal tender should be bestowed upon 
 the owners of gold and silver, and they be protected in the 
 enjoyments of the profits that accrue from the exercise of 
 the privilege, the Government even refraining, in times of 
 deadly peril to the country, from infringing upon their 
 claimed rights until it can secure their permission. 
 
 Mr. Crawford was asked by Congress for suggestions 
 as to how mediums of payment, or legal tenders, could best 
 be supplied to meet the demand ; and notwithstanding the 
 Government had outstanding at that time non-interest-bear- 
 ing treasury notes of small denominations, legal tenders for 
 only the payment of public dues, — which secured and main- 
 tained their use at their labor expression of value, — and 
 which were being used as currency in preference to being
 
 Report of IF. H. Crawford 227 
 
 surrendered for seven-per-cent stock, he made the report 
 against the issue of treasury notes in exchange for the inter- 
 est-bearing debt of the Government, upon the gratuitous 
 assumption that the pubUc stock was so much more vahi- 
 able than the treasury notes that no one would make the 
 exchange, and therefore the voUmie of currency could not be 
 increased by such a system.
 
 XXI 
 
 A Change in Finance — President Jackson s Veto 
 
 of the Bank 
 
 All the departments of the Government have now acted 
 in the interest of the gold and silver owners and their fiscal 
 agent, the United States Bank — Congress sold them the 
 exercise of the sovereign power of the Government for 
 $1,500,000; the president approved the sale, the Supreme 
 Court protected the bank from the attack of the States, and 
 the secretary of the treasury reported that no substitute 
 could be devised by human ingenuity. 
 
 The resumption of specie payment under the Bank Act, 
 and the resumption in 1820 in England under th^ Peel Act, 
 after a suspension of specie payments for twenty-five years, 
 forced all State banks also to resume or go out of business. 
 These two acts forced the currency of England and the 
 United States to its nearest approach to a pure metallic cur- 
 rency, and the struggle between the two countries for specie 
 became intense. 
 
 Mr. Crawford describes the result in the United States 
 as one where the creditor took from the debtor all his prop- 
 erty without semblance of merit or imputation of crime. Sir 
 Archibald Allison gives the history of the result in Eng- 
 land as follows : " The entire circulation of England fell 
 from $253,545,000 in 1818 to $147,757,000 in 1821. The 
 effects of this sudden and prodigious contraction of the cur- 
 rency were soon apparent, and they rendered the next three 
 years a period of ceaseless distrust and suffering in the Brit- 
 228
 
 A Change in Finance 229 
 
 ish Islands. . . . The discounts in the Bank of England — 
 which in 18 10 had been $115,000,000, and in 18 15 not less 
 than $103,000,000 — sank in 1820 to $23,360,000, and in 1821 
 to $13,600,000. The effect upon prices was not less imme- 
 diate and appalling ; the rate of wages fell one half." 
 
 " From the tremendous reduction in the price of land 
 which now took place," says Doubleday, " the estates barely 
 sold for as much as would pay off the mortgages ; and own- 
 ers were stripped of all, and made beggars." 
 
 It is of such a state of affairs that Mr. Crawford writes : 
 " Until the engagements existing at the moment of such a 
 change are discharged, and the price of labor and of com- 
 modities is reduced to the proportion which it must bear to 
 the quantity of currency employed in the medium of ex- 
 change, enterprise of every kind will be repressed, and misery 
 and distress universally prevail. . . . When this shall be 
 effected, the relations of society, founded upon a new basis, 
 will be equitable and just, and tend to promote and secure 
 the general prosperity." 
 
 In order to secure to the society of this country those 
 equitable and just relations which have such a tendency to 
 promote and secure the general prosperity, after the circula- 
 tion has been forced to a pure metallic currency. Congress, 
 on May 3, 1822, passed an act that " no treasury notes shall 
 be received in payment on account of the United States, or 
 paid, or funded, except at the treasury of the United 
 States." 
 
 These were the treasury notes that Judge Mason forced 
 the collector of the port at Boston to receive, and which were 
 being so advantageously used by the people that they could 
 not be secured by the capitalists to be exchanged for the 
 seven-per-ccnt public stock. And yet, because they were in 
 active and daily use, competing with gold, silver, and the
 
 230 , The Legal-Tender Problem 
 
 notes of the Bank of the United States, a subservient Con- 
 gress violated the terms upon which they were issued, and 
 was endeavoring to force their retirement. 
 
 This poHcy of financial iniquity was continued unabated 
 and unchallenged until 1829, when President Jackson, in 
 his first annual message, page 462, sounded the following 
 note of alarm : " The charter of the Bank of the United 
 States expires in 1836, and its stockholders will most prob- 
 ably apply for a renewal of their privileges. Both the con- 
 stitutionality and the expediency of the law creating this 
 bank are well questioned by a large portion of our fellow 
 citizens, and it must be admitted by all that it has failed in 
 the great end of establishing a uniform and sound currency. 
 Under the circumstances, if such an institution is deemed 
 essential to the fiscal operations of the Government, I submit 
 to the wisdom of the Legislature whether a national one, 
 founded upon the credit of the Government and its revenues, 
 might not be devised which would avoid all constitutional 
 difficulties, and at the same time secure all the advantages 
 to the Government and country that were expected to result 
 from the present bank." 
 
 In his second annual message, December 6, 1830, page 
 528, he writes : " The importance of the principles involved 
 in the inquiry whether it will be proper to recharter the 
 Bank of the United States, requires that I should again call 
 the attention of Congress to the subject. ... It is thought 
 practicable to organize a Government bank, with the neces- 
 sary officers, as a branch of the treasury department, based 
 on the public and individual deposits, without power to make 
 loans or purchase property, which shall remit the funds of 
 the Government, and the expense of which may be paid, if 
 thought advisable, by allowing the officers to sell bills of 
 exchange to private individuals at a moderate premium.
 
 A Change in Finance 231 
 
 Not being a corporate body, having no stockholders, debtors, 
 or property, and but few officers, it would not be obnoxious 
 to the constitutional objections which are urged against the 
 present bank ; and having no means to operate on the hopes, 
 fears, or interests of large masses of the community, it would 
 be shorn of the influence which makes that bank formidable. 
 These suargestions arc made not so much as a recommenda- 
 tion as with a view of calling the attention of Congress to 
 the possible modifications of a system which can not continue 
 to exist in its present form w^ithout occasional collisions 
 with the local authorities, and perpetual apprehensions and 
 discontent on the part of the States and the people." 
 
 In his third annual message, December 6, 183 1, page 
 558, he writes : " Entertaining the opinions heretofore ex- 
 pressed in relation to the Bank of the United States as at 
 present organized, I felt it my duty in my former messages 
 frankly to disclose them, in order that the attention of the 
 Legislature and the people should be reasonably directed to 
 that important subject." 
 
 When it is recalled that Congress sold to this bank the 
 exercise of the sovereign power to issue money ; that this 
 sale was approved by President Madison, a member of the 
 same party which placed Mr. Jackson in the presidential 
 chair ; that the Supreme Court of the United States decided 
 that the grant of the charter to the bank was constitutional, 
 it is strange that the president, in his first tlire^ annual mes- 
 sages, should have written as he did, in the hope, as he stated, 
 " that it might be considered and finally disposed of in a 
 manner best calculated to promote the ends of the Constitu- 
 tion and subserve the public interest," if he had the slightest 
 respect for the act of Congress, its approval by the president, 
 or the decision of the Supreme Court. 
 
 President Jackson fully appreciated the wicked influence
 
 232 The Legal-Tender Problem 
 
 of the bank owners, the evil tendency of the institution, and 
 the practise of the abuses that were so destructive to the pros- 
 perity of the people, and the integrity of public officials, and 
 he therefore decided that no such avaricious and unconsti- 
 tutional scourge should longer afflict the country. He appre- 
 ciated in his own experience the insolence of the practical 
 power that a corrupt use of the institution gives to its officers 
 over those who are forced to transact business and ask 
 accommodations of it. 
 
 In the year 1832, when he was seeking a renomination, 
 the owners of the bank influenced Congress, notwithstand- 
 ing his opposition, to grant them a renewal of the charter. 
 While the bill was in his hands for approval or rejection, he 
 was called upon by one Nicholas Biddle, president of the 
 bank, who, failing in his attempt to persuade the president 
 to approve the bill, endeavored to force his approval by the 
 implied threat that, through the influence of the many 
 branches of the bank, he would control the majority of the 
 delegates to the nominating convention ; and in view of this 
 fact, he, the president, might find it to his interest to approve 
 the bill. 
 
 Fortunately for the honor of the country. President Jack- 
 son could not be cajoled, and under no circumstances be 
 dictated to ; and he answered in substance as follows : " Mr. 
 Biddle, I believe what you say is true ; and if there were no 
 other, that of itself would be sufficient reason why I should 
 veto the bill. Any such power is dangerous to the integrity 
 of the ballot and the perpetuity of the Government, and 
 should be destroyed." 
 
 The bill, renewing the charter, was passed July 4, and 
 on July 10, 1832, President Jackson sent his veto to Con- 
 gress. "A bank of the United States," he says, " is in many 
 respects convenient for the Government, and useful to the
 
 A Change in Finance 233 
 
 people. . . . Entertaining this opinion, and deeply impressed 
 with the belief that some of the powers and privileges 
 possessed by the existing banks are unauthorized by the 
 Constitution, subversive of the rights of the States, and 
 dangerous to the liberties of the people, I felt it my duty 
 at an early period of my administration to call the attention 
 of Congress to the practicability of organizing an institu- 
 tion combining all its advantages and obviating these 
 objections. 
 
 " I sincerely regret that in the act before me I can per- 
 ceive none of these modifications of the bank charter which 
 are necessary, in my opinion, to make it compatible with 
 justice, with sound policy, or with the Constitution of our 
 country. . . . The present bank enjoys an exclusive privilege 
 of banking under the authority of the General Government, 
 a monopoly of its favor and support, and as a necessary 
 consequence, almost a monopoly of the foreign and domestic 
 exchange. The powers, privileges, and favors bestowed 
 upon it in the original charter, by increasing the value of 
 the stock above its par value, operated as a gratuity of many 
 millions to the stockholders. . . . 
 
 " The act before me proposes another gratuity to the 
 holders of the same stock, and in many cases to the same 
 men. . . . Every monopoly and all exclusive privileges arc 
 granted at the expense of the public, idiich ought to receive 
 a fair equivalent. The many millions which this act pro- 
 poses to bestow on the stockholders of the existing bank 
 must come directly or indirectly out of the earnings of the 
 American j^eople. It is due them, therefore, if their Gov- 
 ernment sell monopolies and exclusive privileges, that they 
 should at least exact for them as much as they are worth 
 in the open market. . . . The value of this present monopoly 
 is $17,000,000. and this act proposes to sell for $3,000,000,
 
 234 The Legal-Tender Problem 
 
 payable in fifteen annual instalments of $200,000 each. If 
 we must have such a corporation, why should not the Gov- 
 ernment sell out the whole stock, and thus secure to the 
 people the full market value of the privilege granted ? But 
 this act does not permit competition in the purchase of this 
 monopoly. It seems to be predicated on the erroneous idea 
 that the present stockholders have a prescriptive right not 
 only to the favor, but to the bounty of the Government. 
 
 " It is maintained by the advocates of the bank that its 
 constitutionality in all its features ought to be considered 
 as settled by the precedent and by the decision of the Su- 
 preme Court. To this conclusion I can not consent. Pre- 
 cedent has not settled this matter. . . . The original act 
 of incorporation enacts among other things that no other 
 bank shall be established by any future law of the United 
 States during the continuance of the corporation hereby 
 created. This provision is continued in force by the act 
 before me fifteen years from the third of March, 1836. If 
 Congress had the power to establish one bank, they had 
 the power to establish more than one, if in their opinion 
 two or more banks had been necessary to facilitate the execu- 
 tion of the powers delegated to them in the Constitution. 
 It was possessed by one Congress as well as another, and 
 by all Congresses alike, and alike at every session." 
 
 The message states that the exclusive privileges and 
 benefits conferred on the bank for fifteen years were for its 
 use and emolument, and not for the advantage of the Gov- 
 ment. 
 
 " These surplus powers for which the bank is required 
 to pay can not surely be necessary to make it the fiscal 
 agent of the treasury. If they were, the exaction of a bonus 
 would not be proper. The Government does not tax its 
 officers and agents for the privilege of serving it. . . . It
 
 A Change in Finance 235 
 
 is to be regretted that the rich and powerful too often bend 
 the acts of Government to tlieir selfish purpose. . . . 
 
 " In the full enjoyment of the gifts of Heaven and the 
 fruits of superior industry, economy, and virtue, every man 
 is equally entitled to protection by law ; but when the laws 
 undertake to add to these natural and just advantages 
 gratuities and exclusive privileges, to make the rich richer 
 and the potent more powerful, the humble members of 
 society, — the farmers, mechanics, and laborers, — who have 
 neither the time nor the means of securing like favors to 
 themselves, have a right to complain of the injustice of the 
 Government. 
 
 " There are no necessary evils in Government. Its evils 
 exist only in its abuses. Experience should teach us wis- 
 dom. Most of the difficulties our Government now encoun- 
 ters, and most of the dangers which impend over our Union, 
 have sprung from an abandonment of the legitimate objects 
 of Government by our national Legislature, and the adop- 
 tion of such principles as are embodied in this act. Many 
 of our rich have not been content with equal protection and 
 equal benefits, but have besought us to make them richer 
 by the acts of Congress. By attempting to gratify their 
 desire, we have, in the results of our legislation, arrayed 
 section against section, interest against interest, and man 
 against man, in a fearful commotion which threatens' to 
 shake the foundation of our Union." 
 
 President Jackson's veto was sustained. This attack of 
 the president was most deadly to the interests as well as 
 the system of the bank. He denied its expediency, its effi- 
 ciency, and constitutionality. He demonstrated that it was 
 neither necessary as a fiscal agent for the Government nor 
 as an aid to the people in effecting the exchange of their 
 products. He charged that it was false in its pretensions,
 
 236 The Legal-Tender Problem 
 
 that it was chartered to accommodate the people in making 
 their exchanges ; but on the contrary was a most valuable 
 and powerful monopoly and gratuity to a favored class. 
 He charged that it not only bestowed millions of the peo- 
 ple's money on the few owners of the bank, but in addition 
 gave them command of all foreign and domestic exchange, 
 by means of which they were enabled to still further mulct 
 the people. He showed that it was an avaricious abuse of 
 governmental power in response to the selfish demands of 
 a clique which claimed the right to grow rich by legislation, 
 not work, and that the result of such legislation arrays 
 section against section in a commotion which threatens to 
 shake the foundations of the Union. 
 
 It was therefore essential to the existence of the bank 
 that President Jackson should be defeated for renomina- 
 tion. The president had courageously stepped between the 
 financial wolves and their prey, the American people. 
 Under such circumstances, the leaders of those wolves 
 recognize no code of morals, and eliminate all considera- 
 tions of ethics as well as of patriotism from their conduct. 
 They have but one actively asserted principle either of 
 morals, religion, virtue, or patriotism, and that is the right 
 to make a Machiavellian use of any and all of them in the 
 fight to win. This principle was dominant in their coun- 
 cils and actions in that day ; has possessed and controlled 
 them ever since, and has been so successfully practised that 
 it is now the cardinal principle of the Republican party. 
 
 That love of money is the root of all evil, as well as 
 the elimination of all principles, and tends to justify the 
 abandon that humanity willingly practises, has and can 
 have no higher exemplification than in the methods used to 
 loot the treasuries of the country — city, county. State, and 
 national. To such an extent has this tendency gone that all 
 
 I
 
 A Change in Finance 237 
 
 the treasuries are regarded as impersonal and entirely for- 
 eign to the interests or welfare of the people ; and he who 
 may so desire has the Christian right to abstract all he can 
 from the people's hard-earned and grievously collected tax 
 money without fear of the penitentiary. 
 
 It should not be a cause of surprise, since the beneficial 
 results of such practises have finally succeeded in control- 
 ling the entire policy of the Republican party, that the prop- 
 erty-right followers of Mr. Jefferson succumbed many years 
 ago. 
 
 In this connection it is proper to recall that the party of 
 Jefiferson was known by the name " Republican." It was 
 as a member of this party that Jackson was elected president. 
 Nicholas Biddle, the president of the bank, commanding the 
 support and influence of all of the officials of the branch 
 banks, was a most powerful member of the party. During 
 President Adams's term of office the different political fac- 
 tions adopted names which afforded means for distinguish- 
 ing them. The advocates of Jefferson's principles became 
 the " Democratic party ; " while the other, which preserved 
 the loose constitutional construction of the Federalist party, 
 became the " National Republican," afterwards called 
 " Whig " party. The approaching success of the Jackson, 
 or Democratic, party was apparent. The power and influ- 
 ence of the bank element was most formidable ; many Con- 
 gressmen directly owed their offices to it. Jackson's attitude 
 toward the bank provoked discord and opposition within his 
 own party. Through a show of the bank's power it was 
 hoped that the president's ambition for a second election 
 would induce him to surrender to the bank's demands. It was 
 made known to Jackson that every chairman of the party 
 throughout the United States was favorable to the bank ; 
 that the press, which was amenable then as now to money
 
 238 The Legal-Tender Problem 
 
 influence, was also for the bank; and that the great majority 
 of delegates to the nominating convention would favor the 
 bank. President Jackson also knew that this remarkable 
 unanimity had been accomplished, as stated by Mr. Benton 
 in his " Thirty Years in Congress," "by the expenditure on 
 the part of the bank of $3,000,000 in bribing and subsidizing 
 members of Congress, newspaper editors, politicians, bro- 
 kers, jobbers, and men of influence to defeat President Jack- 
 son and purchase a recharter." 
 
 Although it appeared that the entire control of the party 
 was in the hands of Biddle, President Jackson was unshaken 
 in his determination. He vigorously entered into the contest. 
 It was a struggle to the death between the property-rights 
 faction, as represented by the bank element, and the per- 
 sonal-rights faction, as represented by President Jackson. 
 Upon its failure to dominate President Jackson, the bank 
 element lost no time in perfecting an alliance with the Fed- 
 eralists as the National Republican party. 
 
 It would be difficult to overstate the magnitude of the 
 contest. The early environments, business connections, crim- 
 inal amenability to financial influence, and crass ignorance 
 of the cardinal principles of democratic government then, 
 as now, found many of the champions and espousers of 
 the property-rights faction — consciously for a purpose in 
 many instances, but often unconsciously — proclaiming 
 themselves members of a party which, in its pure and true 
 expression, represents the personal-rights idea of govern- 
 ment. In this contest it was essential that the president 
 should take such action as would separate " the sheep from 
 the goats." This could only be done by a reorganization 
 of the party in such a manner as would make it in fact, as 
 well as in name, the representative of the personal-rights 
 idea of government. Jackson accomplished this result, and
 
 A Change in Finance 239 
 
 the new organization, reasserting the principles of Thomas 
 Jefifcrson, and eliminating the abuses which had been en- 
 grafted upon it by the treachery of Biddle and his satellites, 
 was in fact a Democratic party, and as such it attracted to 
 its support those who believed in personal-rights principles. 
 There was then no more difference between the principles 
 and policies of the Federalist and Nicholas Biddle factions 
 than there now is between the Republican party and the 
 gold-bug branch of the Democratic party ; all are alike in 
 that the former were then, as the latter are now, the cham- 
 pions of the property-rights idea as opposed to the personal- 
 rights idea of government. 
 
 I'^ear of President Jackson's unyielding hostility caused 
 the bank to exert its utmost power to accomplish his defeat. 
 The activity of " Biddle's Bank " was similar in character 
 to the zeal and efforts at the present time of the banks, trusts, 
 and combines to prevent the establishment of a genuine 
 democracy. The principal difference between what was 
 done in Jackson's time and what is done to-day is that 
 Biddle's bank openly endeavored to maintain its power, while 
 the same character of institution at the present time accom- 
 plishes its ends by the most secret and treacherous methods. 
 In that day the Federalist party and the Biddle branch com- 
 bined as the National Republican party, and attempted to 
 secure the election of Henry Clay to the presidency. In this 
 day they remain apart, and have their Clevelands, Hills, Bel- 
 monts, Whitneys, and other tools of the money power, pro- 
 fessed followers of Jefferson and Jackson, struggling to con- 
 trol Democratic nominating conventions, in the hope and 
 for the purpose of foisting upon the personal-rights party 
 some agent of the property-rights party as president, and 
 committing the Democratic party to the advocacy of the 
 principles of ,the property-rights faction.
 
 XXII 
 
 The Issuance of Bills of Credit by the State of 
 
 Missouri 
 
 The United States Bank faction, assuming that it would 
 secure a renewal of its charter, did not propose that there 
 should be any infringement of its claimed rights to the 
 exclusive issue of all the credit money, and therefore it 
 caused suit to be instituted, challenging the right of the 
 State of Missouri to exercise said privilege. — Craig vs. The 
 State of Missouri, 4 Peters, 10. 
 
 It appears that on June 27, 1821, two years after the 
 Supreme Court decided that the act of Congress granting 
 a charter to a bank and giving it the right to issue notes, 
 was constitutional, the Legislature of the State of Missouri 
 presumed from this, and the fact that the States were 
 authorizing the banks chartered by them to issue notes, 
 that it could also authorize the issue of paper money with- 
 out the aid of a bank. 
 
 This was done by an act of the Legislature passed June 
 27, 1821, to establish "loan offices." By means of these 
 offices, the State issued to its citizens, as a loan, in sums 
 less than $200 to the individual applicant, certificates in 
 denominations from fifty cents to ten dollars. The individ- 
 ual who received the certificates secured the payment of the 
 same by executing his note, bearing two per cent interest, 
 with personal property as collateral security. 
 
 One Craig and others, who had borrowed and used the 
 certificates, refused to pay their note, on the ground that it 
 240
 
 Missouri Bills of Credit 241 
 
 was a void contract, because unlawful and violative of the 
 provision of the Constitution that no State shall emit a 
 bill of credit. 
 
 In 1823 suit was instituted in the State court against 
 Craig and others upon the liote. In November, 1824, judg- 
 ment was rendered in favor of the State for the sum of 
 $237.79. Upon appeal to the Supreme Court of the State, 
 the judgment was affirmed. The defendants prosecuted a 
 writ of error to the Supreme Court of the United States, 
 and in 1830 Chief Justice Marshall delivered the opinion 
 of the court reversing the decision of the State court, and 
 holding that the note was void because of the illegality of 
 the consideration, the certificates having been issued in vio- 
 lation of the Constitution. , 
 
 The smallness of the amount involved did not escape 
 the notice of Jackson and Benton, who realized that, insig- 
 nificant as the case appeared in the amount, it involved a 
 serious financial principle. Senator Benton therefore 
 decided to give the weight of his influence to the support 
 of the State of his adoption in its endeavor to free its citi- 
 zens from dependence on the capitalists of the East. In his 
 argument before the Supreme Court, he said : — 
 
 " The act of the Legislature establishing loan offices had 
 no purpose to accomplish by which injury could be sustained 
 by any one. The deficiency of currency in the State, and 
 the expense which attended the new organization, made the 
 arrangement proposed and authorized by the act convenient 
 and beneficial to the citizens of the State. The State, when it 
 directed that the certificates should be issued, made suffi- 
 cient and certain provision for their redemption and pay- 
 ment. The permanent continuance of the circulation of 
 the certificates was prohibited by an effective regulation 
 in the bill. The twenty-fourth section of the law provided 
 16
 
 242 The Legal-Tender Problem 
 
 for the gradual extinction of the certificates as they should 
 come in ; and the power was given to the governor by the 
 twenty-ninth section of the law to negotiate a loan of gold 
 and silver for their redemption. Thus the certificates were 
 issued upon ample means for their discharge, and their dis- 
 charge to their full value must soon take place. These cer- 
 tificates were not made a legal tender. They were not 
 directed to pass as money; and zvJiilc there is no obligation 
 imposed by the lazv that tliey shall be taken by the citizens 
 of the State, it declares that the State shall take them, as 
 has heretofore been set forth. When examined, these cer- 
 tificates will be found to be nothing more than evidence of 
 loans made by the State to its citizens and for the payment 
 of which it has received specific and available pledges." 
 
 It has heretofore been stated that the Massachusetts 
 financiers acquired a financial supremacy by the use of paper 
 money, and that they determined to retain this advantage 
 by so framing the Constitution that no State would ever 
 have the right to issue paper mone}^ when needed to relieve 
 the distress of the people, however severe it might be. To 
 this end they succeeded in having the Constitution so framed 
 that only gold and silver should have legal-tender value, so 
 that whenever the people needed money to develop the 
 country and make a living, they might secure it, or its 
 substitute, only by loans or purchase from Eastern capital- 
 ists, on such conditions as they might see fit to exact. 
 
 In this view it is evident that Mr. Benton was mistaken 
 when he said that " in the establishment of loan offices 
 there was no purpose to accomplish by which injury could 
 be sustained by any one," for he overlooked the fact that 
 though the State of Missouri was moved to its action by 
 the tenderest consideration for the financial distress of its 
 citizens, it was taking away from the Eastern capitalists,
 
 Missouri Bills of Credit 243 
 
 in the amount of certificates issued, the exchisive right 
 which they claimed was secured by the terms of the Con- 
 stitution to issue fhe money of the country. 
 
 It was the protection of this claimed right (regardless 
 of the interest of the people), against any infringements by 
 the States, that was demanded of the Supreme Court by 
 the Eastern capitalists. The lawsuit, therefore, resolved 
 itself into the simple question, What is a bill of credit? No 
 one, it appears, knew what the term " bills of credit " meant. 
 
 Chief Justice Marshall, in his opinion, stated that " in 
 its enlarged, and perhaps in its literal sense, the term ' bill 
 of credit ' may comprehend any instrument by which the 
 State engages to pay money at a future day ; thus including 
 a certificate given for money borrowed." This definition, 
 it will be seen, includes interest-bearing bonds, the manna 
 of the capitalists, as well as currency, the bread of the peo- 
 ple, and consequently is too general for acceptance. 
 
 The chief justice proceeded to ask the question: "What 
 did the Constitution mean to forbid ? " He assumed cor- 
 rectly that the Constitution, as framed in this particular, took 
 the hue and complexion of the sinister motives of the Alassa- 
 chusetts financiers who secured the inhibition, and meant 
 to forbid the State of Missouri, or any other State, from, 
 in any manner that infringed their unnatural right, grant- 
 ing relief to its citi/:ens when suffering from a scarcity of 
 money. 
 
 He therefore originated and applied a very simple rule 
 to ascertain the definition of the term " a bill of credit " as 
 follows : He was particular to ascertain exactly what the 
 Legislature of the State of Missouri had done to infringe 
 the right claimed by the Eastern financiers, and then so 
 framed the definition as to meet the facts and aflford them 
 full and complete protection. He stated that "the certificates,
 
 244 The Legal-Tender Problem 
 
 signed by the auditor and treasurer of the State, are to be 
 issued b\' those officers, to the amount of $200,000, of de- 
 nominations not exceeding ten dollars, nor less than fifty 
 cents. The paper purports on its face to be receivable at 
 the treasury, or at any loan office in the State of Missouri, 
 in discharge of the taxes or debts due the State. . . . 
 
 " It seems impossible," he stated, " to doubt the inten- 
 tion of the Legislature in passing this act, or to mistake the 
 character of these certificates or the office they were to per- 
 form. The denominations of the bills, from ten dollars to 
 fifty cents, fitted them for the purpose of ordinary .circula- 
 tion ; and their reception in payment of taxes, and debts to 
 the Government and corporations, and of salaries and fees, 
 would give them currency. They were to be put in circu- 
 lation ; that is, emitted by the Government. To emit bills 
 of credit," he finally decides, " conveys to the mind the 
 idea of issuing paper intended to circulate through the com- 
 munity for its ordinary purposes, as money, which paper 
 is redeemable at a future day." 
 
 This definition of a bill of credit bears internal evidence 
 that it was so framed more to fit the facts of the case before 
 the court, and protect the Eastern financiers, than from any 
 comprehensive and just examination of the derivation, 
 growth, and use of the term. 
 
 According to Mr. Benton's statement and the admitted 
 facts, the act was a temporary, inoffensive, paternal effort 
 upon the part of the State to afford relief to its citizens for 
 the short time the Eastern capitalists were unable to furnish 
 money, or were unwilling to risk it among the people ; and 
 it exhibited a high degree of subserviency to that element 
 in the provision that the State would secure enough of their 
 gold and silver to redeem the certificates if they were not 
 taken up in payment of public dues or paid by the borrowers.
 
 Missouri Bills of Credit 245 
 
 Some fear, possibly, that the paper emissions would be 
 so efficient as to lead to permanency, larger issues, and 
 destroy the constitutional scheme of the Massachusetts finan- 
 ciers, demanded the nipping of all such experiments in the 
 bud; and the property-rights members of the court aggra- 
 vated the distress of the people of the State of Missouri 
 by destroying the value of the $200,000 worth of certificates, 
 and consequently reducing their mediums of payment to that 
 extent. 
 
 The court comprised seven judges. Chief Justice Mar- 
 shall and three others gave the majority opinion; Justice 
 McLean and two others dissented. 
 
 The definition of " bills of credit " given above is the 
 definition of the Bank of the United States faction. It will 
 be seen in subsequent pages that the State-bank faction 
 secured a dififerent definition of '' bills of credit," made in 
 accordance with the rule established ; viz., to fit the facts of 
 the case and subserve the interests of the party in power.
 
 XXIII 
 
 The Death of the Second Bank of the United 
 
 States 
 
 President Jackson did not cease his warfare against 
 the bank. On September i8, 1833, following his second 
 inauguration, he read to his cabinet his reasons for author- 
 izing the secretary of the treasury to remove the Government 
 deposits from the Bank of the United States to the State 
 banks, and named the ensuing October i, 1833, as the day 
 the removals were to commence. 
 
 Among other things he said : "Although the charter was 
 approaching its termination, and the bank was aware that 
 it was the intention of the Government to use the public 
 deposit as fast as it accrued in the payment of the public 
 debt, yet did it extend its loans from January, 1831, to May, 
 1832, from $42,402,304.24 to $70,428,070.72, being an in- 
 crease of $28,025,766.48 in sixteen months. It is confi- 
 dently believed that the leading object of this immense 
 extension of its loans was to bring as large a portion of 
 the people as possible under its power and influence, and 
 it has been disclosed that some of the largest sums were 
 granted on very unusual terms to the conductors of the 
 public press. . . . Can it now be said that the question of a 
 re-charter of the bank was not decided at the election which 
 ensued. 
 
 " Had the veto been equivocal, or had it not covered the 
 whole ground ; if it had merely taken exception to the details 
 of the bill or to the time of its passage; if it had not met 
 246
 
 Death of Second Bank of the U. S. 247 
 
 the whole ground of unconstitutionality, then there might 
 have been some plausibility for the allegation that the ques- 
 tion was not decided by the people. It was to compel the 
 president to take his stand that the question was brought 
 forward at that particular time. He met the challenge, 
 willingly took the position into which his adversaries 
 sought to force him, and frankly declared his unalterable 
 opposition to the bank as being both unconstitutional and 
 inexpedient. . . . 
 
 " It has been alleged by some, as an objection to the 
 removal of deposits, that the bank has the power, and in 
 that event will have the disposition, to destroy the State 
 banks employed by the Government, and bring distress upon 
 the country. ... If the president believed the bank pos- 
 sessed all the power which has been attributed to it, his 
 determination would only be rendered the more inflexible. 
 If, indeed, this corporation now holds in its hands the hap- 
 piness and prosperity of the American people, it is high time 
 to take the alarm." 
 
 Mr. Duane, the secretary of the treasury, refused to act. 
 He was removed, and Mr. Taney appointed. 
 
 The Bank of the United States, and its branches, was 
 forced into liquidation, and by February 4, 1814, Nick 
 Biddle's bank at Philadelphia was closed, as were nearly all 
 the branches of the South and West. 
 
 To relieve the distress caused by the change from national 
 to State banks. Congress, in June, 1834, made the silver dol- 
 lar of Mexico, Peru, Brazil, and Central America current 
 money for the payment of all debts and demands in the 
 United States. In this month the Government paid all its 
 debt.
 
 XXIV 
 
 The Change of the Ratio from I S to I to l6 to I 
 
 The enactment by Congress, in 1792, that the ratio 
 between silver and gold should be 15 to i when it should 
 have been i^yi to i, made the silver coins cheaper than 
 the gold coins. This caused all payments to be made in 
 the cheaper money, silver, and gold was shipped to Europe 
 to secure the higher value given it there. 
 
 It is evident that silver, in its practical use, was supply- 
 ing the demand for a local currency, and would, in the 
 course of time, have furnished a full supply to meet the 
 local demand for mediums of payment, and basic money. 
 
 Silver, at 15 to i, was playing the same role to gold 
 that the issue of paper always plays to gold and silver ; viz., 
 furnishes a local legal-tender money to the people, thereby 
 enabling them to get profitable prices for all products. As 
 long as such a condition existed, the people prospered ; for 
 with an increasing supply of metallic money, the ability of 
 the many State banks to redeem their notes would not be 
 brought in question. 
 
 With the creditors and owners of the interest-bearing 
 securities, however it may have been with the debtors and 
 producers, it was different. They objected, because all 
 debts and interest were paid in the cheap silver coins and 
 the State-bank notes that were issued upon the increasing 
 base of silver. There was no injustice in this to the credit- 
 ors, for the reason that the sums to be paid called for dol- 
 lars, and the value of the dollar, as it was used in creating 
 248
 
 The Change from Ij to I to lO to I 249 
 
 the oblig'ation, was 371M grains of pure silver; and to pay 
 any obligation in the exact value that was meant when it 
 was made, is always fair in business and just in morals. 
 
 The injustice of the transaction consists in legislation 
 that forces the debtor to pay in coins that are of a value 
 in excess of the value the " word " dollar meant when the 
 contract was made, or allows him to pay in coins that are 
 of a less value than the " word " dollar implied when it was 
 used in making the contract. 
 
 There is a middle ground, it is claimed, upon which 
 both the debtor and the creditor can stand, that is fair and 
 just; and that is to make the silver and the gold in the coins 
 of such proportion that the silver coins and gold coins will 
 be equal in value, and then, so long as that condition exists, 
 it will not matter in which the debtor pays. While this is 
 true in theory and correct in morals, it is impracticable, 
 for the reason that no human power, individual nor gov- 
 ernmental, can control the output of the metals, and a ratio 
 correctly established one year may be disturbed in a few 
 years. This disturbance, so often and so radically brought 
 about by the arbitrariness of mother earth in giving up to 
 man's incessant quest the precious metals, is assisted by 
 other causes equally uncontrollable. 
 
 And yet it is the impossible that the creditors and holders 
 of interest-bearing securities are always striving after, and 
 their influence has been such that statutes abound with the 
 avaricious and futile attempts ; and reports of Parliament, 
 Congresses, and International Monetary Conferences are full 
 of jargon, denominated scientific discussions of the causes 
 and remedies for the evils growing out of such legislation. 
 
 This country was guilty of an act of just such folly at 
 the instigation of the creditors, and the owners of interest- 
 bearing securities, in the act passed June 28. 1834. This
 
 250 The Legal-Tender Problem 
 
 act changed the ratio between silver and gold from 15 to i 
 to 16 to I, and the standard fineness of gold from 11/12 
 to 9/10. This made 25.8 grains of gold 9/10 fine, instead 
 of 2^ grains 11/12 fine, the equivalent in value of 371 /i. 
 grains of pure silver. Another act was passed on the same 
 day changing the value of foreign gold coins to conform to 
 the first act. 
 
 The effect of this legislation was to make the gold in 
 the gold coins of less value than the silver in the silver coins, 
 and consequently the gold coins became the money of pay- 
 ment in this country. Silver, therefore, went to Europe, 
 where at the ratio of 155^ to i it received a higher value. 
 
 At first consideration it would appear that this change 
 was in the interest of the debtor, because the gold coins 
 being now cheaper than the silver coins, he would be enabled 
 to pay his debts with less value than when he contracted to 
 pay in dollars of the value of 371^4 grains of pure silver. 
 
 In theory only was this true. In practise it w^as just the 
 reverse, and to the advantage of the creditors, for the fol- 
 lowing reasons : when silver at 1 5 to i in this country and 
 15/^ to I in Europe, was a legal tender, it is evident that the 
 silver coined in this country gained the value of one-half 
 pound of silver over gold in every pound of gold coined 
 here. Inasmuch as the law of legal tender controls, the 
 silver coins in this country were equal in value to the gold 
 coins, and the only way for the owners of gold to escape 
 this loss was to carry their gold to Europe. Therefore the 
 gold of this country was used solely to pay for foreign goods 
 or to purchase foreign silver to be brought here, and increase 
 the volume of the basic money. 
 
 But when the conditions were reversed by the change 
 of the ratio to 16 to i, and the metal in the gold coins, of 
 less value than the metal in the silver coins, was, by the law
 
 The Change from I ^ to I to 1 6 to I 251 
 
 of legal tender, made equal with the silver coins as mediums 
 of payment, the gold coins became the local and basic cur- 
 rency of this country, and the owners of silver did as the 
 owners of gold had done — carried it to Europe, in order 
 that they might secure its full value. Therefore silver was 
 used to pay for foreign goods and to purchase foreign gold, 
 but if not so used there was sufficient inducement to ship it 
 to Europe for coinage at i5/<2, as against 16 to i in this 
 country. 
 
 Though silver was fast leaving this country, and even- 
 tually all of it would take its departure, the value of silver 
 in Asia was higher than in Europe, and it was being ex- 
 ported to the Orient. The European demand for gold 
 caused a contraction of the volume of metallic money in 
 this country. This scarcity of gold was intensified from the 
 fact that England had been on the gold base since 18 16, 
 which it was struggling to maintain. There was not enough 
 available gold to supply both England and this country, and 
 in their struggle one or both had to go under. This coun- 
 try, as will be shown presently, went under ; and England 
 would also have succumbed had not France extended a 
 helping hand to the Bank of England, and saved it from the 
 catastrophe that overtook the banks of this country. 
 
 This scarcity, and the struggle for the basic money of 
 the country, was premeditatedly brought about, and had the 
 effect that was intended by those who influenced Congress 
 to change the basic money from silver to gold by the change 
 of the ratio. Such legislation has the efifect of enhancing 
 the value of metallic money in use, decreasing the price 
 of products and labor, and curtailing the operations of the 
 wholesale business of the country, by jeopardizing or de- 
 stroying all the credit money that is claimed to be redeem- 
 able in specie.
 
 2 52 The Legal-Tender Problem 
 
 That these results had not occurred was because there 
 were eight hundred State banks that were being unwisely 
 sustained by Congress in the act of June 23, 1836. This act 
 provided that the deposits of the United States should be 
 made in State banks, and that said banks should do and 
 perform for the treasury all that the Bank of the United 
 States had done and performed. The banks obligated them- 
 selves to pay coin at all times, and to pay the Government 
 two per cent interest for certain deposits. 
 
 President Jackson, in his Eighth Annual Message, Vol. 
 3, page 241, stated that " the Government had without neces- 
 sity received from the people a large surplus, which, instead 
 of being employed as heretofore and returned to them by 
 means of public expenditure, was deposited with sundry 
 banks. ' The banks proceeded to make loans upon this sur- 
 plus, and thus converted it into banking capital ; and in this 
 manner it has tended to multiply bank charters, and has 
 had a great agency in producing a spirit of wild specula- 
 tion. . . . 
 
 " The banks were extending . . . their issues so largely 
 as to alarm considerate men, and render it doubtful whether 
 those bank credits, if permitted to accumulate, would ulti- 
 mately be of the least value to the Government. 
 
 " The spirit of expansion and speculation was not con- 
 fined to the deposit banks, but pervaded the whole multitude 
 of banks throughout the Union, and was giving rise to 
 new institutions to aggravate the evil. The safety of the 
 public funds, and the interest of the people generally, re- 
 quired that these operations should be checked. . . . Under 
 this view of my duty I directed the issuing of the order . . . 
 requiring payment for the public lands sold to be made in 
 specie." 
 
 This constituted a most peculiar condition of affairs.
 
 The Change from /J to I to 1 6 to I 253 
 
 The owners of gold had sufficient influence with Congress 
 to change the dollars of payment and basic money from sil- 
 ver to gold by the change to 16 to i. The State-bank fac- 
 tion thereupon had sufficient influence with this same Con- 
 gress to induce it to authorize the deposit of all the public 
 money in the State banks. These deposits encouraged the 
 officials to extend and increase the issues of the banks at a 
 time when the metallic money of the country, in which these 
 bank credits were redeemable, was decreasing. 
 
 This suicidal conduct continued until the president felt 
 called upon, as he stated, to check the additional issues by 
 directing that the public lands should be sold for specie 
 only. This action of the president, virtually discrediting 
 and calling public attention to his mistrust of the notes of 
 the banks in which the Government had deposited $40,000,- 
 000, hastened the suspension of specie payments by all the 
 banks, jeopardized the Government deposits, and destroyed 
 the efficiency of the circulating currency of the country. 
 
 On January 13, 1837, Congress changed the alloy in the 
 silver coins, making the standard silver dollar 41 2^/2 instead 
 of 416 grains, and all subdivisions in proportion.
 
 XXV 
 
 President Jackson's Farewell Address 
 
 In his farewell address, page 305, the president, with 
 an intense appreciation of the danger to the interests of the 
 country from banking institutions, as hanks of issue, writes 
 as follows: — 
 
 " It is one of the serious evils of our present system 
 of banking that it enables one class of society, and that by 
 no means a numerous one, by its control over the currency, 
 to act injuriously upon the interests of all the others, and 
 to exercise more than its just proportion of influence in 
 political affairs. The agricultural, the mechanical, and the 
 laboring classes have little or no share in the direction of 
 the great moneyed corporations, and from their habits and 
 the nature of their pursuits they are incapable of forming 
 extensive combinations to act zvith united force. . . . The 
 planter, the farmer, the mechanic, and the laborer all know 
 that their success depends upon their own industry and 
 economy, and that they must not expect to become suddenly 
 rich by the fruits of their toil. . . . 
 
 " But with overwhelming numbers and wealth on their 
 side, they are in constant danger of losing their fair influence 
 in the Government, and with difficulty maintain their just 
 rights against the incessant efforts daily made to encroach 
 upon them. The mischief springs from the power which 
 the moneyed interest derives from a paper currency which 
 they are able to control — from the multitude of corpora- 
 tions with exclusive privileges which they have succeeded 
 
 254
 
 Jackson's Farewell Address 255 
 
 in obtaining in different States, and which are employed alto- 
 gether for their benefit ; and unless you become more watch- 
 ful in your States, and check this spirit of monopoly and 
 thirst for exclusive privileges, you will in the end find that 
 the most important powers of Government have been given 
 or bartered away, and the control over your dearest inter- 
 ests has passed into the hands of these corporations. 
 
 " The paper-money system and its natural associations, 
 monopoly and exclusive privileges, have already struck 
 their roots too deep in the soil, and it will require all your 
 efifort to check its further growth and to extirpate the evil. 
 The men who profit by the abuses and desire to perpetuate 
 them will continue to besiege the halls of legislation in the 
 General Government as well as in the States, and will seek 
 by every artifice to mislead and deceive the public servants." 
 
 And yet unwittingly and unconsciously he approved the 
 act of Congress which changed the ratio to 16 to i, and 
 which in eflfect changed the basic money in this country 
 from the plentiful and increasing silver dollars to the scarce 
 and decreasing coins of gold ; not only that, but unwittinglv 
 and unknowing of its effect, he approved the act authorizing 
 the deposit of Government money in the State banks, which 
 encouraged them to issue additional notes, when steps should 
 have been taken to decrease the bank-issues in the proportion 
 the basic money was being decreased by the change from 
 silver to gold.
 
 XXVI 
 
 President Van Burens Administration, Its Hos- 
 tility to Treasury Notes and Bank-Notes, 
 and the Suspension of the Banks. 
 
 On March 4, 1837, President Jackson was succeeded 
 by Martin Van Buren, who, in May of that year, was called 
 upon to meet the effect of the change of the ratio, — viz., 
 the suspension of specie payments by the banks, — and the 
 consequent contraction of the volume of basic money to 
 gold alone. 
 
 As the contraction of the metallic base of the money 
 of the country increased the distrust of the bank-notes, 
 hastened, it is admitted, by the action of President Jackson 
 in refusing anything but specie for the payment of the pub- 
 lic lands, the distress became so intense that a meeting was 
 held in New York in March to devise a plan of relief. Mr. 
 Webster addressed the meeting, and ascribed the distress 
 to the interference of the Government with the currency, 
 and to the order that public lands be paid for in specie only. 
 
 Mr. Webster must not have explained the matter very 
 fully, for the action of the meeting was to send a committee 
 to Washington, asking only for the rescinding of the order 
 in reference to public lands, when the committee should also 
 have been instructed to demand a repeal of the law that the 
 money of the Government be deposited with State banks, 
 and that the ratio between gold and silver should be changed 
 to 153/2 to I, as it was in Europe. 
 256
 
 Van Bitren's Administration 257 
 
 The president was not responsive to the request of the 
 committee, and on May 10 following all the banks suspended. 
 On the 15th of the month the president called a session of 
 Congress for the first Monday in the following September. 
 In his special message, after reciting the reasons for his 
 call, he stated that " during the early stages of the revulsion 
 through which we have just passed, much acrimonious dis- 
 cussion arose, and great diversity of opinion existed as to 
 the real cause." 
 
 He repels and resents the accusation that the suspension 
 was due to the interference of the Government with the cur- 
 rency, and the order that the public lands must be paid for 
 in specie ; but claimed that " it was solely due to the unwise 
 issue of too many notes by the State banks and the wild 
 spirit of speculation engendered thereby." 
 
 It is immaterial whether the efifect of the change of the 
 ratio exaggerated the evils that are ever the attendants of 
 the* false system of State-bank issues, or whether the State- 
 bank system of issuing a circulating currency was exag- 
 gerated by the Government deposits, but it is evident that 
 the two combined, in their practical operation, produced the 
 panic which afflicted the country. 
 
 Though the president desired that provision should be 
 made for the safety of the public revenue, and that all pay- 
 ments due the Government should be made in specie, he 
 evinced no serious concern for providing a safe circulating 
 currency for the people, other than is included in the sug- 
 gestion that if the Government refuses to receive the notes 
 of any and all the banks, it may tend to make the banks 
 more careful in issuing and taking care of their notes. 
 
 The situation was thoroughly discussed by Congress. 
 Senator Benton said that "the Government ought not to 
 delegate this power if it could. It was too great a power 
 
 17
 
 258 The Legal-Tender Problem 
 
 to be trusted to any banking company whatever, or to any 
 authority but the liighest and most responsible which was 
 known to our form of Government. The Government itself 
 eeases to be independent — it ceases to be safe — when the 
 national currency is at the will of a company. The Gov- 
 ernment can undertake no great enterprise, cither of ivar or 
 peace, without the consent or co-operation of that company. 
 . . . The people are not safe when such a company has such 
 a powxr. The temptations are too great, the opportunity too 
 easy, to put up and down prices, to make and break fortunes, 
 to bring the whole community on its knees to the Neptunes 
 who preside over the flux and reflux of paper." 
 
 Senator Calhoun said that " no one can doubt but that 
 the Government credit is better than any bank, — more reli- 
 able, more safe. Why, then, should it mix up with the 
 less perfect credit of these institutions? Why should it 
 not be safe in its own hands, while it shall be considered 
 safe in the hands of eight hundred private institutions, scat- 
 tered all over the country, and which have no other object 
 but their own private profit, to increase which they extend 
 their business to the most dangerous extremes? And why 
 should the community be compelled to give six per cent dis- 
 count for the Government credit, blended with that of the 
 bank, zvhen the superior credit of the Government coidd be 
 furnished without discount, to the mutual advantage of the 
 Government and the community? 
 
 " But whatever may be the amount that can be circu- 
 lated, I hold it clear, that to that amount it would be as 
 stable in value as gold and silver itself, provided the Gov- 
 ernment be bound to receive it extensively with those metals 
 in all its dues, and that it be left perfectly optional with 
 those who have claims on the Government to receive it or 
 not."
 
 Van Buren's Administration 259 
 
 The result of the action of Congress was embodied in 
 the act of October 12, 1837. This act provided for the 
 issue of $10,000,000 in treasury notes, in denominations not 
 less than $50, to be paid in one year from date. They were 
 made a legal tender for all payments due the Government, 
 but not for the pa}-ment of private debts. 
 
 Inasmuch as it was niediums of payment and not invest- 
 ments which were so intensely needed, and inasmuch as 
 Congress did not have the courage to make the notes full 
 legal tenders, the president and secretary placed the inter- 
 est at the nominal rate of one mill per annum. In this form, 
 though they were not issued in denominations less than $50, 
 they served in part the purposes of money, and freely cir- 
 culated in all the channels of trade, the banks not having 
 the power to injuriously afifect their use. 
 
 The fatal defect in the issue of the treasury notes was 
 that they were not issued as currency, but as a debt of the 
 Government, and to be paid in one year from date. This 
 was and could only have been due to the unwholesome influ- 
 ence that the owners of gold, silver, and the banks have 
 always exercised over Congress, in the fear that legal-tender 
 treasury notes would infringe their claimed constitutional 
 right to supply the currency of the country. Therefore even 
 a temporary use of treasury notes is never permitted except 
 upon the assumption that they are a debt of the Government, 
 and upon the further understanding that they will be re- 
 deemed and retired from circulation as soon as the exigency 
 which demanded their issue has been tided over. 
 
 It appears from President Van Buren's second annual 
 message, dated December 3. 1838, page 489; that only about 
 $8,006,000 of the $10,000,000 issued were then outstanding, 
 and that they were being canceled as they were being paid 
 into the treasurv.
 
 26o The Legal-Tender Problem 
 
 The relief given to the country by the use of the treas- 
 ury notes, though efficient and beneficial, was not full and 
 complete ; and their cancelation and retirement, as they 
 came into the treasury, made the relief of such a temporary 
 character that it was virtually an aggravation of the evil 
 which caused their issuance. On Alay 31, 1838, Congress 
 therefore authorized the issue of $10,000,000 additional 
 in treasury notes. 
 
 On March 21, 1840, Congress authorized the issue of 
 additional notes " in lieu of others heretofore or hereafter 
 redeemed, not to exceed in the amount of notes- outstanding 
 at any time the aggregate of $5,000,000, and to be redeemed 
 sooner than one year if the means of the treasury will 
 permit." 
 
 It seemed impossible at that time, in the warfare for 
 supremacy between the two bank factions, to secure for the 
 treasury notes any governmental recognition, except such 
 as one or the other faction, which happened to be in power, 
 would permit as a mere temporary expedient.
 
 XXVII 
 
 The Supreme Court Saves the State Banks 
 
 The State Banks had barely escaped extermination in 
 the warfare, as is evident from the facts in the case of John 
 Briscoe vs. The President and Directors of the Bank of the 
 Commonwealth of Kentucky, decided at the January term, 
 1837, of the Supreme Court of the United States. 11 Peters, 
 
 257- 
 
 It appears that the Legislature of Kentucky chartered 
 
 the Bank of the Commonwealth of Kentucky, elected the 
 
 officers and directors, voted the funds of the State into the 
 
 vault of the bank, and the State, as the bank, and in its 
 
 name, was carrying on the banking business. 
 
 One John Briscoe became indebted to the bank in the 
 sum of $2,048.37 by note, and refused to pay same, because, 
 as alleged in his answer, among other defenses, " The bank 
 was authorized to issue bills of credit on the faith of the 
 State, in violation of the Constitution of the United States." 
 
 The suit of the bank was sustained by the State courts, 
 and judgment rendered against Briscoe. 
 
 A writ of error was prosecuted to the Supreme Court 
 of the United States, where the sole question was whether 
 the notes issued by the bank are bills of credit emitted by 
 the State, in violation of the Constitution of the United 
 States. 
 
 It appears from the dissenting opinion of Mr. Justice 
 Story, that upon the first argument of the case, during the 
 life of Chief Justice Marshall, the court decided that the 
 
 261
 
 262 The Legal-Tender Problem 
 
 issue of notes, or bills of credit, by the Bank of the Com- 
 monwealth of Kentucky, was in violation of the constitu- 
 tional inhibition '* that no State shall emit bills of credit." 
 
 ]\Ir. Justice Story stated that " when this cause was for- 
 merly argued before the court, a majority of the judges who 
 then heard it were decidedly of opinion that the act of Ken- 
 tucky establishing this bank was unconstitutional and void ; 
 as amounting to an authority to emit bill of credit for and 
 on behalf of the State within the prohibition of the Consti- 
 tution of the United States. In principle it was thought to 
 be decided by the case of Craig vs. The State of Missouri, 
 4 Peters, 10. 
 
 "Among that majority was the late Mr. Chief Justice 
 Marshall. . . . The case has been again argued, and precisely 
 upon the same grounds as at the former argument. A 
 majority of my brethren have now pronounced the act of 
 Kentucky to be constitutional." 
 
 From this statement it is evident that the death of Mr. 
 Chief Justice Alarshall and the appointment of Roger B. 
 Taney changed the political complexion of the court. 
 
 During Mr. Marshall's life the court was composed of 
 four United States Bank, or property-rights, judges and 
 three State-bank judges. Upon the appointment of Mr. 
 Taney, this was reversed, and the court was composed of 
 four State-bank and only three United States bank judges. 
 
 Mr. Justice McLean, who dissented from the majority 
 of the court in the case of Craig vs. The State of iVIissouri, 
 because he saw that the reasoning and principles of that case 
 would prove fatal to the system of State banks in the event 
 their constitutionality should ever be called in question, 
 delivered the opinion of the court. In the opinion, Mr. Jus- 
 tice McLean openly and boldly admits that it is a contest 
 for supremacy between the two bank factions in the follow- 
 ing:—
 
 The State Banks Saved 263 
 
 " This cause is approached uncler a full sense of its mag- 
 nitude. Important as has been the great questions brought 
 before this tribunal for investigation and decision, none 
 have exceeded, if they have equaled, the importance of that 
 which arises in this case. The amount of property involved 
 in the principle is very large; but this amount, however 
 great, could not give to the case the deep interest which is 
 connected with its political aspect." 
 
 The only issue presented for the decision of the court 
 was whether the act of the Legislature of Kentucky, author- 
 izing the bank to emit bills of credit, was in violation of the 
 prohibition of the Constitution that " no State shall emit 
 bills of credit." 
 
 If the definition of a bill of credit heretofore given by 
 the court in the case of Craig vs. The State of Missouri, 
 and which has been denominated the definition of the United 
 States Bank faction, is accepted, the matter would neces- 
 sarily have to be resolved against the constitutionality of the 
 act of the Legislature of Kentucky. 
 
 ]\Ir. Justice McLean, in this case, following the example 
 of Mr. Chief Justice Marshall in Craig vs. The State of 
 Missouri, and keeping in mind the purpose in view, fitted 
 the definition of the term " bills of credit " to the facts of 
 the case, and came to the conclusion that the issues of the 
 Bank of the Commonw^ealth of Kentucky were not bills of 
 credit, and therefore the act of the Legislature of Kentucky, 
 Sfivinsf the bank the authoritv to emit notes, was not uncon- 
 stitutional. This decision saved the State banking system 
 to his faction, notwithstanding only a short while before 
 its death knell had been sounded by :\Ir. Chief Justice 
 Marshall. 
 
 The reasoning of die very learned judge, in reaching 
 his definition, like that of Mr. Chief Justice Marshall, in
 
 264 The Legal-Tender Problem 
 
 Craig vs. The State of Missouri, was more interesting than 
 instructive. A sample hereinbelow set forth, justifies the 
 statement that the definition should be denominated that 
 of the State-bank faction : — 
 
 " But the main grounds on which the counsel for the 
 plaintiffs rely," the opinion states, " is, that the Bank of 
 the Commonwealth, in emitting the bills in question, acted 
 as the agent of the State ; and that, consequently, the bills 
 were issued by the State. That, as a State is prohibited from 
 issuing bills of credit, it can not do indirectly what it is pro- 
 hibited from doing directly. . . . 
 
 " If this argument be correct, and the position that a 
 State can not do indirectly what it is prohibited from doing 
 directly be a sound one, then it must follow, as a necessary 
 consequence, that all banks incorporated by a State are un- 
 constitutional. [He meant all banks of issue, and not banks 
 of deposit, discount, exchange, etc., for there was no inhi- 
 bition against the States' chartering banks, but only against 
 their emitting bills of credit.] . . . This doctrine is start- 
 ling, as it strikes a fatal blow against the State banks, which 
 have a capital of nearly $400,000,000, and which supply 
 almost the entire circulating medium of the country." 
 
 It seems from this that it was asking too much of the 
 Supreme Court to discharge its duty, under its oath to sup- 
 port the Constitution, if it destroyed $400,000,000 of prop- 
 erty, and took away from the owners of those banks the 
 right to loan their credit, in the shape of bank-notes, to the 
 people. It was deemed wiser, better, and more statesman- 
 like to preserve them for their assistance and support in 
 the management and control of the Government, than to be 
 patriotically and logically loyal to the Constitution and the 
 form of Government. 
 
 The result was that the violative abuse of the Constitu-
 
 The State Banks Saved 265 
 
 tion, that was sustained by tlic Supreme Court, in the fear 
 that $400,000,000 of property would be destroyed, was con- 
 tinued until i860, when the system fell of its own weight, 
 inflicting a loss and injury greatly in excess of that amount. 
 
 This disposition of the judiciary — subserviency to fac- 
 tion, fear of injury to property rights, and servility to the 
 money power — has done more to pervert the purity of the 
 system of our Government than all the corrupt legislation 
 of all the Congresses and Legislatures of the country. 
 
 At the date of this decision, 1837, there were some eight 
 hundred of the institutions in the country. The unwise 
 conduct of Congress in supporting these institutions by 
 authorizing the deposit of all public money with them, and 
 their mismanagement, alarmed President Jackson, and 
 caused him to take the precautionary measures that he did, 
 and which proved so fatal to their interests and the welfare 
 of the people.
 
 XXVIII 
 
 The First Iiidependent Treasury 
 
 The suspension of the banks in 1837 did not justify 
 the hostile attitude of President Van Buren, which found 
 expression in the act of Congress passed July 4, 1840^ estab- 
 lishing the first independent treasury. 
 
 In his third annual message, dated December 2, 1839, 
 he recommended the establishment of an independent treas- 
 ury in the following language : " I have heretofore assigned 
 to Congress my reasons for believing the establishment of 
 an independent national treasury, as contemplated by the 
 Constitution, is necessary to the safe action of the Federal 
 Government. The suspension of specie payments in 1837, by 
 the banks having the custody of the public money, showed 
 in so alarming a degree our dependence on those institutions 
 for the performance of the duties required by the law, that 
 I then recommended the entire dissolution of this connec- 
 tion." 
 
 By the terms of this act the money of the Government 
 was not to be deposited in State banks, but was to be kept 
 in the mints, custom-houses, post-offices, and the treasury 
 building; and after January 3, 1843, the Government would 
 not receive anything but gold and silver. 
 
 This law announcing that after January 3, 1843, only 
 gold and silver would be received by the treasury, notwith- 
 standing it had notes outstanding that were receivable for 
 all debts and dues of the Government, was intended to force 
 their surrender, so that they could be canceled and taken 
 266
 
 The First Independent Treasury 267 
 
 out of competition with gold and silver. Such drastic 
 efforts upon the part of the Government to force its own 
 paper out of circulation could only be caused by some sin- 
 ister motive, for there could have been no sense of insecurity 
 in the treasury notes so long as they were receivable by the 
 Government in payment of all public dues. 
 
 This attack ujjon State-bank issues and the' treasury 
 notes, endeavoring to force the circulating medium of the 
 country to a jnire metallic money, w^as made an issue in the 
 presidential campaign of 1840. The result was that General 
 Harrison was elected president. 
 
 After the election, and before the inauguration of Gen- 
 eral Harrison, the distress was such that Congress, on Feb- 
 ruary 15, 1841, authorized the issue of treasury notes "in 
 such sums as the exigency of the Government may require, 
 but not to exceed five million dollars of this issue ; pro- 
 vided that the treasury notes heretofo* issued, unredeemed, 
 and added to the notes issued under this act, shall not exceed 
 five million dollars, and that they be redeemed in the last 
 quarter of the year, if the condition of the treasury will 
 permit." 
 
 This was strange conduct on the part of a retiring 
 administration which had within the year endeavored to 
 force the surrender of treasury notes by the enactment of a 
 law that after January 3, 1843, they would not be received 
 by the Government. It was evidently done to forestall the 
 necessity for the change in the finances that the Whigs would 
 claim should be made, and was an acknowledgment of the 
 efficiency of treasury notes, and of the sinister motives that 
 had caused the passage of the act of July 4. 1840, notwith- 
 standing "the danger of inconvenience to the public and 
 unreasonable pressure upon sound banks." that the president 
 stated in his message had been urged as objections.
 
 XXIX 
 
 The Property-Rights Faction Again in Control 
 
 of the Government 
 
 The bitterness of the money factions, as expressed in 
 party action, became so intense and so unmindful of the 
 pubHc weal that President Harrison, in his inaugural, re- 
 buked it in the following language : — 
 
 " Before concluding, fellow citizens, I must say some- 
 thing to you on the subject of the parties at this time exist- 
 ing in our country. To me it appears perfectly clear that 
 the interest of the co]^itry requires that the violence of the 
 spirit by which those parties are at this time governed must 
 be greatly mitigated, if not entirely extinguished, or con- 
 sequences will ensue which are appalling to be thought of. 
 
 " If parties in a republic are necessary to secure a degree 
 of vigilance sufficient to keep the public functionaries within 
 the bounds of law and duty, at that point their usefulness 
 ends. Beyond that they become destructive of public vir- 
 tue, the parent of a spirit antagonistic to that of liberty, 
 and eventually its inevitable conqueror. We have examples 
 of republics where the love of country and liberty at one 
 time were the dominant passions of the whole mass of citi- 
 zens, and yet, with the continuance of the name and form 
 of free government, not a vestige of these qualities remain- 
 ing in the bosom of any one of the citizens. . . . 
 
 " The spirit of liberty had fled, . . . and so under the 
 operation of the same causes and influences, it will fly from 
 our capitol and our forums. . . . Such a tendency has ex- 
 268
 
 Property-Rights Faction in Control 269 
 
 isted — does exist. ... It becomes my duty to say to you 
 that there exists in the land a spirit hostile to liberty itself. 
 It is a spirit contracted in its views, selfish in its objects. It 
 looks to the aggrandizement of a few even to the destruction 
 of the interests of the whole." 
 
 These were alarming ideas for the president of the prop- 
 erty-rights faction to announce, and it was unfortunate that 
 the plain-speaking old warrior did not live to put them into 
 practise. 
 
 The condition of the finances, as he stated in his proc- 
 lamation of March 17, 1841, was such that he thought it 
 advisable to call an extra session of Congress for the 3d 
 day of May following; but unfortunately he died on April 
 4, 1841, and the discharge of the duties of the presidential 
 office devolved upon the vice-president, John Tyler, of Vir- 
 ginia.
 
 XXX 
 
 The JVarfare of the Bank of the United States 
 Against President Tyler 
 
 Mr. Tyler seemed to have a premonition of the war- 
 fare that would be waged against him, for in his inaugural 
 he says, " For the first time in our history the vice-presi- 
 dent of the United States, by the happening of a contin- 
 gency provided for in the Constitution, has had devolved 
 upon him the presidential office. The spirit of faction, which 
 is directly opposed to a spirit of lofty patriotism, may find 
 in this occasion for assaults upon my administration." 
 
 In his special message, dated June i, 1841, he stated, 
 " Within a few years past, three diflferent schemes have 
 been before the country. The charter of the Bank of the 
 United States expired by its own limitations in 1836. An 
 effort was made to renew it, which received the sanction 
 of the two houses of Congress ; but the president of the 
 United States exercised his veto power, and the measure 
 was defeated. A regard to truth requires me to say that 
 the president was fully sustained in the course he had taken 
 by the popular voice. 
 
 " His successor to the chair of state unqualifiedly pro- 
 nounced his opposition to any new charter of a similar insti- 
 tution, and not only the popular election which brought him 
 into power, but the elections through much of his term, 
 seemed clearly to indicate a concurrence with him in senti- 
 ment on the part of the people. After the public moneys 
 were withdrawn from the United States bank, they were 
 270
 
 frarfare Against President Tyler 271 
 
 placed on deposit with the State banks, and the result of 
 that policy has been before the country. To say nothing as 
 to the question whether that experiment was made under 
 propitious or adverse circumstances, it may be safely as- 
 serted that it did receive the unqualified condemnation of 
 most of its early advocates, and, it is believed, was also 
 condemned by the popular sentiment. The existing sub- 
 treasury system does not seem to stand in high favor with 
 the people, but has recently been condemned in a manner 
 too plainly indicated to admit of a doubt. Thus in the 
 short period of eight years the popular voice may be re- 
 garded as having successively condemned each of three 
 schemes of finance to which I have adverted. . . . The late 
 contest, which terminated in the election of General Harri- 
 son to the presidency, was decided on principles well known 
 and openly declared ; and while the sub-treasury received in 
 the result the most decided condemnation, yet no other 
 scheme of finance seemed to have been concurred in." 
 
 This Congress, fresh from the people, — who had just 
 condemned the attempt to force the treasury notes out of 
 circulation, — appears to have surrendered to the influence 
 of the Bank of the United States faction, for on July 21, 
 1 84 1, it authorized the issue, during the year, of twelve mil- 
 lions of six-per-cent bonds. The proceeds of the sale were 
 to be used first to pay and retire from circulation the treas- 
 ury notes previously issued, and the balance to be used in 
 defraying the expenses of the Government. 
 
 Though the use of the treasury notes was relieving the 
 distress occasioned by the scarcity of money, it had no influ- 
 ence upon a Congress that was controlled by a faction 
 which hoped to make the currency so scarce that it would 
 create a condition of affairs that would demand the char- 
 tering of another United States bank. Therefore Congress,
 
 272 The Legal-Tender Problem 
 
 having provided for the retirement of the treasury notes, 
 passed "An Act to incorporate the subscribers to the Fiscal 
 Bank of the -United States." 
 
 This act was vetoed by President Tyler on August i6, 
 1841. In his veto message, President Tyler stated that " the 
 power of Congress to create a national bank to operate per 
 se over the Union has been a question of dispute from the 
 origin of the Government. Men most justly and deservedly 
 esteemed for their high intellectual endowments, their vir- 
 tue, and their patriotism, have, in regard to it, entertained 
 different and conflicting opinions ; Congresses have differed ; 
 the approval of one president has been followed by the dis- 
 approval of another ; the people at different time have acqui- 
 esced in decisions both for and against it. . . . It will suffice 
 for me to say that my opinion has been uniformly proclaimed 
 to be against the exercise of any such power by this Govern- 
 ment." 
 
 Let the reader understand that this was the language of 
 a president long after Chief Justice Marshall and his three 
 property-rights associate justices decided that Congress had 
 the constitutional right to grant a charter to a bank ; let 
 him recall that President Jackson entertained similar views, 
 and was elected president the second time upon this single 
 issue ; that President Van Buren entertained the same views, 
 and he will have a pretty accurate idea of the respect in 
 which said opinion of the Supreme Court was held at that 
 time. And yet, all these condemnations of the unsound 
 and unconstitutional opinion are ignored, and this country 
 is afflicted to-day by national banks chartered by Congress. 
 This is because under our form of Government the acts of 
 presidents. Congresses, and the people are regarded as 
 ephemeral, while an opinion of the Supreme Court, however 
 unsound and unwise, remains the law until it is reversed,
 
 PFarfare Against President Tyler 273 
 
 which is seldom done, on account of hfe tenure and fealty 
 to faction. 
 
 This same Congress, on August 13, 1841, passed an act 
 repealing the Democratic act of June, 1836, and provided 
 that the Government deposits should be made in the State 
 bank. This act also repealed the Sub-treasury Act of Presi- 
 dent Van Buren's administration, and provided for the re- 
 ception of all bank-notes by the treasury. 
 
 18
 
 XXXI 
 
 The UHiig, or Property-Rights, Party Forced to 
 Issue Treasury Notes 
 
 In President Tyler's first annual message, dated Decem- 
 ber 7, 1 84 1, he says, " Of the loan of $12,000,000, which 
 was authorized by Congress at its last session, only $5,432,- 
 726.88 has been negotiated." In the message he also recom- 
 mended a financial system. 
 
 These recommendations had no special merit, but only 
 show the futile attempt of an honest and patriotic president 
 to devise some plan, which, while escaping the evils of the 
 State-bank and national-bank systems, would yet preserve 
 the constitutional limitation of the money of the country to 
 gold and silver, unconscious that it was impracticable and 
 impossible. 
 
 President Tyler understood clearly, as did Presidents 
 Jackson and Van Buren, that the action of Congress in char- 
 tering a bank, and the action of the State Legislatures in 
 authorizing banks chartered by them to issue notes, was 
 violative of the Constitution, notwithstanding the factional 
 decisions of the Supreme Court, and that their operations 
 were highly inimical to the welfare of both the country and 
 the people ; but he had no conception that the cause of the 
 necessity for their inception and existence was in the abuse 
 that had been incorporated in the Constitution limiting the 
 money to gold and silver, and withholding from the Gov- 
 ernment the exercise of the sovereign right to emit bills of 
 credit as a pure currency. 
 274
 
 Forced to Issue Treasury Notes 275 
 
 Therefore in their efforts to ehminate and destroy the 
 evil, of which they did not entertain a doubt, they were 
 unsuccessful, and failed completely to devise a remedy that 
 would remove the necessity for the reappearance of the 
 evils. On the contrary, in their intense regard for the Con- 
 stitution and in their efforts to drive the circulation to a pure 
 metallic currency, they were unconsciously forcing the coun- 
 try into a condition where the distress was such that the 
 people distractedly and blindly followed the leadership of 
 the property-rights faction back into the very evils from 
 which they had been rescued. 
 
 It is strange that Mr. Jefferson and Mr. Calhoun could 
 see the cause of the trouble so plainly, and know that the 
 only remedy lay in the right of the Government to exercise 
 the sovereign power of issuing treasury notes " bottomed 
 on taxes," and yet never agitated an amendment of the 
 Constitution to give Congress that power and right, but 
 were content to contend for the right of Congress to exercise 
 such power, knowing that if they were successful, a suc- 
 ceeding Congress would have the right to repeal it. 
 
 The experience of the country, in the course of time, 
 under the stress of the direst necessity, forced a condition 
 of affairs where the Supreme Court was obliged to assert 
 and maintain the right of Congress to issue treasury' notes, 
 as full legal tenders, and to decide further that the treasury 
 notes were no more to be redeemed in gold and silver than 
 the gold and silver dollars were to be redeemed with treas- 
 ury notes; and yet this principle that was forced upon the 
 acceptance of the country as the law, finds no observance 
 among the powers in control of the Government. 
 
 Congress seems to have paid no attention to the recom- 
 mendations of the president, and not having the time to so 
 shape the loan as to raise the necessary revenue for the Gov-
 
 2/6 The Legal-Tender Problem 
 
 ernment, it was compelled, on January 31, 1842, to author- 
 ize the issue of not more than five millions of treasury notes 
 to tide over the year. 
 
 By April 15, 1842, Congress, in its fight against the 
 president, became bolder and more determined, and it passed 
 an act enlarging the loan of $12,000,000 by an additional 
 $5,000,000, to run twenty years, and also made all the treas- 
 ury notes bear six per cent interest until redeemed. 
 
 It appears that the president was mistaken in assuming 
 that the reason the $12,000,000 loan could not be placed 
 was because of the short time it was to run, as he stated 
 in his message ; for after the time was extended twenty 
 years, and the taxes and duties were pledged for their pay- 
 ment, it was impossible to place the loan, and Congress on 
 August 31, 1842, passed an act that if the balance of the 
 loan could not be sold for par, treasury notes not exceeding 
 six million should be issued in lieu, and that all notes re- 
 deemed should be reissued up to April 15, 1843. 
 
 On March 3, 1843, Congress passed an act fixing the 
 value of certain foreign coins, and making them legal tender 
 at that value. On this same date Congress passed an act 
 that all treasury notes redeemed before July i, 1844, should 
 be reissued, if the wants of the public service required it; 
 that after maturity they should cease to bear interest, and, 
 if they could not be redeemed, the president was authorized 
 to take them up by bonds issued under the terms of the act 
 providing for the issue of the twelve millions. 
 
 In his fourth annual message, dated December 3, 1844, 
 the president stated that " the greatly improved condition 
 of the treasury affords a subject for general congratulation. 
 The paralysis which fell on trade and commerce, and which 
 subjected the Government to the necessity of resorting to 
 loans and the issue of treasury notes to a large amount, has
 
 Forced to Issue Treasury Notes 277 
 
 passed away; and after the payment of upwards of $i,cxx),- 
 000 on account of the interest, and in redemption of more 
 than five millions of the public debt which falls due on the 
 first of January next, and the setting part of $2,000,000 for 
 the payment of outstanding treasury notes, an estimated 
 surplus of upwards of $7,000,000, over and above the exist- 
 ing appropriations, will remain in the treasury. . . . Should 
 the treasury notes continue outstanding as heretofore, that 
 surplus will be considerably augmented. 
 
 "Although all interest has ceased upon them, and the 
 Government has invited their return to the treasury, yet 
 they remain outstanding, afifording great facilities for com- 
 merce, and establishing the fact that under a iv ell-regulated 
 system of finance the Government has resources zvithin itself 
 zvhich render it independent in time of need, not only of 
 private loans, hut also of bank facilities; " and he might 
 have added of gold and silver. 
 
 A Whig, or property-rights. Congress, in its desire to 
 get these efficient treasury notes out of circulation, so that 
 they would not compete with gold and silver, stopped the 
 interest upon them, and, as the president stated, invited the 
 people to exclt^nge them for six-per-cent bonds. It is 
 strange that this tempting invitation has never succeeded 
 in getting the people to surrender the treasury notes. That 
 the Government has never taken advantage of the fact 
 that their legal tender has to be taken away before the peo- 
 ple can be induced to surrender them, is still more remark- 
 able. 
 
 That treasury notes, when issued, must be a debt of the 
 Government, is disproved by the consideration that when 
 they are legal tenders, and do not bear interest, their effi- 
 ciency, as mediums of payment, is so valuable to trade and 
 commerce that the Government is not only not asked, but
 
 2/8 The Legal-Tender Problem 
 
 not permitted, to redeem them. The people never treat them 
 as a debt, and the Government is not allowed to pay them 
 until, in its idiotic or criminal determination to do so, it 
 deprives them of legal tender, and makes them worthless 
 as mediums of payment. 
 
 This was so evident to President Tyler, in the practical 
 application the people were making of them, and their 
 refusal to surrender them for bonds upon the invitation of 
 the property-rights Congress, that he unconsciously uttered 
 the greatest financial truism that has emanated from any 
 American statesman, when he said that their remaining out- 
 standing " established the fact that under a well-regulated 
 system of finance, the Government has resources within 
 itself which render it independent in time of need, not only 
 of private loans, but also of bank facilities."
 
 XXXII 
 
 President Polk's Administration, the Second Inde- 
 pendent Treasury, and the Panic of 1847 
 
 The principles of the Whig party were made so unpop- 
 ular by President Jackson after the defeat of their idol, 
 Henry Clay, that they became thoroughly disheartened. 
 Van Buren's ignorant endeavor to pursue Jackson's policy 
 was made the more disastrous by the New York influences 
 that controlled his actions. The consequence was that when 
 he had so completely ignored the State banks, repudiated 
 the treasury notes, and forced the money of the country to a 
 metallic base, he had so weakened himself that it was pos- 
 sible to influence the people to defeat him, if men, who were 
 not the tools of the property-rights faction, should be nom- 
 inated by that party. Therefore all the old leaders were set 
 aside, and General Harrison and Mr. Tyler were nominated 
 for president and vice-president, in the hope that, if elected, 
 they could be cajoled or intimidated into putting the prin- 
 ciples of the property-rights faction into the policies and 
 practises of the Government. 
 
 What General Harrison might have done had he lived, 
 it is not necessary to surmise ; but a close reading of his 
 inaugural inclines one to believe that they would have been 
 as much disappointed in hini as they were in Mr. Tyler. In 
 Mr. Tyler, as his administration showed, they found a 
 Jacksonian Democrat, truer to his (Jackson's) policy, and 
 far more intelligently so, than Van Buren. 
 
 Another presidential contest was now at hand, and the 
 
 279
 
 28o The Legal-Tender Problem 
 
 Whig faction organized for the fight upon a more honest 
 program. They had suffered so severely from their du- 
 pHcity in selecting two candidates for president and vice- 
 president who were popular because they were known not to 
 be committed to their most vicious principles, that they 
 appeared in their true colors, and nominated their idol, 
 Henry Clay. The result of the election was the selection of 
 James K. Polk as president and the return of the Democrats 
 to power. 
 
 In his first annual message, page 406, President Polk 
 said : — 
 
 " By the Constitution of the United States it is provided 
 that no money shall be drawn from the treasury but in 
 consequence of appropriations made by law. A public treas- 
 ury was undoubtedly contemplated and intended to be cre- 
 ated in which the public money should be kept from the 
 period of collections until needed for public use. ... It is 
 not to be imagined that the framers of the Constitution 
 could have intended that a treasury should be created as a 
 place of deposit and safe-keeping of the public money, 
 which w^as irresponsible to the Government. . . . 
 
 " That banks, national or State, could not have been in- 
 tended to be used as a substitute for the treasury spoken of 
 in the Constitution as keepers of the public money, is mani- 
 fest from the fact that at that time there was no national 
 bank, and but three or four State banks, of limited capital, 
 existed in the country. . . . Our experience has shown that 
 when banking corporations have been the keepers of the 
 public money, and been thereby made, in effect, the treas- 
 ury, the Government could have no guarantee that it could 
 command the use of its own money for public purposes. 
 The Bank of the United States proved to be faithless. . . . 
 The State banks, which were afterward employed, were 
 faithless. . . .
 
 The Panic of 1 847 281 
 
 " The public money should not be mingled with the pri- 
 vate funds of banks or individuals or used for private pur- 
 poses. . . . Where it is placed in the banks for safe-keep- 
 ing, it is in effect loaned to them unthout interest, and is 
 loaned by them upon interest to the borrowers from them. 
 The public money is converted into banking capital, and is 
 used and loaned out for private profit of the bank stockhold- 
 ers. ... If the public money be not permitted to be thus 
 used, but be kept in the treasury and paid out to the public 
 creditors in gold and silver, the temptation aiforded by its 
 deposit with banks to an undue expansion of their business, 
 would be checked, while the amount of the constitutional 
 currency left in circulation would be enlarged by its employ- 
 ment in the public collections and disbursements. . . . 
 
 " Entertaining the opinion that the separation of the 
 money of the Government from banking institutions is in- 
 dispensable for the safety of the funds of the Government 
 and the rights of the people, I recommend to Congress that 
 provision be made by law for such separation, and that a 
 constitutional treasury be created for the safe-keeping of the 
 public money. ... To say that the people or their Govern- 
 ment are incompetent, or not to be trusted with the cus- 
 tody of their own money in their own treasury, provided by 
 themselves, but must rely on the presidents, cashiers, and 
 stockholders of banking corporations, not appointed by them 
 nor responsible to them, would be to concede that they are 
 incompetent for self-government." 
 
 On July 22, 1846. the exigencies of the Government 
 were such that Congress authorized the issue of six-per-cent 
 treasury notes not to exceed the sum of ten million dollars, 
 or, if the president should think best, issue six-per-cent 
 bonds instead. The treasury notes were to be redeemed 
 in one vcar from date of issue and the bonds in ten years.
 
 282 The Legal-Tender Problem 
 
 Treasury notes were issued to the amount of $7,687,800, 
 bearing interest from one mill to five and two-fifths per cent. 
 
 On August 6, 1846, Congress established the independ- 
 ent treasury. It provided that all treasury notes, as well 
 as gold and silver coins, should be received equally in pay- 
 ment of all debts of the Government, but excluded all bank- 
 notes. It further provided that all Government money 
 should be kept by all ofiicers of the Government under bond, 
 until it could be deposited in the treasury. It completely 
 separated the affairs of the Government from any connec- 
 tion with or dependence on the banks. 
 
 On May 13, 1846, war was declared with Alexico, and 
 to prevent a threatened deficiency by July i, 1847, i^ the 
 war continued until that time, the act of July 22 was passed. 
 
 The imperative expenditures growing out of the war 
 forced Congress to resort to the issue of treasury notes, and 
 on January 28, 1847, twenty-three millions were authorized 
 to be issued ; and, in addition, authority was given to reissue, 
 in lieu of the notes of this act that might be redeemed, such 
 an amount of notes as, with the notes of previous issues 
 outstanding, would not exceed five million dollars. The 
 twenty-three millions issued to be in denominations not less 
 than $50 ; to bear interest at six per cent or less, which was 
 to cease after maturity ; to be redeemed in one and two years 
 from date, with interest-bearing bonds ; and to be legal 
 tenders for all debts and dues of the Government, but not 
 for the payment of private debts. 
 
 It is evident that they were not issued as currency, for 
 they were in denominations not less than $50, were only 
 transferable by delivery and indorsement, and the act pro- 
 yided that they should, in the discretion of the president, 
 be used to borrow money. 
 
 Notwithstanding the past experience in issuing treasury
 
 The Panic of 1S47 283 
 
 notes, the teachings of Mr. Jefferson, the observation of Mr. 
 Tyler, the proved inefficiency of the banks, and the neces- 
 sity for and utihty of treasury notes in all dire contingencies, 
 a Democratic Congress could not attain to the financial 
 wisdom of issuing them as money, but continued to issue 
 them as a debt of the Government, and made provision to 
 force their surrender for cancelation and retirement as soon 
 as it could be done. 
 
 President Jackson, by his rebuke of the State banks for 
 their mismanagement and speculative expansion of their 
 credits, and President Van Buren, by his active hostility 
 toward them, destroyed all confidence in those institutions, 
 and they were forced to suspend specie payments. 
 
 The practical operation of the law, which required all 
 payments to the Government to be made in gold and silver, 
 made it impossible for the banks to secure and hold enough 
 to make a semblance of ability to resume specie payments, 
 and the period was most disastrous to them. 
 
 Silver and gold only circulated in such channels as they 
 could with safety, and not run the risk of getting into the 
 banks, where they would be exchanged for bank-issues. 
 There was no chance for the banks, under such circum- 
 stances, ever to get in a condition to resume specie pay- 
 ments ; but after the Whigs, under President Tyler, got 
 control of the Government, and treasury notes and bank- 
 issues were not discriminated against, confidence in the 
 banks was renewed. They were able to secure specie in 
 sufficient quantity to announce that they had resumed specie 
 payments, and by the end of 1846 were able to pay specie 
 when demanded. 
 
 They were not able to pay all demands, if a run should 
 be made on the banks (nor are the banks ever able to do 
 that) ; but untler the Whig admini-stration they secured
 
 284 The Legal-Tender Problem 
 
 enough specie to justify their announcement that they had 
 resumed, which only means, " Have confidence in our insti- 
 tutions, and don't all ask to be paid at once, and we will be 
 able to furnish specie to those who need it for specific pur- 
 poses." 
 
 When, however. President Polk's administration dis- 
 criminated against bank-issues, and it was incumbent on 
 specie to circulate in channels where it would not get mixed 
 with and be exchanged for bank-notes, confidence in the 
 banks was destroyed, and they were soon drained of what 
 specie they had, and forced to suspend specie payments. 
 
 This precipitated and caused the panic of 1847. This 
 panic, and the resultant loss to the people, was caused by 
 the Democratic administration's forcing the appropriation of 
 all the basic money of the country to the support of the 
 Government, and the refusal to accept State-bank notes. 
 Such management, with its attendant loss of property and 
 distress of the people who constitute and support the Gov- 
 ernment, is not pardonable on the ground that it was unin- 
 tentional and unconscious. 
 
 If the policy adopted had to be pursued, and the experi- 
 ence with banks. State and national, demanded and justified 
 their condemnation and destruction, the Government should 
 not have been satisfied with discriminating against them, 
 and leave their worthless issues to be forced upon an inno- 
 cent people, but it should have passed the necessary legis- 
 lation to have wound up the institutions, and made provi- 
 sion that, as their notes w^ere retired, treasury notes should 
 be issued in their stead, and thus protected the people. 
 
 Instead, however, it appears that the Democratic Con- 
 gress adopted the policies of the Whig party, and passed, 
 on March 31, 1848, an act to authorize a loan not to exceed 
 the sum of sixteen million dollars. The bonds issued to
 
 The Panic of 1847 285 
 
 secure this loan were to run twenty years, and were to bear 
 an annual interest not to exceed six per cent. This money 
 was borrowed to meet the expenses that arose out of the 
 continuation of the Mexican war, and was so welcome to 
 the money faction that they paid a premium of $487,191.16 
 on the sixteen millions. Though a Democratic Congress 
 was raising funds to fight the Mexican war in a manner 
 that furnished the money faction with good interest-pay- 
 ing investments, it made no provision to supply a circulating 
 currency to the people, but relegated them and the success 
 of their business to the State-bank issues, which the Gov- 
 ernment refused to receive. 
 
 In his third annual message, dated December 7, 1847, 
 page 556, the president says : — 
 
 " The constitutional treasury, created by a former act, 
 went into operation on the first of January last. . . . While 
 the fiscal operations of the Government have been conducted 
 with regularity and ease under this system, it has had a 
 salutary efifect in checking and preventing an undue inflation 
 of the paper currency issued by the banks which exist under 
 State charters. Requiring, as it does, all dues to the Gov- 
 ernment to be paid in gold and silver, its effect is to restrain 
 excessive issues of the bank paper by the banks dispropor- 
 tional to the specie in their vaults, for the reason that they 
 are at all times liable to be called on by the holders of their 
 notes for their redemption in order to obtain specie for the 
 payment of duties and other public dues. The banks, there- 
 fore, must keep their business within prudent limits, and 
 be always in a condition to meet such calls, or run the 
 hazard of being compelled to suspend specie payments, and 
 be thereby discredited." 
 
 With this financial sword suspended over the State 
 banks, while they were endeavoring to supply the currency
 
 286 The Legal-Tender Problem 
 
 necessary to conduct business, and to pay the additional 
 taxes to carry on the war, the people must have been sorely 
 oppressed, and it should not- be strange that the country 
 suffered a panic in 1848. That this panic was due to the 
 issue of bonds instead of treasury notes, is evidenced by the 
 following from the president's message : — 
 
 " The amount of specie imported into the United States 
 during the last fiscal year was $24,121,289, of which there 
 was retained in the country $22,270,170. Had the former 
 financial system prevailed, and the public moneys been 
 placed on deposit in the banks, nearly the whole of this 
 amount would have gone into their vaults, not to be 
 thrown into circulation by them, but to be withheld from 
 the hands of the people as a currency.^ and made the basis 
 of new and enormous issues of bank paper. A large pro- 
 portion of the specie imported has been paid into the treas- 
 ury for public dues, and having been to a great extent 
 recoined at the mint, has been paid out to the public credit- 
 ors, and gone into circulation as a currency among the peo- 
 ple. The amount of gold and silver coin now in circulation 
 in the country is larger than at any former period, 
 
 " The financial system established by the constitutional 
 treasury has been thus far eminently successful in its oper- 
 ation, and I recommend an adherence to its essential provi- 
 sions, and especially to that vital provision which wholly 
 separates the Government from all connection with the 
 banks, and excludes all bank paper from all revenue re- 
 ceipts." 
 
 The above exposition of the financial policies that have 
 been inflicted upon the country is so monstrous that it is 
 difficult to believe that it is true, and that a Democratic presi- 
 dent dispassionately recommended an adherence to it. An 
 analysis of the propositions discloses that a paternal Govern-
 
 The Panic of 1847 287 
 
 ment, because of its incapacity to devise a pure financial 
 system, and because the system of national and State banks 
 had been imjioscd upon it by a subservient Congress and a 
 still more subservient judiciary, virtually stated that it pro- 
 posed to fight the war with Mexico, and run the Govern- 
 ment while so doing with gold and silver. To that end it 
 would separate its affairs from the affairs of the banks, 
 and consequently of the people ; though the people must fur- 
 nish the soldiers, must furnish gold and silver to clothe, sup- 
 port, and arm the soldiers, whether there was enough in tlie 
 country or not. 
 
 The Government, it appears, decided it had nothing to 
 do with supplying the people with a circulating currency ; 
 but, on the contrary, after discrediting the money which it 
 had permitted the State banks to issue, it demanded the pay- 
 ment of all taxes and dues in gold and silver coin. This 
 forced the people to make importations from Europe to 
 protect their property from the Government tax-collector 
 regardless of the sacrifice imposed. 
 
 In the light of such Democratic legislation, — forcing 
 into the practise of the Government the unholy and inhu- 
 man principles that the Massachusetts financiers incorpor- 
 ated into the Constitution. — it should not be cause for won- 
 der that the branch of the property-rights party known as 
 Gold Democrats should claim that they are Simon pure, and 
 Bryanism is spurious and false. 
 
 The following from the president's fourth annual mes- 
 sage, dated December 5, 1848, speaks volumes for the thrift, 
 economy, and energy of the people : — 
 
 " During the present year nearly the whole continent of 
 Europe has been convulsed by civil war and revolutions, 
 attended by numerous bankruptcies, by an unprecedented 
 fall in their public securities, and an almost universal par-
 
 288 The Legal-Tender Problem 
 
 alysis of commerce and industry; and yet, although our 
 trade and the prices of our products must have been some- 
 what" unfavorably affected by these causes, we have escaped 
 a revulsion, our money market is comparatively easy, and 
 public and private credits have advanced and improved. 
 
 " It is confidently believed that we have been saved from 
 their effect by the salutary operations of the constitutional 
 treasury. It is certain that if twenty-four millions of specie, 
 imported in the fiscal year ending on the 30th of June, 1B47, 
 had gone into the banks, as to a great extent it must have 
 done, it would in the absence of this system have been made 
 the basis of augmented bank paper issues, probably to an 
 amount not less than $60,000,000 or $70,000,000, producing 
 as an inevitable consequence of an inflated currency, extrav- 
 agant prices for a time and wild speculation, which must 
 have been followed, on the reflux to Europe the succeeding 
 year of so much of that specie, by the prostration of the 
 business of the country, the suspension of the bank, and most 
 extensive bankruptcies." 
 
 Properly analyzed, this Democratic president virtually 
 said : A Democratic Congress, with my approval and assist- 
 ance, has made the gold and silver of the money faction so 
 valuable in its use in this country, that none of it leaves ; 
 but, on the contrary, the constitutional treasury and the war 
 with Mexico has made such a demand for it that the people 
 have been forced to purchase twenty-four millions from 
 Europe. The use that was made of it over here was so 
 much more profitable than could be made of it in Europe, 
 notwithstanding it was " convulsed by civil war," that it 
 all remained here. Of course the profit that the owners of 
 the gold and silver makes, comes out of the people in the 
 decreased price they received for their product, whether sold 
 here or in Europe, but that is no concern of the Government.
 
 The Panic of 1847 289 
 
 Whether the people sent forty-eight milHons or more 
 of products to Europe to get twenty-four millions of specie 
 to pay taxes and expenses, was not considered by the admin- 
 istration ; nor whether they had to send forty-eight millions 
 of products each year to retain that twenty-four millions 
 of specie, did not seem to concern the president. He seems 
 to have only been interested in providing for the collection 
 of enough revenue to defray the expenses of the Govern- 
 ment, regardless of the distress and suffering visited upon 
 the people by the method adopted. 
 
 These must have been the halcyon days of the hard- 
 money faction ; for they were reaping a full crop from the 
 seed sown when they framed the Constitution so as to read 
 that no State should make anything a legal tender but gold 
 and silver, nor emit bills of credit, and withheld from Con- 
 gress the power to emit bills on the credit of the United 
 States, as full legal tenders.
 
 XXXIII 
 
 The Beginning of the Change of the Government 
 from a Republic to an Empire 
 
 The cause that is tending to change this Government 
 from a repubHc to an empire is the construction of the Con- 
 stitution that bestows legal-tender value exclusively upon 
 gold and silver ; and the agencies through which it is being 
 so successfully carried forward are the manipulation of the 
 legal-tender value, a high protective tariff, corporate 
 agencies, and the avarice that is now expressed in the cry 
 of Christian Commercialism. 
 
 It is strange that a Democratic president could compre- 
 hend and express so lucidly, as did Mr. Polk, the trend of 
 the purposes of the property-rights party subsequent to 1815, 
 and yet fail to appreciate that the success of the movement 
 was due to the exploitation encouraged by the heresy en- 
 grafted upon the Constitution and the manipulation of the 
 value of legal tender in the practical application of the 
 heresy to the finances of the country. 
 
 The failure of the Democratic party to detect this fallacy, 
 its failure to detect that its enforcement was necessary to 
 insure the success of the abuses that tend so strongly to 
 change the republic to an empire, has caused it to waste its 
 energies in preserving the source of the evils while vainly 
 resisting their onward flow. 
 
 This is evidenced in the administration of President 
 Polk, which issued bonds instead of treasury notes; de- 
 manded that all money paid into the treasury should be gold 
 290
 
 From a Republic to an Empire 291 
 
 and silver, and thereby forced the people to purchase from 
 the owners of sjiecie a sufficient sum for the Government to 
 wage the war with Mexico. 
 
 This preservation of the source of all our governmental 
 evils has been one of the cardinal principles of the party in 
 all the battles of the past, and though in late years the force 
 of the motives that for so long a time caused gold and silver 
 to be regarded as sacred has, in the demonetization of sil- 
 ver, set aside and derided the Constitution, the Democratic 
 party still clings to the old fallacy in its war-cry for silver 
 at 16 to I. 
 
 Appreciating intensely the condition of the country, but 
 unconscious of the provoking cause therefor, President Polk 
 set forth the situation, as he understood it, as a justification 
 for his financial policy. In his message of December 5, 1848, 
 Vol. 4, page 654, he said : — ■ 
 
 " The present condition of the country is similar in some 
 respects to that which existed immediately after the close of 
 the war with Great Britain in 181 5, and the occasion is 
 deemed to be a proper one to take a retrospect of the meas- 
 ures of the public policy which followed that war. 
 
 " There was at that period of our history a departure 
 from our earlier policy. The enlargement of the powers of 
 the Federal Government by construction which obtained, 
 was not warranted by any just interpretation of the Con- 
 stitution. A few years after the close of the war, a series of 
 measures was adopted which, united and combined, con- 
 stituted what was termed by their authors and advocates the 
 American System. . . ■. 
 
 " Ihe authors of the system drew their ideas of political 
 economy from what the\' had witnessed in Europe, and par- 
 ticularly in Great Britain. They had viewed the enormous 
 wealth concentrated in few hands, and had seen the splen-
 
 292 The Leffal-Tender Problem 
 
 dor of the overgrown establishments of an aristocracy which 
 was upheld by the restrictive policy. . . . They failed to 
 perceive that the scantily fed and half-clothed operatives 
 were not only in abject poverty but were bound in chains of 
 oppressive servitude for the benefit of favored classes who 
 were exclusive objects of the care of the Government. . . . 
 
 "A system of measures was therefore devised, calculated, 
 if not intended, to withdraw pOwer gradually and silently 
 from the States and the mass of the people, and by construc- 
 tion to approximate our Government to the European mod- 
 els, substituting an aristocracy of wealth for that of orders 
 and titles. . . . They conceived the vain idea of building 
 up in the United States a system similar to that which they 
 admired abroad. 
 
 " Great Britain had a national bank of large capital, in 
 whose hands was concentrated the controlling monetary 
 and financial power of the nation, — an institution wielding 
 almost kingly power, and exerting vast influences upon all 
 the operations of trade and upon the policy of the Govern- 
 ment itself. Great Britain had an enormous public debt, 
 and it had become a part of her public policy to regard this 
 as a public blessing. . . . Great Britain had also a restrict- 
 ive policy, which placed fetters and burdens on trade and 
 trammeled the productive industry of the mass of the na- 
 tion. . . . 
 
 " Imitating this foreign policy, the first step in establish- 
 ing the new system in the United States was the creation of 
 a national bank. . . . But the bank was but one branch of 
 the new system. A public debt of more than $120,000,000 
 existed ; and it is not to be disguised that many of the 
 authors of the new system did not regard its speedy pay- 
 ment as essential to the public prosperity, but looked upon 
 its continuance as no national evil. . . . While the debt ex-
 
 From a Republic to an Empire 293 
 
 isted, it furnished aliment to tlie national bank, and rendered ^ 
 increased taxation necessary. . . . This operated in har- 
 mony with the next branch of the new system, which was a 
 high protective tariff. This was to afford bounties to fa- 
 vored classes and to particular pursuits at the expense of 
 all others. 
 
 "A proposition to tax the whole people for the purpose 
 of enriching a few was too monstrous to be openly made. 
 The scheme was therefore veiled under the plausible but 
 delusive pretext of a measure to protect home industry ; and 
 many of our people were for a time led to believe that a tax 
 which in the main fell upon labor, was for the benefit of the 
 laborer who paid it. . . . 
 
 " The effect of this policy was to interpose artificial re- 
 strictions upon the natural course of the business and trade 
 of the country, and to advance the interests of large capital- 
 ists and monopolists at the expense of the great mass of the 
 people who were taxed to increase their wealth. 
 
 "Another branch of this system was a comprehensive 
 scheme of internal improvements, capable of infinite enlarge- 
 ments, and sufficient to swallow up as many millions annu- 
 ally as could be exacted from the foreign commerce of the 
 country. . . . This was convenient, and a necessary adjunct 
 of the protective tariff. . . . 
 
 " These several measures were sustained by popular 
 names and plausible arguments by which thousands were de- 
 luded. The bank was represented to be an indispensable 
 fiscal agent for the Government ; was to equalize exchanges, 
 and to regulate and furnish a sound currency always and 
 everywhere of uniform value. The protective tariff w-as to 
 give employment to American labor at advanced prices ; was 
 to protect home industry, and furnish a steady market for 
 the farmer. Internal improvements were to bring trade into
 
 294 The Legal-Tender Problem 
 
 every neighborhood, and enhance the value of every man's 
 property. . . . But the fact that for every dollar taken out 
 of the treasury for these objects, a much larger sum was 
 transferred from the pockets of the people to the favored 
 classes, was carefully concealed, as was also the tendency, 
 if not the ultimate design, of the system to build up an aris- 
 tocracy of wealth, to control the masses of society,, and mon- 
 opolize the political power of the country. . . . 
 
 " In this manner the whole form and character of the 
 Government would be changed ; not by an amendment of 
 the Constitution, but by resorting to an unwarrantable and 
 unauthorized construction of that instrument." 
 
 The foregoing is such an able exposition of the tend- 
 ency of the property-right principles, that it is not easy 
 to comprehend why the president could not understand Mr. 
 Jeflferson's theory of issuing treasury notes " bottomed on 
 taxes," and that the value of legal tender was a property 
 right held in trust by the Government for the benefit of the 
 people. 
 
 The ignoring of this Democratic method, the approval 
 of the sale of bonds, and the restriction of the money of 
 the country to gold and silver, can only be accounted for 
 upon the ground of an undue regard for the fallacy which 
 the Massachusetts financiers engrafted upon the Constitu- 
 tion, and which the property-right members of the Demo- 
 cratic party in the East have always advocated. 
 
 The adoption and practise of Whig policies by a Demo- 
 cratic administration worked such hardship upon the peo- 
 ple in forcing them to buy European specie to keep out of 
 the hands of the tax-collectors, that in the canvass of 1848 
 they elected Gen. Zachary Taylor and Millard Fillmore 
 president and vice-president, and the Whigs were again 
 placed in power.
 
 XXXIV 
 
 The Administrations of Presidents Taylor and 
 
 Fillmore 
 
 The financial policy of the administration is shown in 
 the first annual message of President Taylor, dated Decem- 
 ber 4, 1849, P^g^ ^7' ^" ^^^^ following: — 
 
 " The receipts into the treasury for the fiscal year ending 
 on the 30th of June last were, in cash, $48,830,097.50, and 
 in treasury notes funded, $10,833,000." 
 
 The policy inaugurated by the Democratic administration 
 of retiring the treasury notes as fast as they were received 
 into the treasury, was most willingly followed by the Whig 
 administration, for the reason that it took the treasury 
 notes out of competition with gold and silver, reduced the 
 volume of money, decreased the price of all products, and 
 forced the issue of interest-bearing bonds. 
 
 On the same page, the message, after stating that there 
 would probably be a deficit of $16,375,314.30 on the first 
 of July, 1 85 1, recommended that a sufficient sum be bor- 
 rowed to cover that deficit. If a Democratic administration, 
 ignoring the teachings of Mr. Jefferson, the experience of 
 the country in the issuance of treasury notes, and the sug- 
 gestions of President Jackson. ])ut into practise a policy that 
 created a deficit, it should not be cause of surprise that a 
 Whig president took advantage of it, and recommended the 
 borrowing of money. 
 
 The loan was not made, however, for the reason that in 
 1849, 1S5O' ^^^ ^^5^ ^^^^ volume of the currency was so 
 
 295
 
 296 The Legal-Tender Problem 
 
 largely increased by the gold from California, and the en- 
 larged business and increased prosperity of the people was 
 such, that the collection of revenue disproved the estimates, 
 and there was no deficit. 
 
 The death of President Taylor on July 9, 1850, made the 
 vice-president, Millard Fillmore, president ; and in his first 
 annual message, dated December 2, 1850, page 83, he states 
 that " the total receipts in the treasury for the year ending 
 the 30th of June last were $47,421,748.90. The total ex- 
 penditures during the same period were $43,002,168.90. 
 The public debt has been reduced since the last annual report 
 from the treasury department $495,276.79. Aside from the 
 permanent annual expenditures, which have necessarily 
 largely increased, a portion of the public debt, amounting 
 to $8,075,986.50, must be provided for within the next two 
 fiscal years. It is most desirable that these accruing de- 
 mands should be met without resorting to new loans." 
 
 The effect upon the prosperity of the people of an en- 
 larged and increasing volume of basic money is still more 
 apparent from the second annual message of President Fill- 
 more, dated Dec. 2, 1851, page 122: — 
 
 " By reference to the report of the secretary of the treas- 
 ury, it will be seen that the aggregate receipts for the last 
 fiscal year amounted to $52,312,970.87, which, with the bal- 
 ance in the treasury on the first of July, 1850, gave as the 
 available means for the year the sum of $58,917,324.36. The 
 total expenditures for the same period were $48,005,878.68. 
 The public debt on the 20th ultimo, exclusive of the stock 
 authorized to be issued to Texas by the act of the 9th of 
 September, 1850, was $62,560,395.26." 
 
 The estimated amount of cash at the disposal of the 
 Government during the next fiscal year was $63,258,734.09, 
 and the estimated expenditures, $42,892,299.19, leaving
 
 Taylor and Fillmore Administrations 297 
 
 a net balance of $20,366,443.90 to be used in payment of 
 the debt. From this it is evident that the increase of the 
 voknvie of money enabled the peoi)le, by large importations 
 and enlarged business, to pay into the treasury sufficient 
 revenue to defray the expenses of the Government, aad 
 leave a suri)lus which would soon pay the national debt ; and 
 yet the president, in his message, page 124, makes this 
 startling statement : — 
 
 " The production of gold in California for the past year 
 seems to promise a large supply of that metal from that 
 quarter for some time to come. This large annual increase 
 of the currency of the world must be attended with its usual 
 results. These have been already partially disclosed in the 
 enhancement of prices and rising spirit of speculation and 
 adventure, tending to overtrading as well at home as 
 abroad. Unless some salutary check shall be given to these 
 tendencies, it is to be feared that importations of foreign 
 goods beyond a health}- demand in this country will lead to 
 a sudden drain of the precious metals from us, bringing with 
 it, as it has done in former times, the most disastrous conse- 
 quences to the business and capital of the American people. 
 
 " The exports of specie to liquidate our foreign debt dur- 
 ing the past fiscal year have been $24,263,970 over the 
 amount of specie imported. The exports of specie during 
 the first quarter of the present fiscal year have been $14,651,- 
 827. Should the specie continue to be exported at this rate 
 for the remaining three quarters of this year, it will drain 
 from our metallic currency during the year ending June 30, 
 1852, the enormous amount of $58,607,308." 
 
 What is this financial condition of which the president 
 has such forebodings? 
 
 It will be recalled that Mr. Crawford stated that, untd a 
 metallic currencv was reached, there could and would be
 
 298 The Legal-Tender Problem 
 
 no safety nor certainty in the financial system ; and in reach- 
 ing this desired condition, admitted that, " until the engage- 
 ments existing at the moment of such a change are dis- 
 charged, and the price of labor and of commodities is re- 
 duced to the proportion which it must bear to the quantity 
 of currency employed as the medium of their exchange, en- 
 terprise of every kind will be repressed, and misery and dis- 
 tress universally prevail." 
 
 The policy of the Government had been in accord with 
 this teaching : treasury notes had been retired ; State-bank 
 notes were not accepted by the Government ; all banks were 
 forced to resume specie payments ; the Government refused 
 to receive the payment of its taxes and dues in anything 
 but gold and silver. This had been carried to such an ex- 
 tremity that the people were forced to import large sums of 
 specie to keep their property out of the hands of the tax col- 
 lectors. They had sold their products at reduced prices in 
 Europe, first to get the specie, and then continued to sell 
 their products at still lower prices in order to keep the specie 
 here, and in many instances went into debt in order to 
 secure the necessary amount. 
 
 In the language of Mr. Crawford, " Enterprise of every 
 kind had been repressed, and misery and distress had uni- 
 versally prevailed ; the price of labor and of commodities 
 had been reduced ; " and he might have added, debts had 
 been contracted by the people in adjusting their business to 
 the reduced volume of a metallic money. 
 
 It would be natural to suppose that since the policy of 
 the Government had forced the people to undergo the dis- 
 tress and loss of property which is ever attendant on the 
 destruction of all credit currency and the adoption of a pure 
 metallic money, any increase in the volume of this metallic 
 money would rightfully and justly inure to the benefit of 
 the people and the debtors.
 
 Taylor and Fillmore Aduiinistrations 299 
 
 It is evident that the increase of the voUime of metalhc 
 money cheapened the value of legal-tender money ; this 
 necessarily enhanced the value of products, and enlarged 
 the ability of the debtor to pay his debts. As this supply of 
 gold from California enlarged the volume of metallic money, 
 the banks were encouraged to issue notes, and the people 
 were enabled to expand their business. They, therefore, 
 paid more taxes to the Government, liquidated their debts, 
 and were then enabled to improve their homes, import lux- 
 uries, and enjoy the fruits of a prosperity which ever accom- 
 panies an increased supply of money. 
 
 But according to the views of the property-rights presi- 
 dent, these evidences of healthful prosperity were only " in- 
 dications of a rising spirit of speculation and adventure, 
 tending to overtrading, as well at home as abroad ; and un- 
 less some salutary checks be given to these tendencies, it is 
 to be feared that the importations of foreign goods beyond 
 a healthy demand in this country will lead to a sudden drain 
 of the precious metals from us, bringing with it, as it has 
 done in former times, the most disastrous consequences to 
 the business and capital of the American people." 
 
 This was the veriest presidential nonsense. Heretofore 
 it had been claimed that specie left and panics came because 
 of the expansion of credits through the issue of bank-notes 
 and treasury notes ; and it had been claimed that there was 
 no cure for this evil except the entire finances of the country 
 be placed on a metallic base. 
 
 Though the destruction of all this credit currency in 
 going to a metallic base would cause great loss of values, it 
 had been further claimed that it was in accord with the 
 highest wisdom and purest principles of finance ; because 
 when once accomplished, and society was adjusted to the 
 change, '' the new basis will be equitable and just, and tend 
 to promote and secure the general prosperity."
 
 300 The Le^al-Tender Problem 
 
 That the people would be forced to sell their products at 
 reduced prices, and borrow specie from Europe in order to 
 keep their property out of the hands of the tax collectors, 
 did not concern the hard-money faction, for that was the 
 condition of affairs they intended to create when they estab- 
 lished the metallic base, knowing full well this would in- 
 crease their fortunes. 
 
 The pitiless fonduct of the Government, at the instance 
 of that faction, had made life so unbearable and desperate 
 that it produced an effect zvJiich had not been contemplated. 
 When it was realized by the people that the ownership of 
 their property, and in many instances the very existence of 
 themselves and families, depended upon securing the pre- 
 cious metals, many a man abandoned wife, child, and home 
 to seek for the " money " metals in the wilds of the far 
 West. Their quest was so tense and deadly that, though 
 they whitened a pathway across the great Western prairie 
 with their bleaching bones, they never ceased the search 
 until they found what they sought in the hills and valleys 
 of California. In the vast amount found there, they secured 
 the only means of relief left to them by the policy of the 
 Government. 
 
 Notwithstanding it was well understood that this great 
 influx of the precious metals would so cheapen money that 
 the debtors could pay all taxes and debts, and thus save 
 their property ; and notwithstanding it was well understood 
 that the increase in the volume of metallic money protected 
 the debtors from a contemplated robbery by the creditors, 
 yet, inasmuch as the people had accepted the situation 
 forced upon them, and at great sacrifice turned it to their 
 profit, they had the right to enjoy the fruits of their toil 
 and sacrifice won under the changed conditions. 
 
 This they were doing by improving their farms, paying
 
 Taylor and Fillmore Administrations 301 
 
 the foreign debt of gold, and indulging some foreign lux- 
 uries, when the shipments of gold to Europe were deemed 
 sufficient to justify a president in stating that a spirit of 
 speculation and adventure had been produced by the influx 
 of gold, and " unless some salutary check should be given to 
 these tendencies, it was to be feared that importations of 
 foreign goods beyond a healthy demand would lead to a 
 sudden drain of the precious metals from the country, bring- 
 ing with it the most disastrous consequences." 
 
 It seems evident that the president was influenced to 
 make this observation because he was the tool of the cap- 
 italists and creditors. If he was correct in his fears, it 
 demonstrated the inefficiency of the system which had been 
 foisted upon the country ; for if enough specie could not 
 be retained to conduct the volume of business, no higher 
 proof could be had of the falsity of the theory which 
 adopted it. 
 
 This large addition of gold to the volume cheapened the 
 gold coin to such an extent that all the silver was carried 
 to Europe, where it secured its full value when coined into 
 legal-tender money. 
 
 Notwithstanding the use which was made of the sub- 
 sidiary silver coins, they were fast leaving also. Some action 
 had to be taken to secure to the people the use of the small 
 silver coins, and on February 21, 1853, Congress passed an 
 act reducing the weight of silver in the half-dollar, quarter- 
 dollar, dime, and half-dime to 192 grains for the half-dollar, 
 and the others proportionately, and also providing that said 
 coins should be legal tender for only five dollars. 
 
 Congress intended to make the subsidiary silver coins 
 equal to or less in value than the cheaper gold coins, thereby 
 removing the inducement to export them, it having, in 
 the act of March 8, 1849, authorized the coinage of gold
 
 302 The Legal-Tender Problem 
 
 dollars to take the place of the disappearing silver dollars. 
 It is apparent, then, that though the " word " dollar, when 
 used in the United States, meant 371/4 grains of silver, 
 yet the dollar in which payments were made was the cheaper 
 gold dollar, and in the settlement of contracts the payer 
 was getting the advantage. 
 
 This condition of the finances, always of advantage to 
 debtors, and encouraging to the people, is most galling to 
 capitalists and creditors, even when, as in this instance, it 
 was the result of their greedy legislation, and they never 
 rest until they have reversed it and secured the advantage. 
 
 The increase of the volume had the effect of stimulating 
 the business of the country ; and as it expanded, it generated 
 a necessity for enlarged credits to carry it forward. This 
 growing prosperity resulted from an increasing volume of 
 the currency ; but, as heretofore explained, the antagonism 
 between the methods of conducting business by the " credit 
 system" (whereby the larger transactions are promoted), 
 and by cash and credit (whereby the retail trades are con 
 ducted), is always fatal to both when they are carried on 
 by the same credit money that has a dual reliance on gold 
 and silver. Therefore when President Fillmore realized 
 that the exports of gold exceeded the imports, knowing that 
 all these credits were redeemable in gold on demand, he had 
 forebodings as to the ability of the country to redeem 'the 
 credits, and suggested that there should be a check against 
 what he was pleased to term the tendency toward speculation 
 on the part of the people. 
 
 It is a queer financial system that causes the surest evi- 
 dences of progress among the people to be regarded as 
 something to be checked in its tendency. It is strange he 
 could not understand that it was an increasing volume of
 
 Taylor and Fillmore Administrations 303 
 
 basic money which was bringing all these blessings to the 
 people, and that the dangers which he feared were caused by 
 the governmental abuse of making all these credits redeem- 
 able in specie. 
 
 Notwithstanding this fear that there would not be 
 enough specie retained to redeem these credits. Congress, 
 on February 21. 1857, during the administration of Mr. 
 Buchanan, passed an act " that all former acts authorizing 
 the currency of foreign gold or silver coins, and declaring 
 the same a legal tender in payment for debts, are hereby 
 repealed." 
 
 This foreign gold and silver coin was chiefly used as 
 bank reserves. So soon, however, as it was demonetized, 
 it was no longer available for that purpose, but was shipped 
 to Europe, and specie was drawn out of the channels of 
 trade to take its place. The act of 1853 depriving subsidiary 
 silver coins, in sums over five dollars, of the quality of legal 
 tender, caused the banks to cease the use of this coinage as 
 reserves. In addition, the distress of the Bank of England 
 forced it to sell about $7,000,000 of American securities in 
 the United States for gold. These things were deemed suffi- 
 cient excuse for the designing (i. c., those who induced the 
 conditions) seemingly to take the alarm, and demand pav- 
 ment of their debts in specie. This precipitated the panic 
 of 1857, which occasioned the loss of from $500,000,000 to 
 $1,000,000,000, reduced hundreds of thousands to a state 
 of dependence, and forced the suspension of all the banks. 
 
 A Democratic administration, under the leadership of a 
 Pennsylvania president, was influenced to pass legislation 
 which took from the people all the advantage thev had 
 gained bv their sacrifices and loss of life in securine ffold 
 from California. Tt had not onlv .done this, but it had
 
 304 The Le^al-Tender Problem 
 
 accomplished it in a way, and so effectually, that the gold 
 from California which should have been a blessing was 
 turned into the most frightful curse of the century. 
 
 Under the legislative manipulation of the issue of money 
 by that administration, the capitalists and creditors were 
 made so wealthy that they took the control of the Govern- 
 ment from the South, as will hereafter be shown ; and the 
 people were so impoverished that chattel slavery was de- 
 stroyed, and there was substituted in its stead industrial 
 slavery. The distress was so general that some relief had 
 to be given ; therefore an act of Congress, December 26,. 
 1857, authorized the issue of $20,000,000 in treasury notes, 
 not to bear over six per cent interest, but to be redeemed 
 in one year from the date of the notes, if the distress of the 
 country would permit; if not, authority was given to reissue 
 such notes as were redeemed until the first of January, 1859. 
 
 The reissue of these notes seems to have continued be- 
 yond the time authorized ; for on June 22, i860. Congress 
 authorized a loan providing for the redemption of treasury 
 notes by the sale of bonds not exceeding $20,000,000. On 
 December 17, i860. Congress authorized the issue of $10,- 
 000,000 in treasury notes to be redeemed one year from date 
 of issue, with power to reissue any of said notes until Jan- 
 uary I, 1863. 
 
 This issue followed the panic of i860, during which 
 there were six thousand business failures. The issues of 
 banks that were based upon the bonds of the Southern States 
 became jeopardized and uncertain in value, and in this con- 
 traction of the currency the failures were inevitable. 
 
 The circulation at this time consisted of a limited num- 
 ber of gold and silver coins (which were being fast with- 
 drawn), the outstanding treasury notes, and the issues of 
 some fifteen hundred State banks.
 
 XXXV 
 
 President Lincoln's Administration, and the 
 Financial Method Attempted 
 
 Notwithstanding the imminence of war, and the great 
 need there would be for currency if war should be declared, 
 Congress, on February 8, 1861, authorized the issue and sale 
 of $25,000,000 in six-per-cent bonds, to run not less than ten 
 nor more than twenty years. The proceeds of this sale 
 were to be used to pay the current demands on the treasury 
 and to redeem the treasury notes outstanding. 
 
 It appears that of this issue only $18,415,000 could be 
 disposed of, and that at an average discount of 10.97 per 
 cent; therefore, on March 2, 1861, Congress authorized the 
 sale of $10,000,000 in six-per-cent bonds, if the bonds could 
 be sold at par ; and if not, the president was authorized to 
 issue in their stead treasury notes, in denominations of not 
 less than fifty dollars, bearing six per cent interest. 
 
 The president was further authorized, " under like con- 
 ditions, to issue treasury notes for the whole or any of the 
 loans for which he is now by law authorized to contract and 
 issue bonds." The proceeds arising from these bonds were 
 to be used to pay appropriations and redeem outstanding 
 treasury notes. The bonds could not be placed, and treas- 
 ury notes had to be issued. The amount issued was $35,- 
 364,450, which was sold at rates ranging from par to $1.27. 
 
 It is noticeable that at this time a six-per-cent bond 
 which could not be sold at par, when offered as a six-per- 
 20 305
 
 3o6 The Legal-Tender Problem 
 
 cent circulating currency, sold, as these notes did, for a 
 premium. It only illustrates the contention heretofore made 
 that the trading and commercial people, in their intense 
 need for mediums of payment, will pay more for interest- or 
 non-interest-bearing treasury notes, when they can be used 
 as currency, than the capitalists and bankers will pay for 
 interest-bearing bonds. 
 
 Though these treasury notes were not legal tender for 
 the payment of private debts, they were for the payment of 
 all debts due the Government ; and it was due to this, and 
 not to the fact they were payable in specie, that they sold 
 for a premium. 
 
 The issue was far in excess of the amount contemplated, 
 because of the commencement of the Civil war within a few 
 weeks after the passage of the bill. It is in such periods 
 that the capitalists and investors refuse to exchange their 
 gold and silver for bonds, and the Government is only able 
 to secure such quantities of specie as are in the hands of the 
 trading and commercial people, who are ever willing to 
 exchange all they have for legal-tender treasury notes that 
 can be used as mediums of payment. 
 
 The financial truth — demonstrated in the issuance and 
 sale of these notes — that they were more valuable because 
 far more serviceable, both to the people and to the Govern- 
 ment, than bonds, has always escaped the observation of, 
 and has never been appreciated by, the wisdom of the offi- 
 cials of the Government. 
 
 President Lincoln was inaugurated March 4, 1861, and 
 the exigencies occasioned by the war were such that he 
 called an extra session of Congress to meet July 4, 1861. 
 
 On July 17, 1861, Congress passed an act which in its 
 first section reads as follows : " That the secretary of the 
 treasury be, and hereby is, authorized to borrow on the credit
 
 Lincoln's Financial Method I07 
 
 of the United States, within twelve months from the pas- 
 sage of this' act, a sum not exceeding $250,000,000, ... for 
 which he is authorized to issue coupon bonds, or registered 
 honds, or treasury notes in such proportions of each as he 
 may deem advisable ; the bonds to bear interest not exceed- 
 ing seven per cent per annum, payable semi-annually, irre- 
 deemable for twenty years; . . . and the treasury notes to 
 be of any denomination fixed by the secretary of the treasury 
 not less than fifty dollars, and to be payable in three years 
 from date, with interest at the rate of seven and three-tenths 
 per cent per annum, payable semi-annually. And the secre- 
 tary of the treasury may also issue in exchange for coin, 
 and as part of the above loan, or may pay for salaries or 
 other dues from the United States treasury, notes of a less 
 denomination than fifty dollars, not bearing interest, but 
 payable on demand, ... or treasury notes bearing interest 
 at the rate of 3.65 per cent per annum, payable in one year 
 from date, and exchangeable at any time for treasury notes 
 for fifty dollars and upwards ; . . . provided that no treas- 
 ury note shall be issued of a less denomination than ten 
 dollars, and that the whole amount of treasury notes, not 
 bearing interest, . . . shall aiot exceed $50,000,000." 
 
 Under this act $50,000,000 of the seven-per-cent bonds 
 were sold at a discount of 10.97 per cent. The $50,000,000 
 demand notes were sold for par. The patriotism of the 
 banks was shown in the fact that only the associated banks 
 of Boston, Philadelphia, and New York rendered any assist- 
 ance whatever to the Government, and they only made a 
 temporary loan for five months of $50,000,000, taking the 
 treasury notes, bearing seven and three-tenths per cent inter- 
 est, at par, as collateral. 
 
 An eflfort was made to remedy these defects, and enable 
 the Government to raise the necessary money, in the act
 
 3o8 The Le^al-Tender Problem 
 
 passed August 5, 1861. By its terms the secretary of the 
 treasury was authorized to issue six-per-cent bonds, payable 
 at the pleasure of the Government after twenty years, in 
 exchange for the treasury notes bearing seven and three- 
 tenths per cent interest, issued under the act of July 17, 1861. 
 
 It further provided that the demand notes should be 
 receivable in payment of all public dues, thereby making 
 them legal tenders for all debts due the Government ; and 
 that they should be issued in denominations of five dollars 
 and upwards to fifty dollars. 
 
 It further provided that six-per-cent bonds might be sold 
 for not less than par, to the amount authorized of seven- 
 per-cent bonds in the act of July 17, 186 1. It also suspended 
 the provisions of the act of August 6, 1846, so as to enable 
 " the secretary of the treasury to deposit any of the moneys 
 obtained or any of the loans now authorized by law, in such 
 solvent specie-paying banks as he might select, said money 
 to be checked out at will to defray the expenses of the Gov- 
 ernment or in redemption of treasury notes." 
 
 It appears that of the $250,000,000 in bonds authorized 
 to be issued under these two acts, $50,000,000 of the seven- 
 per-cents was issued, as heretofore stated, at a discount of 
 10.97 per cent, and $139,321,350 of the six-per-cents at par 
 in the years following in taking up the seven and three- 
 tenths per cent treasury notes. 
 
 It will be recalled that under the influence of Mr. Jeflfer- 
 son. Congress, on February 24, 1815, authorized the issue 
 of non-interest-bearing, legal-tender notes in small denom- 
 inations, redeemable only in six- and seven-per-cent stock, 
 and that they proved so efficient and serviceable, as cur- 
 rency, that they could not be secured by the bankers to be 
 surrendered and canceled. 
 
 It will be further recalled that their circulation, in com-
 
 Lincoln's Financial Method 3^9 
 
 petition witli the notes of the Bank of the United States, 
 aroused the open antagonism of that bank, ami it refused 
 to receive them because they were not a legal tender for 
 private, as well as jiublic, debts. 
 
 It will be further recalled that the Bank of the United 
 States paid $1,500,000 for the monopoly of issuing its notes 
 for twenty years, on the condition that the Government 
 should retire its notes from circulation, which it attcm[)ted 
 to do by refusing to receive them in payment of import dues. 
 
 It will also be recalled that Judge Mason stoi)ped this 
 iniquitous ruling of the treasury, and the Government there- 
 upon repealed the law which authorized their reissue, and 
 thus gradually withdrew them from circulation. 
 
 These notes were different from the demand notes in 
 only one particular ; both were non-interest-bearing, both 
 were issued in the smaller denominations, both were receiv- 
 able in the payment of all public dues, both were issued to 
 circulate as currency, and were to be reissued as often as 
 received into the treasury, until they were presented for 
 redemption, when, and not before, they were to be can- 
 celed, and retired from circulation. 
 
 The notes of 181 5 were not to be canceled until they were 
 exchanged for six- and seven-per-cent stock : the demand 
 notes were not to be canceled until thc\' were presented and 
 exchanged for coin. The provision for their redemption 
 was the only difference in the issues. Their experience was 
 very similar, — both were so efficient and serviceable to the 
 trading and commercial people, and were regarded as so 
 much safer than bank-notes, and were so much more con- 
 venient to handle than coin, that it was impossible for the 
 bankers to secure them to be surrendered ; and if the Gov- 
 ernment, at the instigation of the bankers (who surrendered 
 them as they happened to get possession of them), had not
 
 3IO The Le^al-Tender Problem 
 
 forced their retirement, they would be in circulation to this 
 hour. They were worth so much more as mediums of pay- 
 ment than as six- or seven-per-cent stock, or as coin, that 
 it never would have occurred to the people to commit the 
 suicidal act of surrendering them for cancelation. On the 
 contrary, those engaged in trade and commerce have always 
 been willing to purchase and use them, if they are made full 
 legal tenders. The bankers always endeavor to keep the 
 Government from issuing them, and have controlled its 
 action, except in the few instances of war, when the crisis 
 was such that Congress acted without separately consider- 
 ing the bankers and their alleged constitutional claims. 
 
 In 1815 the bankers were as willing to pay the Govern- 
 ment to take its treasurv notes out of circulation as the 
 people were to purchase them for use as mediums of pay- 
 ment; hence by an offer of $1,500,000, the bank of the 
 United States bought the monopoly of issuing notes for 
 twenty years, upon the agreement that the Government 
 would withdraw its notes from circulation. 
 
 In the excitement of the summer of 1861, and the first 
 months of 1862, Congress acted without consulting the coin 
 owners and bankers, and sold $50,000,000 in non-interest- 
 bearing demand notes to the soldiers and contractors for 
 services in the field, supplies, and armaments. The effi- 
 ciency in use and the ready acceptance of these demand 
 notes at and over their par value, constrasted with the slow- 
 ness and difficulty of selling the bonds, caused the act of 
 February 12, 1862, authorizing the additional $10,000^000 
 in demand notes to be issued. It was evident, as the neces- 
 sity for more money would appear as the war progressed, 
 that the same ready acceptance at par and efficiency in use 
 would cause their exclusive issue to an amount which might 
 be needed to conduct the war to a successful termination.
 
 Lincoln's Financial Method 311 
 
 The necessity for the issue of legal-tender treasury notes 
 was imperative. A hostile army was about to invade the 
 portion of the Union that was still intact. The State banks 
 had suspended specie payment ; at least the Government 
 could secure no more coin from them. The loyalty and 
 patriotism of the people, in their effort to assist the Gover- 
 mcnt with money, had been exhausted in the $1 39-32 1.350 
 advanced in specie. The balance of the specie had deserted 
 the fortunes of the Government, and did not care to exer- 
 cise its claimed constitutional right, in the emergency. 
 
 Luther Martin's prediction that if the power to emit 
 bills of credit was withheld from Congress, the time would 
 come when the Constitution would have to be violated and 
 the treasury notes issued to bu\- the means of defense, was 
 again verified. If it is admitted that the Government, as a 
 sovereignty, was under the necessity of issuing treasury 
 notes to preserve its existence, then it follows that it un- 
 doubtedly had that right; and if it had the right, born of 
 the necessity, then it logically follows that it had the power, 
 notwithstanding it had been attempted in the Constitutional 
 Convention to withhold the exercise of that power from 
 Congress. 
 
 If the United States, as a sovereign nation, had the 
 power and right, and was under the necessity of issuing its 
 notes, then the notes should have been issued in accordance 
 with this sovereign power, and in a manner that would most 
 efficiently serve the purpose for which they were needed, 
 and be of the greatest benefit to the people and the country ; 
 and not in accordance with the contention of the coin own- 
 ers and bankers that they must be so issued as to cause the 
 least temporary interference with their alleged claim of 
 the constitutional right to supply the money of the country. 
 
 The act of July 17 was an amendatory act, intended to
 
 312 The Le^al-Tender Problem 
 
 remedy the defects in the previous acts. The demand notes 
 were accepted so readily that the Government decided to 
 make them receivable for all payments due it. Endowed 
 with the quality of legal tender to this extent, they were so 
 generally received and so acceptable in use to all classes ex- 
 cept the bankers that the hostility of the bankers could not 
 aflfect the value or use of the notes : on February 25, 1862, 
 the additional $10,000,000 consequently was issued. 
 
 This action of Congress alarmed the gold and silver 
 owners and the bankers. They realized that the practical 
 experiments of President Lincoln had thus early taught that 
 the success of the war was dependent upon the assistance 
 and proper use of the value of legal tender.
 
 XXXVI 
 
 The Conspiracy of the Bankers 
 
 The/ bankers realized with intense dread that President 
 Lincoln appreciated the efficiency and " value in use " of the 
 non-interest-bearing legal-tender demand notes, that there 
 would be no inclination on the part of the people to present 
 them for redemption so long as they could be used for cur- 
 rency, and that the president intended in great measure 
 to issue them to bear the expenses of the war. 
 
 It was realized that if they should be used during the 
 period of the war, their efficiency, as mediums of payment, 
 and the fact that they were better than bank-notes and more 
 convenient to handle than gold and silver coins, would com- 
 mend them so highly that they would never be presented 
 for redemption, but would continue indefinitely in circula- 
 tion. 
 
 It was realized that this war, and the manner in which 
 the practical wisdom of President Lincoln was managing 
 the finances, was fast demonstrating to the intelligence of 
 the people generally that the constitutional guarantee that 
 the money of the country should be limited to gold and sil- 
 ver, and that Congress had no power or right to issue treas- 
 ury notes, was unscientific, and a governmental error. 
 
 The bankers realized that they were in danger of losing 
 their claimed constitutional right to the monopoly of legal- 
 tender value in the exclusive use of their gold and silver, 
 enlarged as it had been by the two unconstitutional deci- 
 sions of the Supreme Court in favor of the Rank of the 
 
 313
 
 314 The Legal-Tender Problem 
 
 United States and the State banks. Under the influence 
 of these fears, they conspired to assemble at Washington, 
 and so impede legislation — notwithstanding its urgency 
 on account of the war — that they would force a change 
 from the financial method adopted by President Lincoln to 
 one of their own, solely in their interest. 
 
 They succeeded in their conspiracy, and corruptly in- 
 duced Congress to adopt their plan in the act of February 
 26, 1862. The first section of this act provided for the 
 issue of $150,000,000 of non-interest-bearing treasury notes 
 in denominations not les» than five dollars. $50,000,000 of 
 the above was set aside to take up as rapidly as practicable 
 the demand notes. 
 
 This issue of notes was made receivable only in pay- 
 ment of all taxes, internal duties, excises, debts, and de- 
 mands of every kind due the United States, except duties 
 on imports, and of all claims and demands against the United 
 States, except for interest upon bonds and notes which shall 
 be paid in coin, and shall also be lazvfnl money and a legal 
 tender in payment of all debts public and private, except 
 duties on imports and interest on bonds and notes. 
 
 Inasmuch as the demand notes could be used to pay dues 
 on imports, it was important that they should be retired 
 from circulation. Knowing that the people would not pre- 
 sent them for redemption, and that they would be so inces- 
 santly used that the bankers could not secure them to be 
 presented, the act provided that the secretary of the treasury 
 must cancel the notes as fast as they were paid into the 
 treasury. 
 
 Under the provisions of the act, after the demand notes 
 should be retired from circulation, import dues could be paid 
 in coin only, and this coin was to be used to pay the interest 
 on the Government bonds. It is evident that the coins never
 
 The Conspiracy of the Bankers 315 
 
 passed from under the control of the caprtahsts, for though 
 they were sold to the importers to pay import duties, it was 
 with the knowledge that they would be paid back to them 
 as interest on Government bonds which they owned. 
 
 This arrangement made the Government notes the money 
 of the people, limited in legal tender as they were, and the 
 full legal-tender coins, the money of the capitalists. The 
 people could use the treasury notes in payment of all de- 
 mands due the Government except dues on imports, and 
 'the Government could use them in all payments except inter- 
 est on the bonds. But whenever" the people needed coins 
 to pay dues on imports, they were forced to buy them. This 
 necessity imposed upon the people by act of Congress, 
 disparaging its own issues, gave the coin owners an undue 
 advantage, and they availed themselves of it, and forced 
 the coins to a premium. The extent of the premium was 
 limited to, and determined only by, the ability of the coin 
 owners to combine and control the coins. The result was 
 that the gold coins, the cheaper of the two metals, and there- 
 fore the standards of payment at that time, commanded a 
 premium over the United States notes of $1.50 to $2.85 
 through a number of years. 
 
 The act further provided that the treasury notes should 
 have the right to be exchanged at par for 5-20 bonds, pay- 
 able in lawful money, bearing six per cent interest, payable 
 semi-annually in coin ; and it was further provided that the 
 notes should be reissued as often as exchanged. 
 
 Section 2 provided for the issue of $500,000,000 of the 
 six-per-cent 5-20 bonds for the purpose above set forth and 
 to fund the floating debt. These bonds were also exempt 
 from State taxation. 
 
 Section 4 provided that any person may deposit with the 
 secretary of the treasury, for not less than thirty days. United
 
 3i6 The Le^al-Tender Problem 
 
 States notes in sums not less than $ioo, the total not to ex- 
 ceed $25,000,000, and receive therefor from said secretary 
 a certificate of deposit, bearing interest at the rate of five per 
 cent per annum, with the right to withdraw said notes upon 
 ten days' notice. The secretary was authorized to stop the 
 interest on said certificate at any time. 
 
 Section 5 provided " that all duties on imported goods 
 shall be paid in coin, or in notes payable on demand hereto- 
 fore authorized to be issued, and by law receivable in pay- 
 ment of all public dues." 
 
 The legal-tender quality given the demand notes in the 
 act of August 5, 1861, this act, and the act of March 17, 
 1862, gave them the right to be used in payment of private 
 as well as public debts, and put them in every respect on an 
 equal footing with coins ; and it is not surprising that they 
 remained of equal value, and commanded the same premium 
 over the " exception clause " notes that the gold coins did. 
 
 No higher evidence of the value of legal tender, when 
 bestowed on paper or metals, can be shown than was demon- 
 strated in the experience of the demand notes, and that was 
 the reason why the act provided that they should be can- 
 celed as fast as received into the treasury. Once out of the 
 way, and the " exception clause " notes issued in their stead, 
 the coin owners would have no rival in the sale of their 
 coins to those who had to pay dues on imported goods. 
 
 It will not do to contend that the demand notes kept of 
 equal value with the coins solely because they could be ex- 
 changed for them at the treasury, and that they owed no 
 part of their value to the legal-tender quality. If that had 
 been so, it would not have been so imperative to provide for 
 their retirement in the act of February 25, 1862. This could 
 have been done by the coin owners and bankers gathering 
 and presenting them to the treasury. That is the one thing
 
 The Conspiracy of the Bankers 3'7 
 
 the coin owners and bankers can not do with that kind of 
 Government notes, for they are used by the people in prefer- 
 ence to bank-notes and coins, and are kept in circulation 
 while the bank-notes and coins are deposited in the banks. 
 It is well known and appreciated, by none more than the 
 bankers, that if the Government does not deprive such notes 
 of legal tender, they defy all effort of the coin owners and 
 bankers to get hold of them and surrender them for can- 
 celation. 
 
 Under the influence of this band of bank conspirators, 
 Congress was induced, in spite of the resistance of Presi- 
 dent Lincoln and other patriots, to abandon the scheme 
 of finance that was best for the interests of the country, and 
 which was in accordance with its sovereign power and right, 
 as taught by Jefferson, advocated by Jackson, approved by 
 Lincoln, and since upheld by the Supreme Court, and was 
 forced instead to adopt the method drawn up by the bankers 
 and coin owners solely in their interest and to the peril of 
 the existence of the country as a republic. 
 
 That this could be done over the resistance of President 
 Lincoln, Senator Thad. Stevens, and other?; who, amid the 
 terrible excitement then existing, rendered able assistance, 
 was not so much due to the bribery of Congressmen and 
 Senators — though many succumbed to that influence — as 
 to the moral effect of the undetected fallacy in the construc- 
 tion given the Constitution, that only gold and silver could 
 be legal-tender money, and the generally accepted idea, 
 under the two bank decisions of the Supreme Court, that it 
 was an infringement upon the bank's rights for the Govern- 
 ment to issue its notes, except by permission of the bank- 
 ers and coin owners, and then only temporarily and in such 
 manner as they should prescribe. 
 
 The iniquities incorporated into the Constitution by the
 
 3i8 The Legal-Tender Problem 
 
 Alassachusetts school of finance, and fastened upon the pol- 
 icies of the Government by the Supreme Court, have borne 
 their deadly fruit in every crisis. The moral effect and 
 influence of the construction given the Constitution, and 
 the deference paid the decision of the Supreme Court in 
 the bank cases, greatly strengthened the contention of the 
 conspirators, and accounts in great part for their victory 
 over President Lincoln. Strengthened by these considera- 
 tions, the iniquities, aided as they have been by the grow- 
 ing and formidable capacity to bribe, corrupt, and destroy 
 — due to their observance, enforcement, and practise — have 
 become almost irresistible, and impossible of correction. 
 
 The resistance to the passage of the act was desperate 
 on the part of those who realized what was being done, 
 as is evidenced in the conduct and remarks of Senator Thad. 
 Stevens at the time, and afterwards. He said, " I have a 
 melancholy foreboding that we are about to consummate a 
 cunningly devised scheme which will carry great injury and 
 great loss to all classes of people throughout this Union. 
 , , . There was a doleful sound came up from the caverns 
 of the bullion brokers, and from the saloons^irf the associated 
 banks. ... It [Congress] now creates money, and by its 
 very terms declares it a depreciated currency. It makes 
 two classes of money; one for the banks and brokers, and 
 another for the people." 
 
 Speaking afterward, he said, " Yes, we had to yield. 
 The Senate was stubborn. We did not yield, however, until 
 we found that the country must he lost or the hankers 
 gratified; and we sought to save the country, in spite of the 
 cupidity of its wealthier citizens. When, a few years hence, 
 the people shall have been brought to general bankruptcy, 
 I shall have the satisfaction of knowing that I attempted to 
 prevent it."
 
 XXXVII 
 
 The Negro in Finance 
 
 It is an anomaly that in the history of the war between 
 the States, no intelligent reason for the necessity of that 
 fratricidal contest has been given general acceptance. The 
 South claimed, and its writers still contend, it resisted be- 
 cause it realized that the abolition element in the East had 
 determined upon the freedom of the slaves. The East and 
 the North answered that President Lincoln's administration 
 was not committed to such a policy, and that the institution 
 of slavery would be respected and protected. 
 
 They have further contended that if it had become neces- 
 sary to abolish slavery to preserve the republic, it could 
 have been done peaceably and with due regard for the 
 property rights of the South in the slaves. In substantia- 
 tion they establish,— 
 
 First, that they offered terms of peace at the beginning 
 of the war upon condition that slavery should continue, as 
 an institution of the country, in those States where it already 
 existed, but should not be extended to other or the new 
 States. 
 
 Second, that in the midst of the struggle, President Lin- 
 coln assumed the responsibility of offering peace upon the 
 condition that the slaves should be paid for. 
 
 This second offer was made after he ascertained that 
 the motives dominating the capitalists of the East would 
 undermine the foundations of the republic ; and, in his fear 
 for its future, he deemed it wiser and better to end the war 
 
 319
 
 320 The Legal-Tender Problem 
 
 by paying for the slaves than to permit it to continue at the 
 fearful cost of the immense debt that was being incurred. 
 
 He realized only too keenly the abuses that were, in the 
 name of patriotism, being committed, and fastened upon the 
 country in the financial conduct of the war, and had forebo- 
 dings for its future under the further abuses that this same 
 vampire spirit of financial hypocrisy could and would per- 
 petrate in the manipulation and payment of the debt. He 
 therefore thought it better and wiser to ofifer said terms of 
 peace, in the hope that he would stop, not only the unneces- 
 sary sacrifice of life, but what was still far more important 
 to his far-seeing vision, put an end to the probability of the 
 destruction of the republic by the knavish capitalists who 
 had assumed charge of its finances over his opposition. 
 
 Neither of the foregoing propositions were acceptable to 
 the leaders of the Southern people ; for while they had only 
 the conviction of moral certainty that it was a contest to 
 the death, they did not have a correct conception of the 
 underlying and controlling cause that was firing the East- 
 ern soul and sustaining its energies. 
 
 Though there has been no intelligent exposition, so far 
 as the writer has observed, of the controlling cause of the 
 war, the South was correct and true to its interests in its 
 conclusion that it was to free the negro, but not from the 
 motives ascribed to the abolitionists. 
 
 So convincingly did the South entertain the conviction, 
 and so well assured were its leaders that the freedom of the 
 slaves would cause their overthrow in the control of the 
 Government, that they turned a deaf ear to all overtures of 
 peace, and elected to struggle until manhood was exhausted 
 before it would surrender, if surrender it must. The des- 
 peration of the Southern leaders confounded President Lin- 
 coln. He was helpless in the management of the finances,
 
 The Negro in Finance 321 
 
 with Conj^ress in the hands of, and completely dominated by, 
 the financiers and capitalists of the North and East. He 
 could not reach the reason of the leaders of the South, and 
 was consequently compelled to remain at the helm and see 
 the country drift to plutocracy, praying that his fears might 
 not be realized. 
 
 The unconscious cerebration of the Southern leaders 
 controlled the action of that section. They realized that a 
 postponement was only a palliative, and decided that the 
 issue must be finally settled then and forever. They were 
 sub-consciously conscious that there was no escape from 
 the issue, but it was the irony of fate that they precipitated 
 the conflict in such profound unconsciousness of the true 
 source of the motives of the East that they adopted in the 
 management of their finances the identical fallacy which 
 the East had forced upon the country, the resultant effects 
 of which they were making such formidable preparation 
 to resist. 
 
 The peace party of the North was in the same woful 
 condition, and it is doubtful if any, except a few of the cap- 
 italists, were aware of the true motives that were domina- 
 ting the movement which was to work such a change in so 
 short a time in the warp and woof of the entire structure 
 of the Government. It is certain that the abolitionists, who 
 were not recognized as a factor in the policies of the Gov- 
 ernment at the beginning of the war, had no appreciation 
 of what was being carried forward, though their insane 
 fanaticism was the resultant of the agencies employed, their 
 agitation the expression of the only sentiment that could be 
 openly advocated, while their motives were blessed and 
 sanctified as from God himself, by the designing. 
 
 In elucidation of the foregoing, it is only necessary to 
 state that it is the accepted history of the country that the
 
 322 The Le^al-Tender Problem 
 
 same vicious greed of the East which has dominated our 
 finances, orisrinallv introduced chattel slaves into this coun- 
 try. • That sublime and overmastering Christian love of 
 humanity that the East is ever so ready to put forward as 
 a cloak to cover its avarice, induced its inhabitants at the 
 earliest period of our history, to traffic in human flesh, and 
 despoil humanity of its birthright. 
 
 While they were preparing the souls of the heathen for 
 heaven, they hoped to make out of the toil of their bodies 
 sufficient wealth for their descendants to carry forward the 
 humane work with fire, sword, and bottle, under the guise 
 of Christian commercialism, to all the heathen of the earth. 
 The motive was pure and honest enough in its active expres- 
 sion for the morality of the East; and the plan, as orig- 
 inated, would have been carried on and maintained until 
 to-day, if the profit had turned up on the right side of the 
 balance sheet. 
 
 The East soon realized that there was no profit in chat- 
 tel slavery, and it thereupon induced the South to try the 
 experiment, with the purpose, if it should prove profitable, 
 to dispose of its slaves to the Southern people, and to have 
 them assume the obligations of their humane work. It took 
 some time for the East to make the experiment, ascertain 
 that there was no profit in chattel slavery, and dispose of 
 their slaves to the South for a fair consideration. 
 
 While this was taking place nothing was said of the 
 inhumanity of slavery, and their preachers were appointed 
 to the sacred task of proving that slavery was a divine insti- 
 tution. It was during this interval that the Constitution of 
 the country was framed, and the institution was recognized 
 in that instrument, though the words " slave or slavery " 
 were kept out of it by the Eastern capitalists, with the inten- 
 tion, should it ever become necessary to subserve their
 
 The Negro in Finance 323 
 
 interest, to abolish it. The East did not give up chattel 
 slavery until it had demonstrated that there was no profit 
 in it, and had satisfied itself that industrial slavery could 
 be exploited to much greater advantage. 
 
 The substitution of industrial for chattel slavery was 
 made easy and profitable for the East, for the reason that 
 chattel slavery proved so profitable in the South. Under 
 such circumstances the change in the East, and the transfer 
 of the slaves to the South, was so welcome to both sections, 
 that no one saw the inhumanity of slavery, and it is notice- 
 able that the immorality of slavery did not. make its appear- 
 ance in the sentiment of any portion of the country until 
 the labor of the slaves began to afifect injuriously the pocket- 
 books of the East. And it is equally noticeable that the 
 growth of the sentiment in the sympathies of the Eastern 
 people kept pace with the growth of the advantage that the 
 Southern people acquired from the use of slave labor. 
 
 The East had no appreciation of the efifect that the 
 transfer of the slaves would have upon the sections in ma- 
 king money and in the control of the Government. If it 
 had, it is reasonable to suppose that the intensity of the sen- 
 timent that would cause the death of so many people to 
 abolish slavery, would have made some less objectionable 
 disposition of the slaves in the first instance. It is certain 
 that the slaves would never have become the property of 
 the South and recognized as such by the Constitution, if 
 a correct idea had been entertained of the detriment it would 
 prove to the interests of Eastern capital. 
 
 The transfer of the slaves and their recognition by the 
 Constitution as property, operated so advantageously to the 
 interest of the South, and so detrimentally to the interest of 
 the East, that, as it became more active, it became too griev- 
 ous to the money-making propensity of the East to be tol-
 
 324 The Legal-Tender Problem 
 
 erated. Hence the East decided to abolish the institution. 
 The adaptabiUty of the slaves to the South, and their fruitful 
 increase, made their ownership so profitable that it caused 
 the creation of that degree of wealthy intelligence which 
 generated the masterful element that was known throughout 
 the world of civilization as the Southern planter. 
 
 The intelligence in all the affairs of life, and especially 
 in theoretical and practical statesmanship, that is ever the 
 attendant upon an appreciated and wisely spent leisure, easily 
 made the men of the South the leaders in public thought, 
 and they naturally assumed control of and managed in great 
 part the affairs of the Government for years. They were 
 enabled by the genius of Mr. Jefferson to substitute the 
 unconstitutional State banking system for the equally un- 
 constitutional national banking system which the East had 
 foisted upon the country, and through the prowess of Presi- 
 dent Jackson they destroyed the national bank system and 
 turned the finances over to the State banks. 
 
 The calculations of the JEastern financiers (when they 
 induced the Constitutional Convention to deny the States 
 the right to emit bills of credit) that they would have the 
 sole right to loan the money needed to open up, settle, and 
 carry on business in the new States as they came into exist- 
 ence, had been in great part defeated by the issue of State 
 bank-notes, and by the labor of the slaves in the Southern 
 
 States. 
 
 In the Western States, where slavery did not obtain, 
 their calculations were being carried out. As money was 
 needed in those States, the East loaned it to the people, and 
 for a time they found full use for all they had. But as the 
 growth of this vast territory into new States expanded, 
 profits increased, and the surplus capital of the East accu- 
 mulated until it was enlarged beyond the demand.
 
 The Negro In Finance 325 
 
 In the Southern States it was different. The i)rofit 
 accruing to the Southern planters from slave labor enabled 
 them to supply all the capital that might be needed to clear 
 up and settle the country, assisted as it was by the incessant 
 and increasing labor of the slaves. It is evident, therefore, 
 that the system of slavery was enabling the South to fulfil 
 its mission without having to call upon the East for money, 
 as the Northwest, where slavery did not obtain, was forced 
 to do. This was not so objectionable because not so notice- 
 able, so long as the demand for money from the Northwest 
 was in excess of the surplus capital of the East. 
 
 It was during this period that Mr. Jefferson made the 
 Louisiana purchase with no more serious opposition than 
 was manifested. It was not so apparent at the date of the 
 purchase, as it became afterward, that the acquisition of this 
 territory, where slavery would be profitable, was what saved 
 the supremacy of the .South as long as it did. 
 
 When it was realized that the Louisiana Purchase 
 brought into the Union territory which, when occupied by 
 the slave-holding population of the South, would enable it 
 to retain its supremacy, and deprive the East of the right 
 to loan its surplus capital in the new States, the sentiment 
 of abolitionism first found serious expression. The money 
 interest of the East realized that if the slave owner was 
 allowed to take possession of this new territory with his 
 slave labor, it would so strengthen the power of the South 
 that it would remain in charge of the Government, and they 
 would be deprived of the right of ever loaning their sur- 
 plus capital in said territory. 
 
 It is evident that the contest w^as for supreniacy in the 
 control of the Government, and the right of the East to loan 
 its accumulating surplus capital in the new States, if not in 
 the South. The fight was made at first to secure the con-
 
 326 The Legal-Tender Problem 
 
 trol of the Government, but this could not be done if slavery 
 was permitted in those States. It was necessary, there- 
 fore, that slavery should be excluded. 
 
 The South was as conscious of the advantage of adding 
 slave-holding States to the Union as the East was of exclu- 
 ding the slaves from the new States. At first, before Eastern 
 capital had become plethoric, the warfare was waged by 
 the ambitious men of the East, who desired to exercise con- 
 trol over the Government, and they received much encour- 
 agement but little money assistance from Eastern capital. 
 
 The warfare at this time was waged on the hustings, the 
 floor of Congress, and was finally settled in such meas- 
 ures as the Lecompte, the Kansas and Nebraskan, and the 
 Missouri Compromises. These compromises were agree- 
 ments wherein it was arranged that in all territory north of 
 a certain line, slaves could be excluded, and in all territory 
 south of that line, slaves might be owned. The compro- 
 mises were made because the issue was more party policy 
 than aught else at that time. The chief actors were the men 
 of ambition who desired to rule over the destiny of the na- 
 tion, and the compromises were made because each faction 
 hoped and thought that the future settlement of their re- 
 spective territory, under encouragement to immigration, 
 would give them the advantage. 
 
 It appears that the South, with its rapidly increasing 
 slaves, was the more active of the two, and secured the 
 advantage ; for it was easier to move and utilize the labor 
 of the chattel slave than it was to induce the industrial 
 slave to quit his Eastern home and take up his residence in 
 the new territory. Industrial slavery at that time was more 
 a theory and name than a practical condition. 
 
 Under our pioneer civilization the seed when first sown, 
 in its primal growth, was most promising and most inviting.
 
 The Negro in Finance 327 
 
 It took time, increase of population, tariff laws, manipula- 
 tion of legal-tender value, and a congested citizenship to 
 ripen the harvest, and the capital of the East did not have 
 that control over it to which it has since attained. There- 
 fore, in the contest to add new States to the Union to retain 
 or to gain supremacy in the control of the affairs of the 
 Government, the South was the more successful. So soon 
 as this became evident, the hydra of abolitionism was un- 
 chained, and warfare was again waged upon the hustings 
 and the floor of Congress, until another compromise was 
 made to avert the war that was inevitable unless the East 
 was permitted to exploit the entire country as it was ex- 
 ploiting the great Northwest. 
 
 Eastern capital had not as yet become vitally interested. 
 The Southern statesmen had been shrewd enough to post- 
 pone the day when the surplus capital of the East would 
 become an active and deadly factor in the contest by the 
 passage of the Walker Tariff, and other legislation which 
 had checked to some extent the rapid accumulation of for- 
 tunes in the East and North. But notwithstanding these 
 evidences of superior ability and statesmanship upon the 
 part of the Southern leaders, they brought their destruc- 
 tion upon themselves by the failure to detect the fallacy in 
 the construction of the Constitution that only gold and silver 
 should be the money of the country. 
 
 The failure on the part of Democratic administrations 
 to detect this fallacy ; their failure to appreciate and put in 
 practise Mr. Jefferson's theory of issuing treasury notes ; 
 their refusal to issue treasury notes except as a debt to be 
 paid and the notes retired in a few years ; their issuance of 
 bonds to retire the notes ; their taking away the quality of 
 legal tender from the subsidiary silver and foreign coins at 
 a crucial period, and their persistence in forcing the money
 
 328 The Legal-Tender Problem 
 
 of the country to a metallic base at the most inopportune 
 times, precipitated so many panics — especially the one of 
 1857^- that the people became so impoverished and the cap- 
 italists made so wealthy by i860 that the capitalists had a 
 surplus on hand above the amount that could be loaned in 
 the free States. 
 
 The capitalists now, for the first time, became an active 
 and ag-grcssive factor in the movement to free the slaves, 
 and abolitionism, under the impetus of their encouragement 
 and support, assumed such intensity of purpose that it 
 openly and boldly denounced the Constitution as " a league 
 with death and a covenant with hell." The South felt, in 
 its unconsciousness of the controlling motive, the deadli- 
 ness of the purpose, though it was masked behind the sen- 
 timent of abolitionism which was so rabid at that time, en- 
 couraged and driven forward as it was by the unseen hand 
 of Eastern capital. 
 
 The preparation for war was not at first thought to be 
 serious, because of the declaration of the South that it was 
 preparing to resist the evident intention of the abolitionists 
 to free their slaves. 
 
 It was at once announced by President Lincoln that 
 slavery was constitutional, as had just been decided by the 
 Supreme Court of the United States, and that he would 
 enforce the law in the protection of the slaveholders' rights ; 
 that it was ridiculous for the Southern States to be taking 
 such action because of the insane utterances and actions of 
 a small body of lunatic abolitionists that would prove as 
 amenable to the power of the Government as other rabid 
 disturbers in the East had proved in the past. 
 
 The unconsciousness of the South that it had by its 
 financial policies and practises, when in control of the Gov- 
 ernment, made the capitalists of the East rich, powerful, and
 
 The Negro in Finance 329 
 
 dominant, prevented it from expressing intelligently the 
 issue which it realized had to be met, and it brought on the 
 war, as it said, because the abolition sentiment was all-pow- 
 erful, and would override the policy of President Lincoln, 
 even if he was sincere and honest in his declaration. The 
 statesmen of the South paid an undeserved compliment to 
 the East in the fear, accentuated by their declaration of war, 
 that the East was going to wage war against them for a 
 pure sentiment unmixed with profit. 
 
 It is strange that those Southern statesmen did not see 
 the absurdity contained in the contention, and look for the 
 source of gain that the merest acquaintanceship with the 
 dominant characteristics of the East should have informed 
 them is the cause of all its actions. In doing so the motives 
 of the East would have been discovered as well as the false 
 policies of finance it had inserted in the Constitution for its 
 profit, and which was made ineffective in the South and 
 wherever chattel slavery obtained. If they had made this 
 discovery, it is certain that in preparing for war they would 
 not have inserted the same financial fallacy in their con- 
 stitution, and issued their treasury notes as a debt of the 
 new Government to be paid in coin, when they had no coin, 
 and could not secure any. The knowledge that the South 
 had no coin, and could not secure any with which to redeem 
 its treasury notes, made them the more worthless as they 
 were issued, imtil they became valueless ; for they were not 
 made legal tender even to pay dues to the Government. 
 
 The struggle of the South soon degenerated into a 
 futile attempt to wage a great war without the assistance 
 of any legal-tender money whatever, with the inevitable re- 
 sult that will always attend such a want, however patriotic 
 and self-sacrificing the people may prove. The Southern 
 people lost the fight in the preparation for the conflict solely
 
 330 The Legal-Tender Problem 
 
 on account of the financial policy adopted ; and though they 
 used the treasury notes long after they were valueless, and 
 struggled against the internal financial enemy more patri- 
 otically and more self-sacrificingly than they did against 
 their physical foe, if such a thing could be possible, they did 
 but demonstrate to the extremest verge of human efifort and 
 endurance that successful war can not be waged without the 
 aid and use of the value of legal tender. 
 
 The South failed to profit by the experience of Napo- 
 leon, who, relying upon the assistance of gold and silver 
 to support his lust for universal empire, was defeated and 
 rendered harmless by the less powerful prime minister of 
 England. To accomplish his overthrow, it was necessary 
 that the legal tender value of England should be issued in 
 such quantities that the armies of the allied powers could 
 be supported while they were engaged in the struggle ; but 
 after the termination of the war, the abuse that was prac- 
 tised upon the English people in the interest of the money 
 power, — in turning all that legal-tender money into a debt 
 of the empire, — was more destructive than the success of 
 Napoleon would have proved. Napoleon failed in his at- 
 tempt, but he was the cause of the necessity for the inaug- 
 uration of a pure and scientific financial system to compass 
 his overthrow. 
 
 It is strange that intelligent statesmanship should fail 
 to appreciate that his dream of universal empire was not 
 successful solely because of the aid and use of legal-tender 
 value, but should lend their efiforts to its manipulative abuse 
 in changing it into an interest-bearing debt, and conferring 
 that value on gold alone, by which means, as it is extended, 
 the money power is fast acquiring the universal empire that 
 the legions of Napoleon could not secure and hold for him.
 
 XXXVIII 
 
 The Political Duty of the Negro 
 
 In the foregoing the negro may ascertain the true cause 
 of his freedom ; and if he deems the resuh, when coupled 
 with the motive, demands or justifies the abandon of devo- 
 tion he has given to the RepubHcan party, he is invited to 
 examine the present condition of affairs to ascertain where 
 his true interest in the future Hes. 
 
 The substitution of industrial for chattel slavery was 
 only mock freedom for the negro under the financial policy 
 of the Republican party. It very naturally has been more 
 agreeable and more bearable so far, both in sentiment and 
 in practise, and will always be so in sentiment ; but whether 
 it will always be so in practise is exceedingly problematical. 
 This should be the only thing for the negro, as a citizen, to 
 consider, and he should lay aside his prejudice after all these 
 years, and rationally, dispassionately, and intelligently de- 
 cide what is best for his future interest. That he is one of 
 the great body of prospective industrial slaves that will in 
 the early future infest this country, must now be evident to 
 the more intelligent of the race. That he is in the company 
 of, and upon terms of political equality with, those who are 
 supposed to be the free white men of this country, should be 
 most pleasing to him, but it should not cause him to relax 
 or dull his rationalism as to w^hat should be done to better 
 the condition of both. 
 
 The future of the industrial slave in this country is un- 
 inviting enough for the white element under present con- 
 
 331
 
 332 The Le^al-Tender Problem 
 
 ditions and their future trend, but it is portentous for the 
 negro. The white industrial slaves who were induced forty 
 years ago to shoot the Southern slave owners that the negro 
 might be free, now shoot the colored industrial slave whom 
 the greed of capital would induce to deprive the white in- 
 dustrial slave of his only chance to make a living for him- 
 self and familv. 
 
 The white industrial slave of the North and the East 
 is the product of his own imbecility in fighting to free the 
 negro that the Eastern financier might have the right to 
 loan his capital in the South and further enrich himself at 
 the expense of the labor of both. 
 
 When the colored industrial slaves leave the South to go 
 North or East at the instigation of the financier, and for 
 less wages than the white industrial slave can work for, and 
 by such action throw his children, and possibly the m^n 
 himself in his old age, out of employment and upon the 
 charity of an unfeeling world, it is uncertain and hard to de- 
 cide as an ethical question whether he ought not to be shot. 
 The only justifiable excuse the negro, as an industrial 
 slave, could have for being willing to take the position of 
 an Eastern, Northern, or Western workman at less wages, 
 would be that he too is in sore need, and must have the 
 wages to enable him to live. The plea of self-preservation 
 is his only justifiable excuse for such conduct. Under that 
 same plea the white industrial slave shot him, and when two 
 distinct races are forced to act against each other under such 
 a plea, the issue has always been solved by the stronger race 
 driving out the weaker. 
 
 The higher duty for the negro is to ascertain who is re- 
 sponsible for the conditions that make it necessary for him, 
 under such a plea, to exhibit such ingratitude to the white 
 industrial slaves who fought four years to secure his free-
 
 The Political Duty of the Negro 333 
 
 dom. If in the examination it should occur to him that the 
 party in power, by the aid of his vote, allows, if it does not 
 encourage and create, the present conditions by its policies, 
 would it not be the part of wisdom to help turn the party 
 out of power, and see if a change would not be beneficial 
 to all persons? 
 
 If the present trend of affairs continues many years, 
 under the policies that the Republican administration has 
 lately put in force, it is certain that the class of white men 
 who shoot each other for taking their jobs at less wages will 
 break into ungovernable fury towards the negro, if he 
 should be induced to attempt the same thing. 
 
 As the poverty of the industrial slave becomes more 
 general and more desperate under the present system of 
 exploiting labor, — made .the more inevitable under the 
 iniquitous single gold standard, — the efforts of capital to 
 substitute one laborer for another at less wages will produce 
 class antagonism ; and when it becomes as distinctly racial 
 as it will be between the blacks and the whites, the blacks 
 will disappear to such fields of labor as the whites do not 
 care to enter. 
 
 This racial antagonism has grown so rapidly, and is 
 growing so bitter that it will not be many more years be- 
 fore the unsafest ])laces in the Union for large bodies of 
 negro laborers will be north of Mason and Dixon's line, and 
 the safest places will be the cotton fields, sugar plantations, 
 and rice swamps of the South. The negro is destined to 
 find out only too soon that when the abolition sentiment is 
 attended with loss instead of profit, results in injury in- 
 stead of benefits, its active expression will be something 
 that he will not enjoy. 
 
 The highest duty of the negro is to assist those indus- 
 trial slaves, whoever they may be, to institute such changes
 
 334 The Legal-Tender Problem 
 
 in the policies of the Government as will be best for them, 
 and put a stop to the financial iniquities foisted upon the 
 country by the Republican party solely in the interest of 
 the money power. 
 
 The exploitation of labor under the financial system and 
 tarifif policies of the Government for the past twenty-five 
 years has been severe enough, and produced the necessity 
 for the many strikes, and caused the distress that has 
 afflicted the country. The money that can be made out of 
 industrial slavery under and by virtue of certain class legis- 
 lation, has been most forcibly demonstrated in the fabulous 
 wealth of the few and the degradation of the laborers. 
 
 Under the financial legislation of the Fifty-sixth Con- 
 gress, the possibility of money-making by the manipulation 
 of legal-tender value and trusts, has been carried to the 
 extremest limit, and it is now only a question of time, and 
 the depths of degradation the laborers will endure, before 
 they move in desperation to throw off the burden. 
 
 It is readily seen that the most certain provocation to 
 first action would be the attempt of capital to force the sub- 
 stitution of negro laborers for the industrial white slaves. 
 As this attempt is supported and enforced by capital in its 
 blind greed, race antagonism will be excited to uncontrol- 
 lable fury, and before it can be checked, even by the strong 
 arm of the Government, if it is not made powerless, the ex- 
 termination of the negroes will have commenced. 
 
 The only safety of the negro lies in the betterment of 
 the conditions of industrial slavery. The betterment of the 
 conditions of industrial slavery can only be. accomplished by 
 the destruction of the system that generates and encour- 
 ages combines and trusts. 
 
 The destruction of combines and trusts can only be 
 accomplished by the revision of the tariff and the overthrow
 
 The Political Duty of the Negro 33 5 
 
 • 
 
 of the present financial system that is proceeding to the 
 single gold standard and a permanent debt for the benefit of 
 the national bankers. The tariff, the gold standard, and the 
 system of national banks, can be rendered ineffective to 
 make the rich richer and the poor poorer only by turning 
 the Republican party out of power. This can be accom- 
 plished by the negro vote, and if the negroes will show 
 only a modicum of that gratitude to the industrial slaves 
 who fought four years to free them that they have shown 
 for the capitalists who induced them to fight, and who now 
 dominate the Republican administration, they may yet be 
 enabled to live and prosper in this country at peace with 
 the other industrial slaves, when all are prospering and 
 making a living. 
 
 But if the negroes persist in allowing the capitalists to 
 use them to keep the Republican party in power, and pit 
 them against the industrial white slaves at lower wages, 
 that the fortunes of the financiers may be increased, then 
 they may expect the warfare they have called down 
 upon themselves. It is strange if they will not read the 
 signs of the times aright ! The issue is bound to be made. 
 The contest of the industrial slave for freedom will surely 
 come, and in the maelstrom of the revolution the negroes 
 will be the greatest sufferers, and but few of them will be 
 present when the end comes, whatever the result. 
 
 END OF VOLUME I.
 
 INDEX 
 
 Abolitionist 321 
 
 Act of Farlianient 53, 57 
 
 Acts of Continental Congress. .61, 62, 
 
 64, 65, 66, 67, 69 
 
 Acts of Congress 100, 121, 123, 
 
 129, 149, ISO, 162, 163, 232, 249, 
 
 253. 259. 260, 266, 267, 271, 272, 
 
 2/3, 276, 281, 282, 284. 
 Alts of Confederation. .67, 69, 80, 83 
 
 Additional Currency 106 
 
 Allison, Archibald 228 
 
 Alter, amend, or repeal 183, 184 
 
 Antagonism of systems 45 
 
 Articles of Confederation 65, 66 
 
 Bank issues, restriction 134 
 
 Bank of Kngland 50, 55 
 
 Banks of issue, effect of 217 
 
 Banks of issue, failure of 224 
 
 Banks of issue, theory of 
 
 Ill, 112, 142 
 
 Bank of North America 74 
 
 Bank-notes, motive for issue.. 140, 143 
 Bank-notes, specie value of 
 
 «33. 137. 138 
 
 Bank, purchase of sovereignty.... 163 
 
 Bank, right to exist 98 
 
 Banks, .State. . .130, 135, 140, 152,224 
 Bank of United States, First. 104, 144 
 Bank of United States, Second... 
 
 155. 230. 231. 246 
 
 Bank of Venice 39. 118 
 
 Benton, Thomas 237, 241, 257 
 
 Biddle, Nicholas 232, 237, 247 
 
 Bill of credit, definition 
 
 243, 244, 263, 26s 
 
 Bills of credit. .. .93, 96, 97, 204, 240 
 
 Bonds at a discount ^ . 305 
 
 Briscoe vs. Commonwealth of Ken- 
 tucky 261 
 
 Butler, of South Carolina 93 
 
 Calhoun, Senator 258, 275 
 
 Cash and credit system 2i, 214 
 
 Change to empire 290 
 
 Charter, a contract 173. ^"77 
 
 Change by construction .... 128, 157 
 
 Chattel slavery 322 
 
 Civil War 305 
 
 Citizen, meaning of iS7 
 
 Clay, Henry i47 
 
 Coinage of gold dollars 301 
 
 Coins 116, 117, 118, 127 
 
 Colwell's " Ways and Means of 
 
 Payment" 46, nS. 121 
 
 Colonial finance .••••.• 5°. 62 
 
 Congress, power to emit bills of 
 
 credit 94. 96 
 
 Congress, power to grant charters. 
 
 96, 97 
 
 PACE 
 
 Continental issues 71, 73, 92 
 
 Continental Congress, address. . . . 
 
 81, 82, 84, 87, 89 
 
 Conspiracy of bankers 313 
 
 Contraction of money.... 55, 228, 229 
 
 Constitutional Convention 90, 91 
 
 Control of Government 325, 327 
 
 Corporation not a citizen 157 
 
 Craig vs. Missouri 240 
 
 Crawford, secretary of treasury... 
 
 209, 228 
 
 Dartmouth College Case.... 170, 182 
 Dartmouth College Case, effect of. 
 
 174. 183 
 
 Debt of Revolution 99. >o' 
 
 Debtor's right to pay 127, 128 
 
 Demand notes 309, 313, 316 
 
 Deposits, removal 247 
 
 Destruction of trusts 334 
 
 Dollar, the word, unit of value 11, 121 
 
 Dollar, the coin 123 
 
 Dollar of payment 124 
 
 Duane, secretary of treasury 247 
 
 Elements of money 107, 109 
 
 Ellsworth 94 
 
 Empire, change to 296 
 
 Exploitation of labor 3'J4 
 
 Factions, origin of i44 
 
 Federalist party 144. 168 
 
 Fillmore, president 296 
 
 Foreign policy, imitated 292 
 
 Franklin, Benjamin 56 
 
 Gerry, of Massachusetts 92 
 
 Gold from California 296, 300, 304 
 
 Gold coins 125. 250 
 
 Gold, the cheaper dollar 302, 315 
 
 Grcsham's Law, reason of i33 
 
 Hamilton, .Mcxander 100, 121 
 
 Harrison, President 267, 269, 279 
 
 Independence 62, 78 
 
 Independent treasury 266 
 
 Jackson, Andrew, veto 
 
 228, 230, 235, 252-254 
 
 Jefferson, Thomas 
 
 121, 135, 145. '47. 155. 27s 
 
 Juillard v.s. Greenman 225 
 
 king, of Massachusetts 92, 97 
 
 Labor expressions of value 23 
 
 Labor, the source of value 
 
 10, 12, 16, IQ 
 
 Langdon, of New Hampshire 95 
 
 Legal-tender cases . 164, 225 
 
 Legal tender, a property right. 45, 226 
 
 Legal tender, origin of 4>. 42 
 
 Legal tender, power of 11, 127 
 
 Lincoln, president 30.^ 
 
 Louisiana purchase 3-5 
 
 337
 
 338 
 
 Index 
 
 Madison, James 75, 94, 97, 162 
 
 Madison, President, veto 162 
 
 Marshall, Chief Justice 
 
 156, 174, 182, 184, 186, 243 
 
 Marshall, Chief Justice, motive of 
 
 186, 262 
 
 Massachusetts, so, 51, 52, 59, 144, 242 
 
 Martin, Luther 95 
 
 Mason, Judge 164, 229 
 
 Mason, of Mrginia 93, 97 
 
 Mercer, of Maryland 95 
 
 Metallic base 213, 216, 220, 267 
 
 Mexican war finances 288, 289 
 
 Mint established 129 
 
 Money of account 11, 113, 119 
 
 Money; viz., coins 116, 117 
 
 Monopoly 233, 255 
 
 Morris, Gouverneur 94 
 
 McCulIough vs. Maryland... 165, 187 
 
 McLean, Justice 262 
 
 National bank notes 142 
 
 National bank faction ...147, 152, 162 
 
 National bank, treachery of 152 
 
 Negro in finance 319 
 
 Panics, cause of 
 
 26, 57-S9. 256, 279, 283-286 
 
 Panic of 1857 3^3 
 
 Panic of i860 304 
 
 Paper money. States 74, 75 
 
 Paper money 
 
 50, 53-56, 93-97, 219, 226 
 
 Paper money, warfare against 92 
 
 Parliament 53. 57 
 
 Payment of debt of Revolution . . . 
 
 78, loi. 102 
 
 Parties, factional origin of 1^4 
 
 Peace declared 1 8 1 5 153 
 
 Pennsylvania 5° 
 
 Periods of prosperity 25 
 
 Polk, President 279, 285, 291 
 
 Power of Continental Congress. .61-65 
 
 Power of Congress 192, 197 
 
 Political duty of negro 331. 333 
 
 Power to emit bills 204 
 
 Power to grant charters 
 
 75. 96, 156, 167, 190 
 
 Power of legal tender 2y, 1 1 1 
 
 Pownal, Thomas 56 
 
 Price, definition of 20 
 
 Property-rights faction 268, 274 
 
 Prosperity 25, 299 
 
 Quincy, Josiah 147 
 
 Race antagonism 332, 334 
 
 Randolph, of Virginia 95 
 
 Ratio, change of 248 
 
 Read, of Delaware 95 
 
 Representatives of value 
 
 21, 23, 27, 28 
 
 Republican party 144, 169 
 
 Resumption 55, 228, 229 
 
 Resumption in England 228 
 
 Revolution, cause of 58, 59 
 
 Richardson, Judge 174, 181 
 
 Rome 36, 38 
 
 Safety of negro 334. 335 
 
 Scarcity of money 
 
 106, 210, 212, 221, 222, 251 
 
 Second Bank of United States... 246 
 Silver dollar. . 123, 124, 127, 134, 250 
 Silver dollar, cessation of coinage. 134 
 
 Silver, e.xport of 133, 251 
 
 Slavery constitutional 328 
 
 Slavery abolished 319 
 
 Smith, Adam 14, 15-18, 22 
 
 Socialist 8 
 
 Southern planter 324 
 
 Sovereignty, sale of 163 
 
 Sovereignty, deprivation of 
 
 93. 96-97. 166, 190, 197 
 
 Sovereignty, limitation of 
 
 176, 190, 197 
 
 Spanish dollar 122 
 
 Specie in the country in 1776.. 72, 75 
 
 Specie, imported 286 
 
 Specie, withdrawal of 148, 157 
 
 Standard of payment 116, 117 
 
 Standard of value 119, 127, 220 
 
 State banks.. 130, 134, 142, 149, 255, 
 
 261, 264, 265 
 
 State banks, theory of 131, 140 
 
 State banks, supremacy of... 155.253 
 
 State courts, ]>ower of 180, 264 
 
 States, right to exist 198 
 
 Stevens, Senator Thad 318 
 
 Story, Justice 164, 183, 261, 262 
 
 Supreme Court 106, 261 
 
 Supreme Court, duty of. 106, 158, 264 
 Suspension of banks 
 
 135. 253, 256, 257, 283 
 
 Tax on tea 59 
 
 Taylor, President 29s 
 
 Treasury, inauguration of 100 
 
 Treasury notes 
 
 137. 138. 150. 152, 192, 27s 
 
 Treasury notes repudiated 
 
 163, 256, 277 
 
 Treasury notes at a premium 305 
 
 Treasury notes constitutional. 164, 229 
 Treasury notes a debt... 259, 277, 282 
 Tyler, President 
 
 270, 274, 276, 278, 279 
 
 Unit of value 11, 1 23 
 
 United States Bank vs. Deveaux. 156 
 
 Usurpation 200 
 
 Value determined 9 
 
 Value defined 12, 13 
 
 Value of the unit 123 
 
 Van Buren, President. . .256, 259, 266 
 
 Variation of value 124, 127, 249 
 
 Veto sustained 232-235 
 
 Volume of business 24, 214 
 
 Washington, George 99 
 
 War of the banks.. 135, 148, 152, 165 
 
 War notes I37 
 
 War of 1861 ■• 305 
 
 Webster, Daniel i73. 188, 256 
 
 Whig party 239, .-'74 
 
 Wilson, of Pennsylvania 95 
 
 Woodard vs. Dartmouth College.. 
 
 170, 182
 
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