mmmimtm mtk wmmmmm] ^ wmmm CIEICEofMOKET mitmmmmimim»fimmmm mmifmiifimf^^ THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES 7 ^L^. ^'^^ /^ ■ y^^l ^ri-^ THE SCIENCE OF MONEY AND AMERICAN FINANCES. ■CONTAINING A PHILOSOPHY OF MONEY IN ACCORDANCE WITH SCIENTIFIC PRINCIPLES, AND ADAPTED TO THE WANTS AND CIVILIZATION OF THE AGE. ALSO, AN ANALYSIS AND HISTORY OF THE FINANCIAL OPERATIONS OFTHE GOVERNMENT, TTOGETHEK WITH SUGGESTED REFORMS IN THE MONETARY SYSTEM OF THIS COUNTRY ; TO WHICH IS ADDED AN APPENDIX <30NTAINING A DIGEST OF THE PUTiLIC DEBT AND CURRENCY LEGISLATION OF THE PAST TWENTY YEARS. BY HON L. V. MOULTON. GEAND EAPIDS, MICH. 1880. «. 78 95 Bank Opposition to Gold Currency 79 97 Inflation Prior to the Panic of 1837 80 90 Panic of 1837 81 100 Over Production Theory 82 102 Discovery of Gold in California 83 102 Panic of 1853 84 102 Panic of 1857 85 103 Suspension of 1861 86 165 Experience with Specie Basis Banking 87 105 No Compromise Possible with the Money Power 88 105 CHAPTER XII. FINANCIAL LEGISLATION DURING THE WAR. Situation at the Beginning of the War 89 107 Borrowing vs. Taxation 90 lOS Loan Acts of July and August. 1861 91 111 The Associated Banks and the Demand Notes 92 112 Merits of the Bank Sclieme 93 118 The Demand Notes 94 119 Secretary Chase's Report, December, 1861 95 120 Greenbacks vs. Bank Notes • 90 122 Tlie Legal Tender Act, February 25, 18G2 97 124 X. " CONTEXTS. Actof Maroh 1,1862 98 126 Act of March 17, 1862 99 126 Effect of Jx>s;al Tender on the Vahie of Notes 100 127 Certihcates of Deposit lOl 127 Act of July 11, 1862 102 128 Effort to Tax Bank Notes Defeated 103 128 Act of July 17, 1862 104 129 Secretary's Report, December, 1862 105 129 Another Effort to Tax Bank Notes Defeated 106 130 National Bank Act 107 131 Act of March 3, 1863 108 134 Sale of 5-20 Bonds 109 137 Act of March 3, 186-1 110 138 Secretary Authorized to Sell Gold Ill 138 Question First Raised on Payment of 5-20 Bonds in Coin 112 138 Act of June 30, 1864 ; Congress Refuses to Insert the Words '• In Coin." 113 139 National Bank Act Revised and Re-enacted 114 142 "Wm. Pitt Fessenden's Report 115 143 Act of January 28, 1865 116 143 CHAPTER XIII. FINANCIAI. LEGISLATION SINCE THE WAR. Loan Act of March 3, 1865 117 144 Ten Per Cent. Tax on State Bank Circulation 118 147 Debt at Its Highest Pouit, August 31, 1865 ; How Payable ; Amount and Kind of Interest Paid 119 148 Report of Hugh McCulloeh December, 1865 ; War Measure Doctrine ; Contracts and Funding 120 149 Act of April 12, 1866. Funding the Greenbacks 121 152 •Secretary's Report December, 1866. Evasion of the Law Limiting Contraction. Funding Not Paying Debt 122 152 Act of March 2, 18C7. Three Per Cent. Certificates 123 153 Secretary's Report, December, 1867 124 125 Act of March 26, 1867. Sample Legislation. Tax on Municipal Scrip Covered with Wrapping Paper 125 156 Act of Februafy 4, 1868 126 157 Secretary's Report, December, 1868 127 157 Act of March 18, 1869. Fraud and False Pretense. Public Credit Act 128 158 Act of July 14, 1870 129 162 Disturbance of Prices Effected by Exporting Bonds 130 165 Act of February 12, 1873. How Silver was Demonetized 131 165 National Banks Kelieved from Circulation Reserves ],32 168 Resumption Act of January 14, 187.") 133 168 R'soiution of July 22, 1876. Fractional Currency Replaced by Silver 134 169 Panic of 1873 135 170 Contraction for Resumption— Its Effect 136 172 The People Aroused ; Organize in Self-defense 137 173 The Act of February 2R, 1878. Pretcnilccl Rcnionctizing of Silver. Subsidiary Dollar. Silver the More Honest Metal 138 173 Act of May 31, 1878. Prohibits Retiring (Ireenbacks. Secretary Announces Ills Intention to Defeat tiie Law 139 175 Act of February 26, 1870. Permitting Secretary to Retire All the Greenbacks 140 176 CONTENTS. XI. Paper Resumption -Critical Situation 141 l"7 Situation in tlie Banks June 30, 1880 14fi 178 Summary of Legislation Since ISCO 143 180 CHAPTER XIV. CONCLUSIONS. What Should Now be Done .• 144 184 ■Congress Sliould Coin Money and Regulate Its Value 145 185 Pay tlie Bonds According to Contract . 146 185 Suppress the Bank of Issue 147 isG The Merchandise Standard 148 186 Automatic Regulation 149 187 No Mure Bonds 150 1S8 International Trade, " Money of the World" 151 188 The Labor Standard 152 190 Standard and Measure Need Not Be Identical 153 190 Whatever Costs the Standard is Worth the Standard 154 190 Substituting Labor for Bullion 156 190 Advantage to Both the Government and the People 156 191 Absolute Self-regulation and Stability 157 192 ■Only Plan Conforming to All the Laws of Value 158 192 Postal Saving and Exchange System 159 193 CHAPTER XV. TABLES AND DIAGRAMS, necessity for Facts as a Basis of Reasoning I60 194 Tahlc 1.— Prices of Merchandise and Value of Currency for 50 Years. Currency Prices of Coin and Coin Prices of Currency and Gold, and Merchandise Value of 412!4 Grains of Standard Silver for 2U Years 161 195 Table 2.— International Trade. Gross v^mounts and Balances. Price Paid, Amounts of the Dr. and Cr. Periods, and American Produc- tion of Bullion. 1830-18.80 162 196 ■TahJe 3.--Table of Currency, Loans and Discounts, Re-serves, Coin- age, and Population 1830-1880 163 196 •!raibZe4.— Public Debt Statement from i860 to 1889, Showing Each Kind of Paper Outstanding, and the Amount Each Year and To- tals, with Reference Letters to Digest of Statutes, and Classified as A, Legal Tender ; B, Payment of Principal Not Specified ; C, Payment in Coin ; D, Payable in Currency 164 196 Table 5.— Nominal Transactions between Government and its Cred- itors, as reported by the Secretary of the Treasury 165 196 Table 6.— Sa-'^'e as No. 5, with Transactions and Outstanding Bal- ances Reduced to Coin Value at the Time, Showing the Total Borrowed and Paid on Principal and Interest. Also Column of Dr. and Cr. Balances, with and Without 6 Per Cent. Compound Interest 166 197 TaMe 7.— Same Reduced to Standard Tons of Merchandise, Show- ihg Number of Tons Required to Pay Outstanding Debt in Com or Currency Each Year, from 1860 to 1880 167 197 Ta?)te 8.— A Digest of Legislation with Regard to the Public Debt Since 1860, Divided into Susi)ension, Inflation, Contraction, First and Second Funding Periods, with Tables Showing Changes in Outstanding Paper of Classes A, B, C, and D ; also a Column Showing Hoarding in the Treasury as a Part of the Scheme 178 197 Xll. ^ CONTENTS. Tahle 9— Shows the Nominal and Merchandise Value of the Gov- ernment Revenues 169 198 Table lu— Shows Important Facts With Regard to the Public Debt, Amount and Value Borrowed and Paid, Currency and Coin In- terest, Purchasing Power, etc., for the Four Important Periods : 1860, Commencement of the War : 1866, Close of the War, and First Fnnding ; 1870, SecoufJ Funding ; 1879, Resumption 170 198 Diagram 1.— Illustrates the Tncrease and Decrease of Amounts in the Preceding Tables, and Presents at a Glance the Relationship between Currency, Coinage, Bullion, Loans, Prices, Imports, Ex- ports, Population, and Changes m the Value of Currency, Gold, Silver, and Paper Money from 1830 to 1880 171 198' Diagram 2— Represents the Interest Paid on the Public Debt, Showmg the Coin, Currency, and Total Amounts Paid ; also Its Coin and Merchandise Value 172 201 Diagrams 6, 7, 8 and 9— Represent Tables of Corresponding Num- bers, and Give a Clear Idea of the Actual Increase ol the Debt, both Principal and Interest, while being Nominally Decreased ... 173 201 APPENDIX. Giving in Full theText of All Important Financial Leoislation Since I860, with Marginal References to the Tables 229 AFFIDAVIT. Affidavit of Clerk, Attesting the Authenticity and Correctness of Tables and Figures 27a INTRODUCTION. -^^ § 1. Before we can profitably discuss any matter we must know something of the principles involved, and must be familiar with all the circumstances of the case. It would be idle to talk of the advantages of a different adjustment or construction of parts in the steam engine to an engineer who merely kjiew that steam in someway made the machine go. He must know how it is made to move, the structure of the different parts, and the principles upon which it operates. Knowing these things with regard to the machine in use, he would be able, from a description of a proposed device, to know exactly how it would work. This is as true with regard to money as steam engines. Hence, our first business is with the science of money. We must analyze the subject, and establish a philosophy which, if correct, will lead to correct practice. § 2. The end chiefly sought in the different occupations of mankind is the acquirement of wealth. Any nation or community, as a whole, will possess wealth in proportion to its natural resources of soil, timber, and minerals, coupled with the amount of labor expended, and the effect- iveness of its machinery and tools of production, transporta- tion, and exchange. § 3. The ultimate distribution of wealth among individuals, however, is very seldom proportioned to the labor performed, except in a crude state of society. Natural resources are then accessible to all, and the simple methods of production, transportation, and exchange require little, if any, capital or accumulated products of labor. All are then substantially placed upon an equal footing. xii. INTRODUCTION. As civilization progresses, these natural resources are appropriated, and those who come after all are seized are compelled to pay more or less tribute to gain access^ to them. Moreover, as the mechanisms of production, transportation, and exchange are made more effective by artificial processes, capital is required to operate them; and how much of the gain due to improved methods will be real- ized by individuals must depend upon a variety of complex conditions. If we indicate the natural supplies capable of appropria- tion as land, the accumulated products of labor as capital, the remaining element of production will be labor. Land supplies the material to be wrought upon; capital supplies the tools which make labor more effective, and labor the effort necessary to produce wealth. If these three were uniformly distributed among the whole, each could have no advantage over the other. But this equality would not long continue. Some would save; others would spend. Some would work: others would not. Some would soon be without land or tools, while those who retained them would begin to require a consideration from those desiring to use them. At first there would be but few of the latter class, but once the equilibrium is disturbed^ the concentration progresses until the few possess the land and capital, and the many are pauperized. If this continue to such an extent that one man acquires all of both, none can produce or possess anything except at his pleasure. He is despotic in his power, and they are actually slaves. If this be true of a class of men, they have but to combine, and the same result follows. Many suppose it is the natural result of civilization, that the mass should do all the work, and^ having no capital, should acquire a mere subsistence as its share, while the few do nothing and appropriate the balance. Whether this be true or not, it is not intended here to show. It is certainly a state of affairs not to be desired by the many, and if it can be delayed or prevented without injustice it should be done. Concentration of wealth in the hands of the few confers the power of oppression. To discover a INTRODUCTION. xiii. remedy for this evil it is necessary to understand how the evil arises. § 4. This concentration is not altogether the result of prudence and industry on the one hand, and of folly and idleness on the other. There are many other causes. All trade is an effort to get as much and give as little as possible. Free competition will enforce fair exchange, while monopoly confers a power of extortion. In borrowing and lending, a vicious monetary system may enable some to obtain usury without lending at all, and by changes in the value of the unit the value of money con- tracts are changed, and men are enabled to get more than their due, or pay less than they owe. These and minor causes all tend to an unjust concentration of wealth. § 5. In consequence of difference in soil, climate, etc., certain articles can only be produced in certain localities, and transportation becomes a necessity. This, together with the increased power of production due to division of labor, gives rise to exchange. If things could be conveniently and profitably produced where consumed, and by the persons so consuming, neither transportation nor exchange would be resorted to. Evidently the mechanisms of transportation and exchange, and the labor necessary to operate them, add nothing to the amount produced, and, this being the case, any unnecessary transportation or exchanges should be avoided, while that which is necessary should be accomplished with as little loss and friction as possible. § 6. In the oi'dinary process of exchanging goods they are measured twice — first to ascertain their quantity, and next to determine their valve. It is, therefore, necessary to have some standard units of quantity and value. To insure correct measurements, uniformity of standards is necessary, and to insure correct fulfillment of contracts, stability of standards is indispensible. § T. We have learned to measure our goods accurately as to quantity, and have good standards of length and weight, but when it comes to matters of value, we are as crude as hose who weighed with beans or measured with the arm. When a man contracts to deliver so many feet of lumber, xiT. LNTEODUCTION. or bushels of wheat, or yards of cloth, he knows that the same quantity will be represented by such contract when it is due as when it is made, no matter what time may intervene. Not so, however, with value. It becomes alto- gether a matter of uncertainty what a contract for so many units of value will mean at a future time. We never have had a reliable standard of value, and some of our neighbors would have us believe that we never can have. We can encircle the globe with a wire, and with the tamed lightning for our messenger, annihilate space. The iron horse, with fire for his food, and breath of smoke and steam, tramping with earthquake tread, from shore to shore, rushes from the Atlantic to the Pacific in a few hours, dragging hundreds of tons of merchandise behind him. We can measure the distance of the fixed stars, and ques- tioning a ray of light, obtain from it a cheaiicai analysis of the orb from which it emanated, although this ray of light may have been traveling at the rate of millions of miles a minute, during the lifetime of a generation of man. We can converse with each other through a thread of metal miles in length. We can light our houses with a streak of lightning pumped from a magnet, until the constant flash from carbon to carbon rivals the noonday sun in brightness, yea, even gives life to vegetation. The artist bringing to his aid the modern Cyclops with wooden head and eye of glass, and conjuring up the bottled imps of the alchemist, will, with the flaming pencil of the sun, in a moment of time, produce a portrait, "warts, wrinkles, and all," that would delight the heart of a Crom- well and astonish a Raphael. All this we do, and more; and yet of that peculiar thing, " value,''^ we cannot establish a reliable standard, but must be always gambling against unknown fluctuations, when- ever we contract to pay money at a future time. Here opinions differ, and in this treatise will be shown how improvements may be made. " We, the people," are think- ing of the matter, and it is to be hoped that the "agitation of thought," in this case, will be the beginning of wisdom. THE SCIENCE OF MONEY. ■ a'ITI ' ♦ • CZ^i^ CHAPTER I. SCIENCE OF VALUE. § 8. As the philosophy of production and transportation rests upon the principles of statics and dynamics, so also that of exchange rests upon those of value. The first question is, then: "What is value, and what is its cause?" Value is not a property or quality of things. It is not in- herent in anything by virtue of its own nature. It is not like length, or weight. Things may be long or heavy in and of themselves, regardless of man, or his existence; but without man there could be no value. Hence, intrinsic value in its literal sense is a misnomer. Value is extrinsic, and the result of a combination of cir- cumstances. The first is, that the article to which it pertains should be desired by man; the second, that there should be some form of restriction upon the supply, so that there is produced a sort of resistance to the gratification of the desire. The whole matter can be reduced to a problem of the dynamics of demand and supply, the value increasing and decreasing with this tension between supply and demand, and disappearing altogether either when the restrictions upon supply are removed, or when the demand ceases to exist. Many confound utility with desirability ; but, correctly speaking, if a thing be useful, its utility is the cause of its being desii-ed. Some confound utility with value; but there is no connection between utility alone and value. A thing [17] 2 i" THE SCIENCE OF MONEY. may he of great utility and without value, like the air we breathe; or of little utility and of great value, like the diamond. § 9. We have now discovered the cause of vahie to be desirability, combined with restricted supply, neither alone being capable of producing it. Without the former, the- the article would not be used or known to trade; without the latter, it would be freely had, and would, like the air we breathe, become destitute of mercantile value. Both circum- stances being present, the amount of the value depends upon the restriction of supply as related to the demand. The supply being restricted to a fixed amount, an increase or decrease in demand would produce a corresponding in- crease or decrease in value. The demand for an article remaining fixed, a decrease in. restriction would result in a correspondiug decrease in value^ and an increase in restriction would increase the value, until the price should rise above the limit of the desire, when the article would disappear from the marke s, precisely as when the friction exceeds the power the machine stops. Both the demand and the restriction moving together in- crease the effect on the value; while moving in opposite directions they tend to neutralize the effect of each other. The demand for an article may arise from two different causes: a desire to possess for immediate use or consumption^ or a desire to possess for future use. When, from the nature of the article, hoarding becomes impossible, as in the case of perishable fruit, the demand is limited to the capacity for immediate consumption, and a small decrease of restriction of supply causes an enormous decrease of value, while a small increase of restriction produces only a small increase in value. Wlien, however, an article from its imperishability may be hoarded, as in the case of money, these disproportionate changes do not occur. But the demand for any merchandise always has a practical limit, while the demiind for money never cejises. Decreiise the restriction of tlie supi)ly enor- mously, and. although it decreases enormously in value, yet the demand for it is as great as ever, because it represents all thiuirs of value. SCIENCE OF VALUE. 19 The restriction upon supply may arise from two sets of causes, the one natural and the other artificial. The first is commonly known as labor cost or cost of production, the other as monopoly. It is very seldom, however, that either set of causes operates separately; usually some combination of both produce the restriction. In cases where the cost of production is the only restriction upon supply, this cost will operate to determine the value, and motives of profit will continually adjust the value to correspond with such cost. Sucii articles may be said to have their normal value in the market. Suppose wheat and plows to be of this nature. If now it costs the same to produce one plow as to produce ten bushels of wheat, and the price of plows by an increased demand chauges to the value of eleven bushels of wheat, motives of profit would induce some to quit the production of wheat and produce plows, until the increased supply would correct the value. The same readjust uient would in like manner occur if plows should fall, instead of rise, in value. Suppose now a diminution of the cost of production re- duces the resriction one half. Could all avail themselves of the change, the value of plows would soon change the same. If, however, this change in cost of production is secured by one or more persons only, all the rest being obliged to make plows as before, tbe price would then become purely a mat- ter of option with the monopolists between the limits of five and ten bushels of wheat. A.t the upper limit competition would check them, and at the lower other business would be as profitable, and operate as a check. If it were possible to reduce this production to comptiratively no cost — say make paper plows — they could be furnished at any price from ten down. It must be observed that all this adjustment is a matter of tension between supply and demand, the restric- tion imposed by the monopolist operating exactly as a sub- stitute for the restriction of labor cost. The i»rice can only be maintained by restricting the supply. If they should be sold at nine, and more be placed in market than would be taken at that price, monopolists would have to reduce the price, or keep the surplusage. Hence, it will be seen, that a 20 THE aCIENCM OF MONEY. fixed price will determine the supply that will be absorbed. By constant increase of supply against a uniform demand, there might come a time when no more would be taken at any price, and plows would then be worthless. If, however, a cheap substitute for plows were contrived and placed in market, the result would be to depress the prices of both, as both plows and substitutes, taken together, would constitute the supply. If no restriction but cost of production determined the supply of the substitutes, the rule, " Things of like utility are of like value," would not main- tain the value of the substitute, but the plows would fall, and the producers doing a losing business would cease mak- ing them, and plows would disappear from the market. If, however, the substitutes were restricted, either by the pro- ducer's option or otherwise, their cost of production would cease to have any influence on the value. These are funda- mental principles, and should be clearly understood, as the}^ apply to mone}^ as well as to plows and wheat. § 10. The whole doctrine of value may be formulated thus: Things useful are desirable, and the desire Avill induce men to make effort to obtain them. The amount of this effort determines their natural or labor cost, or normal value. Their price or market value is deter- mined by the tension between supply and demand produced by restriction of supply. In case of a fixed supply, the demand will determine the tension or value. In case of a fixed demand, the supply will determine the tension or value. In case of fluctuations in both, the relative movements will determine the tension or value. In the absence of monoply, motives of profit will induce such supply as will adjust the market value to correspond with the normal value. In the presence of monopoly, the upper limit to market value is the intensity of the demand, and the lower limit is the cost of production; between those limits it is purely a matter of option with the monopolist. But he can only reguhite the value through an increase and decrease of supply. SCIENCE OF MEASUREMENTS. 21 CHAPTER II. SCIENCE OF MEASUREMENTS. § 11. All measurements are but comparisons with some .standard unit. Without a definite idea of the unit, we can have no idea of the aggregate. If we know nothing of one horse, one thousand horses would mean nothing. Quantities of some things are naturally divided into units, or individu- alized as animals, men, etc., others have to be divided artifi- cially, as water, cloth, etc. If we had no definite idea of a gallon or yard, we could get no idea of quantity from the expression indicating a number of gallons or yards. We can say 100 gallons or 400 quarts; or 100 yards or 900 square feet, and so long as the unit is definite and fixed, it matters not that we use different units. But if the unit is sometimes one quantity and sometimes another, 100 gallons or yards would be indefinite, and might be one thing at one time, and quite different at another. Such has been our monetary unit, as we shall see. § 12. All merchandise is usually measured twice. We first measure for quantity, and then its monej' price is the measure of its value. But in comparing two things v/ith each other, if there is any change in their relative length, it is not always easy to tell which has changed. Take, for example, two pieces of wood, both liable to change in length. Make them alike, and after a tim^ should they be found to differ, it will be impossible, without i-eferring to some third thing, to know whether one or both have changed, or how much, or whether the change is an increase or decrease in length. The same is true of values. § 18. In matters of length and weight, we are dealing with qualities of things, and the solution is easier. Yet we were unable to find any natural standard of either, and have long ago abandoned cubits, barley-corns, and beans for such pur- poses. Now we measure our standard of length by a day of time, although time cannot be said to consist of anything comparable with feet and inches. This involves a principle essential to all correct measurements, and on that account merits a very careful consideration. 22 THE SCIENCE OF MONEY. The day of time has uniformity of duration. The quality absent in the cubit, barley-corn, etc., is uniformity of exten- sion. There is found to be a fixed ratio between duration of motion and extension, in the pendulum. A pendulum, having a stroke of a given duration in a given latitude, is found to be always of the same length. If we find something having a like uniform ratio between extension (or quantity) and weight, by a like process we could, and do, obtain our standard pound. From the day we obtain the foot, from the foot, the pound. Now, if there were a similar ratio between weight and value in any one article, we could make money that would be a standard of value. But this can never be, for, as we have seen, uniformity of value depends upon uniformity of tension between supply and demand, not weight. § 14. Gold and silver have always been regarded the most suitable kinds of merchandise for currency. They would on that account necessarily come into use as money regardless of their qualities as a standard of value. Reasoning upon the matter, Adam Smith considered corn (now called wheat) the most stable merchandise as a standard of value, but con- cludes labor to be the true and only correct standard.* Value being the result of a combination of circumstances relating to the article to which the value pertains, it is more difficult to measure; and we are still using the assumed or natural standard, making our unit the value pertaining to a fixed weight of a certain metal. The consequence is, that any change in the unit changes the nominal value of things generally. This changes every contract to pay money. Although theoretically we promise "value received," we are really compelled to give such value as may chance to pertain to a certain quantity of a certain merchandise. § 15. These changes in the money unit have this peculiar feature, that the amount of the result is not the same when money increases in value as when it decreases. Suppose, for example, that money is in such supply that a horse is worth $100 and a bushel of wheat $1. Now if the money increases in amount or is "intiated" until horses are worth $200 and wheat §2 per bushel, and during this time of inflation A ♦ Wealth of Nations, page 40. SCIENCE OF MEASUREMENTS. 23 holds B's note for $100, given for a horse, it will be observed that for 50 bushels of wheat or one-half tne ''value received," B. cancels his note and the creditor is defrauded by the change of value in the standard. Reverse the process, and if A has now B's note for a simihir horse (valued still at 100 bushels of wheat), but worth |200, the dollars being but half their former value, although they weigh and contain as much precious metal, he promises the same value as in the first purchase, but twice the metal. During the time the note runs, contraction restores prices to their former level, and now this second note is good for double its value received, and equal to two horses or 200 bushels of wheat. By the inflation of one-half, the creditor lost 50; by the contraction, he gained 100, and it proves to be a game of " heads, we cred- itors win; tails, you debtors lose," instead of legitimate busi- ness. It is very evident that in communities doing a credit business, a stable standard of value, as a means of payment, is very important. The question is ho\r to measure and correct our standard. § 16. There are two practicable and scientific methods of accomplishing this, which are easily understood. The first is one of averages. It has been shown that all articles not subject to monopoly in their production, con- stantly tend to a certain level conforming to their cost of production. They individually fluctuate or oscillate across this level in an irregular manner, and when one is up, another is likely to be down. Hence, if we ascertain the average line, among a number of them we will have a much better stand- ard than any one alone could possibly furnish. It is as though a number of objects were floating on water which is put in motion by the wind. They would be irregularly ele- vated and depressed, and if we were to take some one object and assume it to be stationary when it was up, they might all seem to be down, and when it was down, they might all seem to be up. If we wish to find how high the real level of the water is under such circumstances, and what fluctuations were aciually taking place in our assumed standard as well as in the rest, we could only learn it from au average of the elevations and depressions. In the same way we might 24 THE aClENCE OF MONEY. measure one standard of value by its purchasing power or ratio of exchange with things generally, and correct it by increased and decreased supply accordingly. By referring to the laws of value we find that the first or labor cost is the center of oscillation of values to which they naturally tend in consequence of increase or decrease of sup- ply, on principles already explained, As, however, a change might occur in the real level of the water; so in the matter of values, there are changes in the values of all things, owing to changes in the cost of production, due to changes in the effectiveness of labor. In the case of a single article, its fall is noticeable at once; but should there be a general decline in the amount of labor necessary to produce all the articles under considera- tion, this would only be detected in the increased production for a given amount of effort. It will not do to assume that the labor is more valuable, for it would follow that should all things cost little or no effort, labor would become infi- nitely valuable. Great value would then come from little or no cost. In any event, labor amounts to only the same sac- rifice to the laborer, whatever the result may be; and this sacrifice is the true measure of the value of the result. This applies only to labor generally. Between classes and indi- viduals, causes having no bearing upon this question, ope- rate to create differences in the value of a day of labor. This multiple standard, therefore, would rest only upon the stability of the mass, whatever that might be, and would cause a return to the creditor, at all times, of his exact loan in merchandise generally. By the single standard, be it gold or any other thing, he sometimes gets more and sometimes less than his due. Considering a fixed amount of general merchandise as stable in value, the multiple standard would be stable. Considering the effort necessary to its pro- duction, as the real standard it might be subject to change. Such changes, however, could only come through increjused efiectiveness of labor generally, and could never be sudden or violent. While the lluctuations of a single standard may be liki'iied to the rise and fall of a wave of the sea, the changes of the multiple standard could, like the imperceptible move- SCIJBNCS OF MEASUKEMBNTS. 25 meuts of the tides, occur b}- a rise or fall of the mass. We are now in a position to uutlerstand what would be a theo- retically perfect standard of value. If we had, among our articles of commerce, some one possessed of all the necessary qualities to fit it for use as currency, and also costing invariably a certain amount of effort to procure a certain quantity of it ; and, moreover, absolutely free from any obstruction to its production, in the form of monopoly or otherwise, so that all persons in all parts of the country were free to produce it, then we would have ideal money of "intrinsic value," fit for a standard of value and means of payment. The only other method would be to provide a currency by law that would conform to these conditions. It could become a perfect standard of value, because it could be made to conform to all the laws of value. It would be desired because a currency is a necessity of business. It would cost an effort to get it, and the amount of effort being fixed, its normal value would be fixed. Its market demand would be irregular, but as all could produce when they chose, motives of profit would promptly induce the readjustment of supply to any change in demand. Such a currency would rest upon the labor basis, and would always be the equivalent of a fixed amount of labor. A creditor, if paid in such a currency, would always recover the products of a fixed amount of labor, instead of a fixed amount of merchandise generally^ as in the multiple stand- ard, or a fixed amount of- a single article, as in the case of the single standard. On the labor basis it is value for value without change. With a multiple standard, a claim calls for value equal to a fixed amount of general merchandise. With a single standard, a claim calls for value equal to a fixed amount of one thing only. §17. Summary of the doctrine of measurement: All measurements are comparisons with some standard unit. If the unit increase or decrease, all things measured by it will seem to change inversely as the unit changes. Of things liable to change it is impossible to determine variation by a comparison among themselves. 26 THE SCIENCE OF MOISEY. Comparison must be made with some unchangeable thing. From among a number of articles, all liable to fluctuations, no one can be safely used as a staiulard. The only possiljle standard is a general average of the whole. If the fluctua- tions of the mass are equal in each direction, the standard would be stationary; if progressive, the standard would be so to the same extent. In measuring by direct comparison, like must be compared with like, feet with feet, pounds with pounds, etc. In measuring by indirect comparison, if any article have two qualities bearing a fixed ratio to each other, an article having one of these two qualities, and not the other, Avill serve as a standard of all articles having the other. This is done by double comparison, the first being used as an intermediate standard. It is thus \ve measure the foot by the day, by means of the pendulum, or the pound by the foot by means of water. If these two qualities do not have a fixed ratio to each other the process will fail. In the case of gold, weight and value have no fixed ratio. Hence, a fixed weight of gold will not serve the purj)Ose of a standard of value. CHAPTER III. DEVELOPMENT OF MONETARY SYSTEMS. § 18. If, now, our philosophy be correct, we are prepared to examine the mechanism of moiey as it is, and point out its defects, and the proper remedies. We will, therefore, proceed to the development of the monetary systems in use, together witii their analogies, and, showing their operations, define and explain defects and remedies. It is evident that each department of production, trans- portation, and exchange, have passed through certain pro- gressive stages of development. Water transportation has progressed through the various forms of raft, canoe, boat, ship, and steamer. Land transportation has changed from \ihe pack: first on the back of man, then on the camel, ele- DE V ELOPMENT OF MONETAE Y S YiSTEMS. 27 pliant, and horse; then to the cart, wagon, stage-coach, and finally to the railway. The same is true of the arts, manu- factures, and sciences, and also of the mechanism of ex- change, in which the progress is indicated by the various forms of barter, double barter, saveral kinds of legal money, circulating notes an^ paper money. In every case, man first seizes upon something already produced in his surroundings that will answer the purpose, and afterwards invents more perfect devices, less '"natural," and of material which in its crude state would not answer the purpose at all, but which, by artificial arrangement, according to natural laws, serves the particular purpose better. It is thus that we have the railway, dispensing alto- gether with the use of anim.ils, the primitive or natural means of transportation. We literally use a " fiat," or arti- ficial horse, made of iron, water, and fire, each alone possess- ing apparently none of the qualities necessary to locomotion. This analogj'', which is so complete, leads to the conclusion that when we have made like progress in the department of ■exchange, merchandise will go out of use as money. Through all these processes of development, we perceive the operation of Darwin's laws of selection and survival. But it should be also observed that nearly all that man does is for purposes of gain; and whenever a man, or class of men, have the power of selecting and preserving any device or arrangement, it will be the one that will result in the greatest advantage to the chooser, regardless of its real merit. Hence it is that, while the mechanism of exchange has fol- lowed the general laws of development, from simple to com- plex, from natural to artificial, it has, under control of the " money power," gone from bad to worse, in some particu- lars, as will hereafter appear. Undoubtedly that fact, rather than inability to do better, accounts for the slight progress made in the monetary systems of the world, as compared with other departments of trade. Another reason for this is, that the r.^.atter of value has been looked upon as difficult to understand, and reduce to exact science, and the masses of the people have had little to do with the subject directly, and seemingly but little occasion 2$ THE SCIENCE OF 31 ONE Y. to understand it. Those who have been in power have found it to their advantage to have an imperfect system, and pre- ferred the phm that would enrich them the most rapidly, regardless of its imperfections or the injustice done others by its operations. • § 19. At the first departure from the animal condition, man began to avail himself of tools, and seek for aid in his sur- roundings. If he wished to move a thing from place to place^ he carried it himself. He found, already provided in nature, animals suitable to his purpose, and placing his burdens upon them, he had natural or primitive transportation. Being desirous of exchanging with his fellows, he first bartered any surplus for what he needed as best he could; but, like the pack on his own back, it was difficult and sometimes impossi- ble to move. As surplus goods accumulated, he found among the articles so collected some possessed of such qualifications that, by common consent, they became a sort of medium of exchange. In a primitive state of society, it was important that the article should be of small bulk, not easily destroyed, and easily divisible, so that it might be safely accumulated, divided, and transported. Stability of value would .not be so much a consideration as when, after further development of society, a credit system should come into use. Only when hoarded for a long time, would it be considered at all, as, for immediate use, its fluctuations would have no efl'ect. In this way double barter came about, and was the first step in the development of the mechanism of exchange. Various goods have been used, such as gold, silver, iron, nickel, brass, tin, glass, lead, platinum, fish, sealskins, blubber, cowry shells, agate, cornelian, jasper, terra cotta, mica, pearl, coal, bone, calcedony, wampum, salt, rice, various kinds of cloth, corn, musket balls, tobacco, nails, whiskey, various kinds of cattle, and even human beings. So also have various animals been used for the purpose of carriage, in both cases only those best qualified being most used. Hence we have in the one case, horses, camels, and elephants, and in the other, gold and silver. § 20. Th(^ advantage derived from the use of animals to transport goods is simple and easily understood. Establishing DEVELOPMENT OF MONETARY SYSTEMS. 29 a system of double barter, however, is a new arrangement, which should be carefully examined. In man}' respects it c e; resembles the telephone exchange, as com- pared with independent private lines. We Gr^Q-)rK7^4c\^^^ have here two diagrams showing the dif- ference. Suppose there are nine men of ^C various trades each desirous of communi- cating with the others. If they run sep- arate and independent lines, it will require TT ' thirty-six lines to effect the communica- tion. This represents the barter system. Now, suppose A goes out of his former business and establishes a telephone ex- change. The second diagram represents the result. There is at once an entire change of arrangement and twenty-eight h« lines are dispensed with. All messages now pass through the one point A, whereas before tliej^ went direct from one to the other. One man at A can now cut off all com- munication, whereas before he could cut off none but hin own. Before he was one amonc] the rest, now he is one between the rest. He now no longer does business of his own, but does business for all the others. There are no longer nine business houses buying and selling goods, but eight, and an exchange that does neither except for repairs. If, instead of messages, we have nine kinds of goods to be generally exchanged among these men, A having the gold of which he is manufacturing the usual articles, and the barter system prevails, each of the others might want his gold as merchandise in limited quantities, and barter what they might have directly with him. B might have beef, C cloth, and if either wanted gold goods, they would deal with him, not otherwise. As soon, however, as the double-barter sys- tem prevails, if B wants cloth of C, he will first go to A for gold which he does not want, then to C for the cloth he is really after. B might not want the cloth at once, however, and keep the gold for a time. This gives a new use to gold, and a new demand; and as 30 IHE SCIENCE OF MONEY. all the others would do likewise, there would result a vast absorption of A's stock of gold, and a rise in its value. To what extent this rise would be corrected would depend entirelj^ upon the facility with which, impelled by motives o£ profit, additional supplies of gold would be procured to meet the increased demand. As the mines are in isolated locali- ties, and more or less monopolized by owners, it would be a slow operation if done at all. In the meantime, all stocks of gold on hand would be increased in value. If 13 has no beef, but must have cloth, and his credit is good, he would, under the barter system, borrow cloth of C^ and pay in beef, or cloth, as they might agree, with usury in kind. In the double barter system, he might do the same* but would be more likely to borrow gold of A. The same would be true of all the others, and A becomes the general creditor as well, and another use is found for his gold. Up to this time, however, there is no money. Some of its functions are beginning to appear in gold; yet it still remains a merchandise, and nothing but law can make it money. All debts are still collectable at law only in kind, cloth for cloth» beef for beef, etc. § 21. Suppose, now, that this article is declared the legal tender for debts. Heretofore, if B owed C for cloth, he could give back what he got. A "corner" in gold would affect only those owing gold. With the gold a legal tender for all debts, this is changed, and a "corner" in money is a trap to catch all debtors in. B might have borrowed gold enough to buy ten yards of cloth, and be obliged to return enough to buy twenty. C might owe for one cow, and be obliged to give gold enough to buy two. Just as in the tele- phone exchange, by change of arrangement and a reduction of lines, A can now cut off all communication between the others; now in possessi(m of the one thing that will pay all debts, ho has a like advantage by virtue of his kind of merchandise being made into money. In the barter system of payment, if each of the nine men owed each, of the others, A would owe gold, B beef, C clo 'i, and so on. Only one- iiintli of the debts would be payable in gold, eight-ninths in the other eight articles. Under the legal tender system of DEVELOPMENT OF MONETARY SYSTEMS. 31 payiug debt, although the loans Avere originully made in a variety of goods, they would be all piyable in gold, and, upon general settlement, nine times as much gold would be needed. B cannot pay beef, nor C cloth, but each must have A's gold. The result is that the gold advances, and all the rest fall, and A is greatly enriched through no merit of his ow.,. The value of gold is assumed to be stationary, and when it doubles in value, all contracts to paj' are doubled. It is at once trans- ferred to the other end of the balance, and its movements are the reverse of the movements of ail other articles, rising when they fall, and falling when they rise. This cannot be -without the legal tender law. We have now imparted to this one article of merchandise a legal function which it did not possess, and coald not acquire except by law, viz., to pay debts contracted for any of the others, in consequence of which its holder has certain advantages. This is the inception of the money power which will develop into gigantic proportions as we proceed. § 23. It was found, in the case of transportation, that wheels would do as well as animals to support a load, but that no transportation could be accomplished with them alone, and invention said ''combine." The cart or the wagon combhied with the animal gave added power, the cart fur- nishing the sustaining element, and the animal the loco- motion. In like manner the circulating note serves to perform tha function of a currency, the legal tender coin being a final means of payment. It was also found that the locomotive function of the horse could be transferred to the wagon, and this being done resulted in ihefiat horse, or loco- motive. The function of legal tender can also be transferred to the note, resulting in paper money. There is as great a difference between a circulating note and legal tender paper money as between a locomotive, and a cart without a horse. These combinations required conditions to correspond, and nature was made artiiicial by the construction of roads. Wa'yons without roads would be useless, and a locomotive off the track as helple.-^s as a dead mouse. So, also, money, to succeed, requires that certain conditions should be strictly observed. 32 THE iiCIENCE OF MONEY. §23. lu the case of A's gold, if a (luantity of 10,000 pounds had absorbed into money, and 10,000 pounds only remained as mercliaudise, it is evident that, as a supply for manufacturing purposes, there might as well be but one-half the gold in the community'. As long as it performs the functions of money it is useless as merchandise. It is so much raw material consumed in the manufacture of money, and can only be recovered as merchandise by destroying its character as money, thus destroying its legal power to pay debt. It might now occur that other products would outstrip that of gold in relative quantity, in which case there would be an increase in its value, which might not, owing to the obstructions in the way of its free production, induce the requisite addition to the supply. There would be a permanent addition to the profits of those already in the business of producing gold, which would be the exact margin of vacuum that could be successfully filled by a circulating note accord- ing to the principles already mentioned. It was soon understood that money, or the medium of exchange, need not be merchandise of the value of that ex- changed aay more than a cart need be of the weight or value of the goods transported bj' it, and substitutes of various kinds came into use. These are divisible into two distinct classes — Government and bank issues. As will hereafter be shown, there is always a great gain to the issuer of currencj', and there has been more or less contention between the Gov- ernment and the banks for the exercise of this power. A contest of this kind, of greater magnitude than ever before seen, is now imminent in this country. CHAPTER IV. PUBLIC VS. PRIVATE CURREN"CT. §24. Let us examine carefully both classes of currency, and their effects, and how they operate. A's gold was brought into use as a medium of excliange by double barter, and then by law was made the legal standard PUBLIC VS. PRIVATE CURRENCY. ^3 of value, and a lawful payment of all debts. It thus acquired the full functions of money, viz. : currency, standard of value, and legal tender. The latter function is entirely dependent upon the law, it being in no manner capable of creating itself. It is the function of government to make all legal tender money, not particularly because it can so guarantee the purity of the coins, as some suppose, but because by the act of coining a legal quality is imparted, and none but the law making power of the country is competent to impart this legal quality. To allow an individual to do this is to invest him with one of the prerogatives of sovereignty. It is also one of the duties of government to establish justice, and equitably enforce contracts. Hence, when, in order to "promote the general welfare," government supplies a standard and legal tender, it ought to see that contracts to pay this legal tender are equitably fulfilled. As we have seen, a change in the value of the unit changes the contract. Now, if the same power that coins money does not regulate the value thereof, it becomes a party to fraud, and by neglect establishes injustice. To " coin monej' and regulate the value thereof," expresses the entire functions of the Government with regard to money, and the exercise of the former power might as well be dele- gated to individuals as the latter. In fact, it were better to ■delegate the former power than the latter, for if the value be regular no man could be wronged by change of contract, and if merchandise to full value represented were put into the coins, no gain would accrue to the coiner. Hence, the coinage of such money is of but little moment. The gain, unless by counterfeiting, comes entirely by substituting the legal functions, in part or in whole, for the merchandise on the one hand, or the note or confidence element on the other. If the Grovernment receives and coins gold, and returns it all to the owner without charge or signorage, the raw material, "bullion," and the manufactured article, "money," will correspond in value, as no added cost has raised its value, no subtracted bullion has lowered it. If, now, the Govern- ment takes out a part of the gold and substitutes alloy, say 3 3^. THE SCIENCE OF MONEY. 10 per cent., hoarding the bullion and keeping it entirely out of the market, either as money or bullion, the coins would have, as money, the same value as before, but 10 per cent. less value as merchandise. The same would hold good for any other per cent, up to 100, in which case it is all alloy, or paper for metal. But if the metal so retained be put out by the Government either as coin or bullion, it at once reduces the value of the metal in both forms, as the 10 per cent, of alloy is so much added supply of money, the same as though it were gold. If the Government should retain all the gold, and give a legal paper substitute, it would have the same utility as a debt payer to render it desirable. Being desirable, men would consider it valuable. If the supply was limited to the gold offered, it would have exactly the value of such gold at all times; for, rising above, more gold would flow in, falling below, gold would not be offered. This is the only specie basis plan proper for governments to adopt. Such was the Venetian system, in successful operation for iGO years, over- thrown at last only by conquest. Governments have coined such money at various times. When cattle were used as money in Rome, copper cattle were coined. Leather and parchment money was made in Carthage. Iron, over-valued, was coined in Sparta. Paste- board money was used in Holland. Assignats, or land cer- tificates, were current in France; and. Continental money was issued in America. The legal tender of more recent date, is another illustration of the same kind of money.. Except in the case of the Venetians, however, no scientific system of regulating the value by regulating the supply of such money was adopted. Being easily over-supplied, it failed to maintain its value, and was supplanted by money of merchandise. It may be argued that by issuing representa- tive money, something for nothing is obtained on the part of the Government, and is wrong. Let us examine the matter more closely. If A gives to the Government gold to the value of the coin he receives from the mint, he will only do so because he wants gold as money instead of merchandise. It ceases to be merchandise to all intents and purposes from PUBLIC VS. PRIVATE CURRENCY, 35 the time it is coined. There is no possible way in which it can enter into watches or jewelry, or any other form of goods. It is totally excluded from the property list of the community, and might as well be m the bottom of the ocean. So long as it remains money it is put into circulation, and each in turn has so much useless property on his hands as a ticket or counter, till it performs a circuit, and passes into the hands of the Government as taxes, or is consumed in the arts or manufactory. Suppose, instead, A receives the paper, and the Grovern- ment exports the gold, and procures guns or other supplies. The gold is not excluded as valuable merchandise as before; and although the Government gains the use of the gold while the paper circulates. A, the holder of the paper, loses only the privilege of holding utterly useless property, as a sort of security to fall back on, if money should no longer be wanted. In consideration of this, these same men being a part of the people who pay taxes to support the Government, would be relieved by just the amount gained by the Govern- ment in the operation. This is also true, even if in the end the paper should become worthless. There is a gain, and no loss to any one, as long as the paper circulates, and that gain to the only power that can furnish the legal functions of money, and to the only power entitled to it. There seems to be an act of repudiation in this paper money put in permanent circulation by the Government. If A furnishes gold, or B beef, or C cloth to the Government, and receives paper money, he parts with merchandise and receives a ticket or counter containing no merchandise, but possessing the power to cancel debt to the extent of the value parted with. He buys of the grocer, and then he is paid for his gold, beef, or cloth. The grocer buys of the wholesaler, and the wholesaler of the jobber, and the jobber of the importer, and the importer pays it to the Government as duties or taxes. It may perform any other circuit, and each gets his pay when he parts with his i^ouey, instead of when he receives it. Actual pay would be absolutely useless except as security. In the end nothing is repudiated, for each and every one is paid when he parts with his money. M THE SCIENCE OF MONET. It is clainied that such money becomes worthless because it has no intrinsic vahie. Its value depends upon precisely the same principles that govern other values. It is a business maxim that "' there is nothing so certain as death and the taxes." This currency would pay taxes, and would have utility. Having utility, it would be desired, and, being limited in supply, it would be valuable according to the lim- itation. It must also be borne in mind that the Government is the people — at least in a republic — and our premises will not con- form to the facts, if we consider it an individual outside and independent of the rest, or an individual among the rest, whose gain is their loss. Anything saved to the public treasury is saved to the whole people, anything gained by the treasury is gained by the whole people. § 25. Such is not the case with a bank, however. That is individual, and special in its character, and operated for private gain, like any other business. Any gain to it is not a gain to the balance of the coijim unity. Let us now observe the operation of a bank note currency. Up to this point, whether the money received from the Gov- ernment was ''intrinsic** or not; if A wanted money it cost him the value represented, and if he bought or loaned, he could not buy or loan beyond his money without becoming a borrower. We have seen that substitutes aifect the value of the principal, and as the Government furnisher] all the money and substitutes, it could control the value of mone3\ Let it charter a bank, however, and give A the right to issue circu- lating notes, and it loses its power over the value of money. It may compel A to convert his notes into coin on demand, and upon the theory that "things that exchange for each other are of equal value," it may keep these circulating notes at par with coin. This, however, is a fallacy of simple enum- eration, for although true it does not follow that both will not change in their value with regard to ether things. That they do so will be shown hereafter. The privilege having been granted to A to issue circu- lating notes, another step is taken in the development of the '' money power." He is now enabled, to a great extent, to PUBLIC VS. PRIVATE CURRENCY. 37 exercise the most important function of government with regard to money, viz. : within certain limits to regulate its value. He can also play a " confidence game " on the com- munity. If B wants C's cloth, he goes to A to borrow money, and is offered the hank note. It being a new arrange- ment, he objects; but seeing the '' basis " on hand ready to be paid and wanting only cloth, he concludes to take the note if C will take it as money and let him have the goods. The only thing of value loaned is the cloth, and C is the real lender. A and B have but exchanged notes. A owes C for the cloth and pays no interest, while B gives A his note for the cloth borrowed from C, and pays interest to the wrong man. By this arrangement, C, the real lender, gets no interest, while A, the real borrower, draws interest on what he owes to C. The bank note, although not a legal tender, is not indorsed by B, and if A does not pay,C cannot hold B. This is necessary to enable it to become a sort of "pseudo" money. It may be objected that A has actually loaned his " basis," and it is merely left in the bank vaults until wanted. Very well, if that be true, A should be allowed to issue but one dollar of note to one of coin; Such, however, is not the case, for the next borrower is shown the same basis, and so on indefinitely, until the whole fraud collapses by a panic, of which more anon. It will be observed that while the bankers' notes are out, they operate as real capital to him, and he gains the same as the Government would by the issue of paper money. This gain, however, instead of being from the community to the community, is now from the community to the bank. The consideration in the case of the government issue is the legal qualities of money in the paper, in the latter case merely confidence. A sad confidence game it has always been to the users of such paper. § 26. There have been also various syt^ms adopted, com- posed of the government and bank systems more or less combined. This is the case with the Bank of England, the Bank of France, and the present National Banks of this country. It will be observed that in all of them the bank 38 THE SCIENCE OF MONET. contrives to retain more or less of the power to resfulate the issue, and generally it secures all the profit, while the Gov- ernment abandons its control over the value of money more or less, and usually furnishes about all the credit and security. In this way the "Money Power" has contrived to become almost a part of the Government itself. § 27. Animals, in carrying packs, performed both of the functions of transportation — support and locomotion. After- ward by combination of animal and cart, or wagon, the function of support was transferred to the cart. We find the same thing in the case of the bank note currency, attempted with imperfect success, the function of currency being given to paper, and the function of standard and payment being left to the basis. Each required a certain stability and degree of civilization. Certain conditions must be maintained. Roads in the one case and confidence in the other, and when the bottom fell out of either they failed. The analogy is completed when we compare the Govern- ment issue of paper money and the railway. In the case of the paper money its cost of production is no longer the restraint upon supply, and therefore ceases to operate as a regulator of value, and it must depend entirely upon a direct regulation of the supply. So the conditions would be differ- ent, the system of regulation being essential. In the case of the railway the track becomes a necessity, and its proper care and maintenance a condition of success. An unlimited issue makes paper money worthless, and the iron horse off the track is good for nothing as a locomotive. Of course, stage-coach owners and horsemen would oppose railroads. So bank men would oppose Government paper. Stages and horses never conferred a usurped power, while a bank of issue does, and exclusive government issue restores these powers to the Government "to which they rightfully belong." In the bank S3'§tem, paper exercises the function of cur- rency, and the basis that of standard and pa^auent. A prop- erly regulated government paper money would remove all these functions to the paper on scientific principles. Those ignorant of its principles, or opposed to its being done, say PUBLIC VS. PRIVATE CURRENCY. 39 tliat it cannot be done, just as those opposed to railroads said that the function of tlie horse could not be transferred to the cart. It is needless to carry the analogy farther. The fol- lowing saying from Confucius is appropriate and suggestive: " If, on presenting one corner of a truth, the hearer cannot determine from it tbe other three, I do not repeat the les- son." John Stuart Mill sets forth clearly the principles upon which paper money operates: * It seems to be an essential part of the idea of money that it be a legal tender. An inconvertiljle paper whicli is legal tender, is universally admitted to be money. * * * * x.uA such is the influence of almost all estal.)lished governments, that they have generally succeeded in attaining this object. I believe I might say they have always succeeded for a time, and the power has only been lost to them after they had compromised it by the most fla- grant abuse. In the case supposed the functions of money are performed by a thing which derives its power of performing tliem solely from convention ; but convention is quite sufficient to confer the power, since nothing more is needful to make a person accept anything as money and even at an arbitrary value, than the persuasion that it will be taken from him on the same terms by others. The only question is, what determines the value of such a cur- rency ? since it cannot be, as in the case of gold and silver or paper exchangeable for them the cost of production. We have seen, however, that even in the case of metallic currency the immediate agency in determining its value is its quantity. If the quantity, instead of depending on the ordinary motives of profit and loss, could be arbitrarily rixed by authorit3% the value would depend upon the fiat of that authority— not on cost of production. The quantity of paper currency not convertible into the metals at the option of the holder, can be arbitrarily fixed, especially if the issuer is the sovereign power of the state. The value of such a currency is entirely arbitrary. As value depends upon a "tension" between suppl}- and demand, and the demand for money fluctuates constantly, a fixed supply could not answer the purpose. It must be a fixed ratio of supply to demand. How to do this remains to be seen. All authorities, from Aristotle down to the present time, concede the rest substantial!}^ as it is here stated. * Mill's Principles of Political Economy, p. 327. 40 THE SCIENCE OF MONEJ. CHAPTER V. PANICS. § 28. We now come to consider the operation of a bank note currency with regard to the value of money, and as a producer of panics. A bank issue aifects the value of the base or coin upon which it rests, and it naturally and neces- sarily runs through the process, first, of inflation and depre- ciation of both coin and paper, and, second, of panic and rapid appreciation of both, during which the value of con- tracts to pay money are changed. It is claimed, on the other hand, that the convertibility of paper into coin prevents any depreciation, and that panics and revulsions are the result of over trading, over production, and speculation. This question is important, as upon it rests the charge that banks exercise the Government function of regulating the value of money. Let us refer to our diagram of the double barter A represents the class of men who fur- nish the currency. Before the bank note is issued, this would be some form of merchandise, usually gold or silver. Let B represent the class who furnish the H« beef, C the cloth. According to the principles of value, money, beef, and cloth would be regulated in value by the laws of supply and demand. The theory allowed to furnish a substitute for coin, and does so in excess of the amount of coin that would be forthcoming in the usual way, the excess would at once be presented for conver- sion into coin. If currency is inflated 10 per cent., it would fall to 90; and the cost of procuring gold from the mines be- ing 100, it would be worth more as bullion than as money. This would result in a disappearance of A's coin, which Avould warn him to desist. We have seen that this rule holds good only in the absence of monopoly in any form. In changing from single to double barter, and from double barter to legal tender, new uses were found for gold of a PANICS. « nature to add greatly to the demand. Now, if it was not true that new supplies could be promptly brought forward, there would be a monopoly margin to fall on when bank notes are issued. The facts are that gold hunting has always been, and now is, more of an adventure than of a legitimate business; and gold mines are not where the population is dense, and are not easily accessible to producers. It is not therefore, probable that any such readjustment would quickly occur. A sudden rise in beef would expose its producers to the competition of all the farmers of the country^ and a new supply could be quickl}" had to meet the rise. Again, for- eign nations with which we have commerce might be cheap- ening gold in like manner, and, if so, there would be no inducement to export it on account of its superior value abroad. Even when exportation does take place, it does not at once follow inflation. Prices must rise first, the balance of trade must turn, and foreign balances become due before any drain of coin to settle the balances will occur. This will be some months, at least, and possibly years after the inflation takes place. During inflation, gold is not likely to disappear by hoard- ing. On the contrary, however, as soon as it begins to fall, hoards will be brought into market and exchanged for prop- erty which appears to be rising. Importers would then be supplied, and the banks would be furnished with reserves. If each of these nine men had a like share of the gold at the outset, A would have one-ninth of what was possessed by the entire community. But as his notes began to circulate, they would displace the gold, and it would come into his hands for deposit until he might have 20, 30, 40, or 50 per cent, of the whole. As from three to five dollars of notes to one of coin is considered safe, he would push his issues to the utmost limit. In this way the inflation would go on, the community having less hoarded gold, the bank more, and prices would gradually rise as the gold and paper both fall in value. In the meantime, B might, on the strength of this bank note currency, involve himself in debt to C for cloth, payable at bank in money, and others in the same manner become in- debted. This use of credit helps to add to the demand for 42 THE SCIENCE OB' MONEY. goods, and aids the rise in prices. This rise, however, can only be maintained by added inflation of cnrrency from the bank. Suppose this has gone on until there has been a rise of 25 per cent, in prices, equivalent to a fall of 20 per cent, in the value of money. If a j^anic now starts in a foreign country, gold would rise and merchandise fall abroad, when gold would be exported instead of goods. Our goods would then fall, and gold rise. Suppose our crop of exportables were short, and, therefore, scarce and dear. Gold would be wanted instead, as it would be the cheapest. Business would not lag, and money would circulate freely, but the basis in the bank would slip away, and the credit of the bank being shaken, a run would occur. Then, to save itself, the bank would rapidly contract its issues. Suppose the rise in coin at the outset to be but 5 per cent. It would seem that a contraction of the currency so as to raise the value 5 per cent, would ))e sufficient to allay the panic. But while this 5 per cent, rise is going -on, hoarding adds to the trouble, and some of the gold dis- appears from the inarket in that way. The bank must have coin to strengthen its reserves, and it becomes a buyer and hoarder of gold, causing a still further advance in its value. This continues until a foreign supply can be had^ which must be paid for in exports drawn from a community in which shortage of exports was the first cause of the trouble. Or, if a foreign panic was the cau!=e, we could only get the coin by underselling bankrupts, and each would endeavor to underbid the other to get the gold. The distress, bankruptcy, and ruin, in consequence, is some- thing appalling; for. as has been shown in tlie horse and wheat game in Chapter II., although B may have borrowed but money enough to buy one cow, he may now have to give two or three cows to get a like number of dollars. These dollars contain, of course, the same amount of metal, but are two or three times as valuable as before. In the meantime, what lias the Government been doin"- in the way of "establishing justice" and "promoting the gen- eral welfare," or in regulating the value of money ? It has been promoting the general ruin, and aiding and abettin"- PANICS. 43 injustice by chartering banks to disturb the value of money, and so changing all contracts to pay it. It can easily be seen how the initiated could, while this was going on, reap a rich harvest. They could owe during inflation, and beat their creditors; and be creditors during the contraction, and rob their debtors. While prices are all down, and the country is being wrecked and plundered by financial pirates, gold will have a high value. When confidence is restored, inflation com- mences again, only to repeat the process. This operation of inflation and the first step of the panic — the slipping away of the bank reserves — goes on very quietly. The first startling crash is usually some large business failure; from this comes the cry of over trading. Then the bank, to save itself, refuses loans and discounts to those who are accustomed to receive them. This withholding of funds, at a time when stagnant business renders them most needful, precipitates still further failures. This forces goods upon an already overloaded market. All want to sell, and few wish to buy, and the superficial say, " overxn'oduction," when the real trouble is under-consumption ; for the fright and enforced settlement induces economy among consumers When prices are likely to advance, goods are largely bought on speculation; when likely to fall, shrewd men unload. This enhances the fluctuation of prices. To what extent this inflation and depreciation can go before the outflow of the basis checks it with a panic, and to what extent the contrac- tion must be carried on to cause an influx of metal money, will depend upon the circumstances of the case. The infla- tion or contraction might be more at one time and less at another. What they have been at certain times will appear by a reference to the diagram. § 29. The fallac}" of the specie basis d(>ctrine consists in assumin;y too much stability for gold, and omitting to recog- nize that it is subject to all the laws and circumstances of value that apply to other merchandise. It also consists in assuming what is not true, that gold always flows freely from one country to another whenever there is any dUference in its value in the two. In his " Wealth of Nations," page 178, Adam Smith says: " In China, and the greater part of the other markets of India, 44 THE SCIENCE OF MONEY. the proportion between fine silver and fine gold is but as ten, or, at most, twelve to one. whereas in England it is as fourteen or fifteen to one."' This could not 1)6 the case if the assumption were true- Silver would at ouce be sent from En2:laud to China and India, in exchange for gold, until the ratio should become alike in both places. Regulating the value of paper by convertibility is like regulating the speed of a steam engine by a governor so un- certain in ios action as to allow the speed to greatly increase, and again greatly decrease, before operating, and to generally oscillate from one extreme to the other. Such a device in mechanics would not be tolerated; the world has made too much progress in that direction. § 30. There is a theory very popular with some, that if the bank discount only bills drawn against articles of consump- tion, actually in the market, no inflation will occur. It is stated as follows: Suppose C ships |1,000 worth of cloth to J, a jobber, and, drawing a ])ill, discounts it at A's bank. He then pays D, E, F, and others for labor, and the notes go into circulation. When the cloth is sold, and J pays C, C pays the bank, and then the currency is retired. Thus, while the goods are passing from producer to consumer, the money circulates, and no longer. Increase and decrease of production thus produces a like increase and decrease of cur- rency, and all is well. The fallacy of omitting two facts is apparent. C may not discount the bill. It will depend upon circumstances, the principal motive being, perhaps, speculative. The rate of discount will also have much to do with the amount of dis- counts. By this it is partly optional with the bank how much currency it will issue. Once encourage discounts by any reduction of the rate, and increased currency follows, which, by raising prices, induces speculation, and still fur- ther discounts. The rate of discount is seen here to be the prime mover in this series of cause and effect. Yet specula- tion is charged Avith the trouble when the bubble bursts. This process of inflation may occur, and generally does, without any reduction in the rate of discount, and frequently PANICS. 45 in spite of au advance in the rate. Suppose, for any cause, there is a rise in clotli; so that the same quantit}- that for- merly gave rise to $1,000 of discounts is now good for $1,200. There is $200 of inflation, and $200 more to buj^ beef, etc.^ and beef rises. B can now afford better furniture, and trade begins to "boom.'" Now a car-load of furniture from F, that was discounted at $1,000, goes in for $1,200, and so with mer- chandise generally. After a while this collapses, and C comes back to bank with only $1,000. The same with the furniture man, and the bank makes up the loss out of its coin when the extra $100 comes back through some one else. But the bank now has a claim for the $400 in coin against C and F, to whom it never loaned anything but a promise on paper, and a bankrupt sale closes the scene. Where is the regulating power of this arrangement? Who is to blame, A, the banker, who discounts, or B, C, and F, who knew nothing of "finance?" This collapse comes in this way. High prices of cloth and furniture render it more profitable to the exporter to export coin and import merchan- dise. This export of the basis raises its value, and when the run once starts, it is further advanced as already explained. § 31. Much of the bankruptcy and mischief is due to the system of building up loans and discounts on a fabric of bank paper, which is not money, and cannot pay debt. The issue of bank notes is nothing less, as Jevons says, than a " bull " operation on the money market. So long as the credit of the note is maintained, it operates as money, and has the same effect upon business. When, however, an attempt is made to realize, the actual supply of money is found to be short of the nominal supply by the amount of bank paper afloat. If a man goes to market with " phantom " wheat, and on his credit sells what he does not possess, it is considered a criminal act in some countries, and is looked upon with dis- favor even in this country of loose morals. Let us examine this structure of bank paper and credits, and see how it is built up. The following illustration shows the relative bulk of basis and superstructure. The black block is the money (coin or other legal tender) in the bank; 46 THE SCIENCE OF MONEY. the next, the bank notes; and the upper, the deposits; the lower,, the loans and discounts. 1834. Deposits Bank Notes Coin Loans & Discounts. * 1837. $ 75,666,986 94,839,570 40,000,000 324,119,499 ^127,397,185 149,185,890 37,915,340 525,115,702 Deposits Bank Notes. . . . Coin Loans & Disc'ts. If we substitute bushels of wheat for dollars of money, and allow the elevator to displace the bank, we shall have a clearer idea of the operation. In 1837 A, the owner of the elevator, had 37,915,340 bushels of wheat; he had sold and agreed to deliver on demand 149,185,890 bushels. These contracts were circulating among wheat dealers as wheat. In bartering these contracts for goods, they supposed that they were handling actual wheat, A had received on storage from his neighbors both real wheat and paper wheat, and instead of keeping it, had immediately let it go, trusting to be able to collect his loans when called upon to fill his con- tracts. This goes on until he has apparently in storage 127,- 397,185 bushels. It comes about thus. B deposits with A 1,000 bushels. A at once loans or sells it to C, C pays it to D, and D deposits the same again in the warehouse, taking a receipt for it. It then goes around again, and so on indefi- nitely, until the whole fabric stands thus: Bushels. Wheat sold by A on demand 149,185,890 Wheat stored Avith A uu call .127,;597,185 Wheat contracted to A on future delivery 525,115,702 Wheat actually in hands of A 37,915,340 The outside situation at that time would be correctly rep- resented by 28,000,000 bushels in the hands of producers, millers, etc., and a large amount of corresponding contracts in the shape of book accounts, notes, bonds, and mortgages, drawn against wheat. PANICS. 47 One can easily imderstand how an export demand for wheat would result. The wheat supposed to be in the mar- ket would be: Pu.shels. Wheat on hand owned by A ;!7,Uiy,o40 Wheat sold on call by A 149,185,890 Wheat deposited on call with A 127,397,185 Total 314,498,415 Contracts for wheat to be met within a short time: Bushels. Wheat sold on call by A 149,185,890 Wheat stored on call with A 127,397,185 Wheat contracted for future delivery to A 525,115,702 Total 801,698,777 Actual wheat available in possession of A, 37,915,340 bush- els and such as may be got from the 28,000,000 bushels in the hands of farmers and others. All this supposed wheat is operating as real wheat to the extent of 314,498,415 bush- els, and goes to the market as such in exchange for other goods. Now let an export demand arise for wheat. All now begin to call for wheat and demand the real article. Those to whom A has sold on call to the amount of 149,185,890 bushels, begin to draw on the 37,915,340 of actual stock. A begins to draw on the 525,115,702 bushels sold to him on future delivery (by curtailing his loans and discounts). Oth- ers in turn begin to draw on the wheat in storage (or sup- posed to be), and the fabric rapidly shrinks. Meantime those that have sold wheat must have it to meet their obligations. As wheat rapidly advances in price, they are caught and ruined. In case wheat is the medium of exchange, men would say ''a bushel is a bushel and the standard of values." As this fabric of phantom wheat dis- appears, all prices fall, business stagnates for the want of wheat, and debtors are ruined by the wholesale. We have here described banking exactly as it is conducted, substituting wheat merely to eliminate the superstition which surrovmds the idea of money in the minds of many. There is no difference between the one and the other. If it is legitimate to sell wheat when you have it not, to sell wheat to be delivered on call, to take the contract again 48 THE SCIENCE OF MONEY. on storage, as wheat, and to sell it over and over again indefinitely, then banking, as conducted, is legiti- mate and not otherwise. Either will breed panics, and ruin all those who have anything to do with them, except those inside the ring who are sufficiently skillful to to scoop in the plunder. In the case of the wheat operations, only operators in wheat are the sufferers. But what shall we say of a government, empowered by the sovereign people to regulate the value of wheat, if it makes wheat a legal tender and then, countenancing such a scheme as here described, by law compels the entire people to " take a hand in the game." When the victims understand it, such a government will disappear and a new one spring up, that will remove the money far from the control of monej^ brokers and gold gamblers. § 32. It may be urged that this has been done by establishing the National Banking system. Let us see : The bonds are the basis of the system. They are no d^ubt as good as the wheat now. They were not once, and may not be again. At all events, they are not tvheat, but promises to pay it. We have now this arrangement. We, the people, have consumed a vast amount of property for which we now owe, and have promised to pay over 2,000,000,000 of bushels of wheat at our future option. You. the bunkers, may sell on call to nine- tenths of the amount, and we will endorse your sales, under- taking to provide the wheat, if you fail to do so. But if we provide the wheat, you must forfeit so much of our wheat contracts. This will not increase the real wheat, but it will compel the government to furnish the wheat at any price when the panic comes, and the " bulls " have it all their own way. Against this contingency the wheat gamblers (bankers), pat up a margin of 10 per cent. This scheme will be exam- ined further hereafter. §33. In "Sumner's History of the American Currency," page 249, is published a summary of the famous "Bullion Report." In speaking of the importance of this document, Mr. Sumner says: *"Tlie report of this committee is, perhaps, the most important document in financial literature. Its doctrines have been tested *W. G. Sumner Hist. Aiiier. ("ur., p. 248. PANICS. 49 both ways, by disbelief, and by belief, by experiment of their opposites, and by experiment of themselves. They are no longer disputable. They are not matter of opinion or theory, but of demonstration. They are ratified and established as the basis of finance. They may be denied, as the roundness of the earth was denied even five years ago, and as Newton's theory of the solar system was denied until within twenty-five years, but they have passed the stage where the scientific financier is bound to discuss them." The summary, as given by Mr. Sumner, is here reprinted in full. The truth of scarcely a proposition, as laid down, can be questioned, and yet, so incomplete are many of the propo- sitions as stated, and so plainly do they ignore the admitted fact of the fluctuation in gold, that when taken as a whole they give rise to the falsest conclusions. For the convenience of the reader they are reprinted below, with corrections fol- lowing each proposition: " 1. The value of an inconvertible currency depends on its amount relatively to the needs of the country for circulating medium (only to a very subordinate degree on the security on which it is based, or the credit of the issuer)." " 2. If gold is at a premium in paper the paper is redun- dant and depreciated. The premium measures the deprecia- tion." If gold is at a premium in paper the paper may be re- dundant and depreciated, or the gold may be scarce and aj)- preciafed, or both may be true at the same time. The premium measures only the difference in value between the two. " 3. The limit of possible fluctuatioiis in the exchanges is the expense of transmitting bullion from one country to the other. If it costs 2 per cent, to transmit bullion, the fluctua- tions of the exchange due to the ratio of imports and ex- ports never can exceed 2 per cent, above or below par. Par of exchange is the par of the metals, weight for weight, in the two coinages." This ])^'opositton proceeds upon the assumption that a potind of gold is always equal to a pound of gold. This may be true in iveights; it is not in matters of value. " 4. If there is a drain of the precious metals, it is due, aside from exportations to purchase food or pay armies, etc., 4 60 THE SCIENCE OF MONEY. to the presence of an inferior currency of some sort in the country it leaves." If there is a drain of the precious metals, it is due, aside from exportations to purchase food, or pay armies^ etc., to the presence of a curreitctj irifh a utiit of lower value in the country it leaves^ or to an increase of value in the metals abroad. "5. If the inferior currency be removed, the exchanges will be turned, the outflow will stop, and, if any vacuum is created, i>old will flow in to supply it. "Gold will not flow in while the inferior currency fills the channels of circulation.^' If the lower curre::cy be svfficientJy contracted., the ex- changes will be turned, the outflow will stop, and if a suffi- cient vacuum is created gold will flow in to supply it. Gold will not flow in while the lower currency fills the channels of circulation, unless the gold falls sufficiently in value. '' 6. In the presence of a panic the duty of the bank is ta discount freely to all solvent parties. '"" In the presence of a punic, it is the duty of the bank to pay its own debts and. keep itself solvent. '' The still more fundamental laws involved are these: " 1. The amount of gold in the world will suffice to per- form the exchanges of the world. If there be more or less it will only aflect the average level of priqes the world over/^ The amount of gold in the world will suffice to perform the exchanges of the world, provided j^^'ices are adjusted ac- cordingly. If there be more or less it will not only afifect the average level of prices the world over, but by changes in locality, or in amount, it 'will affect prices unequally in differ- ent countries; it will change contracts to pay, and tvill disturb business generally. "2. Every nation will have that portion of the stock of gold in the world which is proportioned to its trade. Each nation will have just as much as it needs." Every nation will have that portion of the stock of gold in the world which is proportioned to its demand for gold, pro- vided it is willing to sacrijlce enough to get it. Each nation PANIC8. 51 will have just as much as it is willing to purchase, regardless of cost. "3. A better aad a worse currency cannot circulate to- gether. The worse will drive out the better." A currency of a higher unit of value and one of a lower cannot circulate together. Whichever for the time has the lower value will displace the other. The better may drive out the ivorse. The moon is round; a cart-wheel is round. Ergo, the moon is a cart-wheel. When the whole story is told, however, Mr. Sumner's con- clusion that the '' Bullion Report" is infallible, seems about as absurd as that the moon is a cart-wheel. 1. The first proposition as laid down is substantially true, "The value of an inconvertible currency^' does "depend on its amount relatively to the needs of the country for circu- lating medium." But it depends on something else. Act- ivity as well as amount has to do with value in currency. The total amount of currency issued indeed has very much less to do with value than the amount actually circulating. Activity often removes the demand for a large amount of currency, while at the same tmie it calls into circulation vast hoards of inactive currency. When currency is depreciating, hoarded money is always thrown upon the market, thus aggravating the depreciation. When currency is appreciat- ing, circulating capital is stored away or hoarded, thus aggra- vating the appreciation. In either case, hoards being thrown loose, or loose funds being hoarded, only accelerates instabil- ity. It is only when currency is perfectly stable that this effect does not follow. 2. The second proposition states only half the truth. Evi- dently it is based upon the assumption that gold is stable. It has been shown to be thoroughly unstable. Every polit- ical economist of any note, from Adam Smith down, admits this to be true. *"ftoltl and silver, however, like every other commodity, are sometimes cheaper and sometimes dearer; sometimes of easier and sometmies of more diflicult purchase. The discovery of the * Adam Smith : Wealth of Nations, p. 38. 62 THE SCIENCE OF MONEY. abundant mines of America reduced, in tlie sixteenth century, the value of gold and silver in Europe to about one-third of what it had been before, and this revolution in their value, though per- haps the greatest, is by no means the only one of which history gives some account. But, as a measure of quantity, such as a foot, fathom, or handful, which is continually 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." * " Silver, in bullion or money, changes its value from any change in its quantity, or in the demand for it. In either of these cases goods are said to be dearer or cheaper; but 'tis silver or money ia dearer or cheaper, being more or less valuable, and equal to a greater or lesser quantity of goods." :J:"The value of money is inversely as general prices : falling as they rise, and rising as they fall. * * ♦ * Let it, therefore, be remembered — and occasions will often arise calling it to mind — that a general rise or a general fall of values is a contradiction, and that a general rise or general fall of prices is tantamount to a rise or fall in the value of money." * * f'But there is abundance of evidence to prove that the value of gold lias undergone extensive changes. Between 1789 and 1809, it fell in the ratio of 100 to 54, or by 46 per cent., as I have shown in a paper on the variation of prices since 1782, read to the London Statistical Society in June, 1805. From 1809 to 1849, it rose again in the extraordinary ratio of 100 to 245, and by 145 per cent., rendering government annuities and all fixed payments, extending over this period, almost two-and-a-lialf times as valuable as they were in 1809. Since 1849, the value of gold has again fallen to the extent of at least 20 per cent., and a careful study of the fluctua- tions of prices, as shown eitiier in the American Reviews of Trade of the Economist newspaper, or in the paper referred to above, shows that fluctuations of from 10 to 25 per cent, occur in every credit cycle." I " The i)recious metals are often spoken of as 'the standard of value,' wliich is true only in a restricted sense. A standard must remain the same, however other things change; and this is cer- tainly not true of gold and silver. Their jnirchasing power has been continually varying, generally declining, as the natural de- posits of their ores have been laid bare, and the resi.stanue of nature to those who searched for them has diminished." *.Iolui Law : Money and Trade ('onsidcred. fliap. v. tJ. H. Mi!l : I'rinciples of Political Kconoiny. pafi;e •^07-267. •fW. Staiili'V .Ffvons' Meclianisni of ExidiaiiK<\ P- ■'-•'i- I K. E. Tliuinpson : Social Science and Nat. Economy, p. 160. PANICS. 53 3. Tliis proposition again is true only under certain circum- stances. It is based upon the theory that gold flows freelj'' from one country to another immediately any vacuum is created for it. This is entirely false. In 1864, during the months of July and August, gold stood at from 254 to 285, while the average price for the year was 202. This change in price was not due to a depreciation in paper, because the paper prices of other commodities did not change accordingly, nor due to a fall in commodities, since there was no such increased supply during those months. And yet, during those two months, gold did not flow in from Canada or Eng- land, or any other country, sufficiently to reduce it to its normal level. Certainly something more than cost of trans- portation kept gold out from New York during those months. The truth was, that these countries had not the gold to spare and accordingly its value advanced abroad until it rose to the par exchange of New York. This abnormal advance resulted in the panic which struck the Bank of England in 1866. 4. The language of this proposition tends to deceive as to the real nature of a good and a bad currency. Because a currency has a unit of lower value, is it necessarily an inferior currency ? Superiority of a currency depends upon stability of value, not upon possessing a high unit of value. Inferiority consists no more in lowering the unit than in raising it. The horse and wheat game shows that by lowering the unit a given amount, the debtor can defraud his creditor 50, while by raising the unit the same amount, the creditor can defraud his debtor 100. Sometimes paper is the inferior currency; sometimes the precious metals are the inferior money. There is, moreover, left out entirely from this proposition, any allusion to the fact, that a drain of the precious metals may follow upon an increase of value in the metals abroad. 5. The preceeding proposition evidently ignored a principle which underlies the correct theory of the' flow of gold; this proposition boldly states a false theory of the flow of gold. Grold will flow in to fill a vacuum, Imt the vacuum must be sufficient to start it. A counteractiug vacuum, where the gold chances to be, will easily prevent its flow. The laws of friction, 64 THE SCIENCE OF MONET. of inertia, and of counteracting forces, apply as directly to the mechanisms of finance, as to those of mechanics. This proposition also ignores the principle that gold may so fall as to become the currency of lower unit, and as such displace any other currency which may at the time fill the channels of circulation. 6. The sixth proposition again, states only half the truth. In the presence of a panic, the duty of the bank is to discount freely for all solvent parties only when it can pay its own debts and keep itself solvent. The fact is, no bank of issue is able to do this. The privilege of issue depends upon the understanding that the bank should never be called upon to redeem its promises. In times of prosperity, it is easy for a bank to persuade business men to take promises to pay, as money, to any extent; but when a panic threatens, the policy must change. As with the business man, it now becomes necessary for the bank to postpone creditors, and at the same time take up its paper as rapidly as possible, refraining from issuing more. It is also necessary for the bank to discount, to a certain extent, lest too many fail, and loans already made be lost. Therefore, under the present arrangement, the banks are compelled to discount, in time of a panic, to a lim- ited extent. They cannot, on the one hand, discount freely to all solvent parties, nor, on the other, refuse wholly to dis- count at all. Either course would speedil}' result in disaster and ruin. If, however, the bank could pay, dollar for dollar, the whole of its indebtedness, it could, with safety, discount freely for all solvent parties, and thus tide over the panic. It is possible, as we have seen, that a truth stated only in part may partake of the nature of a falsehood, and, from its plausibility, may do incalculably more harm. Mr. Sumner reduces, further, these six propositions to three more fundamental laws: 1. The first would be a part of the truth if the woi*d ^'"onlif were omitted; it would not then be the whole. Suppose the amount of gold in the world to be diminished or increased without an immediate corresponding change in prices. Cer- tain exchanges will not be effected. Either if gold becomes scarce, there will bo a surplusage of merchandise, and no gold PANICS. 55 to exchange for it; or if gold becomes plenty, there will be a surplusage of gold, and no merchandise to exchange for it. It is only when prices have become adjusted that the amount of gold in the world will suffice to perform the exchanges of the world. Again, a change in the amount of gold does more than aifect the general level of prices the world over. It will thus result in time, but who shall say how man}' honest merchants shall be ruined during the process, on account of the unequal effect in different countries, the changes in the contracts to pay, and the general disturbance of business. 2. The fallacy in this second fundamental law is that one to which attention has been so frequently called. Only part of the truth is stated. Every nation may have that portion of the stock of gold in the world which is proportioned to its demand for gold, if it will take the proper Course to get it. It is a mistake to suppose that its stock of gold will bear any fixed ratio to the amount of its trade. India, with a very small trade, and almost no business, uses enormous quantities of coin; while England, the most thoroughly commercial and mercantile nation in the world, uses very little. France, doing its business with the use of very little credit, must have large quantities of coin; while the United States, doing its business largely by means of credits, and paper based on credits, needs and, therefore, uses very little coin. And, even in the United States, it will be seen by a reference to the diagram, that an influx of gold into the countrj^ does not by any means indicate an increase of general trade. Indeed, the reverse is more near the truth. As civilization advances, and we transfer the functions of money from the uncertain and fluctuating gold to a more suitable paper, the relative amount of gold used as money gradually but certainly decreases. One hundred years ago, the ratio of iron horses to those of flesh was very small. Now it is very much larger, and who vshall say how large that ratio may become in the next hundred years. So the time is surely coming, if the dictates of reason are followed, when the uncertain and clumsy gold shall yield to the sway of a well regulated and stable paper currency. 56 IHE SCIENCE OF SIDNEY. 3. No fallacy seems more common and deep rooted in the minds of modern reasoners on finance than that the lower the unit the more inferior the currency. Silver and gold have each been in turn the currency of the lower unit of value, and yet no well informed writer for a moment pre- tends that, on that account, the higher currency is the better one. Indeed, a reference to the diagram, No. 1, will show that, as a rule, the lower currency follows most nearly the general average. Superiority, as we have had occasion to say before, consists in stability of purchasing power. We have passed that stage of barbarism when that currency is best adapted to our needs which combines the largest amount of merchandise with the smallest amount of extension or weight. We no longer look upon that money as the most desirable which will resist the longest the decay of the elements or the ravages of vermin, which will the best endure the conflagra- tions of cities, or the longest outlast the fall of empires. We do, however, regard that currency as the most sound and honest which retains its purchasing power unchanged through the lapse of time. Such a currency must be made expressly for the purpose; no merchandise is sufficiently stable in value. CHAPTER VI. DEMONSTRATION OF THE PHILOSOPHY OF MEASUREMENT. § 34. It is a fact familiar to the experience of anyone who has had occasion to exchange money for goods, that the goods and money do not always exchange in the same ratio. One cannot always know how much money may be procured with a given amount of goods, nor can he be often certain how much goods his money will purchase. An}' attempt to discover the cause of this uncertainty invariably leads to an examination of the laws of exchange. § 35. All fair exchanges rest upon an equality of value (either I'eal or supposed) in the things exchanged. Should $90 exchange at one time for a ton of general merchandise, and at another for three tons of the same merchandise, in PHILOSOPHY OF MEASUREMENT. 57 both cases the i?90 is equal in value to the merchandise for which it is exchano;ed. § 36. But three theories are possible. First, the currency was stable in value and the goods changed. Second, the goods were stable and the currency changed. Third, both might have changed. By observing the circumstances and applying the laws of value, we can solve the problem. Lest confusion xaay arise, we premise that the demand for the goods is the currency and credits of the buyers. The demand for the money is the merchandise of the sellers. The demand of borrowers for money is not a demand for money, but for goods, and is manifested in an expansion of credits, this being the reason why a la«ge volume of curreacy does not permanently reduce interest, or a small voLume of currency permanently increase it. The adjustment of prices operates on the principle of a balance. All the merchandise in circulation must balance all the money and credits. The currency having a fixed nominal unit, when its quantity changes, the value of its unit is supposed to remain unchanged. This cannot be the case unless the goods change in real value to the extent that they change in price. We represent here two balances, indicating the situation of the markets in 1837 and 1843. The money equaled the same merchandise in each case, either a fixed amount of one or the other had changed in value. 58 THE SCIENCE OF MONEY. During the past fifty years several such changes have occurred. Tlie accompanying circumstances with regard to the supply of currency, loans and discounts, imports and exports, coinage, etc., can be fully understood by reference to diagram No. 1. § 37. The first remarkable rise of prices was from 1834 to 1836. We find a corresponding rise in currency and credits, and an increase of exports, coupled with a larger increase of imports. There was an increase of currency sufficient to produce the effect; there was no diminution of the goods, but instead an increase, indicating a fall instead of rise in their real value. We conclude, therefore, that the money changed iu its value. § 38. From 1837 to 1843, we find a fall in prices, a corres- ponding reduction of loans and discounts, and a greater reduction of bank paper. Counteracting this, we have an import of bullion, the coinage of which about offsets the excess of reduction of bank paper. During this time impor- tation fell off enormously, while exportation increased until 1840, and then rapidly diminished. This would not indicate a surplus of products in market to cause the fall of prices, and this change must be attributed to a rise in the value of money. § 39. From 1843 to 1846, we find a repetition of the first period of expansion of currency and credits and rise of prices. From 1846 to 1847 prices rose still further. We find a slight PHI.LOSOFYH OF 3IEA8UREMENT. 69 reduction of bank notes and discounts, and a rise of coinage about sufficient to balance them, which indicates a rise in the value of the merchandise. We find in the movements of merchandise, an increase of one-third in exports, and no increase of imports. Excessive production in this country ■could not be the cause, as that would lower prices. There must have been a reduction in the value of coin, or rise in the value of merchandise abroad. Short crops in Europe, a potato famine in Ireland, and railway building in England, tended to raise the value of merchandise abroad. The Bank of England had inflated its currency and discounts enor- mously, which reduced the value of coin. In this ease, there was at the same time a rise in the value of goods, and a fall in the value of money. The effect upon our markets was entirely due to foreign influences. § 40.' From 1847 to 1849 we find a fall of prices. The movements of currency and discounts was irregularly upward, and that of the coin downward. There was a falling off of exports and an increase of imports. A panic in England had enhanced the value of their coin, and we had returned it io them. The temporary effect on merchandise due to short •crops disappeared, which is shown by the fact that, notwith- standing falling prices, the gross exportation of merchandise was reduced, and imi)ortation took the form of merchandise instead of gold. § 41. From 1849 to . 1857, we have another period of ad- vancing prices. Here the gold mines of California enter into the problem. The line ot credits rose irregularly with prices. €oinage, bank paper, and gold production rose rapidly the ffrst three years, while prices remained about stationary. There was but little increase of importation, and this phe- nomenon of low prices and rapid increase of money is accounted for by the fact that gold was hoarded and did not go to market the first two years, 1848 and 1849. From 1850 to 1857, there was a decrease of coinage, and an increase of •export of bullion, culminating in an export of the entire product in 1857. Imports and exports had been advancing all this time, and industries had been active and profitable. There ■^ya?? no scarcity of merchandise, therefore, to run up 60 THE SCIENCE OF MONEY. the prices. The rapid increase of exportation of the metal indicated a fall in its actual value. § 42. "From 1857 to 1858, we have another fall of prices, accompanied by contracted currency and loans, and a reduc- tion of both imports and exports, and an increased coinage indicating a purely monetary disturbance. § 43. In 1859 there was a slight rise of prices, accompanied by a corresponding increase of currency and loans. The next year enormous crops, against a small increase of cur- rency and loans, reduced prices slightly. 1861 was a year of preparation for the war. Our imports fell off considerably. We exported much less than before. There was an enormous importation of coin that year, our stock on hand being in- creased by the entire jDroduct of the mines, and $16,500,000 of actual importation. This was the first time since the dis- covery of the gold mines of California that we actually im- ported coin. We find a slight reduction of paper currency, a slight reduction of credits, and an increase of coinage. The Government was becoming a buyer to a considerable extent, men were leaving productive industry, and yet there was a fall of prices. A solution of this lies in the reduction of credits and an anticipation of the war market. To use a sailor phrase. " the business community was reefing sail pre- paratory to a storm." § 44. In 1862, '63, and '64, there was a decrease in the ex- port of merchandise, and an increase m the export of coin. Coin prices remained low and stationary, and paper prices were rising. We have here two kinds of money and two standards of measurement. They parted at the suspension of the banks, December, 1861, and paper prices rose rapidly, while coin prices rose but little. From 1862 to the present time we have had two nearly indejjendent kinds of money, and the elements of demand were changed. The demand for coin is for purposes of in- ternational trade, duties, and interest on bonds. Previously the demand was not only for these, but a domestic currency. As soon a« it cccised to circulate as a domestic currency, the demand was reduced in that direction. But there followed a rapidly-increasing demand for export, duties, and interest. PHILOSOPHY OF MEASUREMENT. 61 This maintained its value until 1864, when the export of our bonds, which could be had for about fifty cents in coin, brought in a supply', and it began to fall in value. During the three years that gold was of high value, the Treasury was hoarding the gold received for imports, which at that time greatly exceeded disbursements for inteiest. The large export of coin during those years was due to two causes: At the beginning of the war we had a large stock which, by the issue of legal tender paper, was displaced as currency. The demand for merchandise to carry on the war did, no doubt, enhance its value, so that, although gold had a high value, we had no other articles of export that were not also of high value. This is the first instance where a supply of paper substitutes did not affect the value of the coin. This is accounted for when it is considered that the substitu- tion was only partial, and the remaining uses for coin were sufficient to keep up its value. Had the paper been received for imports, the coin would have been relieved of that duty. Coin would have been worth less, and paper more. Coin would have been exported as a commodity, and eventually have parted company with paper. The demand notes of 1861 were made such paper, and they remained with gold. Had all the paper oeen made the same, the quan- tity would have been so great that this could not occur; but gold would have been less in value, and paper more. From 1864 to 1866 were the closing scenes of the war and another period of change. There was an immense increase of both imports and exports (the former a little in excess), a return of specie, a rise of specie prices, an increase of cur- rency and a fall of paper prices. A revival of international trade followed naturally the return of vast armies to productive occupations. The fall of paper prices against inflating currency was due to hoarding induced by the expectation that the Government would now retire and appreciate its currency, and also to the increase of merchandise produced by those who had been but lately sol- diers. Gold shows exceedingly abnormal movements during this period. Gold and paper prices changed as follows: GOLD. PAPER. 1864 46.25 94.02 1865 - •■)1.56 81.08 1866 60.00 84.52 Rise of gold prices, IM.To Fall of paper prices, O.-'iO 62 THE SCIENCE OF MONEY. While gold prices were low, gold had been exported in large quantities; now, with gold prices rising, gold was imported in large amounts. This cannot be accounted for on the theory that merchandise rose, for the imports would then assume the form of merchandise and oar merchandise export would not have so increased. Nor can we consider gold stable for another reason. In 1866 the holder of gold would give 71 cents for paper, while in 1864 he would give but 49 cents — an advance of 44 per cent, in the value of paper as compared to gold. The merchant who would give 49 of merchandise in 1864 would now give but 54 for the paper — he had discovered in the paper an advance of but 10 per cent. The merchandise could not at that time iiave advanced by the difference between the 10 per cent, of the merchant and the 44 per cent, of the gold monger. The gold therefore must have fallen. During the war very few bonds were exported. Now the success of the Government was assured, and bonds Cjuld be had for coin at 49 cents on the dollar. This caused a large influx of coin and a conse- quent fall in its value. This export of cheap bonds operated as an export of cheap goods, calling gold from abroad until there resulted a panic in Eugland in 1866. Now a counter- actiug vacuum caused a high export of both merchandise and bullion in 1866, and turned the line of gold prices. It will be noticed that coin did com'e with an '' inferior currency filling the channels of trade," while even the balance of trade in merchandise was against us. This export of bonds simply anticipated a future export of goods and produced the same effect upon the markets as if the goods had been actually exported at the time. § 45. From 1866 to 1869 we find a contraction of currency, expansion of credits, moderate exports, larger imports, an export of bullion averaging the entire product of the mines, and continued falling prices. § 46. In 1860 the credit strengthening act was passed. From that time until 1873 was continued the exportation of bonds. During the first two years the bonds brought coin, and then, owing to a rise of coin prices, they resulted in an enormous importation of merchandise. This importation of EXPERIMENTS, 63 merchandise prevented any rise in prices, altliongh credits were expanding and the currency was being maintained star- tionary. § 47. 1875 shows falling imports and exports, stationary currency, and slightly rising discounts. This year the resumption act was passed, causing reduced currency and discounts, rapidly failing prices, increased exports, decreased imports, and increased stock of bullion. The retention of our own products, and enormous importation from 1870 to 1873, kept prices down. Now the large exportation would indicate a rise in prices, and effectually contradicts the theory that a surplusr.ge of goods produced the fall in prices. The fall must therefore be due to the reduced supply of cur- rency and credits, or to a rise in the value of money. In conclusion, the multiple standard has jjroven, with but few exceptions, a correct basis for the measurement of money. In 1847 a famine demand in Europe raised the value of mer- chandise, and during the war the unusual home demand pro- duced a similar effect. Alluding to a former illustration, it is as though an ebb tide had lowered the general level of the water at those times. The line showing the fluctuations of the unit is therefore correct, with the exception of the year 1847 and the period from 1860 to 1864 inclusive, when they should be raised somewhat. Coin is affected to the greatest extent by eximnsion and contraction of bank paper, by the presence of bank credits and legal tender, and also by the gold mines, hoarding, and export of government bonds. § 48. The rise of prices in 1880 is accounted for by the increased loans and discounts, and currency, and speculative impulse given to business by payments from the United States Treasury. CHAPTER yil. EXPEKIMENTS. §49. Having discussed the philosophy of money, it now remains to discover if this philosophy has been tested by 64 THE SCIENCE OF MONEY. experience. The opponents of Government paper money- point exultingly to every issue of paper that has. become worthless, and claim that these failures are proof positive that a Government paper money will never succeed in any form. They admit that bank paper will utterly fail unless certain rules are observed in its issue and management, and even if the best known rules are observed, they concede it to be imperfect, and merely the best that can be done. Mr. Sumner makes the following concession, which ought to make the bullionists more modest, and less hopeful for their resumption and specie basis schemes in this country: *"The question liow to ^•e^'it^Za^e a couvertible currency is still hotlj'' disputed, and is far from a solution. It seems tliat art can help nature here as well as elsewhere, but we may be very sure that it can so help here only as it does elsewhere — by following and assistin.a:, and not supplanting and coercing. A convertible currency is, like steel, not a natural product, but an artificial development, and in many respects superior; but it is as if we had not yet discovered the law by which to make the artificial product so that it should be neitlier too brittle nor too elastic, too hard nor too soft One thing is very certain, that our blundering experiments have hitherto cost us far more than we have gained or saved." Henrj' V. Poor, another American authority, and one who stands well with the anti-paper-money school, says: :j:"But convertibility of issue may have no relation whatever to propriety of issue. A person may be able to pay a bill he has uttered; but by so doing he may strip himself of every dollar he possesses. The question, therefore, far in advance of converti- bility, and which is the only one important to be considered, is the manner in, or cost at which, convertibility is to be secured. * * * How to create a currency which shall at all times be convertible without drawing capital from its issuers, and with- out creating disturbance in monetary and financial ciicles, is a problem no nearer solution than it was a hundred years ago." § 50. From the principles of the cause and measurement of values, we can deduce the conditions necessary to a proper issue of paper money: and tlie question here arises, have these conditions been tested by experience? In consulting history, we are met with the strange fact that the usual order * Sumner's Hist. Am. Cur., p. 308. t Money : Its Laws and Hist., p. 224. EXPERIMENTS. 65 of development lias been more or less reversed in the case of money. We find there has always been more or less force «xerted to prevent a fair trial of paper money. This comes from a class of men known as the Money Power. The earliest coinage of money is, of course, so veiled in the obscurity of the past, that little is known of the conditions under which it was issued. By making one kind of merchan- dise a legal tender, its value is thus made to rise and fall in- versely as prices rise and fall. By authorizing individuals or private corporations to issue substitutes for mone,y, they are enabled to get something for nothing, by drawing interest on what they owe. By these acts of unsound legislation the money power was called into existence, and, by exercising the power thus conferred, it is enabled to interfere with a func- tion of the Government, and change the value of money by their issues, thus changing the value of all contracts to pay money. The class of men who profit by this state of affairs strenuously resist any change, and there has always been a stubborn contest between them and the progressive, patriotic element, especially in America. Debased coins and representative money have been issued by various governments, but no proof exists that any ade- quate restriction was placed upon the supply to regulate their value. In most cases they operated as a sort of forced loan on the part of the Government, and depreciated in pro- portion as their issue changed the ratio between the amount of money and goods in the market. § 51. The first public bank in modern Europe of which we have any record was the Bank of Venice, established in the twelfth century. The Bank of Venice originated in a forced public loan, raised to tit out a fleet, and is the first example of a public funded debt. The persons assessed were then organized as a company for the protection of their common concern, and for the receipt of interest. As this organization acquired more the form of a bank, those who held a claim against the Government upon its books were allowed to transfer it in whole or in part. As this mode of making payments became more desirable, the Government reduced the rate of interest, 5 66 THE SCIENCE OF MONEY. until finally it paid no interest at all. It also sold for cash inscriptions of credits on the bank books. These inscriptions were simply an evidence of the amount of credit »vhich the buj'er could tninsfer, but for which he could never demand the cash. This hank had also a safe dei)Osit department, where coin could be deposited, and when desired drawn again. To illustrate: A takes to the bank a bag of coin of all sorts,, sizes, and nationalities. He may deposit it for safe keeping and draw it again at will. Or he may buy with it an inscrip- tion of credit. In the latter case his coin is weighed, its. value calculated, an entry m;ide, and A goes away from the bank. He has lost his coin forever. He cannot demand it again. The bank transfers the coin to the Government as so^ much internal revenue, and by the Grovernment it is paid to its servants, thus finding its waj^ back again into the chan- nels of trade. Meandme. A wishing to pay B fifty dollars, assigns or transfers to him fifty dollars of his bank account. A's account is then fifty smaller, while B's is fifty larger.. B cannot draw the fifty dollars in cash, but can transfer it to C in payment of a claim which C holds against him. These inscriptions held their value while, owing to the wear and clipping to which thev were subjected, the coin gradually became debased, until the Government fixed the rate of dis- count on the coins at 20 per cent. At par with the actual value of coin, these inscriptions continued a currency irre- deemable in coin, but notwithstanding a currency that re- mained in use at 20 per cent, aboxe the face value of coin for over 400 years without a panic until Napoleon, with con- quering hoof, rode roughshod over Venice and destroyed her in:.titutions. The credits of the bank were lost to the holder; they were not gained to the invader. The Bank of Venice was founded upon the correct specie basis plan. By issuing a credit currency which cost coin,, but which could not call coin on douini'd, while at the same time returning the coin to the chuiiKcls of trade, the irre- deeniiihle credit currency was prevented from depreciating below gold or breeding a panic, and the gold was rendered as- stable as possible. The gold deposited on call was never used for loan or discount purposes. Thlv iud;'ced, to u large EXPERIMENTS. 6t extent, cash transactions, by preventing any possilMlity of borrowing bank funds. So long as credit at the bank must be purchased with coin, it could not fall below coin or its first cost. If the inscriptions rose above their normal value, gold flowed in until they returned. If they fell below, no more w^ere bought until, from a scarcity in the market, they again rose. They could not breed a panic, for they were not promises to pay, on demand, gold which Avas not to be had. They did not depreciate gold by inflating the currency, for every dollar in inscriptions had cost a dollar in gold, ;ind was just as good as gold as a debt payer. It is only in this way that a permanent public debt can become a blessing. While serving as a medium of exchange, without drawing interest, it is put to good use at a cost only sufficient to create it. Some have confounded — whether purposely or otherwise — the deposit with the issue department. The certificates of deposit were convertible. They represented cash that was not only placed in the bank, but was left there and could be had at any time. The inscriptions cost gold, but could never call gold.* Although called a bank, its issue was really government paper, and its operation was for the benefit of the public treasury. Darwin's law of selection and survival is limited to those changes Avhich take place independent of the self-interest of man, or to those where the self-interest of man is in the direct line of improvement. When the interest of any influential class of men is opposed to improvement, self-interest gener- ally, for a time at least, prevents the selection and survival of the fittest. This afi'ords a sufficient clue to the strange fact, that this Venetian Bank was operated upon more equitable and scientific principles than any system that has since obtained. Its success was unparalleled. § 52. The Bank of Amsterdam was r(uite similar to the Bank of Venice, but when its paper Avas in excess, it was contracted by purchase Avith coin. It secretly loaned nearly all of its coin, however, and the currency (although vrry well reo-ulated to conform to coin) resting upon confidence, and *For a derailed account of the Venetian Bank, sec " Ways and Means o£ Pay- ment " by Mr. Col well. 98 THE SCIENCE OF MONET. lacking the legal function of money, was supplanted eventu- ally by legal money, as confidence became shaken by the dis- covery of the weakness of the bank. The Bank of Amsterdam issue could easily have been sustained had it been made a legal tender, but being accepted on confidence, it could be dropped by creditors whenever they felt so disposed. § 53. The Bank of England was the first to introduce the dangerous feature of giving its own notes, payable on demand, for the notes of individuals payable in the future, and it carried notes due at a future time to the credit of its cus- tomers the same as cash. "It issued its notes payable to bearer, without indorsement, and in such denominations that they became a currency, and came to do what no note ever ought to do — cancel debt without recourse when passed from one to another. This bank introduced the process of issuing notes based on nothing in hand, and loaning its deposits as described in the preceding chapter. Its notes were issued upon the plan so common since of coin for paper on demand, trusting to a return of the paper for conversion as a regulator. This is the direct opposite of the Venetian system, although both rest upon specie as a basis. The Venetian is the best, the English the worst possible, and all combinations of the two are intermediate in character. The English bank also introduced the scheme of issuing notes upon government bonds. This pledges the public credit, and binds the community as indorsers to procure the "basis'' when it is wanted. This scheme, pure and simple, is now being tested by experiment in this country, and the result will, no doubt, be interesting to those acquainted with the history of banking. It has been a part of several other bank schemes, and is a cunning device of the money power that will appear more fully when we reach the " Natiohal Banking System."' By law, in 1797, the Bank of England suspended specie payment, and its notes were unlimited in their issue by statute law. They were not explicitly made a legal tender, but penal laws amounting to the same thiug were passed. It was enacted that, if a debtor offered these notes, he was to EXPERIMENTS. 89 be free from distraint, and it was further made a misdemeanor, to buy or sell guineas, or trade in gold or silver at other than legal rates. The bank during suspension continued to dis- count good bills for real transactions at their former rate of discount, five per cent. If discounting for real transactions would not breed a panic during specie payments, it would not cause an inflation. But gold rose to a premium in the notes, and inflation continued up to 1814. In this case the theory had a fair test. ' Creditors who had secured vast amounts of bonds with depreciated paper, clamored for resumption by contraction. Bankruptcy and ruin followed. The bank resumed specie payments in 1821, and from that time until 1841 convertibility as a regulator was fairly tried again. This resumption and contraction changed the value of the mone- tary unit, thus vitiating all contracts in favor of the creditor class, which usually has the most influence with governments. One Mr. Guernsey (a banker, by the way) opposed resumption on account of the effect of contraction, and wanted the coin standard lowered to the par of paper. This, of course, would prevent the robbery of debtors, consequently Mr. Guernsey seemed to get but little hearing. The Government had con- tracted a vast debt, the unit of which was the value of these inflated notes. A still greater amount of private debts pay- able in them had been made, and the coin had not been the basis of any contract to pay money since 1797. Mr. Guern- sey's proposition was simply to bring the pound out of use to par with the one in use, and make it the basis of all con- tracts. This course would have been fair, equitable, and right to both debtors and creditors. § 54. As America has just been through the same process of suspension, inflatiou, contraction, and resumption, certain facts connected with this period in British history are of special interest. There appears to have been four distinct periods in each: first, suspension; second, the termination of inflation; third, a near approach to par while yet in suspen- sion; fourth, resumption at par. Between the first and second, we find inflation; between the second and third, slight contraction; between the third and fourth, more contraction 70 THE SCIENCE OF MONET. than before. Below we give a table showing the bank-note circulation and the gold premium at each period. Bank of Eng- Country Bank Gold land notes. notes. Total. Premium. 1797 Suspension Inflation £ 10,500,000 £ 7,000,000 £ 17,500.000 31,500.000 none 1814 End of Inflation Contraction 25,000,000 24,000,000 49,000, 00 7,000.000 .29 1817 Xear Par Contraction 27,000,000 15,000,000 42,000,000 14,000,000 .02 1821 lies u in pt ion 18,000,000 10,000,000 28,000,000 none At the time of su.-^pension there was estimated to be in the kingdom £22,500,000 of coin. The Bank of England had £6,000,000 reserves, and, supposing the country banks had a like amount in proportion to circulation, they would hold £4,000,000 more, making £10,000,000 held in bank, having in active use £12,500,000. This, added to the note circulation, gave a total currency of £30,000,000. Immediately upon suspension, the coin went out of circulation at a slight pre- mium, and the vacuum was filled by paper before any further effect could be produced. We find the Bank of England notes were increased in amount to £21,000,000 in 1806, and prices of commodities had not advanced. The premium on gold was only 2 per cent., and the note currency of all the banks was at that time over £35,000,000. This seemed to be the point of saturation, and the increase from this to £49,- 000,000, in 1814, was followed by a premium of 29 per cent, on gold. A part of this result might have been due to an actual rise in the value of gold itself. In writing of the commercial situation, Sumner says : *"In 1814 peace was restored, and it was believed that com- merce must at once revive. Anticipating this, enormous ex- portations were made to the Continent and to the United States. Tlie shippers found to their cost, when it was too late, that the effective demand on the Continent for colonial produce and British manufactures had been greatly overrated, for, whatever m?ght be the desire of the foreign consumers to possess articles so long out of their reach, they were limited in tlieir means of purchase, and, accordingly, the bulk of the commodities exported brought; very inadequate returns. TJiey found that it is impossible to 'inun- date' a country with foreign commodities, or to 'drain off its * Sumner's Hist. .Vm. (^ur. p. 283. EXPERIMENTS. *ll liullion" by foreign trade, if it does not want to be drained. As for a true exchan^-e of goods, the laws hampered it by all sorts of restrictions and prohibitions." The want of success of exporters would indicate conditions favorable to a rise in gold, for if nations did not want British goods, they would be sure to want British gold in inverse ratio. From 1814 to 1817 the contraction of bank notes amounted to only £7,000,000, while the premium on gold fell to 2 per cent. An attempt was now made by the bank to resume. It was supposed, and ably argued in Parliament, that if £7,000,000 of contraction had reduced the premium 27 per cent., very little more contraction would remove the remain- ing 2 per cent, premium on gold. The table shows, how- ever, that it took <£11:,000,000 more of contraction to remove the remaining 2 per cent. It was found that bringing paper to par and resuming specie payments were two very different things. By a contraction of the paper it rapidly rose in value. There being a constant demand for money, every in- crement of restriction in the supply produced a correspond- ing increase in value. Since suspension there had been no demand for gold as money, and its value might be considered stationary. With coin stationary and paper advancing, a par between the two was soon reached. But the first attempt to exchange paper fo.- gold caused a new demand for gold, by giving it, to the extent of the conversion, a new use. This new demand, unless met by an increase of supply, would give gold a new value, and consequently a premium. The level of gold now rising, in order that paper might be kept at par with the gold, a further contraction of paper "was necessary. As fast as paper reached the par of gold, continued attempts to resume caused the par of gold to re- treat. This was continued until contraction of currency, through contraction of the productive industries, and an influx of gold reduced the demand for money to such an ex- tent that the available gold supplied the demand when re- sumption took place. As we have seen, the Bank of England bi'ought paper nearly to par with £7,000,000 of contraction, and then by attempted resumption caused paper to chase 72 THE SCIENCE OF MONET. the retreating par of gold through £14,000,000 more of con- traction. Upon going into suspension, in 1797, the circulation con- sisted of £17,500,000 of notes and £12,500,000 of coin. Dur- ing inflation the circulation reached £49,000,000, producing a premium of 29 per cent, on gold. By a contraction to £42,000,000, the notes were brought to par. There was now a demand for £42.000,000 of currency as against the former demand of £30,000,000 when notes were at par in 1797. Attempts to resume now caused paper to chase the par of gold until, in 1821, the currency was reduced to £28,000,000, or two-thirds of its normal amount. Resumption now took place and, as we have seen, could have been caused only by a contraction of business or an increased supply of gold. History relates that, from 1817 to 1821, prices fell one-third, and it would seem that resumption was brought about by a contraction of business. At suspension the circulation amounted to thirty millions; at resumption to twenty-eight millions. § 55. As the prostrated people recovered, the bank again inflated the currency now convertible into coin on demand, and, in 1825, another panic came. Had the bank pursued the usual course of contracting its currency and protecting itself, this panic would have been much worse. It supplied, instead, all the facilities possible for the cancellation of pri- vate debts, and at the risk of ruin, issued a large quantity of small notes and discounted to all solvent parties. Instead of settling wheat contracts with wheat contracts by a process of liquidation, it brought forward all the wheat (or that which would answer the purpose) that it could. . It avoided becoming a buyer and hoarder of gold itself. It lost the bulk of its basis, but in a great measure saved the people from confiscation for debt. Parliament, evidently distrusting the regulating p»ower of convertibility, now prohibited the issue of all notes under £5, but the bank again inflated its convertible notes and, in 1837, another collapse followed. During this period the United States Bank had also been inflating, and each operated to aid the other on principles EXPERIMENTS. 78 heretofore shown. Now each served to enhance the trouble. The bank circulation of the United States was " specie basis " regulated by convertibilit}'. In 1820 it w^as ^44,863,352, and in 1837, $149,185,890. The flow of gold to England col- lapsed this fabric, and a panic ensued of which Ave will speak hereafter. Joint stock banks had been forming all over the British Kingdom, using the Bank of England notes as a basis, some- what after the present " compound inflation "" plan in this country. This aggravated the inflation. There is one fact here of importance. In the United States, silver had been practicall}' demonetized, while in France it was the standard. While America was plunged into a panic by a drain of gold, France was undisturbed and safely parted with gold to aid England. This example shows that a domestic currency, to be safe, should not be based on the " money of the world," liable to be called away by the folly or mismanagement of a foreign bank. § oQ. Parliament now put less faith than before in con- vertibility and reorganized the bank, separating the issue department from the other and making the issue a '' mechan- ical matter," by adopting a system that was a sort of com- pound of the convertible and Yenetian plans. The joint stock banks were prohibited any further issue and compelled to withdraw their circulation at the expiration of their chart- ers. The Bank of England notes might be issued at pleasure to a certain limit, but all in excess of the fixed amount was to be issued for bullion on demand, like the Venetian money. But here the likeness ends, for they were all to be convertible on demand. This of course made it profitable for any holder of notes to get his coin whenever it rose in value above the note, and the "run and panic," like Banquo's ghost, would not "down." As the issue of its notes was no longer a matter of option, the managers of the bank resorted to changing the rate of discount to keep the necessary bullion for redemption on hand. They changed this rate forty-eight times in thirteen years, ranging from 2 to 10 per cent., and on three different occasions they changed it twice on the same day. 74 THE SCIENCE OF MONEY. § 57, In 18i7, having compounded its deposits as described, and a shortage of crops and potato famine in Irehmd, ren- dering it impossible to export goods as profitably as coin, the bank creditors attempted to realize on their deposits, and a panic was the result. Prices were low in Araeric-i at that time, and the currency being contracted, the result was an export of merchandise to England. In 1857 there was another flurry, the bank changing its rate of discount eleven times in nine months. In 1866 still another panic occurred, and the United States sent to England §45,000,000 of gold (in like manner as France had sent it during the panic of 1837), like any other commodity, without disturbing the currency, which was not then based upon coin. In writing of this system, John Stuart Mill makes the following sensible remarks: * Tlie value saved to a community by thus dispensing with me- tallic currency is a clear gain to those who provide the substitute. They have the use of a circulating medium which has cost them only the expense of an engraver's plale. * * * * The exclusive privilege of issuing them if reserved to the Gov- ernment or to some one body, is a source of great pecuniary gain. That this gain should be obtained for the nation at large is both practicable and desirable ; and if the management of a bank-note currency ought to be so completely mechanical, so entirely a thing of hxed rule, as it is made by tlie act of 1844, there seems no reason why this mechanism siiould be worked for the profit of any pri- vate issuer rather than for the public treasury. If, however, a plan be preferred which leaves the variations in the amount of the issues in any way to the discretion of the issuer, it is not desirable that to the evei' growing attributes of the Gov- ernment so delicate a function should be superadded. The British Government did not prefer such a plan, for they had seen the folly of depending upon mere converti- bility as a regulator. Why did not England adopt the Venetian plan in full? It would be ''specie basis" and safe. We can give but one reason. It would not be operated for the bencjit of private corporal mi f<. This Bank of England is pointed out with pride as a • J. S. Mill, I'rinci])los of I'ol. Kooii.. p. :<«3. FRENCH FINANCES. 75 marvel of strength in a time of panic, because its notes are always convertible. In writing of this, H. V. Poor says ; *''The notes of the Bank of England have been uninterruptedly converlible for the last fifty-live years; yet the fear that they niiglit not be convertible has. during tliat whole period, ke])t the public mind in constant agitation, and has often culminated in panics, which caused ruin and dismay throughout the land." Its chief merit lies in the fact that the Government comes to the rescue in time of panic, and authorizes a suspension of the Bank Act of 1844, thus permitting the bank to inflate instead of c^ontract its issues, as is usual in a commercial crisis. CHAPTER VIII. FKENCH FINAIirCES. § 58. John Law's scheme of the Land Basis is very plaus- ible. It is, substantially, that notes should be issued as a circulating medium^ convertible, on demand, into a certain amount of land. The value of the land would depend, of course, upon the circumstances of supply and demand. It would be a produc- tive investment, however, like an interest-bearing bond. It would virtually be saying to the people: 'Mf you don't want this money, here is land instead," thus forcing land upon the market to the extent of the inflation. If this scheme should be adopted, and the issue governed by the demand for con- version, it would operate very fairly. The fluctuations of the land pledged would govern the fluctuations of the currencJ^ Should the land be located in some remote i)art of the world, or otherwise worthless, the money based upon it would be very likely to become worthless when issued m. excess. § 59. The French assignat is claimed to be an experiment testing this scheme. It was an issue of this kind at the outset, and it is acknowledged that up to the point when it began to be converted into land by the holders, it did accomplish all that was claimed for it. Instead of retiring, * H. V. Poor : Money, Its Laws and Hist., p. 224. 76 THE SCIENCE OF MONEY. or even stopping the issue at tliat point, however, as the plan contemplates, it was recklessly over-issued. It was also counterfeited to an alarming extent. This excess forced all the land it represented into the market, which, any one can see, would depreciate the land, and lower the par, paving the way for further inflation. When the issue had reached 1,200,000,000 francs, conversion rapidly set in, and within a short time 160,000,000 francs was presented for redemption. The French Government, however, pushed the inflation up to 2,400,000,000 francs within two years, virtually forcing 1,200,000,000 francs' worth of land upon the market. It was no wonder, then, that the land and paper went down to- gether 30 per cent, as compared to coin. It seems that gold is no better than land in this respect. By collecting for im- ports, and hoarding gold in the Treasury, we had accumulated a considerable amount, when Congress by joint resolution, approved March 17, 1864, authorized the Secretary to sell all gold in excess of the sinking fund, and also pay interest a year in advance. The value of gold in merchandise fell from 125 to 77 in less than two years, its currency price changing from 250 to 141. From the point at which the paper began to come in for conversion, the assignat is no test of the scheme, because the plan was not adhered to; otherwise success must have resulted, equalling, if not excelling, the specie basis plan. There were other influences of no small account brought to bear upon this money. The whole force of priest and nobility, and all opposed to the revolutionary government, was bent toward its destruction. There was in London alone seventeen establishments for counterfeiting it, employing about four hundred men and boys. Suppose there were seventeen establishments in New York, counterfeiting Bank of England notes, and putting them afloat in England, and vice versa in London counterfeiting our National Bank notes, — the courts, to say the least, winking at the matter — what good would specie basis do the banking system of either country. In a state of society where tracks would be torn up by competing stage men until trains could not be safely run, we might argue railroads a failure and stages a success — or FRENCH FINANCES. 77 the destruction of looms by hand-weavers might furnish the premises for like conclusions: but what would sensible people think of such society, or such arguments. Paper money would not be likely to succeed among savages: they would prefer the " intrinsic." An excess of paper upon the land basis plan, would always force the land upon the market. It could not be exported, hence there would be a more restricted demand for it. Depre- ciation would follow sooner, and less paper issues would occur before conversion would set in. No panic could result, how- ever, because of the visible and sufficient supply of basis, but the principal weakness of the plan would be in the fact that land is not a product of labor, and does not depend upon the effort necessary to its production, but upon monopoly for its value, thus making changes in the value of it most likely to occur, so that it would be extremely difficult, if not impos- sible, to regulate the value of such a currency. There was issued, all told, 48,474,992,000 francs of the assig- nats. With their goods destroyed and consumed by war. and such a volume of currency, to which was added vast amounts of counterfeits, no wonder it became worthless. This paper was issued at a time when the very foundations of society were shaken by a revolutionary government, which was denounced by neighboring nations as but little better than a howling mob. The basis of this currency was confiscated property, the title to which was likely to be questioned, making it a wonder that the currency was ever placed in cir- culation at all. The nobility had fled the country, carrying away nearly all the coin, and it was a wise and proper thing, under the circumstances, to resort to a paper currency. As soon as the land began to be converted, however, taxation should have supplied further revenues. The supplies received for it were taken from the people as it was. Nothing con- sumable was created by making assignats, and as soon as people had enough of them to serve their purpose, they began to prefer land. That was the time to stop. § 60. The present system in France, although specie basis, gives rise to a financial practice far different from that of the United States. When they make paper money they make it 78 THE SCIENCE OF MONEY. the same as coin before the law, and thus keep it at par as long as possible; we partially repudiate our issues and depre- ciate them as soon as possible. When they wish to borrow^ they strengthen their credit; we weaken ours. When they wifeh to pay, they make money cheap; when we wish to pay, we '"fund" and contract, make money dear, and strangle pro- duction and business. When they want to get gold, they devise substitutes, so they can get the gold cheap; when we want gold, we make a market for it by removing substitutes from use and forcing its value up. And in their fuiancial affairs, with one exception of specie as a standard, they i're as opposite to ns as are the Chinese in some other matters. g 61. The French Govern sv.ent, upon the belief that prod uctive industry is the source of wealth, pursues the policy of pro- tecting the industrial classes. In this country, since the slave-holder lost control of the Government, it has been con- trolled by a class of men whose God is speculation. They loOiJ with contempt upon the plodding, productive methods of acquiring wealth, and believe in big speculations. They do not, in their actions at least, distinguish between (jetting wealth and making it. The dominant element of this class are the dealers in money, and the bank of issue has been their head, center, and fortress. This and that other " peculiar insti- tution," slarerg, were brought from Europe in colonial times. Both are systems which enable men to take that which does not belong to them, under cover of law. The latter has been disposed of finally, but at what a cost. By slavery, men were robbed directly, personally, and forcibly; by the peculiar arrangement of money already explained, the same is done indirectly and collectively, and though accomplished by scientific methods more refined, yet none the less is it robbery. Tliis latter system must now go, or liberty, justice, and equal rights, will become extijict in America. In this virgin soil was planted the seeds of a new civilization, and with them were insinuated those of noxious weeds. America has been and will continue to be the arena in which the battle of progress for the race must be fought. COLONIAL EXPERIENCE. 7& CHAPTER IX. COLONIAL EXPERIENCE. § 62. When white men first entered America, they found, among the Indians, a currency now known as wampum. It was worn as jewelry, hence was merchandise, and cost a cer- tain amount of labor. The more advanced tribes had reached a state of double barter with this kind of currency. The colonists were poor in everything but resources; the crude supplies of nature were here in abundance, but all the mech- anism of production, transportation, and exchange had to be supplied. They found no gold nor silver, and resorted to the money of the Indians for domestic trade. It would not answer for foreign trade, however, and the white man soon proved his superiority (?) by counterfeiting it. Counterfeits^ if not prevented, will destroy the value of any money. Money, being an imported article, was, on that account,, expensive, and with their vast resources it was the part of wisdom to put as little real capital into domestic currency as possible; hence the colonists very properly resorted to substi- tutes. Instead of issuing a paper money of regulated vol- ume, and upon scientific principles, they resorted to barter, making various kinds of goods a tender for debts, and, of course, if a great variety were used at the same time, the poorest samples of the kind which chanced to be most plen- tiful would be employed. This went on to a partial exclu- sion of coin which would naturally be in great demand for export, owing to a balance of trade in manufactured articles against them because of their undeveloped industries. (An exclusively agricultural community is like the half of a pair of shears, the manufacturing industries being the other half, each worthless without the other, and the nearer together the better; hence the rivet [channel of trade between the two] should always be short.) § 63. In 1641 corn was almost worthless, and the colonists began ship-building, fishing, and lumbering. In trade with the West Indies, they brought in silver, and. in 1652, a mint was establislied in Boston, and the Pine Tj-oe coinage of 80 IHE SCIENCE OF MONEY. silver became the first American coin. Wampum and barter continued by law, however, until, in 1654, a law was passed providing for the payment of debts in kind, resulting in gen- eral barter. When we consider that materials were more needed for productive purposes than for exchanges, it seems but the part of wisdom that silver should be exported for such tools and materials as might be needful, and recourse be had to general barter as a substitute for currency. Their society was so limited in extent, and primitive in style, that such a system would answer a very good purpose. § 64. It was unhiwf ul for the colonies to coin money. Therefore, when a debt was to be paid, it must be paid in coin imported from England; and upon the principles explained in a previous cliapter, one can easily understand the situation in a time of anything like general settlement. Men in America, by making debts payable in kind, availed themselves of the barter channels of escape from the clutches of the money changers of England. The policy of England was to manufacture trade, and make a foi'ced market to keep the colonies mere dependencies, and pi'ohibition of coinage was in keeping with such a policy. Forcing them to import their money would produce the same effect as forcing them to import any other necessary, and must be profitable to England. § 65. In 1690 an .expedition against Canada gave rise to the first Government issue, and a test was made of one of the principles upon which Government paper circulates. It was made receivable, at 5 per cent, advance over coin, at the colonj" treasury. £40,000 were first issued, and afterwards £10,000 more, an annual tax providing for their redemption. As fast as they were received they were destroyed, not re- issued. They were only a temporary expedient, and were issued in fixed amounts; hence they were no test of a regu- lated issue. They proved, however, that receivability for taxes is a sufficient Ijasis for an issue. In 170i) a legal tender issue of similar bills ftjliovved. These were issued a fixed amount, and being in excess the}' depreciated. § 66. We next find making its appearance the bank of issue, and its modern form of paper notes, promising coin at COLONIAL EXPERIENCE. 81 a future time on demand. These schemes were entered into both by the colonial governments and private individuals; and, upon principles already explained, they proved profita- ble. Notes were injected into circulation on confidence or b}' law, and no well settled principles of value were observed. They seemed, however, to plant the seeds of the " peculiar institution,'" and men learned of a way to get wealth without making it, to which they naturally clung. A royal edict prohibited further issues without charters. A scheme was tried of loaning an indefinite amount of notes on land at a fixed rate of interest. They would, of course, issue in exchange for no fixed value, nor rest on con- fidence, and, if inflated at all, must induce further inflation. A bank on land security, with notes redeemable in twenty years in merchandise, was tried. If needed, such a currency might answer a good purpose; in the presence of so much paper it failed of course. No correct system of government money was adopted, and the " colonial policy " continued in force. In pursuance of this policy, in 1763, Parliament declared void any colonial acts for issuing paper money. In 1773, it allowed the issues of any colony to become a tender at its own treasury. In all the history of colonial money we observe an utter ignoring of the natural laws of value; and those paper issues proving profitable to the issuers, there arose a constant struggle to see who could issue the most and redeem the least. It resulted in making the bank of issue a fixture in this country, and, although the motive of Great Britain in seeking to suppress the bank of issue in America was wrong, it would have been a blessing in the end had she suc- <;eeded. No regulated issue was attempted, and there was merely a periodical increase regardless of all economic laws, with the usual result, more or less depreciation and disorder. § 67. The idea had become so established in the minds of men, that issuing bank notes was a legitimate as well as a profitable business, that when the Constitution was being framed, at the dictation of the moneyed power, the clause conferring upon the General Government power to issue bills of credit was stricken out, Governeur Morris saying, that if it was not, " the moneyed interest would oppose the adoption of 6 82 THE SCIENCE OF MONEY. the Constitution.'" As it did not oppose the private issues, which had heretofore been^ to say the least, no better than thos« of the Government, it is evident that the moneyed in- terest ivas contending for the power to issue them, rather than insisting upon any objection to their issue as some have sup- posed. § 63. The Continental money vras an excessive issue by a loose confederacy of states bearing but little semblance to a government, and the only wonder is that it eircuhited at all.. From Storey on the Constitution the following is taken: * "The leading defects in the confederation were the following: Utter want of coercive autliority. They could not legislate directlj" upon persons. Their laws, if laws they might be called, were without any penal sanction. They could not impose a tine or imprisonment, or even suspend officers from their offices. Had no power to levy taxes or collect revenue. After the peace of 178::!, the States relapsed into utter indilference on this subject. The requi- sitions of the Continental Congress for funds, even for tlie purpose of enabling them to pay the interest of tlie public debt, were openly disregarded; and, notwithstanding the most affecting ap- peals made from time to time to the sense of patriotism, the sense of duty and the justice of the States, the latter refused to raise the necessary supplies. The Continental Congress had no power to regulate commerce "With foreign nations or among tlie States. Foreign nations did not fail to avail themselves of the advantages accruing to them- selves by this suicidal policy tending to the common ruin." The Confederation promised Spanish milled dollars when. it had none, and could not levy a tax to get them. The value of Continental money depended but little upon the premise to pay of the Confederation, but upon what legal tender force was given it by separate State authority. How vigorously this was done may be judged from the fact that most of the States had their own affairs to care for, and also from the following extract from a letter of Gen. Washington: " The great business of war can never be well conducted, if it be conducts 1 at all, while th-j povvei-s of Congress are only recom- mendatory. While one State yields obedience, and another re- fuses it. wliile a tliird mutilates and adopts the measure in ])art only, and all vary in time and manner, it is s'^arcely possible that our affairs should prosper, or that any thing but disappointment * Storey oil the (Jonstilution, p. SO, COLONIAL EXPERIENCE. 83 can follow the best concerted plans. The willing States are almost ruined by their exertions; distrust and jealousy ensue. Hence proceed neglect and ill-timed compliances; one State waiting to see what another will do. This thwarts all our measures, after a heavy though ineffectual expense is incurred." These notes were counterfeited to such an extent that Congress was compelled to call in the issues of May 22, 1779, and April 11, 1778. Gen. M'Dougal wrote with regard to it as folloAvs: " The enemy is confident our currency will fail us, * * * * and that, whenever the supplies tor the army fail, the people will return to their allegiance. He is now counterfeiting another emission, which will soon be out." The creditor class was naturally arrayed against the Gov- ernment paper, and with show of justice when it was depreciated, since they did not receive their due. Many who would have willingly paid a tax, resisted tax in this form, perceiving only that their debtors got off with less than " value received." The fact was that, instead of resorting to direct taxation, nearly the entire war was carried on by this indirect method. It was bad statesmanship, and evinced a lack of knowledge of political economy and the natural laws of money. By making notes they did not create supplies. Supplies had to be produced by labor, and as soon as deprecia- tion commenced each issue should have been oiFt:et with taxes to a like amount. They were not issued and designed as a means of supplying a currency, but as an expedient resorted to by a revolutionary bundle of states likely to be suppressed as rebels. The population was only about 2,500,000, and the property of the Confederation valued at about 1600,000,000. When it is considered that $359,546,825 of this money was issued, in addition to that of the separate states, it is not to be wondered at that it failed to maintain its value. It did not depreciate at all up to $9,000,000 of notes. In 1780, these notes were worth two cents on the dollar. No bank notos with such a shaky foundation ever could have been issued to such an extent. After five years of ex- pensive war. the proportion between the proper amount of currency, and the enormously inflated amount would probably indicate about two cents on the dollar. 84 THE SCIENCE OF MONEY. If the Contiikental money can be said to prove anything, it proves too much, for it shows that a feeble Government, in fact, but the shadow of one, can increase the currency with paper money to the extent of |9 to $600 of property before depreciation takes place; that by its use it can successfully terminate an uncertain warfare against one of the most powerful nations of the earth, unscrupulous enough to resort to counterfeiting its issues. The individual States issued -large amounts of their own notes, which they made receivable for taxes. On this account they came to be preferred as currency, and should be added to the inflation. § 69. At the close of the revolution the country was flooded with paper, depreciated so low and swelled to such a volume that lowering the standard was out of the question. This paper had operated as a constant tax upon creditors and holders. Let us understand this fully. We will take a $100 note. The Grovernment receives $100 from the first holder. Suppose it leaves him at $99. He loses $1. Let it change hands at a like shrinkage each time until the last man has it at $1. Each of the ninety-nine men have lost $1, and the last man nothing if he gets $1 f-^r it from the Govern- ment. If repudiated outright, he loses no more than the ninety-nine others. If the last holder is paid $100 in full, and the tax levied equally among the one hundred men, he pays $1 for the note, $1 tax. and gets $98 for nothing. The poor fellows who have already lost $1 each, which the Gov- ernment has gained, now lose another, which is given to the man who lost nothing. Of course the matter would not be so uniformly distributed as supposed, but they who were the greatest creditors and holders of money during depreciation would lose the most. One can easily see that such a tax would be about as fairly distributed as many that are levied as such by design. It reduces itself at once to this. The war has cost so much, and the funds must be raised by a tax. The tax ought to be levied as equally as possible upon property. Did the depre- ciation of currency levy the tax equally, or does equity demand that the tax should be levied again and the last holders of the depreciated paper be presented with $98 for to COLONIAL EXPERIENCE. 85 every $100 note they had scooped in at %1 ? Property was taxed directly while currency went untaxed, except by shrink- age. If, then, the Government retired its currency at the close of the war, at its depreciated value, no one could have been unjustly taxed thereby, unless the depreciation exceeded the total direct tax upon an equal amount of property, and then the unjust taxation would be less than the excess of shrinkage over total direct taxation. For example : A, with $100 of currency is taxed by shrinkage $5. B, with $100 of property is directly taxed $4. Excess of shrinkage, $1. Each should be taxed $4.50. Real excess of shrinkage over proper tax, 50 cents. On the other hand, an attempt to raise the value of the depreciated currency from $1 to $100, not only shifts all the burden of taxation from the currency holders to the property holders, but compels the Government to retire a vast amount of the currency at par, when it issued it at a large discount. The matter was finally disposed of on the basis of " value received," and equity governed the public policy instead of bullion and " national honor." The holders were paid market value at the time of settlement, which was about $1 on $100. $168,280,219 was thus disposed of, giving the holders it real value at the time, amounting to $1,682,802. The difference had already been lost by the community generally, and the Government had gained it. The foreign debt, $12,556,874, created by the revolution, was paid in full as received; so was the domestic debt, for which equivalents had been received to the amount of $40,- 256,802. The debts of the States were adjusted as equitably as possible, amounting to $19,962,219, a total of $74,458,697, which, in the money paid, was, no doubt, equal in value to all that had been loaned. No one, indeed, complained of the action of the Government in retiring the depreciated cur- rencj"" at its actual value, except those who had secured a quantity of depreciated notes and were anxious that they should now rapidly rise from $1 to $100. Complaints from such quarters should scarcely be heeded. AMERICAN FINANCES. CHAPTER X. MONET AND THE doNSTITUTION. § 70. The Constitution of the United States is the ablest document that statesmanship ever brought forth. Far in advance of its age, it has come down to us so full of sound principles of government that it is as fit to guide the ship of state to-day as it was one hundred years ago. It con- tains the following provisions with regard to money: "The Congress shall have power.— ***** "2. To borrow money on tlie credit of the United States. * * "5. To coin money, regulate the value thereof, and of foreign <3oin, and fix the standard of weights and measures." "17. To make all laws which may be necessary and proper for cajTying into execution the foregoing powers, and all otlier i)owers vested by this Constitution in the Government of the United States, or in any department or olHce thereof. •'No State shall * * * coin money, emit bills of ■credit, [or] make anything but gold and silver coin a tender in payment of debts." These provisions seem to be perfect, and as explicit as language can make them. From that time to this, however, their meaning has been contested, and it would seem proper to pause and discuss them briefly. § 71. Justice Storey lays down the following rule of inter- pretation : * " It is to be interpreted, as all other solemn instruments are, by endeavoring to ascertain the true sense and meaning of the * storey on the Constitution, p. 36 : Interpretation. [87] 88 AMERICAN FINANCES. terms, tind we fire neither to narrow them nor enlarge them by straining them from their just and natural import, for the purpose of adding to or diminishing its powers, or binding them to any favorite theory or dogma of party. " It is the language of the people, to be judged of according to common seuse, and not by mere theoretical reasoning." He also says of the Preamble : " This Preamble is very importmit, not only as explanatory of the motives and objects of framing the Constitution, but afford- ing the best key to the true interpretation thereof. * * * * :S * j|: "Every provision in the instrument may fairly be presumed to have reference to one or more of these objects, and consequently if any provision is susceptible of two interpretations, that ought to be adopted and adhered to which l)est liarmonizee(lily as possible after the close of the war. "War was declared with Great Britain June 11, 1812. Specie pay- ments, except in New England, were suspended Aug. 31, 1814. Peace was restored Feb. 11, ISl.^i. Specie payments were nomiiuilly resumed Feb. 1, 1817. The charter of the first Bank of the United States expired ^Vlarch 4, 1811, and the second Bank of the United States was chartered April 3, 1816. Mr. Crawford, then Secretary of the Treasury, estimated that, during the four years ending in 1815, the bank circulation was increased in volume from i?2'J,000,- OOOto.-:59!),00;i,000, (1813, $62,000,000; in 1815, S09,000,OUO ; 1819,645,- 000,000 to $53,000,000). Many of the notes of the city banks were taken at a discount of 20 per cent., those of the country at 20 to 50. fhe Treasury Department added lai'gely to the alread- abundant circulation, issuing $36,680,794. These notes might be of any denomination, and, if below 100, were payable to bearer and bore no interest, if above 100, they bore interest, were transferable by indoi-sement, and bore interest at 1% cents per day on 100. The notes depreciated 8 to 10 per cent, below specie-paying bank notes." Thus it will be seen that the issue of paper money was not resorted to at all, and to allow the money power to " go it alone " was worse than some forms of partnership, hence it seemed but of the two evils to choose the lesser. The finan- ces were, no doubt, ki a deplorable condition, but Congress should have exercised its right to coin money of paper for the benefit of the Treasury, and suppressed the issue of notes for private gain. There was inflation*" as it was, and it should have been for the benefit of the Government rather than for corporations, if at all. Had proper taxation been resorted to it need not have oc- curred at all. Governments should never borrovr from their own subjects. Taxation will reach the supplies more equit- ably and with less loss. § 78. The second United States bank was chartered in 1816 96 AMERICAN' FINANCES. upon substantially the same plan as the first. Its operations so infla-ted the currency, that it was obliged to buy |7,000,- 000 of bullion in the West Indies, to be exported as fast as it arrived. Within fift.^en months from the time it started, grave doubts of its solvency were entertained. It then con- tracted its currency, $4,500,000, and yet specie was not at par. How much both paper and specie had advanced during this time does not appear, but it must have been considerable, as Great Britain was contracting at the same time, and prepar- ing for resumption. A year later, the bank made a desperate effort to save itself, and, in so doing, ruined the business com- munity by its contraction of currency and loans. * "In August, 1819, 20,000 persons were seeking employment in Philadelphia, and there was a similar state of things in Xew York and Baltimore. Thirty trades which employed 9,672 persons in 1816, at Philadelphia, employed only 2,137 in 1819. Trades which employed 1,960 persons at Pittsburg in 1815, employed only 672 in 1819. The papers were tilled with advertisements of sheriff's sales. ******** " Land in Pennsylvania was wod'th on the average, in 1809, $.38 per acre; in 1815, .fl50; in 1819, $35. -The note circulation of the country, in 1812, was about 45,000,000; in 1817, 100,000,000; in 1819 45,000,000. " The newspapers of 1819 contain numerous accounts of riots, in- cendiary fires, frauds and robberies. The House committee spoke of the ' change of the moral character of many of our citizens by the presence of distress.' ****** "Stagnation and distress lasted throughout 1820. Prices were at the lowest ebb, and liquidation went slowly on. Wlieat was 20 cents per bushel in Kentucky. A man in Western Virginia stopped Nile s Register because one barrel of Hour used to pay a year's subscription, now three barrels would not. At Pittsburg tiOur was $1 per barrel; boards, 20 cents per hundred; sheep $1." It will be observed that, like the period of inflation in Eng- land that preceeded the panic of 1837, the State banks were issuing large amounts. How much of this trouble was due to each, it is difficult to estimate. At this time Great Britain was resuming specie payments, and we have a lesson worth learning with regard to the " money of the world." When both England and America were inflating and making coin cheap, neither wanted it more than the other. When both • Sum. Hist. Am. Cur., p. 79. GOVERNMENT AND " WILD-CAT" BANKING. 97 were in the throes of a panic, both wanted it desperately, the " vacuum " being indicated by the prices quoted above. Gold would not come from England, for she needed it as much as we did. In sympathy with the movements across the water, inflation and panic in 1825 were the next in order. The United States Bank increased its issue over $3,000,000. After the collapse of 1825. the usual process of inflation was again repeated. In 1829, Gen. Jackson questioned the pro- priety of the Government remaining in partnership with the United States Bank. In 1831, the bank increased its loans from forty to sixty millions, and in 1832, to seventy millions. This year it applied for an extension of its charter, and the contest began between the bank and the Government, over the issue and the control of the paper money of the country. The result was a victory for the money power. The Govern- ment abandoned the issue of paper to the banks acting under State authority, and confined itself to coining metals, thus depriving itself of the power to regulate the value of money except as it might do so by changing the weight of its coins. (For a complete historj^ of* this contest see Benton's Thirty Years' View.) The bill to re-charter the bank was passed and vetoed by Jackson in 1832. In 1834, the public deposits were removed. The bank rapidly curtailed its loans, and the consequent flurry produced the fall of prices indicated by the price line of diagram No. 1. It was a shortening of the supply of credits, and a consequent reduction of buyers of goods. The whole community was thus affected by the voluntary action of the bank. § 79. During this year the weight of gold coins was re- duced from 27 to 25.8 grains to the dollar. Gold had been overrated before that time, and silver had been the sole coin in circulation. The lower line. No. 3, shows a large share of the coinage of that time to have been silver. This bring- ing of gold into circulation was bitterly opposed by the bank men of that time, and earned the name of "Old Bullion" for Thomas Benton. The bank then opposed Government issues of gold as bitterly as banks oppose to-day any issue of Government paper. It was not then, and is not now., hard 7 98 AMERICAN FINANCES. versus soft money, hut Government versus bank money. The bank is either hard or soft, as self-interest dictates. Of bringing gold into circulation, Benton writes: *"A large interest connected with the Banlv of the United States, and its subsidary and subaltern institutions, and the whole paper system vehemently opposed it, and spared neither ])ains nor expense to check its circulation and to brin.y; odium upon its sup- porters. People were alarmed witli counterfeits. Gilt counters were exhibited in the markets to alarm the ignorant. The coin itself was burlesqued in mock imitation of brass or coi)])er, with grotesque figures and ludicrous inscriptions— the ' wliole hog, and the 'better currency,' being the favorite devices. j\Iany news-' papers expended tlieir daily wit in its stale depreciaticm. The most exalced of the paper money party would recoil a step when it was offered to them, and beg tor paper. The name of ' Gold Humbug' was fastened u[)on the person supposed to liave been chiefly instrumental in bringing the derided coin into existence." It was during this contest that Daniel Webster used the language so glibly quoted by the bullionists: " Of all the contrivances for cheating the laboring classes of mankind, none has been more effectual than that which deludes them Avith paper money. • This is tlie most effectual of inventions to fertilize tlie rich man's field by the sweat of the poor man's brow. Ordinary tyranny, oppression, excessive taxation, these b;:!ar ligldly on the happiness of the mass of the community com- pared with fraudulent currencies, and the robberies committed by depreciated paper." This was said in an argument in favor of the United States Bank, as against Stats banks,and had no reference to coin. lie set forth his position clearly in other debates, in the follov>'}ng language: X "The Constitution declares that Congress shall have power 'to coin money, regulate the value thereof, and of foreign coin,' and it also declares that 'no Slate ^hall coin money, emit bills of credit, or make anything but gold and silver coin a tender in i)ayment of debts. CongresSj then, and Congiess only, can coin nioiu^y and regvlxUe the xaliie thereof. Now, sir, I take it to be a trutli, which has grown into an admitted maxim witli all the best writers, and the best liiformed public men, that those wliose duty it is to pro- tect the conun unity against tlu' evils of a debased coin, are bound also to protect it against the still greater evils of excessive issues of pappr money. If the pul»]ic require protection, says Mr, * 1 1 luou's Tliirty Veiirs View. p. 4To. $ "Webster's f^^^ptethes : Tappau, Boston, vol. 2, p. 306. GOVERNMENT AND " WILD-CAT" BANKING. 99 Eicardo, against bad nione3% which might be imposed on tliem by an undue mixtui-e of alloy, how much more necessary is such pro- tection, when paper money forms almost the whole of the circu- lating medium of the country. It is not doubted, sir, that the Constitution intended that Congress should exercise a regulating power— ai)ower both necessary and salutary over that which should constitute the actual money of the country, whether that money were coin or representatives of coin. So it has always been con- sidered. So Mr. Madison considered it, as may be seen by his message, Dec, 1816. The State banks put forth paper as represent- ing coin ; as such representatives it obtains circulation ; it becomes the money of the country; but its amount depends on the will of four hundred different State banks, each acting on its own dis- cretion." And, again, upon the proposition to limit the Government to coin, and abandon paper to State banks, he said: * "Now, sir, my present purpose chiefly is, to maintain two pro- positions: 1. That it is the constitutional duty of the Government to see that a proper currency, suitable to the circumstances of the times, and to the wants of trade and business, as Avell as to the payment of debts due the Government, be maintained and pre- served, a currency of general credit, and capable of aiding the operations of exchange, so far as these operations may be conducted by means of the circulating medium; and that there are duties, therefore, devolving on Congress, in relation to currency, beyond the mere regulation of gold and silver coins. 2. That the message, the bill and the proposed amendment, all in effect deny any such duty, disclaim all such power, and conline the constitutional obligations of the Government to the mere regulation of the coins, and the care of its own revenues." In spite of Webster's opinion, however, the policy was adopted by which the Government abandoned to the banks the regulation of the currency. § 80. In 1835-36, we find an enormous increase in bank notes, loans, and discounts, due to the rapid increase of banks induced by the fact that the charter of the United States Bank would expire in 1836. This gave rise to active trade and rapid production of wealth. Railroads were beginning to be built. There was built in 1831, 72 miles; in 1835, 465 miles. The sales of land, by the Government, in 1833, amounted to $3,900,000; in 1836, to $21,800,000. Exports in 1835 were ♦ Webster's Speecbso : Tappan, Boston, vol. 3, p. 200. 100 AMERICAN FINANCES. $58,524,00; imports, $49,575,000. In 1836, exports were $106,570,000, and imports $158,811,000. There was a surplus revenue at that time, and the Government was out of debt. The surplus was distributed among the States. In 1836 the " specie circular " was issued, in which the Grovernment refused bank notes for public dues. This, with the Sub- Treasury Act of 1840, by the provisions of which the Secre- tary of the Treasury was prevented from depositing public funds in the banks, effected a complete divorce of bank and Government. The contest was again opened during the rebellion, resulting in the National Bank system. We quote the following, with regard to the bank, from Sumner: " The Bank of the United States, whose charter had now ex- pired, obtained a charter from the Legislature of Pennsylvania, in a section of a road bill, by bribery, as subsequent legislative investi- gation proved. It had not yet paid back the Government stock or the Government dividends, and it continued to reissue the notes of the old United States Bank, which it received." The operations of the banks, from 1834 to 1837, changed the structure of bank credits as follows: In 1834. Deposits had Circulation Coin Loans & Discounts. 2 % 75,666,986 94,839,570 40,000,000 324,119,499 In 1837, 6^n $127,397,185 149,185,890 37,915,340 492,278,015 Deposits Circulation. . . . Coin ^^^^ Loans & Disct's.r""" § 81. In England a similar fabric had been built up, and now both were readj^ for a panic. A disturbance in the " money of the world " brought it about. Before the reduc- tion in weight, gold coin was about 4 per cent, above silver, which practically demonetized it in this countrj^; after the change, gold was about 2^ per cent, below, which brought it into use, and removed silver, except for change of such • Sum. Hist. Am. Cur., p. 132. GOVERNMENT, AND " WILD-CAT" BANKING. 101 denomiuations as were not coined in gold. This made a demand for gold in this country, and the specie circular added a use that had been performed by bank notes, viz.: payment of public dues. The drain commenced on the Bank of England in 1836. It at once began to curtail its discounts by raising the rate, and prices fell, or, in other words, money went up in value. This produced a counteracting " vacuum," and the financial storm struck the New York banks next, causing them to suspend May 10, 1837. The contraction from 1837 to 1838 was principally effected by the New York banks. They reduced their issues during the year from 125,480,000 to -1^12,920,000. They then tried to obtain a con- ference of banks with a view to resuming, but the United States Bank refusing, the project was abandoned. The wheat crop failed in 1837, and prices were maintained to a certain extent by short supply of productions. In 1837 and 1838 imports were greatly reduced, and the banks imported $5,000,000 of gold on credit from England. A slight expan- sion of bank paper followed in 1839, and most of the banks resumed. The final collapse was postponed; in America by the import of coin, and in England by an increase of bank notes. These notes were used as basis by the country banks, and the apparent supply of '' wheat" was thereby increased. During 1838 a large amount of loans were effected by American banks, States, and individuals. This produced another drain of coin from the Bank of England; the rate of discount remaining at 2^^ to 3.t per cent. The bank now rapidly advanced the rate to 64- per cent., and this shut off further aid. The old United States Bank lost heavily on cotton speculations. It sold exchange iu New York, and with the funds received drew specie, which it shipped to meet the exchange. It got in debt from ten to twenty millions in New York, and eight hundred thousand in Boston. It finally collapsed in 1841. Its capital stock was a total loss, and the $7,000,000 of Government stock, together with a con- siderable dividend due the Government, was never paid. (See Finance Report, 1873, page 18.) From 1839 to 1843 the 102 AMERICAN FINANCES. wLole fabric of bank credits shrank enormously, so that in 1843 it stood as represented below: 1813. Deposits n $ 56.168,628 Circulation Pj 58,563,608 Specie g 33,515,806 Loans & Discounts. I I 254,544,937 The following year tlie loans and discounts were reduced about $90,000,000, and the circulation increased $17,000,000. § 82. Here we have a tremendous reduction of the currency and a great fall of prices, accompanied with stagnation of production and reduction of imports and exports. The theory of over production in this case is an absurdity. When prices were high in 1836 and 1837, the amount of imports and exports were greatest, and there was the greatest activity in the productive industries, indicating the greatest amount of merchandise in market at that time. In 1843, although our exports were low, our imports were almost nothing, and thus the " balance of trade " was in our favor, giving us an influx of coin to the amount of $20,000,000. In order to obtain this coin, however, we were compelled to reduce prices from $55.97 per ton in 1837 to $35.50 in 1843. The value of money was increased from 82 to 141 as measured by merchandise. The number of bankrupt business men was estimated at 100,000. In 1840 the Sub-Treasury Act was passed, thus completing the divorce of bank and State, begun in the defeat of the bill to re-charter the United States Bank. § 83. With the expansioi of bank paper from 1843 to 1850, we find a steady increase of loans and discounts, and corres- ponding rise of prices, broken only by the famine of 1847, which caused a sudden rise of prices for export, paid for by import of coin. The gold mines of California were discovered in 1847. The lines representing the production of bullion, and coinage at the mint Avill show where the gold went to. Until 1851 it nearly all went to mint, and then into circulation or hoards. For the first time in this country, business was done to a con- GOVERNMENT, AND " WILD-CAT" BANKING. 103 siderable extent by the use of metallic money instead of credit paper. We had been trying specie basis banking on imported coin with disastrous results. We were then producing specie in excess of our needs. We have actually imported coin but once since the discovery of the mines (in 1861), until the present (18S0). The banks, however^ produced a panic in 1854. § 84. Although the value of the metal had fallen from 141 in 1843 to 87 in 1854, they had correspondingly inflated their notes, and issued them largely in excess of their means of payment. In 1849, at the commencement of the influx of gold from the mines, the situation of the banks was as follows: 1849. Deposits Circulation Coin Loans and Discounts In 1854 it was as follows: 1854. Deposits Circulation Coin Loans and Disc. 91,174,623 114.743,415 43,619.368 332,323,195 188,188,744 204,689,207 59,410,253 557,397,779 In the meantime there had been coined at the mint | 562,114. and an increase of coin remaining in the country of $215,540,000. This panic is accounted for by the tremendous expansion of bank paper and small ])asis in the bank. It was, however, like a panic in the wheat market among the " shorts," with the elevators and barns full of grain. The panic could not last long. The people were well out of debt and doing much business with coin. Debtors did not suti'er much because of sufficient supply of legal tender money, and prices did not fall to any great extent, as the coin was brought forward from hoards to cancel debts. § 85. As the gold fever began to subside, people turned to the productive industries, which were greatly stimulated by the cheapening of money. The supply of coin in the com- 104 AMERICAN FINANCES. munity was plentiful, and the banks soon recovered their credit and continued to push their issues of currency and expand their loans and discounts. For 1857 the situation was as follows: 1857. Deposits. . . Circulation Coin Loans & Dis 230,351,352 214,778,822 58,349,838 684,456,887 This time panic commenced in the deposit part of the structure, and in one year it assumed the form shown below, running prices down from $59.31 to $47.96 per ton, gold rising in mercantile value from 78 to 95, changing every con- tract to pay money 19 per cent, and ruining thousands. The banks pursued the usual course of compelling their debtors (loans and discounts) to pay their creditors (deposits and cir- culation), increasing- their hoard of coin instead of paying it out when it was most needed. 1858. Deposits Circulation . . Coin Loans and Dis 185,932,049 155,208,344 74,412,832 583,165,242 From 1853 the export of bullion had been increasing, as will be seen by the diagram, so that the stock of coin increased only $44,634,000 in four years. From 1850 to 1853 it had been increased $183,852,000, yet the production had been about uniform during both periods. Outside, gold was not available to the banks as before. Contraction and fall of prices was the consequence, and a reduction of 19 per cent, was this time sufficient to turn the exchanges, or, more properly speaking, to check the outflow of coin. Both our imports and exports of merchandise fell off, as is usual when business stagnates. From this time till 1860 the usual process of recovery and inflation followed, when the gathering war-cloud began to threaten. The bank paper was not reduced; the loans and discounts fell off but little, while both exports and imports fell off in 1861. This year we not only retained all of the GOVERNMENT, AND " WILD-CAT" BANKING. 105 coin we produced, but actually imported an excess of S16,- 000,000, increasing- our stock over $61,000,000. This action was purely voluntary, preparatory to the impending struggle. § 86. The banks suspended in December, 1861, and from that time on we have had paper basis banking. When the banks suspended, the situation was as shown below. There was no panic, the banks had plenty of coin, and prices were not high. 1861. Deposits.. I i 257,229.562 Circulat'n I I 202.005,767 Coin .... WSA 87,674,507 L'ns&Dis 696,778,421 § 87. During the thirty years from 1830 to 1860 we had specie basis banking under conditions so diverse as to test about every phase of convertibility as a regulator of issue. The first period was with imported basis in scant supply and accompanying panics in Europe. The next was with home production of basis in plentiful supply, both hoarded and in use outside of the banks. We are driven to the conclusion that using the "money of the world" exposes us to the effect of any disturbance in foreign countries, and those countries to any disturbance here. We find that inflation or panic in both at the same time intensifies the evils which follow, and further, that the duration and intensity of a crisis is reduced in proportion as the available legal tender exhibits an increase in proportion t :> the debts to be paid. We further conclude that the inevitable consequence of issuing notes in excess of of legal tender to redeem them, and of compounding deposits by loaning and depositing the same money or notes indefi- nitely, invariably and necessarily breeds panics under all cir- cumstances. It is also the practice of the bank to curtail their currency and loans, and hoard coin at a time when they are all most needful to the business community, thus saving themselves at the expense of the public. § 88. During the truce which followed the contest over the United States Bank, the money question had practically dis- appeared from national politics. After the tariff" question 100 AMERICAN FINANCES. had been canvassed, there came a renewal of the slavery ques- tion, which, it was hoped, had been successfully settled. It seems, however, that no possible compromise, either with slavery or the money power, can be final. The Government must either destroy or be destroyed. The reader is familiar with the history of the contest waged between the slave power and the people. The slave power, in gaining control of Congress and the Supreme Court, in securing the fugitive slave laws and a Dred Scott decision, and in attempting to push its institution into more territory, was only trying to maintain its supremacy over popular will. Slaveholders per- ceived that a growing sentiment would sooner or later culmi- nate in an expression adverse to slavery. They were but doing what the money power has always done. The Mis- souri compromise, in the one case, and the divorce of bank and State in the other, were drawn battles, differing only in this: Slavery never gained complete control, while the banks did, capturing the entire paper currency of the country. When the Republican party elected Abraham Lincoln, the slave power saw the beginning of the end of its political supremacy, and it resolved upon a division of the country into two nations. The money power has so far maintained its supremacy in every contest, and should the gathering storm of popular sentiment result in its dethronement, what will it resolve to do? This question is fraught with terrible import to the American people. This much seems evident: Slavery was local and sectional; its success would come easiest by division and secession. Banks of issue are diffused and national; hence division is impossible, and when the ''tug of war" comes, usurpation ayid despotism will be its only recourse. We will not further attempt to forecast the future, but will notice what slavery did in its death struggle. It crippled our finances; stole our arms; availed itself of military talent educated at the Government expense. It hoisted the flag of rebellion, and for four long years deluged the land in blood. It wasted immense treasure, far in excess of the so-called property in dispute, and, by the vast expense and debt incurred, afforded to the money power a grand opportunity FINANCIAL LEGISLATION DURING THE WAR. 107 to establish more firmly its control over the currency and fortunes of the nation. CHAPTER XII. FIITANCIAL LEGISLATION DURING THE WAR. § 89. At the commencement of the Revolution, the Conti- nental Congress issued $9 of notes to ^600 of property in the country, before they depreciated. Now, with a Government and country of nearly a century's added growth, and finances in as good condition, to say the least, we find the banks in suspension in 1861, and early in 1862 a premium on gold, while only $33,460,000 of Government notes had been issued. To be in like proportion (^9 to $600), there should have been at least |1200,000,000. That there was some influence at work other than the natural laws of mone3% seems evident. The money power had grown in strength with the growth of the country, and had been in full control of the paper cur- rency since the Revolution. The Government, as in the war of 1812, was again invad- ing its monopoly of issuing currency. After nearly a cen- tury of success, it was not disposed to tolerate such competi- tion. The banks of the country represented a capital of $429,592,713. They had a circulation of $202,005,767, with loans and discounts to the amount of $696,778,421. During Buchanan's administration the revenues were so low that the Government was borrowing money to meet its ordinary expenses. The slave power was paving the way for rebellion, and being in control of the Government, would naturally cripple it as much as possible. One of the last acts of his administration, after most of the Southern members had withdrawn, was to authorize a loan. Civil war was imminent, and the country in a fever of expectanc}'. Cap- ital, always timid at such times, di*l not come forward read- ily, and it was with great diificulty that the loan was negoti- ated. Added to timidity, many capitalists were in sympathy with the defeated party, and would not lend to a Government about to pass mto the hands of their political enemies. 108 AMERICAN FINANCES. Thus commenced the war; and the first Congress under Abraham Lincoln came together under circumstances well calculated to appall the stoutest hearts. A large portion of the country in cpen rebellion; many of the offices, both civil and military, held by secret or open enemies; capital timidly clutching its money bags, and refusing loans except at exor- bitant rates. The great masses, with few exceptions, scarcely realized the situation. The men of the North responded to- the call for ''three months men," as though going on an excursion trip, rather than commencing the serious business of a life and death struggle; and the general opinion was that a little flourish of trumpets would quiet vhe disturbance. The disaster of Bull Run awakened the North to a sense of the situation, and dispelled the illusion. Tt became evi- dent that a great and doubtful struggle must come, and that the Government must put forth its entire strength, or the nation would be rent in twain. The primary consideration was resources. We had no great standing army nor vast militarj' supplies. What little arms and ammunition we had were mostly in the hands of the rebels. A great army must be created out of the raw materials. Whatever was to be done must be done quickly. Volunteer soldiers could be easily had. The great question was how to arm, equip, feed, and pay them. But two ways were possible — either to bor- row, or to tax. The latter method was too slow for the emergency. Borrowing was resorted to, and no adequate system of taxation adopted. The tariff, it is true, was revised, though to no adequate extent, and was more protect- ive than for revenue in its operation. § 90. It would be well to pause here and examine the two processes, as a matter of political economy. In writing upon this subject, John Stuart Mill says: * "If the capital taken in loans is abstracted from funds either engaged in production or destined to be employed in it, tiieir diver- sion I'roni that purpose is equivalent to taking the amount from the wagt^s of the laboring classes. Borrowing, in this case, is not a substitute for raising the supplies within the year. A govern- ment which borrows does actually take the amount within the year, and that, too, by a tax eocclusively upon the laboring classes; • J. Stuart Mill, rriu. I'ol. Economy, p. 526. FINANCIAL LEGISLATION DURING THE WAR. 109 than which it could have done nothing worse, if it had supplied its wants by avowed taxation, and in that case the transaction and its evils would have ended with the emergency, while, by the circuitous mode adopted, the value extracted from the laborer is gained, not by the State, but by the employers of labor, the State remaining charged with the debt besides, and with the interest in perpetuity. The system of public loans, in such circumstances, may be pronounced the very worst, which, in the present state of civilization, is still included in the catalogue of financial expedi- ents." It seems evident that the men and supplies to caiTy on the war were drawn ahnost entirelj^ from within our own terri- tory, for at the close of the war very few of our bonds were hekl abroad. If there were no othei- unsettled balances, they would represent the exact amount actually borrowed by the nation as a whole. No other interest-bearing debt was necessarj'. All the domestic debt represented domestic sup- plies and labor of our own people, actually parted with and consumed. Somebody went without to just that extent. The nation as a whole actually sacrificed it all at the time, and could have suffered no more by direct tax. Hence, no government debt ever need be created or bonds issued except to borrow from some other nation or for a currency. If the Government goes into the loan market, and abstracts 10 per cent, of the active money, prices fall to a like amount. The effect is easily seen. Mr. A, with $10,000 will loan the Government $1,000, and buy as much as before with the re- maining $9,000, the loan being actually reimbursed to him on the spot by the sellers. During the years 1860 and 1861, prices fell more than that. The recent operations of the Government are of precisely this character. During the fiscal years 1877, 1878, and 1879, the Government borrowed $169,175,463 and hoarded $236,923,211, there being in the Treasury, June 30, 1876, $149,909,377, and three years later, $386,832,588. During this time prices fell from $51.06 to $39.71. During the fiscal year 1880, the Secretary dis- bursed of this hoard, $185,743,966, and paid off $214,778,496 of the public debt. A man Avith $100,000 in 1876, could have loaned $20,000 to the Government, and in 1879, bought more with the remaining $80,000 than Avith the whole when the 110 AMERICAN FINANCES. loan was made. He would then be able to ^et his $20,000 from the Government, and accumulated interest, and buy ■with it at a like increase in value. This is the true inward- ness of John Sherman's recent operations. The plea that the people could not stand taxation to carry- on the war, is hardly tenable when we consider that they did actually part with the supplies as it was, and their willing- ness is amply proven by the volunteer armies n.nd aid given. In addition to this, we exported more than we imported up to 1864-, and did not receive any aid from foreign countries till the war was about over. On the contrary, we paid debt abroad and carried on the war at the same time. (See debtor and creditor periods in table No. 2). Indirectly the country was taxed to furnish the supplies as they were consumed. This was done by loans. All capital is either producing or loanable; if the country is estimated to be worth thirty billions, and only one billion is in the market in the form of loanable funds, a government could soon consume this amount. Should it then attempt to secure further loans, it must abstract producing capital from the in- dustries. In order to do this, ic must pay a larger interest than is being earned in business; at once it does this, the productive industries are crippled. If now five billions of the thirty are loanable capital, the government can borrow five times as much before encroaching upon productive capi- tal, and before being compelled to pay either an abnormal interest, or a shave on the principal, or both. In a new country like this, with vast resources and but little accumu- lated wealth, the capital would be, and was, a very small per- centage of: the thirty billions. The G>)vernmeat, therefore, could not long borrow before all the loanable capital would be consumed, and, hence, it would be obliged to borrow any furtlier sums at a great sacrifice, while yet its credit was per- fectly good. Instead of finding in this country one billion of lomable capital, the associated banks, who were the chief lenders, "susponded," or stopped loaning, before they had parted with eighty millions. It is not at all likely the country contained one-tenth of a billion of loanable capital. By direct taxation, the means necessary to carry on the FINANCIAL LEGISLATION DURING THE WAR. Ill war would have been taken from the unproductive consump- tion, or cousumptioE of luxuries in the country. Th:it the unproductive consumption of a country is enormous is read- ily seen in the fact that if this country had forgone the con- sumption of tobacco and alcoholic beverages, no further tax would have been necessary to carry on the war. § 91. Following the disaster of Bull Run, came the first loan act proper of the war. (Act of July 17, 1861.) This contained a provision offensive to the money power, which at once revived the old contest over the issue of currency. It provided for a loan of $250,000,000, $50,000,000 of which might be "demand notes" bearing no interest and payable on demand at the sub-Treasuries at Philadelphia, New York, and Boston; the balance in 7.30 Treasury notes or bonds. The act of August 5, was supplementary, and authorizes bonds to run twenty years and beiring 6 per cent, interest. The sixth section suspends a portion of the sub-Treasury act, and author- izes deposits in solvent banks, thus again placing Government funds in the hands of bankers. At this point there began a fight in the rear, as it were. While the attention of the people was fixed on the two vast armies in the field, struggling like great giants over the ''peculiar institution" of slavery, there was another contest going on with the money power, of no less significance and f rang at with even greater consequences. With here and there an exception, the latter was unobserved. We were successful at the front, but again defeated by the banks. By this act it will be seen that the Secretary could pay out $50,000,000 of "demand notes'' to all creditors willing to receive them. Should they go into circulation, they would distribute so much debt among the whole people without interest, each being the lender while he held the note. The other $200,000,000 were not designed for a currency, and if hoarded would be a loan from capitalists only. It would not be so well distributed, and would, of course, bear interest whicli must be paid by the whole to a part. One can readily see wliich would be the best currency; but, as Samner says (p. 195), " The 202,000.000 of bank paper, or, rather, the $1.50,000,000 in the Northern States, was the stumbling- block in the way of all sound financial measures." The 112 AMERICAN FINANCES. banks were not slow to see that if the Government invaded their special privilege of furnishing currency and borrowed directly from the people, they (the banks) would be shorn of their power to draw interest on what the people loaned to the Government (as already explained). They must either provide some way of " grinding the grist through their mill," or let it go by default. This motive, rather than patriotism, gave rise to the Associated Bank scheme. § 92. At the invitation of Secretary Chase, the bankers of New York, Boston, and Philadelphia, were convened. The result is shown by the following extracts from the pen of Geo. S. Coe, President of the American Exchange Bank, as found in'the Bankers' Magazine, January, 1876 : " It was at once uuanimously agreed that the Associated Banks of the three cities would take fifty millions of 7.3-10 notes at par, with tlie privilege of an additional fifty millions in sixty days, and a further amount of fifty millions in sixty days more, making one hundred and fifty millions in all, and offer them for sale to the people of the country at the same price, without charge. In this great undertaking the banks of Xew York assumed more than their relative proportion. To insure full co-operation and success, the expedient of issuing clearing-house certificates, and of appro- priating and averaging all the coin in the various banks as a com- mon fund, wliich had been invented but the year before, was applied to this special object with good effect. * * * The capitals of the banks thus associated made an aggregate of one hundred and twenty millions, an amount greater than the Bank of England and the Bank of France combined, each of which institutions had been found sufficient for the gigantic struggles of those great nations, from time to time, in conflict with all Europe. " The following figures also show that the financial condition of the banks at the time was one of great strength : Liabilities. ASSETS IN COIN. BANKS. DEPOSITS. CIRCULATION. New York $92,046,308 18,235,061 15,335,838 $ 8,521,426 6,366,466 2,076,857 $49,733,090 Boston 6,665,929 Philadelohia 6,765,120 $125,617,207 $16,064,740 125,617,207 $142,581,956 $63,165,039 "Coinon hand equal to 45 per cent, of all liabilities." FINANCIAL LEGISLATION DURING THE WAR. 113 Thus we see a strong combination of a vast amount of corporate capital ostensibly organized to aid the Govern- ment. Mr. Coe goes on to say : " A great merit of this bank combination, at that critical mo- ment when the life of the nation hung in the balance, consisted in the fact that it fully committed the hitherto hesitating moneyed capital of the North and East to the support of the Government. The bank officers and directors who thus counseled and consented were deeply sensible of the momentous responsibility which they assumed ; but all doubt and hesitation were instantly removed, and perfect unanimity was secured by the question, ' What if we do not unite ? ' " That was the question. He would have us infer, however, that the disaster to be dreaded was to befall the Government, when the fact was that the 150,000,000 of demand notes was the cloud no bigger than a man's hand that had scared the banks, and with good reason, for if they did not unite, the Government would deal directly with the people, thus ignor- ing the banking interest. He then sets forth this scheme, as follows : " The problem to be practically resolved by the banks was this : How can the available capital be best drawn from the people, and devoted to the support of Government, with the least disturbance to the country v * * * * * " Accordingly, it was at once proposed to the Secretary that he should suspend the operations of the Sub-Treasury Act in respect to these transactions, and, following the course of commercial business, that he should draw checks upon some one bank in each city representing the association, in small sums as required in disbursing the money thus advanced. By this means his checks would serve the purpose of a circulating medium, continually re- deemed, and the exchanges of capital and industry would be best promoted." This Mr. Chase very properly refused to do, and so brought the matter to a focus. The African in the fence appears in the following: " A question of the expediency of putting out the circulating notes was immediately raised by one of its members. A very small amount had been emitted. The Treasury was empty of coin to redeem them, and could only be replenished by the proceeds of the bank loans. It was evident to the bank officers that they could not sustain coin payments if the transfers from their vaults to that of the Treasury were subject to be intercepted and ab- 8 114 AMERICAN FINANCES. sorbed by these notes of Government. Nor could the banks receive them xipon deposit from the public as money, wiiile tliey weie responding to the Government and to their own dealers in coin. It was an inflation of the currency in the form most emiiurrassing to the enterprise they had commenced. Accordingly, tlie Secre- tary was urgently solicited to refrain from exercising the discre- tionary powers given him of creating the Treasury currency until all other means were exhausted. In response to a resolution to that effect, tlie Secretary assured the bank ollicers of his acaid. Your checks will operate as currency, but will not inflate. Your de.nand notes will also go into circulation if issued, and Avill inflate. That was not (ill. The programme contemplated continuing this confidence game indehnitoly Jis will be seen by ilie following from Henry V. Poor. "The banks assumed that as the ordiiary operations of the public had no tetidcix-y to wil!\draw their coin, lliosc of (rovern- meut. if conducted in a similar maimer, would exert no such tendency; that in this way the war niigl't be carried on by the use of their paper, symbolizing uierchandi.^e at the value of coin." FINANCIAL LEGISLATION DURING THE WAR. 115 Mr. Chase very properly refused to become a party to any such scheme, thiuking, no doubt, that borrowing notes and paying interest to their maker, while taxing the real lender for the same hardly the thing. The lender would receive notes in either case: bank notes in the one, and Government notes in the other. He therefore demanded money, instead of promises, '' greatly to the astonishment " (?) of the bankers. They were quite successful in their scheme even then, for Mr. Coe tells us that the coin returned to them on deposit in about one week after being paid into the Treasury. It oper- ated thus: The bank would pay Chase $1,000 in coin; Chase would pay it to B for beef; B would pay it into the bank and check out bank notes. The bank would be a $1,000 bond in and Sl.OOO of promises out. Mr. Coe gives the result of paying out $80,000,000, as follows: "After taking the third amount of fifty millions by the Asso- ciated Banks, those in New York, who had at that time paid in of their proportion over eighty millions in all, found themselves in this position: Their aggregate coin, which, on the 17 of August, was before the first payment into the Treasury $49,7.33,990 On December 7th 42,318,610 A reduction of only $ 7,415,380 and the other cities in like proportion." But there was danger that if the thing was continued too far, they might be called upon actually to pay their notes. As every demand note occupied a place where a bank note might be. the former drawing no interest, while the latter would, something had to be done. Mr. Coe goes on to say: " But at this time the demand notes were paid out freely by the Treasury, and began to appear as a cause of embarrassment among the banks, which were pressed to receive them on deposit: and while they could not decline them without diminishing public confidence in the Government credit, they could no give them cur- rency without impairing their own specie strength. * * * * * And on the 28th of December, after conference with the Secretary, in which he still adhered to the views before expressed, it was decided as expedient for the banks to suspend specie payments." H id th^y be.m really solicitous for the credit of the G-ov- ernmeut instead of their per cent.., they could have made all 116 AMERICAN FINANCES. secure retiring their currency when there was an excess. In- stead, however, with a contract calling for nearly $70,000,000 more, they " found it expedient " to suspend further payment, for fear that something might happen. Meanwhile men had left wives, children, and homes; sons had left parents, lovers sweethearts, and bared their breasts to the leaden hail of war. They had contracted to abide by the Government, come what might, though it cost all that is worth living for. Suppose sickness or trouble at home had called one of the boys in blue; or when he saw the long lines of glittering steel borne by the ''Johnnies," or heard the bellowing thunder of rebel artillery, he had begun to fear that something might happen to him, and deem it " expedient to suspend " opera- tions, we all know he would have been called a coward, and a traitor, and shot like a dog. It is difficult to distinguish one deserter from another; of the two the soldier would have the better excuse, his life would be in danger. In the case of the bankers, it was mere expediency; their pockets were in danger. When governments shoot deserting soldiers, they should in all fairness suspend suspending bankers — at the end of a rope. The Associated Banks, who were the prime movers in this business, it will be seen by Mr. Coe's state- ment, had over $60,000,000 of coin with which to pay their notes to the amount of $16,000,000. They were not bank- rupt, and unable to pay, by any means. Mr. Coe says of the suspension : "At that moment the Associated Banks yet held over forty mil- lions in coin, and it Avas still possible for them to continue their advances to the Government but for the two obstacles thus inter- posed." To show that this suspension was by agreement, and coerc- ive on the part of the banks, we quote the following from Sumner's History of the American Currency: * " In the last days of December, 1861, all the banks suspended This they did without any earnest attempt to avoid it, and cer- tainly without any necessity. Instead of regarding a susj)ension as a calamity to be submitted to (mly after years of war, when the national resources should l)e actually exliausted (astiie suspension of the Bank of England proved that it is), many looked upon it as the natural preparation for war." •Sumner's Hist. Am. Cur., p. 194. FINANCIAL LEGISLATION DURING THE WAR. 117 Heurj' V. Poor gives the following statement of the situ- ation at that time: * " The exports of specie from the country the year preceding the war, exceeded the imports by $57,996,154. During the first year of the war, and before the banlis had suspended, the imports over exports equaled $22,558,791, making, in a single year, a change in favor of the country of $80,554,945. Xo sooner was trouble with the South apprehended, than the iSTorthern banks began instinctively to strengthen themselves. On the 1st of January, 18(50, before any sus- picion or distrust was excited, and when the country was in an emi- nently sound and prosperous condition, the coin reserves of the banks of the three great cities— New York, Boston, and Phila- delphia—equaled $29,822,320 ; of which the banks of New York held $20,119,779; those of Boston, $4,796,000 ; those of Philadelphia, $4,906,541. On the 1st of January, 1861, when the disruption of the country seemed imminent, they had increased their reserves to $43,S49,(;28 ; and on the 9th of August, 1861, when they under- took to aid the Government, to $63,165,039. There was no concert or method in all this ; only ordinary prudence. Even so late as 1862, after the banks had suspended and Mr. Chase had drawn from them $150,000,000, they held $44,887,093 in coin; a sum greater by $15,000,000 than that held on the 1st of January, 1860." Mr. Poor adds the very significant remark: "Had he" (Secretary Chase) " acceded to their request at the outset, he might have availed himself, at the value of coin, of every dollar of capital in the country which could have been spared for the war." In other words, if the Government would allow the banks to dictate its policy, they could easily appear to lend to the Government almost any amount, while from sheer necessity avoiding actually lending anything. He did not "accede," hence their effort at coercion. They then proposed another scheme, which was very similar in charac- ter to the first. It was set forth by Mr. Coe as follows: " Thus, as a suspension of coin payments was about to be declared, it was practicable to preserve from distribution and set aside the forty millions of coin then owned by the banks, together with one hundred and fifty or sixty millions of Government bonds, which could be taken by them as a special security for two hundred mill- ions of notes, which could then be immediately issued by the Asso- ciated Banks from their own plates, and be verified and made national by the stamp and signature of a Government officer. And that such an issue, so supported by coin and bonds, at once * Money, Its Laws and History, p. 536. 118 AMERICAN FINANCES. / simple and expeditious, would serve the temporary purpose required, with little if any deterioration below coin value; and that it would be then practicable for the banks to continue, with- out further agitation, their advances. But the Secretary declined to entertain this suggestion, preferring the system of National Banks, which he had already conceived." That u to say: Authorize banks to issue 200,000,000 of promises to pay when they were in suspension, and refusing to pay those they had ah'eady uttered. With these promises allow them to buy Government bonds. By this means put $200,000,000 into the possession of the banks and pay them interest on the same, while receiving in return nothing but promises to pay, these promises resting upon security fur- nished by the Government itself. A royal scheme indeed for the banks. If the Government could inflate the currency with bank notes and keep them at par, it could do the same with its own notes. If the Government furnished to the banks Government security to keep worthless paper at par with coin, it could furnish itself the same security without making princely gifts to anyone, and then paying tribute to the recipient. § 93. Conceding that the then existing system of bank note currency ought not to be disturbed by the Government, the scheme of the Associated Banks had some merit. For it will be observed that if B saw fit, instead of checking out bank notes for his $1,000 received for beef, he could have a Gov- ernment note drawing 7 3-10 pre cent, for three years, or a bond drawing 6 per cent, for twenty years. It wouLl be a sort of convertible bond scheme, advocated by some, with modifications however. The non-interest currency would circulate for the benefit of the banks, and be convertible into coin on demand. It would be a compound bond and specie basis plan. At first, with low currency and demand for beef active, B would not take bonds, but currency; as, he accumulated funds, he would take bonds, provided they drew interest enough to compete with other borrowers. But the impetus given to business by the first inflation wouhi raise prices, this advance would bean apparent profit on merchandise and loss on holding money, and most men would prefer business investments to the FINANCIAL LEGISLATION DURING THE WAR. 119 bonds or notes. After a time inflation of pi'iees would turn the '' balance of trade," and the exj>ort of coin would start a panic, fall of prices, and run of b:ink notes for redemption. With prices falling, bonds would be better than business investment, and would suck up the currency rapidly. This would serve to enhance contraction at a time when expansion would cure the disastrous effect upon business caused by the panic. Until the collapse should come, the bank scheme would appear to operate finely, and the war could have been carried on better with the co-operation of the banks than with them making war on the Government credit^ by refus- ing its issues as money at their counters. The action of the banks was simply a declaration of war o;; the Government finances, and again was opened the old issue of bank paper versus Government money. § 94. The deuiand notes were at first receivable for public dues, and convertible into coin on demand at New York, Philadelphia, and Boston ; afterward St. Louis and Cincin- nati were added. As soon as the banks suspended the Government did the same, and from January 1, 1862, to January 1, 1879, these notes were not redeemed in coin; they were redeemable in greenbacks only, yet were worth as much as coin, and the bulk of them was received for imports at par with coin, and retired by the Government. At the time of suspension there was outstanding 833,460,000. Secretary Chase continued their issue, however, and an act aj)proved February 12, 1862, authorized $10,000,000 more, making $60,000,000 in all. These were paid to the soldiers, and by them sent to their families. They were refused by the merchants in many cases, '' because the banks of the Eastern cities had issued orders that they would not be received from the country banks in settlement of balances, or on deposit as current funds." They were returned to the army in considerable amounts, and presented at the Ti-easury Department, elicit- ing from Secretary Chase the reply: "We have no money, the banks have suspended and locked up their coin." The curbstone bi-okers then bought these notes at a discount. Thus the banks succeeded at the outset in forcing suspension 120 A3IERICAN FINANCES. and discredit upon the Government, in their efforts to pro- tect their " peculiar institution." We had two enemies on our hands at once — the sUive poAver attacking our armies, and the money power our finances. The army took care of the former, but our financial tacticians were unequal to the latter. The army learned in time that the rebels were enemies, and to be treated as such; Congress took counsel of the money power, and, with the exception of a noble few, did not comprehend the situation. The result was disastrous, of course. These bits of paper, known as old demand notes, are to our finances what the monitor was to our navy, and give the lie to all the theories of the bullionists regarding the necessity of convertibility to give value to paper money. They are the only full legal tender paper ever issued by this Government, and have been as good as gold ever since they were made to legally perform all the functions of gold coin in business transactions. The Government, at the outset, should have either sur- rendered its finances to the banks, or else adopted the policy of independent action in spite of them, and treated them as enemies of the Government currency and credit, which they really were. The currency competed with theirs, and the lower the Government credit, the cheaper the bonds, and the more profit on ''credit strengthening'^ plasters eventually. After suspension there was but one course open. The Government was compelled to issue paper money, and deal with the people directly, by issue of currency and taxation. Had Congress imderstood finance as well as the bankers, and had it made laws for the benefit and protection of the people, instead of resorting to expedients and compromises, much trouble and loss would have been avoided. § 95. The second session of the Thirty-seventh Congress commenced December 2, 1861. We had reached a crisis in our finances that required prompt action. The expenditures were over a million dollars per day, and no adequate taxation had been resorted to. It was natural that Congress should look to the Treasury Department for suggestions, and we find from this time on the policy of the Government has been almost entirely conformed to the dictation of the Secre- tary of the Treasury. FIl^ANCIAL LEGISLATION DURING THE WAR. 121 In his report of December 9, 1861, Secretary Chase called attention to the fact that the circulation of bank notes constituted a loan from the public to the banks, without expense to them (except the issue of notes and interest on reserves), and suggested the propriety of transferring this wholly or in part to the Government representing the people. He then gave the cue to the subsequent legislation in the following language: " It has been well questioned by the most eminent statesmen whether a currency of bank notes, issued by local institutions inider State laws, is not, in fact, prohibited by the liTational Con- stitution. Such emissions certainly fall within the spirit, if not within the letter, of the constitutional prohibition, of the emis- sion of bills of credit by the States, and of making by them of anything except gold and silver coin a legal tender in payment of debts. " However this may be, it is too clear to be reasonably disputed, that Congress, under the constitutional power to lay taxes, to regulate commerce, and to regulate the value of coin, possesses ample authority to control the credit circulation which enters so largely into the transactions of commerce, and affects in so many ways the value of coin. "In the judgment of the Secretary, the time has arrived when Congress should exercise this authority. On the question of the constitutional law, he said: " If the Secretary has omitted the discussion of this constitu- tional power of Congress to put this plan into operation, it is be- cause no argument is necessary to establish the proposition, that the power to regulate commerce and the value of coin includes the power to regulate the currency of the country, or the collateral proposition, that the power to effect the end includes the power to adopt the necessary and expedient means." This argument has never yet been answered, and never can be, by the advocates of a currency under corporate control. He then set forth two schemes for the consideration of Congress. The first was a further issue of demand notes and withdrawal of bank notes to make room for them, thus transferring the entire currency to the Government. The other was substantially the National Banking system as ulti- mately adopted, which left the currency in the hands of corporations. After discussing both, he concluded by recom- 122 AMERICAN FINANCES. mending the latter plan. He contemplated convertibility, however, in both schemes. (The banks had not suspended at that time). § 96. These two schemes were alike in some respects; in others they were radically different. Both were specie basis, with convertibility as a regulator. Bothalike would furnish a uniform currency, bearing the impress of Government authority. Both would ultimately rest upon the Govern- ment credit for their value; tlie first directly, the second in- directly. Both would represent a loan from the holder to the issuer. Both would be an improvement, in some respects, on the State bank issues. But here the parallel ends. The first would be a loan from the public to the Govern- ment; the second to the banks. The first would circulate for the benefit of the people; the second for the benefit of cor- porations. The first would enable the Government to realize the Secretary's idea of its constitutional power over the cur- rency; the second would enable the banks to determine the value of monej^ by inflating and contracting their issues. The former would be in no greater danger of becoming worthless, than the latter. The first would be issued accord- ing to acts of a Congress responsible to the people; the second according to acts of the Associated Banks, responsible to nothing but their own avarice. The Government could provide a fund for redemption in coin as easily as the banks. The Government could redeem in taxes if it had no coin; the banks could not. The Government could make its issue a legal tender requiring no redemption; the banks could not. The Government would be no more likely to over-issue iij time of danger or pressure, than the banks would in time of a speculative " boom." The danger of depreciating and rendering worthless Government currency, was no greater than the risk of depreciating and rendering worthless Govern- ment bonds, on which he i)roposed to secure the bank paper. The risk of national bankruptcy, with all the resources of the nation taxable, is certainly no greater than that a small part of the taxal>le people should fail. The first plan would dis- tribute a vast amount of Government debt among the whole people, who would be directly interested in the loan. The i FINANCIAL LEGISLATION DURING THE WAR. 123 second plan would fill their pockets with the promises of a boiul-holdiiig aristocracy, who would be interested in making their bonds as profitable as possible, and enlarging their debt and avoiding its payment as long as possible. The great masses of the people who came to the rescue of the Grovernment, by the thousands and hundreds of thous- ands, at the very time the Secretary was writing, and laid down life and limb for thirteen dollars a month in the former kind of paper, would be as likely to cement the Union by still further loans, without interest, as would those wealthy gentle- men of New York, Philadelphia, and Boston, who higgled about their per cent, of interest, lobbied the Senate to secure coin interest, deserted their contract with the Government with over $40,000,000 of gold in their safes, and refused another dollar of it unless they could dictate the policy of the Government. By the former arrangement the Government would secure a loan without interest either way, by the latter the people would pay the banks for the privilege of lending to them. In view of these facts its seems strange that a man capable of such logic as evinced in some of the remarks quoted should prefer the latter plan. We can account for it only on the ground of his statement that this plan would still preserve the bank of issue in this country, while the former ^rould not. This seems to be the gist of the whole argument. The banks did not like either scheme, but of the two they of course preferred the latter. They would rather have half * a loaf than no loaf at all ; but they preferred to grab all they could. Under most State bank laws they could issue notes to an unlimited extent. By this plan they could draw only about double interest on their money. By the Secretary's first plan they must actually lend a dollar every time they drew interest on one, and being unable under that plan to draw interest on their debts, would be compelled to pay interest like honest men. Congress eventually pursued neither plan, but adopted the most vicious parts of both, abandoning specie and issuing large quantities of Government paper in competition with 124 AMERICAN FINANCES. bank notes. The result was inflation, laying the foundation for a change of contract on an immense Government debt. The first financial legislation of the session was a bill passed without debate at the urgent request of the Secretary of the Treasury, authorizing an additional issue of $10,000,000 of the notes of July, 1861. This was in consequence of the urgent need of funds to meet current expenses. § 97. The next was the act of February 25, 1862, commonly known as the legal tender act. The first section provides for $150,000,000 of Treasury notes, $50,000,000 in lieu of the notes of the preceding year. These notes were to be a '' legal tender for all debts, public and private, except duties on imports and interest on the public debt." They were made receivable by the Government at par on all future loans, and convertible into 5.20 bonds, bearing 6 per cent, interest in coin. The notes issued under this act are comraonlj'' known as greenbacks, those under the act of July 17, 1861, are known as demand notes. By the act of March 17, 1862, these latter were made legal tender, and by the original act receivable for imports, so that they became eventually the only full legal tender notes. Neither were redeemed in coin from January 1, 1862, to January 1, 1879. The second section provided for $500,000,000 of bonds, payable at the option of the Government after five years, and due in twenty, to be sold at their market value. It also provided that all stocks, bonds, and other United States securities were to be exempt from State tax. Section 4 provides for $25,000,000 of certificates of deposits at 5 per cent. Section 5 provides that duties on imports should be collected in coin or notes heretofore authorized, the coin to be set aside as a sinking fund for the purchase or payment of one per cent, of the public debt. These were the essential provisions of the act. It will be seen that it differed materially from the first plan pro- posed by the Secretary. Some of this difference was rendered necessary by the action of the banks. They had gone into voluntary suspension shortly after the report was made, and had opened a " fire in the rear " on the Government credit by FINANCIAL LELU8LATI0N DURINU THE WAR. 125 refusing its notes as money from depositors. Without specie for a basis, and the banks in suspension, the only course was to make the notes lawful money. The following- is taken from a letter written by Mr. Chase to the Ways and Means Committee: * " The provision making United States notes a legal tender has doubtless been well considered by the committee, and their con- clusion needs no support from any observation of mine. I think it my duty, however, to say that in respect to this provision my reflections have conducted me to the same conclusions they have reached. * * * * The making them a legal tender might, how- ever, still be avoided if the willingness manifested by the people generally, by railroad companies, and by many of the banking in- stitutions, to receive and pay them as money in all transactions were absolutely or practically universal ; but, unfortunately, there are some persons and some institutions which refuse to receive and pay them, and whose action tends not merely to the unnec- essary depreciation of the notes, but to establish discriminations in business against those who in this matter give a cordial support to the Government and in favor of those who do not. Such dis- crimination should, if possible, be prevented; and the provision making the notes a legal tender, in a great measure at least, pre- vents it by putting all citizens in this respect on the same level, both of rights and duties." Compelled to abandon specie, Congress, instead of making paper money pure and simple, undertook to cling to coin. By paying coin interest, and collecting coin imposts, the efiect, instead of demonetizing coin and monetizing paper, was complex, and produced confusion. It made two kinds of money, and two kinds of Government creditors. Selling bonds for paper, and paying interest in coin, would increase the interest as paper fell. For bonds, being exchangeable by statute for paper, dollar for dollar, as paper fell a given amount of gold would procure a larger amount of gold interest bonds. If, to maintain the value of the bonds, it was proper to make the interest payable in coin at the present time, it was surely the part of wisdom to make the principal payable in coin in the future. The need at the time was coin. It would have been proper to return coin after the war should • Globe, Jan. 28, 1862. 126 AMERICAN FINANCES. be over. Instead, however, the Government promised paper in the future and coin in the present, thus reversing the correct polic}'. Making the greenback partly money and partly not. reduced its value. Creating special uses for gold as money, increased its value, or maintained it, to say the least. It was unjust to pay one class in one kind of money and another in a different kind. The bankers, who had deserted, were to have com, while the soldiers, who had not deserted, must take paper. Another serious defect was that no provision was made to give room for the greenbacks. Instead of a prohibitory tax, or any attempt at restricting the bank notes, the legal tenders furnished the basis for further issues. They claimed the cause of suspension to be thau the Government had, by issuing $36,460,000 of notes, inflated the currency so that they had not sufficient basis. Now they extended their issues upon the legal tenders. Had Congress purposely set itself about inflating the currency, it could not have devised a more effective plan. Mr. Ohase advised the removal of bank piper instead of, such a scheme. Exempting the bonds from State taxr:tion insured the pov/er ol' the Government to borrow, and make the interest less by just the tax, and, although it was the beginning of an untaxed aristocracy, it is but one of the evils of a govern- nipnt debt. The provision for a sinking fund was absurd, when the Government was borrowing and going in debt. Such legisla- tion would have been appropriate at the close of the war. No attention, however, was paid to this provision In' the De- partment until that time. It only served to furnish a techni- cal ground for quibbles about the payment of the 5-20 bonds. § 1^8. The act of March 1, 1862, authorized certificates of indebtedness bearing 6 per cent, interest, and limited to de- nominations of $1,000 or above. This discriminated against the small creditors- of the Government, many of whom could not get their pay. All having claims above $1,000 could have 6 per cent., all below could have none. § 00. The act of March IT, lb62, provides in the first sec- tion for the sale of bonds on any terms for coin. This was FINANCIAL LEGISLATION DURING THE WAR. 127 necessary, because the coin in'erest must be met, and the re- striction to market rate had prevented the sale of bonds to anv ffreat extent. In the meantime the banks had been un- loading what bonds they took before suspension. Section 2 of the act added the legal tender quality to the demand notes. At that time there were three' kinds of Gov- ernment notes; the 7.30 of 1861, convertible into the twenty- year sixes of the same act; the demand notes which drew no interest, were not convertible into anything but greenbacks, and were receivable for imposts; and the greenbacks, which were worth 98 cents in coin. The demand notes were at that time worth more, and the 7.30's a little less than greenbacks. § 100. It will be seen that paying duties on imports was a use that conferred more value at that time than either 7.3 per cent, interest, or 6 per cent, in coin, or legal tender; and also that the use of greenbacks to pay debt was better than such interest. Now, by this act, both uses were added to the de- mand note, and it became ivorth as much as coin. It staj'ed at or above par with coin from that time till this, and is proof positive that the "except" did depreciate the greenback. It shows further, that a note, like bullion, when coiued into money ceases to be valued for its prospective redemption. It becomes immediately valuable because immediately useful* Few men want gold as bullion, and few men want notes as investments, especially without interest. Make either, how- ever, into money, and it becomes universally accepted, because all need money to exchange goods and to pay debts and taxes. § 101. Section 3 of the act increased the temporary de- posits to $50,000,000. These certificates were convertible on ten days' notice, aud served the purpose of money in clearing house operations and other like business between banks. If they had not been issued, the greenbacks would necessarily have been held for that purpose. As it was they were so much inflation. They enabled the banks to secure a currency among themselves, drawing 5 per cent, interest, thereby avoid- ing so much of the loan represented by the greenbacks. The interest on these certificates was practically a gift to those who used them. It was bad policy for the Government to borrow money on call, as it had to hold a reserve to meet 128 AMERICAN FINANCED. demauds and could not avail itself of all the loan. Holding one third would make the interest on the balance 7^ per cent. § 102. The act of July 11, 1862, provided in the first section for $150,000,000 more of greenbacks, not more than $35,000,- 000 to be of denominations below $5. It also authorized the Secretary to exchange 5-20 bonds for greenbacks on such terms as he should think most beneficial to the public interest. Section 3 increased the temporary deposit limit to $100,- 000,000. It a]:o stipulated that $50,000,000 of the notes authorized by the act, must be held as reserves to uieet these deposits. This made, all told, $300,000,000; $50,000,000, however, were to be held as reserves, and about $50,000,000 of the demand notes had gone to par with gold, and henue out of circulation. We can then safely deduct $100,000,000, to offset which we should add all that the banks could use as reserves in the way of certificates of deposit. This would be about $50,000,000, leaving at least $250,000,000 of inflation of greenbacks in 1862. The banks were also inflating their cur- rency. § 103. Mr. Lovejoy, in the House, announced his intention to bring in a bill to tax the bank circulation and prevent in- flation of their paper. In the Senate, John Sherman ofi'ered an amendment taxing bank circulation 2 per cent., which was defeated. About this time the first bill providing for taxation to carry on the war was passed. In this bill was levied stamp taxes upon notes, checks, etc. All taxation on bank notes, however, was carefully avoided, and a discrimina- tion was made in favor of banks of issue as follows: " Bankers shall pay .$100 for each license." " Every person shall be deemed a banker within the meaning of this act, who keeps a place of business wliere credits are o])ened in favor of any person. Arm, or corporation, by deposit or collection of money or currency, and the same or any part thereof shall be paid out or remitted upon the draft, check, or order of such creditor. But not to include incorporated banks, or other banks legally authorized to issue notes as circulation." It would seem as though Congress considered it essential that this peculiar franchise should be protected and fostered FINANCIAL LEGISLATION DURING THE WAR. 129 in every possible way. It was no part of the capital of the bank, it was but a privilege granted by law, and one of great value; no less than that of making paper as valuable as money, inasmuch as it brought them the same revenue. The soldier might suJffer the hardships of camp, march, and battle a month, and he could get no more for his thir- teen dollars than the banker could for his thirteen promises. Yet Congress, although taxing everything else and everybodj' else to carry on the war, carefully avoided taxing any of the profit derived from this source. Nor was this all. By so doing, the banker supplied the market with bank notes at a time when the Government was obliged to issue currency. The result could only be to destroy the demand for the Gov- ernment issues. This bill clearly authorized the Secretary to sell 5-20 bonds below *' market value," if he deemed it for the public interest. Yet we find him withholding them, and pushing out the currency, upon pretense that he could find no buyer for bonds. In the meantime, the banks continued to unload their bonds. § 104. The act of July 17, 1862, completes the financial legislation of the session. The first section authorizes the use of postage and other Government stamps as currency. This was in consequence of the disappearance from circulation of the small coin. The second section prohibits the issue and circulation of fractional notes by private parties or corporations, on pen- alty of fine and imprisonment. If Congress can prohibit private or corporate currency under %1, it can prohibit pri- vate or corporate issues over $1; and if it was proper and expedient, or of any advantage to do the one, it was just as proper, expedient, and advantageous to do the other. Of the motives and influences which led to the course thus briefly described, we leave the reader to judge. § 105. Secretary Chase submitted his annual report Decem- ber 4, 1862. After reviewing the financial operations of the Government since the commencement of the war, he remarked that the adoption of the legal tender currency had operated well, and that the currency had not been inflated. Coin had gone out of use, and become a commodity, and the 9 130 AMERICAN FINANCES. issues of paper had taken its place as a currency and a basis of circulation in the banks. With regard to the banks, he stated that they were diverting the greenback from its proper use, and making it the basis of their notes. Such being the case, there was no practical limit to their inflation. He uses these words: " Under these circumstances, the part of wisdom and duty seems very clear. It leads to the support of the United States note circulation, and the reduction of the bank note circulation." He had, heretofore, advised a tax on corporate circula- toin, and now "renewed the recommendation." He took occasion to again urge the National Banking scheme, although admitting that it would afford little direct aid in carrying on the war. He complained that he was restricted to market price in the sale of bonds. He recommended a repeal of the provision, and also a repeal of the provision making the greenback convertible into bonds. It seems a little curious that he should be so desirous to push the National Bank scheme when it would do no particu- lar good. He recommended no further inflation without removing bank paper. He again argued that Congress had a right to control the paper currency of the country. How it can do so, when its issue depends upon the will of a corporation, is difficult of comprehension. § 106. Congress assembled December 2, 1863. Early in January it transpired that the Treasury was empty, and that the army had not been paid for some time. A joint resolu- tion was passed January 17, 1863, authorizing a further issue of greenbacks to provide for the "immediate payment of the army and navy." The notes so issued were to be considered part of the amount provided for in any bill then pending, or that might be passed thereafter by Congress. On January 5 Mr. Sherman introduced a bill in the Senate providing for a tax on bank circulation, and presenting the question as a dis- tinct issue. He made an able speech in its favor. No reply was made, but thp bill was promptly referred to committee FINANCIAL LEGISLATION DURING THE WAR. 131 and extinguished. We extract the following, which gives the gist of his argument: * And, sir, the system of a local bank paper destroj's all hope of a national currency, and defeats a plain provision of the Constitu- tion, It is difficult to resist the conviction that notes issued by State corporations are bills of credit prohibited by the Constitu- tion of the United States. Mr. Stevens, on December 8, had introduced a bill which, like Mr. Sherman's, was designed to cure some of the evils of the legislation of the previous year, and it shared the same fate. It seemed evident that Congress would not tax, or in any other manner suppress bank inflation, and would con- tinue to issue partially repudiated legal tenders and make a special market for gold. § 107. Mr. Sherman now introduced the National Bank bill. After a lengthy debate it passed the Senate by a vote of 23 to 21. In the meantime there had been several bills for the same purpose introduced and referred to committee in the House. When the Senate bill came down it was not referred, as usual, but brought before the House without consideration in committee with other similar bills. It was not discussed in committee of the whole, but under a motion to refer, which cut off amendments, the friends of the bill debated its general merits. When, by parliamentary tactics, it was forced to a final vote, it passed under the gag rule of the previous question by a vote of 78 to 64. Precautions were taken to prevent either a call of the House or a motion to adjourn. The reader is left to draw his own inferences. The leading provisions of the National Bank act were aptly described by Mr. Collamer, in the following language^ when debating the bill: X "To induce people to take 8300,000,000 of stock on interest, set up these banks, put out their circulation as a national currency, and we guarantee its payment. Wherein is that any better than the paper we have got out now ? I will ask gentlemen to put that question to themselves. Is it any better? What is it founded on? United States credit! United States stocks ! Whom do the bill holders look to for fmal redemption? The United States Treasury. We say we will redeem them. The system has no * P. 50 app., Globe, 3d Session 37th Congress. X Globe, aa sess., 37tli Cong., p. 872. 132 AMERICAN FINANCES. other foundation. All these fictitious contrivances about the responsibility of the individual stockholders amount to just noth- ing at all. As to the provision retaining 25 per cent, of their cir- ■culation, they can put tliat in their own pockets whenever they please, and there is nobody to question them about it. It is simply iind singly founded upon the public responsibility. And, indeed, the honorable Senator from Ohio deems that to be its great feat- ure of excellence. * * * Instead of circulating that amount of our own currency upon our own responsibility and paying noth- ing, we are to hire them to circulate that amount of our currency and pay them $12,000,000 a year in gold for doing it. Yankee as I am, I am unable to perceive how it is possible that that can be a good trade for us, or how any shrewd man would think of enter- ing into an agreement of that kind." The old State bank systevu conferred the power, as we have seen, to draw interest upon its debts, to change the value of money, and, by bankruptcy and suspension, to avoid ultimate payment. The only evil cured in any sense by the new scheme, was the insecurity of the notes. The Grovern- ment was pledged for their ultimate redemption and under- took to furnish the money to redeem them with, if the banks did not, and collect from the banks. The thing pledged as security was not coin, however, but the Government prom- ises, with a margin of 10 per cent. In time of general panic the banks can lock up their coin, divide their plunder among the stockholders, and go into bankruptcy. This will throw large amounts of Government bonds upon the market at a time when credit is shaken, and the result will be that the bonds cannot be sold for coin to redeem the notes with, or any- thing like it. Individuals who may chance to have coin can buy these bonds at their OAvn price, and, when confidence is restored, start National Banks again. This banking privi- lege was retroactive, and was an added consideration on all bonds already sold. If designed to make a market for bonds, as pretended, it should have been limited to future issues. To show the attitude of the banks at that time, we select the following from a letter dated March 7, 1S62, addressed to Hon. David Wilmot, by James Gallatin, of New York, then President of the Chamber of Commerce. After criticising the French assignat and land basis schemes, he wrote in these words : "Now if tlie i)ublio funds are a proper basis for $1,000 of paper FINANCIAL LEGISLATION DURING THE WAR. 133 currency, they must, of necessity, be good for any amount. If one bank or banker is allowed to issue paper on the security of stock, every other must be allowed to do the same, until th.e whole debt of the United States is coined into paper money. The principle of basing paper currency upon lauds, upon taxes, upon public funds, ai'e one and all the same and equally dangerous. To permit a man to spend his money in purchasing public stocks, and still to have it in the form of notes, is an absurdity." It was no absuvditj^, however, in his estimation, that a man should have his money all in his safe and yet lend it to half a dozen men at the same time. The proposed arrangement would enable him to lend but twice, once to the Government and once to the business man. That was the trouble with Mr. Gallatin. The Government to give currency to these National Bank notes makes them partially money by receiving them for all dues to the Government, except duties on imports, and pay- ing them to its creditors for all dues f]-om the Government except interest on the public debt. They are practically a legal tender. How much this is short of allowing corpora- tions to coin money, it is difficult to discover. It is, perhaps, lawful and right that the Government should receive what- ever it pleases in collecting its revenues. But unjust dis- crimination should not exist between citizens in a republic, and if the note of one man is received, those of another equally responsible should be taken, otherwise it is class legislation. But when it comes to paying public creditors with private notes, it is clearly an injustice. '' Congress shall have power to coin money and regulate its value," says the Constitution, and it cannot either Avholly or partially delegate this power to corporations without dele- gating one of its most important functions. If it can delegate the power to coin money, or the power to regulate its value to banks, it can delegate the power to make laws to lawyers. If it ought to do one, it ought to do the other. If bankers know best -what the people need in the way of money, then lawyers knoAv best what they need for laws, and we should incorporate the lawyers for that purpose and abolish Congress. The provision for taxing the banks one per cent, on their circulation, was not designed for revenue, and yields none. 134 AMERICAN FINANCES. It simply covers the expense on the part of the Government of printing, issuing, and looking after the notes. There is a rule of the House that no bill levying a tax upon the people, shall be passed without consideration in committee of the whole. If this be a tax, then the bill was passed in violation of that rule. Objection was made to its passage without such consideration, a)id the Sjjeaker ruled out the objection, on the ground that the one per cent, was no tax, but was merely intended to cover the expense of issuing the notes. §108. The act of March 3, 1863, known as the "Ways and Means bill," passed the House on the same day that the National Bank bill was introduced in the Senate. The Senate acted on the bank bill first in every instance, and then followed with this, amending it in deference to the bank act as will be noticed. The first section of the "Ways and Means bill" provided for a loan of $900,000,000— $300,000,000 for the cur- rent year and $600,000,000 for the following year. The bonds issued under this act were to run ten to forty years, and were to be paid in coin, both principal and interest. Section 2 authorized $400,000,000 of notes, bearing interest not to exceed the rate of 6 per cent, to run not more than three years, and might he made legal tender at their face value, exclusive of interest. It was provided that the interest on said notes and certificates of indebtedness and deposit thereafter issued should be paid in lawful monej^; and that $150,000,000 of greenbacks might be issued to exchange for these notes, and for no other purpose. The provision to make these notes a legal tender was inserted by the Senate, and the option left witli the Secretary to coin $400,000,000 of money or not, as he might see fit. The bank bill provided that the banks shouhl hold a reserve of laAvful money of 25 per cent. of circulation. Making these notes a legal tender would enable the banks to hold interest-bearing money as such reserves, while other people were loaning to the Government without interest. Under "this section, the Secretary issued notes known as the one, and two-year, and coupon notes, drawing 5 per cent., and the 6 per cent, three-year compound FINANCIAL LEGISLATION DURING THE WAR. 135 interest notes. These latter, two years later, were held as reserves by the bankers to the amount of $S0.000,000. Section 3 provided for $15(>,000,000 more of greenbacks, and repealed the provision for their convertibility into bonds after July 1, 1863. It also repealed all previous laws restrict- ing the sale of bonds to market price. Thus 11550,000,000 of legal tenders could be issued in addition to the |i300,000.00olilreadv authorized; $100,000,000 with interest and an additional $150,000,000 without interest, and $50,000,000 to be temporary according to emergency. Although authorized by the act of July 11, 1862, to sell bonds for greenbacks, as he should think most beneficial for the public interest, the Secretary had up to this time made no special effort to sell bonds, but had inflated the currency and enabled the banks to unload. Now, with the Bank Act passed, it was time to depreciate the bonds by flooding the market, so that the banks could load up for banking purposes under the new law. Repealing convertibility would cut the greenbacks loose from coin entirely, and have a tendency to establish them as a permanent currency. Section 4 authorized $50,000,000 of fractional currency in lieu of postage and revenue stamps, exchangable for green- backs, receivable for all Government dues except imposts, and redeemable at the Treasury in currency. Section 5 provided for coin certificates. The Secretary might receive coin on deposit in sums of $20 and multiples thereof, and issue certificates therefor. The certificates were redeemable on demand, and coin must be held for the re- demption of such paper. These certificates were to be received at par for imposts, and such certificates might be issued in payment of interest on the public debt. The whole amount of certificates could not be more than 20 per cent, in excess of the coin and bullion in the Treasury. This was a process of making paper gold to the extent of 120 per cent. on the principle explained in the wheat transaction. From this time on there came to be practiced a false pre- tense with regard to the amount of coin in the Treasury and banks. The banks report coin and coin certificates indis- criminately, and the coin deposited is counted twice, once in 136 AMERICAN FINANCES. the Treasury and again as certificates in the bank. If there was in the Treasury $100,000,000 of coin, the Secretary could issue $120,000,000 certificates, and the reports would show apparently $220,000,000 of coin. Checks on banks which called for coin were also thus counted. For example, June 10, 1872, the report was a fol- lows: Coin in National Banks of New York city, $19,111,1:90. The items were as follows: Coin in New York Banks $ 3,782,910 Certificates 11,412,160 Checks 4,219,420 ^19,414,490 Actual coin 3,782,910 Paper $15,631,580 In January 20, 1877, the coin reported was $35,298,945, of which only $1,669^285 was actual coin, the rest being paper coin. This is the way the coin is reported to-day, and is but the twin of the other Treasury report fraud introduced, by Hugh McCulloch, of deducting cash on hand from the public debt, though every dollar of it was represented by a bond drawing interest. On that plan, funding the debt would pay it. If a man out of debt should borrow $1,000, and put the money in his pocket and keep it there, he would be out of debt all the time, and would be in debt only if he used the money, thus deriving some benefit from its use. Is this reasonable ? Section 7 provided for a tax on State bank circulation of 1 per cent, for two years and 2 per cent, thereafter, and a gradually increasing tax on all amounts in excess of capital stock. Although the Senate had a few days before refused to entertain a bill to tax bank circulation, they w^ere now willing not only to tax, but to increase the amount levied on State banks by the House bill. The tax was in no sense pro- hibitory, however. The whole financial legislation taken together up to this time had provided almost unlimited possibilities of inflation. FINANCIAL LEGISLATION DURING THE WAR- 1:^.7 Should the State banks add nothing to the circukition, the following is a correct statement of the possible inflation : Originally authorized, without interest $30 ),000,000 Additional authorized, without interest 150,000,000 Additional authorized, with interest 400,000,000 Fractional currency 50,000,000 Total Government currency .^000,000,000 I^atioiial Bank currency 300,000,000 State Bank currency, unlimited: now outstanding- 227,')00,000 $1,427,600,000 Bonds bearing coin interest being offered for currency at par was equivalent to selling bonds at a discount equal to the depreciation of the paper below coin, Avhich was soon 50 per cent. The banks had unloaded their bonds, the National Bank act had been passed, and two bills authorizing the Secretary to sell bonds at his discretion below the market price. The Secretary was also empowered to inflate and depreciate the currency at will. The State banks were issuing currency upon the greenbacks, and National Banks were chartered to issue their notes upon bonds to the extent of $300,000,000. § 109. This was the peculiar situation when Secretary Chase commenced selling the 5-20 bonds. He engaged Jay Cooke & Co. to aid in selling them, and, for the first time, they were placed really within the reach of the people. The result was the prompt sale of several millions in excess of the amount authorized. In consequence of inflation and this extensive sale, the banks were enabled to load up with bonds at a dis- count. They could thus convert their coin at a great advantage to themselves, much of the time receiving for every coin dollar two of bonds, and even for two months two and a half. In 1864, the National Bank law was revised and re-enacted, and the transfer from State to National banking set in r;ipidly. During the year the currency was increased one-third (from ten to fifteen dollars per capita) and prices rapidly advanced. Congress assembled Decer.iber T, 1863. Secretary Chase recommended increased taxation of bank circulation, and thought much of the greater part of the inflation was due 138 AMERICAN FINANCES. to such currency. He was gratified with the success of the Government notes as a currency, but thought it inexpedient to issue more of them. He reported that he had issued all the notes authorized, and had made the ^100,000,000 of interest-bearing notes a legal tender as authorized by the act of March 3, 1863. § 110. The act of March 3, 1864, was the first financial law of the session. Section 1 provided that the Secretary might make $200,- 000.000 of the 10-10 bonds payable in five and due in twenty years. Under this section the 5-20's of 1864 were issued. These are the only 5-20 bonds which were made payable in coin by the act authorizing their issue. Section 2 of the act authorized the Secretary to issue $11,- 000,000 of the 5-20's of 1862, to supply the subscriptions in excess of the loan. § 111. The next law was the joint resolution of March 17, 1865, authorizing the Secretary of the Treasury to sell any gold in the Treasury in excess of the sinking fund and interest on the bonds, and he could anticipate the payment of coin interest not to exceed one year. The duties on imports at that time were about §80,000,000 and the interest only about $40,000,000. The result was a hoarding of coin in the Treasury. This made the Govern- ment the greatest "bull" in the gold market. The Secretary had already been empowered to buy gold at his discretion; he was now empowered to sell, so that he cotild use the whole financial strength of tiie Government to operate the gold market. § 112. The proviso Avith regard to the sinking fund gave rise to some debate. It was at this time that the question of -* CD o sir. C V §=. c a^ c — ID ^ -/: iJ "S 2 ??-.ii s S3 -I c H 5 ^ s ^ 18G2 1862 '-1862 1862' 1863 1863 Indif. .11.5 .11.5, .22 " .05 .11 5 .(X).5, .05 .22 2 years .05 .11.5 .06.5' .05 .22 1 year .06 11.5 .05.5 .06 .22 3 years .0T..1 11.5 04.2 .07.3 .22 -ID years .05.7 .11.5 .0.".''< .07.3 .22 ■iO years .06.8 .11.5 .04.7 .08.7 .22! o O H 1863 .22. .17 .17 .16 .14.7 .14.7 .11.3 Kinds of Obligations Frac. cur. Greenbacks ■ Cl?l: and bank notes Temporary loan circillars [10 D. notice] Two-vear notes Certificate of indebtedness 7.30 notes 5per cent, bond.s, com interest 6 per cent, bonds, com interest 1 1 • 41 li w HH =f t-H ■^ a c ^ S cS o £ :S S oo 1.07 1.05 .96 1.13 1 .09 1.04 l.!S 1.17 l.i'J 1 .08 1.03 l.Oo n. "^ >^ r-l c o O .46 .71 .75 1.00 160 AMERICAN FINANCES. By estimating tlie gold value of bonds, the table would stand thus: Year. EC >< m • 1—1 cico (M 5-20 Bonds of 1862 & 1864. Coin Value of Currency. 186.5 .49 .80 .88 1.08 .48 .77 .87 1.03 .44 .74 .84 1.06 46 1868 .71 1869 ,75 1879.'. 1.00 It may be claimed that this bill only settled a question which had long been open, and which should have been settled before. True, it should have been settled before ever the bonds ivere issued. It does not follow, however, that after the bonds were taken it should have been settled at all by legislation, nor does it follow that it should ever have been settled in a manner to defraud the people. We have seen that this dispute was in existence when we were borrowing, and we infer that the question was left open purposely to depreciate the bonds. It was raised as early as March, 1864, and in June of the same year Congress refused to insert the words " in coin." In almost every report the Secretary of the Treasury urged Congress to legislate upon the matter. By the terms of the act of March 3, 1865, the Secretary was distinctly empowered to settle the whole matter by funding; and, acting under this ample authority, with criminal neglect, he issued nearly all the bonds then in dispute, without speci- fying the manner of payment. We therefore conclude pre- meditated depreciation to be at the bottom of the whole matter. This act violated several well-settled principles in law. It gave an added pledge, and additional consideration to public creditors for nothing whatever. Contracts without consideration are void in law, and prima facie evidence of fraud. It made the entire bonded debt usurious, and in ordinary business between individuals would entitle the debtor to relief in the courts. " Every shift, device, or subterfuge which the ingenuity of man can invent to take unlawful interest, either directly or indirectly, FINANCIAL LEGISLATION SINCE TIfE WAR. 161 or by any shift or deceitful way or means, is included in the pro - visions of the statutes (against usury). Neither are cases of usury confnied to precise loans of money but they extend to cases Avhere the relation of debtor and creditor exists, and to cases where the relationship subsists by the sale of wares, merchandise, and commodities. (Schoales vs. LeFroy, 192.) When, upon an application for the loan of money, it is by agree- ment made a condition of the loan that the borroAver shall receive from the lender uncurrent bills at a liigher rate than their value in cash or current funds, the loan is usurious." (Cleveland vs. Loeder, 7 Paige, 557.) " A note payable in dollars for nominal amount of loan in Com- monwealth Bank notes is usurious, and relief will be granted to the extent of the usury, which is ascertained by the value in gold and silver of the notes loaned at the time, and computing interest at the legal rate upon that value, the difference being the usury." (4 J. J. M., 48 ; 2 Dana, 225 ; IJ. J. M., 49 ; 1 John. Chy., 193 ; 2 John. Chy., 537. Garrett Davis, of Kentucky, introduced a resolution author- izing public creditors to sue in the courts, and have their claims adjusted, This resolution was promptly rejected by a venal Congress. It was an attempt of Congress to usurp the functions of the Supreme Court. Mr. P. Van Trump, of Ohio, set this matter forth very clearly at the time in the following language : * "In other words, it enacts, as against the law of contracts, that all implications, whether of law, logic, or facts, shall be in favor of gold, in despite of all the equities in aid of a different construction as to other lawful money, made so by statutes equally solemn and imperative." Chancellor Kent settles the question: "It seems to be settled as the sense of the courts in this country, that the Legislature cannot pass any declaratory law, or acts declaratory of what the law was before its passage, so as to give it any binding weight with the courts. It is only evidence of the sense of the Legislature as to the pre-existing law. The powers of government in this country are distributed in the departments, and each department is confiued within its con- stitutional limits. The power that makes is not the power that construes the law. That latter trust belongs to the Judicial Department exclusively." (Kent, 513, IS'otes.) Although it did not amend any previous law, it gave a new * Globe app., p. 233, 3rd sess., 40tli Cong. 10 162 ' AMERICAN FINANCES. construction, which was the equivalent of such an amend- ment. The act o£ February 25, 1862, declared the o;reenback to be lawful money and legal tender for all debts except two kinds. This bill declared that it should not be a legal tender for still another kind, and necessarily amounted to an added exception, setting aside and reversing all the usual rules of construction. If it be replied that Congress is sovereign and the law-making power, and therefore not bound by any such' rules, we reply that if it is not bound in the doing, it is not bound in the undoing. If the opinions and decisions cited do not apply, then the law of contracts does not apply, and cannot be urged if Congress should see fit to undo the mis- chief. The principles of justice are the same under all cir- cumstances. Furthermore, Congress is not sovereign in the United States; but the people, and the fundamental law, known as the Constitution, is superior to Congress. By the first funding act, the Secretary of the Treasury was permitted to exchange bonds expressly payable in papei , for bonds which he might '' option " to be redeemed in paper, in coin, or indefinite as to their redemption. He " optioned " to refund into indefinite bonds nearly one billion of paper bonds. By the act to strengthen the public credit, these indefinite bonds were declared redeemable in coin. Any attempt to work this fraud directly and by one step would have failed, because the people must have understood it. The two acts amount to a direct repudiation of the original contract, for the benefit of the bondholders. It is as though the agent of a lumbering firm had con- tracted to deliver a large amount of comm:)n lumber, and had conspired with the holders of these contracts to defraud his employers, by " funding," or changing them, first into contracts specifying merely ''lumber," then strengthening the credit of the firm by construing "lumber" to mean first clear whenever the quality was not specified; all this in the face of the fact that only common lumber was paid for at the outset, such transactions would send the conspirators to the penitentiary, and a business man that would quietly sub- mit to such fraud would be con; idered an idiot. § 129. The next move in the game was to refund the debt FINAI^CIAL LEGISLATION SINCE THE WAR. 163 at a lower nominal rate of interest. By the first section of the act of July 14. 1870, yie Secretary might issue for this purpose S200,(X)0.000 of 5 per cent, bonds, payable after ten years, $300,000,000 of 4^ per cent, bonds payable after fifteen years, and $1,000,000,000 of 4 per cent, bonds payable after thirty years. Previous to the passage of the Credit act, when it was a disputed matter as to coin payment. Congress refused to specify coin in the authorizing acts, as we have seen, and rejected Mr. Brooks' amendment. Now they insert not only the words '' in coin," but also this curious and important clause, "• coin of the present standard valued . The Credit act merely pledged coin, and Congress could, by reducing the weight of coins, yet remedy the injustice done by the change in the manner of payment. Upon any con- struction of this clause, if it were binding, this could not now be done. The phrase ""present standard ralue,'^ is open to construction, and may be made to mean either coin of the present weight, or coin of the present value. The latter con- struction, however, would imply that the value of coin could change, and if such was intended, the word '^ standard" would have been omitted. It is evidently designed to pave the way for further robbery. If coin should really advance, it would be argued that the weight could not be changed, and the rascals would lay stress on the word "standard." Should coin fall in value, they would then accent the word value, and insist upon an increase of its weight. As to its constitutionality, it is purely buncombe legislation, like the limit of $450,000,000 put upon the greenbacks. Congress has a right at all times to exercise the powers delegated to it by the Constitution, and no Congress can law- fully limit a future Congress, nor put any hindrance in the way of its exercising the same power. This section, for the first time, exempted the bonds from taxation by United States authority. The argument in favor of such exemption is plausible, but fallacious. We are told that if the Government issues a bond, and taxes it 2 per cent, with other property, it will have to pay 2 per cent, more interest in order to negotiate the loan. This would result in the folly of collecting njoney as taxes, and returning it as 164 AMERICAN FINANCE!^, interest. A plausible proposition surely. Let us see how it works. Suppose the ratio of otlier taxation should change. Paying 8 per cent, interest on bonds taxed 2 per cent, is •equivalent to paying 6 per cent, on untaxed bonds. Change now the rate of tax to 4 per cent., and the untaxed sixes are 2 per cent better than the taxed eights. Any increase also in the value of the money unit would result in the same manner. Two per cent taxes, when money is worth 50 is only half as much as when money is worth 100. It matters nothing to the untaxed bondholder how much taxes are in- creased, as he escapes all the increased harden. On the other hand, it might occur that a reduction of taxes or of valuations would work injustice to the bond- holder. The only equitable way is to increase and decrease the taxes on bonds equally with other United States taxation. By a reference to the diagram No. 9, it is seen that the merchandise value of the United States revenues steadily in- creased, indicating that the untaxed bondholder escaped a part of his share of the tax. Of course this may have been offset to a slight degree by an increase of the tax-paying ability of the people. The objection to taxing bonds on the ground of the expense of collecting money as taxes and disbursing it as interest is wholly unfounded. It is the easiest tax in the world to col- lect, as it can be deducted from the interest, requiring no assessment, and allowing none to escape. The objection that foreigners would not buy such bonds can hardly be valid, for they would be worth as much to them as to o«r own citizens. They would take chances on our taxation. They are com- pelled to do that now, for if we did not tax we could not pay them. Increased taxation increased our ability to pay, which in turn increases the value of the bonds, and this ad- vance being at no expense to them, the tax could and would be afforded. Section 2 of the act authorizes the exchange of these bonds for the 5-20's, or the sale of them for coin with which to purchase 5-20 bonds. These transactions were to be at par. Section 3 provides that when the bonds become payable, FINANCIAL LEGISLATION SINCE THE WAR. 105 .the Secretary may, at his option., in the order in which they were issued, call them in and pay them off. Section 4 authorizes the Secretary to pay 5-20 bonds at par in coin. Section 5 authorizes what is known as gold certificates. The Secretary might receive gold coin, and issue certificates therefor, to draw not more than 2^ per cent, interest, the interest to cease at his option. These certificates were to be received at par for bonds, and 25 per cent, of the coin thus received was to be retained as a redemption fund, and the balance to be used in purchasing 5-20 bonds. These certifi- cates were nothing more or less than paper gold, and had only 25 per cent, gold basis, the rest being confidence. Section 6 relates to the sinking fund. § 180. The act of July 12, 1870, authorized an additional issue of 51,000,000 bank notes, and provided for retiring the three per cent, certificates. During the years 1869 and 1870, we find some curious movements of the diagram lines. The contraction of the currency was stopped in 1869, but prices continued to fall until 1871 against expanding loans and discounts and sta- tionary currency. We find a large importation of coin and bullion, although coin prices were high. These apparent ab- normal movements were in consequence of the exportation of bonds in 1870. The 5-20 bond then cost a foreign investor about 87 cents, and would draw six cents in coin, which was nearly 7 per cent. These cheap and desirable bonds operated exactly as an article of export, serving to retain our goods and bring in foreign merchandise, resulting in depressed prices. While paper prices were falling gold prices were rising. By the standard of paper, goods were getting cheaper; by the standard of gold they were getting dearer. The in- creased supply of gold had reduced its value. § 131. By the act of February 12, 1873, silver was demone- tized, and the legal standard limited to gold. Up to that time, either gold or the old silver dollar of 4121- grains could be tendered in payment of debt. This act simply dropped out the old silver dollar. It made no change in the weight of the minor coins, and limited the tender of such silver 166 AMERICAN FINANCES. coin to five dollars aud under. The old silver dollars already . out were demonetized by the revision of the statutes^ June 22, 1875, sections 3,585 and 3,586. These laws were all passed when coin was out o£ use, and silver about 3 per cent, above gold. They excited but little debate and no public attention. The history of their passage shows that the majority of Congress did not know that the old dollar had been omitted. It was taken out in conference committee, and the report pushed through without debate. It was repeatedly stated in reply to inquiries that the bill made no chanse in the coins or devices, but was a codification of the laws. The omission in the Revised Statutes was clearly un- authorized, and there was no means of knowing it, as the report was not read, and could not be, on account of its length. It is, of course, utterly inpossible that two articles of mer- chandise should always have a fixed relative value; therefore, with a double standard, as they change in value, whichever happened to be the lowest will be in use. The first coinage law of 1794 fixed the ratio of gold to silver as one to fifteen, the silver dollar being 416 grains weight. 371i grains pure silver; the gold dollar 27 grains, 24f pure gold. This proportion made silver the cheapest. Gold was practically out of circulation, and the coinage at the mint was mostly silver. In 1834 the weight of gold coin was reduced to 25.8, and in 1837 silver was reduced to 412^ grains. The alloy in the silver being the only reduction, the fine silver remained the same. Both w^ei-e Ijrought to 9-10 fine, however, which made the pure gold in one dollar but 23.22 grains. This reduction, together with the supply of gold which later came from the mines of California, rendered silver the more valuable. In 1853, to remedy this, the frac- tional coins were reduced in weight to 384 grains to the dol- lar, which made it worth about 95 cents in gold, and the remainder of the value maintained by restricting the supply. This is subsidary coinage, and in this way only can more than one metal circulate at the same time. The silver dollar of 412^ grains was retained, however, and would operate at any time to protect debtors in case gold should advance. FINANCIAL LEGISLATION SINCE THE WAR. 167 This principle of maintaining the value of suhsidary coin is the basis of a correct paper money system. By taking out a part of the bullion and restricting the supply, silver is main- tained at par with gold. Whether the silver removed be 5 per cent, or 95 per cent, is unimportant; its value as money depends upon the demand for it as moiieij, coupled v\rith a re- striction in its supply being entirely independent of its bul- lion value. By the use of a double standard, greater steadi- ness is obtained. In Diagram No. 1 it will be seen that the lower metal has been always nearest the average line, gold from 1860 to 1873, and silver since 1873. It is as though corn and wheat were both available for food. If we should abandon corn, we can easily see that the supply of bread would be more unstable. If we use both, when one chances to be scarce the other would come to the relief of the hungry. The fact that but one metal could be the standard at one time, together with the convenience of some s^'stem of inter- national coinage, weights and measures was the ostensible cause of a conference in Paris, in 1867, composed chielly of commissioners at the exhibition. The French gold coins were decided upon as the basis of such recommended coinage, and it was further resolved to recommend the abandonment of the double standard. Whether such was the design or not, the inevitable consequence of throwing all the duty upon one metal heretofore performed by two, could not but enhance its value, and the value of every coin contract rep- resenting a fixed weight of metal. Great Britain fell in with the scheme at once, as did also Germany, both being largely creditor nations. There was some sense in their action, but in the case of the United States, it was far otherwise. We, in debt to an enormous amount both government and pri- vate, mostly incurred in a depreciated paper, had just passed an act promising coin (either gold or silver) for the whole of it. We had followed that by promising coin of present standard value, designed, evidently, to be construed to mean present standard weight, and now to engage to pay gold only would be an act of folly fit only for a sequence to what had preceded. Bj^ observing the diagram lines representing the 168 AMERICAN FINANCES. production of ^old and silver, it will be seen that the supply of. gold was falling off, while that of silver was increasing rapidly at that time. Whatever may have been the motive^ Congress had done all it oould for the bondholders in the matter of depreciating and appreciating the paper, and changing the contract from paper to coin. This would now appreciate the promised coin. It would be equivalent to increasing the weight of coin, and would be a fraud not so easily understood and resisted by the unfortunate tax-payers of the country. This was purely a creditor's move. Whatever currency chances to be cheap, and enables debtors to pay their obliga- tions with anything like equit3\ the creditor portion of the community holding the reins of government always attempt to demonetize. When the gold mines were discovered in California, they tried to demonetize gold, Whei^ greenbacks were cheapest, they tried to demonetize them, and now that silver was cheaper than gold, they try to demonetize that, though both were advancing in value. § 132. The act of June 20, 1874, relieves the National Banks from holding any reserves on account of their circula- tion, and provides that they shall keep a 5 per cent, redemp- tion fund in the hands of the Secretary of the Treasury, which should constitute a part of their deposit reserves. The act also fixes the amount of the United States notes at S382,- 000,000. Up to this time they had been able to keep their reserves in certificates drawing 6 per cent, interest. As they were now prohibited from drawing more than 3 i)er cent., at their dictation Congress released them from holding any reserves whatever on account of circulation. § 133. The next act of importance was the well-known resumption act of January 14, 1875. The bill was gagged through the House under the operation of the previous question, suppressing all debate and amendment. The first section provides for the r-edemption of the frac- tional currency in silver as rapidly as possible. Section 2 repeals the law making a charge for coining gold. Section 3 repeals all limitation upon the amount or distri- bution of National Bank currency, and makes banking free FINANCIAL LEGISLATION SINCE THE WAR. 160 to all bondholders. This section also provides for retiring the greenbacks to the amount of 80 per cent: of the increase of bank notes, until only $300,000,000 remain out. It further provides that on and after January 1, 1879, the Secretary of the Treasury shall redeem the greenbacks in coin at the Sub- Treasiirij in New York, only in sums of not less than fifty dollars. For this purpose he might use any surplus funds, and sell any kind of bonds authorized by the act of July 14, 1870. § 134. The resolution of July 22, 1876, is collateral to this act. Section 1 provides for the issue of $10,000,000 of silver coin in exchange for greenbacks. Section 2 demonetizes the trade dollar, and authorizes the Secretary to limit its coinage to the export demand. Section 3 provides for further issues of silver, so that the aggregate fractional currency may be brought up to $50,- 000,000. Section 4 authorizes the purchase of silver bullion for the purpose of such fractional coinage. Under these acts the scheme was to sell 5 per cent, bonds for silver, and take up the fractional currency. This would take over $40,000,000 of bonds, which would be an annual interest charge of $2,000,000 upon the people. They would then have the trouble of carrying nearly an ounce of bullion to every dollar of change, and have something that they could not conveniently send by mail. Should anyone lose or destroy a dollar of fractional currency, the Government would gain the loss. By this arrangement, should the silver be lost, the individual would not only lose the same, but also have the pleasure of assisting in paying interest on the bond at the rate of five cents per year, and eventually in paying for the bullion. Suppose the bond should run twenty years. By the first operation the individual loses $1; the Government gains $1; the nation and bondholder neither gain or lose. By the second method the individual loses his money ($1); the Government pays interest, $1, and principal, $1. The individual loses $1, the nation $2, making $3 total, to offset which the Government receives the original loan which gave 170 AMERICAN FINANCES. rise to" the paper currency at first. The loss to the individual is the same in both cases; the loss to the nation is nothiug in the case of the paper, but is one dollar of usury and one of bullion in the other. The resumption scheme was cunningly arranged. The language was so ambiguous that it might be construed either to retire or reissue the notes when redeemed. When ques- tioned on this point, John Sherman, who was in charge of the bill, stated that it was purposely so left, and refused to give a construction of his own on this language. By redeem- ing in sums of $50 at one point only, the restriction would amount to a slight premium, and would prevent the coin from actually coming into the hands of the people, and would amount to nominal resumption only. This slight premium would operate exactl}' as the slight difference be- tween gold and silver previous to 1837, and prevent its actual circulation. This would enable the Secretary, importers, and bankers to keep it all within its former uses. The banks could by this arrangement substitute their paper for the entire greenback circulation. They could collect from the people on deposit §50,000 of greenbacks, present them for redemption, and take a 5 per cent, bond instead of coin. The bonds they could leave for currency, providing out of their own funds for the 10 per cent, margin and reserves. Had the law declared that, after January 1, 1S79, the Secretary might fund all the outstanding greenbacks into 5 per cent, bonds of 1870, it would havn been exactly the same thing. Such a law would probably have been defeated. By the farce of redemption in coin, and selling bonds to buy the coin back, the same thing could be accomplished. The pro- vision making banking free to all bondholders, and removing the limit to their issues, i^laced the power in the hands of the banks to inflate the currency at their pleasure. With the prospect of resumption, it would not do to proceed at once in tint direction, for should a run of gold occui*, they would be unable to meet the demand, and as the Government retired the greenbacks, they would have to fail. This kepi them in check for the time being. § 135. The contraction at the close of the war bore its; FINANCIAL LEGISLATION SINCE THE WAR, 171 legitimate fruit in the panic of 1873. 'By the diagram it will be seen that the Funding act of 1870 was passed when gold was plenty and cheap in this country. Reducing the rate of interest on bonds at first checked their export, and increased the export of gold. This raised the value of gold, and then the bonds began to go again. This resulted in a tremendous importation of foreign goods, which operated to ofl'set the rise of loans and discounts — the increased currency being met by an added supply of goods. The export of bonds here again disturbed all the ordinary laws of trade. Prices did not follow the expansion, but remained nearly stationary. The situation in the banks, September 12, 1873, was as fol- lows: 1873. •^^ Deposits ^610.000,000 Circulation 340,300,000 Legal tenders 92,400,000 Loans and Discounts 944,200,000 This panic was not a run for redemption of bank notes like that of 1857. The notes were made about the same value as the greenbacks, by law, and it was purely a speculative panic produced by a collapse of credits. Private credit had been expanded, and the fall of one business firm knocked down another. We find that from 1869 to 1875 there was no con- traction of currency or discounts, but, rather, a slight expan- sion. Business failures now threw large quantities of goods upon the markets at forced sales. This depressed prices, and also caused imports to rapidly decline. The vast amount of liabilities which now were to be liquidated, came by substi- tuting credit, as the currency disappeared after the close of the war. Hugh McCulloch's theory was that the people would build a credit fabric upon the currency in any event. If that were true, why had they not done so already? We had expansion from 1860 to 1864 to an enormous amount. Heretofore every such expansion had been followed by credit 172 AMERICAN FINANCES. operations. At the close of the war, however, bu.siness was mostly done for cash. As the cash disapjjeared, people had to resort to credits or curtail their business. § 136. The stagnation of business folloAving 1873 is indi- cated by the fall of the lines of imports and exports. The banks were not threatened with a run for redemption of their notes, as in case of a panic on the specie basis. Neither their notes, nor the greenbacks in which they were redeem- able, could be exported. Domestic creditors would i^ceive either, and foreign creditors neither. Under such circum- stances there could be no conversion. This shows another advantage of a system of domestic currency. In 1874 mer- chandise was shipped in excess of imports, and the difference has increased rapidly ever since 1875, until, in 1879, the dif- ference to our credit was !?282,216,000. In 1875 more coin and less merchandise was exported, but it will be seen that we sent enough to pay for all we imported, and the coin paid old debt. The bank expansion about neutralized the panic, and we were now where, by making greenbacks receivable for imposts they would at once be, at par. This is under- stood Avhen we consider that their real value in merchandise was then as great as was that of coin in 1866 and 1870. We were paying for our imports in goods, which would prevent a demand for coin for export purposes. We would in that way cheapen gold by reducing the demand for duties. Such a law would have put us at par at once, and avoided all the necessity for further contraction in order to resume. Instead of this, the Resumption act was passed. The lines of the diagram show the effect. Currency, and loans and discounts were rapidily contracted by the banks. They rode through the financial storm of 1873 under full sail, ballasted by the greenbacks. During that panic they had aided the business men by expansion, but now, when everything was serene, they were compelled to shorten sail to meet a future reduc- tion of ballast to the amount of gold that might be available in 1879. This rapidly reduced prices, and revived the pres- sure ui>on business men. The effect may be seen from the FINANCIAL LEbfl^LATIUJS ;sll\CE THE WAR. 17: following table of bankruptcy, from Dunn Barlow's reports as found in the American Almanac for 1880: Aggregate Number and Amount of Failures in thi United States for Twenty-one Years— 1857-1878. (Compiled from Hunt's Merchant's Magazine, and Dun, Barlow & Co.'s Circulars.) Year No. Liabilities. Year 1857. 1858. 1859. 1S60. 1861. 1802. 1868. 1864. 1865. 1866. 1867. 4,982 4,225' 3,913 3,676 6,993 * 1,6.52 *495 *520 *530 1,505 2.780 1868 1 2,608 8291,750,000 95,749,000 64,394,000 79,807,000 207.210.000 23,049,000 7,899,000 8,.579,000 17,625,000 53,783,000 96,666,000 63,694.0001 i 1869. 1870. 1S71. 1872. 1873. 1874. 1875 . 1876. 1877. 1878. 1879. No. 2,799 3,551 2.915 4,069 5.183 5.^30 7,740 9.092 8,872 10,478 t5,320 Liabilities. 75.054,00f 88,242 ,00C 85,252.00C 121, 03,6, OOC 228.499.000 155,239,000 201 .060,000 191,117,000 190.669,000 234.383.132 81,054,940 ♦Northern States only. tNine months only. We see from this table that the amount involved in the item of business failures alone amounts to $1,576,552,072 in less than ten years. Add to this the mortgage sales of real estate and personal property, such as houses, lands, railroads, etc.,' and the im- \neuse amount of property sold at a sacrifice by solvent parties to save themselves, and some idea may be formed of the ruin consequent upon coiitracticn, and appreciation of the standard of our money. § 137. These terrible consequences at last aroused the people, and a political movement among the masses began to take definite form in the shape of a new party demanding a halt in these unjust proceedings. Agitation and discussion began to bring to knowledge some of the frauds embodied in the acts of Congress since the war commenced, and the tide began to turn in the summer of 1876. The defenders of the people in Congress rapidly gained strength, and the result has been the passage of the act of February 28 and May 31, 1878, both to some extent being victories for the plundered tax-payers and debtors of the country, § 1S8. Section 1 of the act of February, 28, 1878, provides for the coinage of " silver dollars of the standard of 412^ 174 AMERICAN FINANCES. grains as provided by the act of January 18, 1837," to the amount of not less than $2,000,000, nor more than $4,000,000 per month. The Secretary was authorized to buy the neces- sary bullion, and account for the gain to the Treasury as provided in the case of the fractional coinage. This was but a partial concession, and operates to make silver dolhirs a subsidiary coinage, and to maintain their value above that o£ the bullion. It is not, however, a restoration of silver. Be- fore silver was demonetized, an3'one having silver bullion could have it coined the same as gold; but such is not now the case, and silver is no more remonetized than before. There is simply an increase of subsidiary coinage, which, of course, has some effect upon the value of money. Section 2 relates to a monetaiy commission to confer witb other nations with regard to a bi-metallic standard, and inter- national money. This revived the scheme to unify the mone- tary machinerj of the world, and would practically have con- solidated the money power of all civilized nations. Such an international coinage for purely international commerce might be of utility. Should Congress attempt, however, to establish such money as a domestic currency, it would at once deprive itself of any power to regulate its value. All changes of value produced by foreign disturbances would be felt here, and Congress would be powerless to jjrevent any injustice that might thus arise. It is a cunning plan to rob the people of their power to protect themselves from the encroachments of a large and powerful creditor class. Section 3 provides for silver certificates to be issued for silver coin and receivable for all public dues, including duties, the silver to be retained on deposit, dollar for dollar, till called for. This is exactly the plan upon which the Bank of Eng- land notes are issued in excess of £14.000,000. The paper becomes an exact substitute for the coin, while it is more convenient. Hoarding the silver will, of cour-e, prevent any inflation. The bill was vetoed by President H;iyes, and passed over his veto. His plea was chiefly hat silver had depreciated, and to pay it to the bondholder would be wrong. The fact is that silver and gold have both appreciated, and we now pay more value than the bond calls for in either. FINANCIAL LEGISLATION SINCE THE WAR. 175 When the act of 1870 was passed, promising coin of " present standard vahie," gold coin had a purchasing power of .77, and silver of .78.5, taking the average for 50 years at 100. Gold was, in 1879, at 1.16, and silver at 1.06, so that, according to contract . Congress should reduce gold dollars to 17.1 grains, and silver to 305i grains. Instead of depreciating, silver has appreciated 25 per cent, and gold over 50 per cent. The man w^iio prates about depreciation of silver under such circum- stances, is either iafnorant, or a rascal, or both. Of the two, silver has been the more honest metal, for it has appreciated the least. § 139. The act of May 31, 1878, prohibits retiring any more of the greenbacks, and provides that they shall be reissued. Until repealed, this makes them a permanent circulation. This concession became a necessity to protect the banks. Had the original intention of retiring been carried out, they would have been left without adequate basis for their cur- rency, and when resumption came a run would have set in. The act of February 25, 1862, specifies that the greenbacks may be reissued from time to time, as the exigences of the public interests may require: and the succeeding acts author- izi]ig their issue repeat the same language. The act of June 20, 1874, fixes the limit at 1380,000,000, which is the amount that can now be lawfully issued without further legislation. But Congress can at any time do whatever is necessary and proper to coin money and regulate its value, and no legislation of Cvmgresscan be binding which attempts to fix limits to the exercise of the constitutional powers of Congiess. In speaking of this act, Mr. Sherman, in his report of December, 1879, page 10, says: " This act must be construed in connection witli the provision of the Constitution that 'no money shall be drawn from the Treasury but in consequence of ap])ropriatious made by law.' The reserve fund created by the Kesumption act could not, without further legislcition, be applied to the payment of current appropriations." Thus it is seen that the Secretary intends to defeat the will of Congress by hoarding the currency. He has power to sell bonds for coin at par, and now receives greenbacks the same as coin on such sales. These, he says, cannot be paid out on appropriations. 176 AMERICAN FINANCES. § 140. He is also, by the act of February 26, 1879, author- ized to issue certificates drawing 4 per cent, for acreenbacks, in any quantity, and the greenbacks are set aside as a special fund, and cannot be reissued except under certain circum- stances. So that as long as the Secretary can sell bonds at par, or borrow at 4 per cent., he can contract the currency in violation of the expressed will of Congress. It may be sup- posed that as soon as some contraction has taken place, a demand for money in business will prevent more 4 per cents from being taken. Nothing could be further from the truth. Contraction produces falling prices ; falling prices make business investments less to be desired, and capitalists greedily suck up more bonds. The act is a cunning device to defeat the act prohibiting the retiring of the greenbacks. It sub- stantially provides that the Secretary may fund greenbacks and hoard them in the Treasury as a special fund to pay bonds of 5 per cent, and upward. He can under this law retire every greenback in circulation at his pleasure. Money in the Treasury is as much retired as though burned, so far as its effect upon business is concerned. The following table gives some idea of the hoarding in the Treasury from 1876 to 1879: CASH IN" THE TREASURY. July 1, 1876 ^^149,909,377 July 1, 1877 214,887,645 July 1, 1878 286,591,453 July 1, 1879 386^832,588 The contraction by hoarding in three years was $236,923,- 211. From this deduct $30,370,000 certificates of deposit issued as a substitute for money to the bank for clearing house operations, and we have an actual contraction of $206,553,211. Another false pretense appears here. For all of this increase of cash on hand there have been issued bonds bearing interest, and, this, as has been explained, should not be deducted from the outstanding debt. The pretended decrease by so doing has been $72,232,088, the real increase has been $169,175,463 in three years. The game can be profitably played by the banks thus: Ex- FINANCIAL LEGISLATION SINCE THE WAR. 177 change bank currency for greenbacks, and those for 4 per cents, and with 4 per cents procure more currency and repeat the operation. The section in the Bank act prohibit- ing the hypothecating of bank currency to increase capital stock was not designed to be enforced, and is easily evaded. § 141. We have now resumed upon the paper basis, and are where Great Britain was at the close of the first period of contraction. Below is given a table showing the similarity of the process. By comparing it with the table on page 70 we can understand how much more contraction would be required to actually resume : ^ Paper Gold Currency. Premium. Jan. 1, 1862, Suspension $202.000,000 . . None. Inflation 746,318,000.. Jan. 1, 1865, Eug. of Inflation. . . 948,918,000.-102 per cent. Contraction 288,437,000 . . Jan. 1, 1879, at par 660,481,000 . . None. In order to maintain resumption, the Secretary of the Treasury has ordered the law to be disregarded, and green- backs to be received for customs and all other purposes. *"No distinction has been made since tliat time (January 1, 1879) between coin and United States notes in the collection of duties or in the payment of the principal or interest of the public debt. ****** There has been, however, but little demand for coin, and United States notes and the circulating notes of National Banks have been received and paid out at par witli coin in all business transactions, public or private, in all parts of the country." This he admits he is forced to do to maintain resumption. X " It has now definitely assumed to pay these notes in coin, and this necessarily implies the receipt of these notes as coin. To refuse them is only to invite their presentation for coin." This adds a use to them, and removes it from coin. We have seen the effect in the case of the demand notes. This, of course, has a tendency to enhance the value of greea- backs. On the other hand, the value of gold has been changed by the following change in supply. Supply of material serving the purpose of gold in 1879: Actual coin in the country and coin certificates, less coin * Sec. Report, 1879, Dec. 1 p. 9. t Sec. Eeport, Dec, 1879, p. 13. 12 178 AMERICAN FINANCE IS. hoarded in United States Treasury in 1880. There has been added to this all the greenbacks in circulation, and an import of $74,000,000 of bullion, together with the domestic product, and a disbursement from the Treasury of hoarded money ta the amount of $185,743,06(3. To this we are safe in adding the National Bauk notes which the Secretary receives the same as coin because "equal to coin." From this deduct the silver bulliou, imported and produced, and we obtain some idea of the increased supply of " coin " in the market. The result has been a depreciation of both coin and paper of about 16 per cent. With the coin, the paper money of the country is at par, but neitl^er are at the par of a year ago, in exchange for merchandise. With our largely-increased imj>orts of merchandise it is safe to assume that, upon an enforcement of the law and refusal of aoythiug but coin and coin certificates for duties, there would at oncu be a premium of at least 10 per cent, on coin. The situation is now critical. Any further inflation will raise prices, turn the balances of trade, increase imports,, and soon make a panic. Any further contraction, or any effort to actually resume or retire any of the greenbacks will be sure to result in disaster. § 142. The situation in the banks, June 30, 1880, was as follows : 1880. in ^ia. ] I >"po.sits .^;4.402.6;'6 Circulation 31-4.505.427 Coin ) j 4f),484,r>45 Legal Tender f | 61.4S0.7i7 Coi'i Certificates ) j 50.021.060 Loans and Discounts f ( 991.143,126 We have here placed the coin (black block) and green- baclcs (shaded block) as basis. The coin certificates are placed with the loans and discounts, for, like theni, they are assets, not basis. They cannot be used to redeem a bank note, nor pay a depositor. FINANCIAL LEGISLATION SINCE THE WAR. 179 The deposits have evidently been enormously compounded, and are in a dangerous condition. Demonetize the green- back, and it at once becomes assets, like coin certificates, and the consequences are easily predicted. The Comptroller of the Currency, in his report for Decem- ber, 1879, makes the following estimate of coin and paper currency in the country: Treasury notes (greenbacks) $346,681,016 National Bank notes 337,181,1:18 Gold in United States Treasury, less certificates 157,960,193 Silver in United States Treasury 50,078,620 Coin in banks (October 2) 42,173,731 Estimated coin held by the people 231,478,515 $1,165,553,493 Of this amount, the Treasury notes, bank notes, and about $70,000,000 of silver, constitute the currency at present. This amounts to $753,862,434. Suppose we actually resume, and put the $231,478,515 of coin into actual use. Prices are now at 46.25, a proportionate increase would bring them up to about 60.47. This rise of prices would be still greater should the Treasury pay out any more of its coin. This would be still further enhanced by any increase of loans and discounts, and the inflation would surely breed an export of coin and an old-fashioned panic. Any attempt to demonetize the greenback would result disastrously, unless the Government was prepared to redeem every dollar in coin. Immediately the legal tender quality is removed, they would no longer serve as bank reserves. The banks would at once create a demand for coin to take their place. That would increase the value of coin, and either result in suspension, or an extensive substiLution of coin for greenbacks. If the greenbacks vere not retired they would increase the supply of paper and widen the diiference between puper and coin, and the drain could only be stopped by contraction. To remain as we are is equally dangerous. The Government -issues its legal tenders, and by redeeming in coin they operate both as notes and as money; and we have compound inflation, the United States banking upon 180 AMERICAN FINANCES. coin, and the banks upon the Government issues. Whenever the run on the Government sets in, there must be compound contraction. There can be but one consequence. The banks will inflate the currency until the panic sets in. and then leave the Government to redeem their issues and preserve the currencj' from collapse. They have their option. They may either inflate the currency, and. by reaping a rich har- vest of interest on what they owe, profit by all the advan- tages of good times. Or they may contract the currency, and by compelling failures, turn their available means into prop- erty at very low prices; or they may turn key on the coin in their vaults and compel the Government to market their bonds to the bankers at their ovm prices, in order to raise funds with which to redeem the bank notes. § 143. In order to obtain a comprhensive view of the whole scheme since the commencement of the war. we present below a digest of the movements on the part of the Govern- ment and money power. At the outset the banks had complete control of the paper currency under State authority, and the Government, by the compromise efifected during the contest with the United States Bank, was limited to coining metals and managing its own finances through the Sub-Treasuries, independent of the banks. The scheme commences at the outbreak of the war, in 1861. The movements were as follows : On The Part of the On the Part of the Govern MENT. Banks and Money Changers. Infiation Period. Resorted to borrowing instead of taxation. Alhwed the Secretary to deposit Government funds with the banks. Issued circulating notes of its own. Chase refuses to borrow bank notes. Government suspends. House passes a full legal tender bill to issue ^150,- 000,000 of paper money. Senate Agree to loan $150- 000,000. Attempt to lend their notes to the Government. Refuse to receive Government notes and go into suspension. Bankers lobbv the amends the bill. Agrees to pay coin Senate FINANCIAL LEGISLATION SINCE THE WAR. 181 interest anrl repudiates its money for import duties, limits the sale of bonds to market price, preventing any large sales, and exempts bonds from State taxation. Taxes everything but bank notes and bonds. Makes the demand note a full legal tender, authorizes $150,000,000 more of greenljacks, an indefinite amount of postal currency, and prohibits private currency below $1. Author- ized sale of 5-20 bonds on such terms as the Secretary might think most beneficial. Senate refuses to entertain a bill to tax bank notes. House refuses to make greenbacks full legal tender. Passes the National Bank act, authorizing 1300,000,000 bank notes, also 10-40 bonds payable in coin, also $150,000,000 greenbacks and $400,- 000,000 of interest bearing legal tenders at the option of the Secretary. Repealed restriction to market value on sales of 5-20. Levies a small tax on all bank currency. Secretary sells 5-20 bonds so readilj^ that that sub- scriptions exceed the amount author- ized. Secretary makes interest-bear- ing notes a legal tender. Authorizes the manufacture of paper gold (coin certificates) and sale of the gold in the Treasury. Congress disputes as to payment of 5.20 bonds in coin. Refuses to insert the words "in coin" in the act of June 30, 1864, and repeals authority to issue 10.40s of 1863. Attempts to forestall future legislation in the mat- ter of currency. Unload their bonds. Inflate their currency, using legal tenders as a basis. Secretary makes no effort to sell, upon pre- tense that he was re- stricted to market price, and continues to inflate and depreciate the currency. Banks continue to flate their currency on greenback basis. Accept and circulate full legal tender paper at par with gold. Load up with bonds at about fifty cents in coin. Hold interest- bearing notes as re- serves. 182 AMERICAN FINANCES. Authorizes borrowing National Bank notes at 6 per cent, interest. Exempts National Bank notes from State tax by construing them to be Government obligations. Levies a prohibitory tax of 10 per cent, on State bank circulation. Authorizes $400,000,000 bonds or 7.30 notes. Secretary issues nearly all in notes. Congress still refuses to settle the question of payment of the 5-20 bonds in coin, though frequently urged to do so by the Secretary of the Treasury. Changes the interest on outstanding bonds from annual to semi-annual payment without consideration. Authorizes $600,000,000 of bonds or 7.30 notes, and empowers the Secre- tary to specify the manner of pay- ment of both principal and interest. Compels him to specify the interest. Authorizes Secretary to fund all interest-bearing obligations into above bonds at Jils option. Secretary issues several hundred millions 7.30 notes payable in currency, resulting in great inflation. Close of the War. Contraction Secretary funds nearly $1,000,000,- 000 of short timeobhgations, payable in currency, into bonds, on which he does not specify the manner of pay- ment, though specifically authorized to do so; also contracts the currency over $200,000,000. Hoaiuc' over $45^ 000.000 contrary to law. Authorizes 3 per cent, certificates to pay compound interest notes, and authorizes their use as bank reserves. National Blinks loan their notes to the Gov- ernment on interest; also loan Government deposits to the Govern- ment and draw in- terest on them. State banks are per- suaded (?) to change to National Banks. and Funding. Speculators buy up floating debt payable, principal and interest, in greenbacks, and drawing inter est worth less than 5 per cent, in coin, and pro- cure bonds drawing 6 per cent, in coin, and payment not specified. Hold 3 per cent, re- FIlSfANCtAL LEGISLATION :smCE THE WAR. 183 A 10 per cent, prohibitory tax on municipal scrip smiigg-led througii Congress in a wrapping paper bill. Congress prohibits further destruc- tion of greenbacks. Secretary con- tinues to retire interest-bearing cur- rency. serves not a legal ten- der, instead of green- backs, as originally in- tended. Bepudiation. Congress declares its intention to pay all of the Government debt in coin, thus repudiating much of the original contract. Authorizes increase of bank notes and retires 3 per cent, certificates. Releases banks from holding reserves on account of circu- lation. Refunding. Authorizes refunding at par into long time bonds, at a nominal lower \ interest, payable in coin of present ent standard value, and exempted from Federal as well as State tax. Author- izes payment of 5-20 bonds in coin and farther issue of "paper gold." Speculators sell bonds at a great ad- vance abroad. Banks report " paper sold" as coin on hand. Contraction of both Coin and Currency. Demonetizes silver and hoards gold to resume. Promises to redeem green- backs in coin, January 1, 1879, and authorizes further destruction of greenbacks and substitution of bank notes. Makes banking free to ail bondholders. Converts non-interest into into interest debt by retiring fractional currency. Pretends to remonetize silver by making a subsidavy coinage of silver dollars, maintained above their bul- lion value by limited coinage. Pro- hibits further contractions of green- backs, and orders them to be kept in Bondholders draw interest and secure payment of gold only, of 50 per cent, greater value than the stand- ard value of 1870. 184 AMERICAN FINANCES. circulation. Authorizes tlie Secre- tary to defeat the preceeding kiw by funding and hoarding. Pretended re- sumption. Secretary redeems in coin in New York only, and in sums of $50 and over. Secretary receives the greenbacks for duties and pays them on the prin- cipal and interest of the public debt, same as coin, also receives bank notes for imposts, contrary to law. Disburses over $180,000,000 from the Treasury and pays off over $214,- 000.000 of the public debt, making a business "boom" and depreciating money 16 per cent, for political effect. The banks are again in control of the currency as at the outset. They are also in possession of bonds which cost about 50 cents, made payable at 100, the coin having appreci- ated 50 per cent, since 1870. They now have 150 af value for each 50 invested; the greenback, however, has become a necessity and cannot be refused for imposts or demonetized without a panic. Banks inflate their currency loans and discounts upon a paper basis to assist the " boom." CHAPTER XIV. CONCLUSIONS. § 144. The historical events set forth in the preceedin.? chapters amply prove the correctness of our philosophy of money, and afford experimental demonstration of every law and principle laid down. We have also seen what legistation has been, and hoAv the rights of the people have been in- vaded, and the Constitution evaded, by a class of money-mon- gers. We are now in a position to know what ought to be done under existing circumstances, so that on the one hand, the people may be protected from further robbery, and on CONCLUSKmS. 185 the other, that no injustice be done the public creditors. On behalf of individual creditors, the plea of "innocent third parties " cannot well be raised. The Supreme Court fully disposes of that matter as follows: * "By the obligation of a contract to paynioney, is meant to pay that which law shall recognize as money ichen the j)(7?/??ie?i^ is to be made. If there is anything settled by decisions it is this, and we do not understand it is to be controverted. No one ever doubted that a debt of one thousand dollars, con- tracted before 1834, could be paid by one hundred eagles coined after that year, though they contained no more gold than ninety- four eagles coined when the contract was iiiade; and this is not be- cause of the intrinsic value of the coin, but because of its legal value. The eagles coined after 1834, were not money until they were authorized by law, and, had they been coined before without a law fixing their legal value, they could no more have paid a debt than un-coined bullion, or cotton or wheat. Every contract for the pay- ment of money is necessarily subject to the constitutional power of the Qovernment oxer the currency, whatever that jjower may he, and the obligation of the parties is, therefore, assumed with reference to that potver." See also court decisions on the matter of usury, page 160. What has been stolen cannot well be recovered. To estimate the robbery and scale down the remainder would be in accord- ance with the practice of the courts in settling such matters between individuals, but in the writer's opinion it would not be good policy at present. Should the public creditors push their rascally schemes much further, it might, eventually, be advisable to protect ourselves to the full extent of the com- mon law, and give Shylock his pound of flesh only. § 145. in settling this matter, Congress should, in the first place, assume its full constitutional functions of both coin- ing money and regulating its value. It mu^t needs regulate the value of money, by regulating the supply according to demand. § 146. As the outstanding bonds are, or soon will be, all payable according to law, in coin in the ''standard value " of 1870, it would be proper, and avoid all taint of repudiation, to * Parker vs. Davis, 12 Wallace p. 548-9. 186 AMERICAN FINANCES. make the value of coin in 1870 the standard of regulation. It would be much above the original loan, aud yet below its present value. There would be but little danger that coin would rise above that point, if Congress made as little demand for it as possi- ble for other purposes. Tlie Government shoiild, therefore, maintain aud use a domestic currency of paper, and collect its revenues in the same. § 147. The first act '" necessary and proper" to regulate the vahie of money, would be to suppress all banks of issue, and assume the entire control of all the currency. This is easily •done and easily understood. Then the regulation of value must be accomplished automatically, the currency being neither issued in lumps of millions, and retired in like man- ner by acts of Congress, nor yet at the option of any man or class of men, as is now the case. This can easily be done as follows: The last section of the National Br,nk act reserves the right to alter, amend, and repeal any or all of its provisions. We can, therefore, retire the National Bank cur- rency without invading any ''vested rights." This should be done by calling in ever}' bank note, and substituting greenbacks therefor. This would be no inflation. This could be accomplished by an order issued to the banks to transmit at once to the Treasyry every bank note in their possession; to pay no bank notes over their counters, and, as often as convenient, return any bank notes in their hands, receiving an equal amount of greenbacks therefor. Then the Government should present the notes to the sepa- rate banks for payment. If paid, the bonds would be released and returned to the banks. If not, the bonds could lawfully be cancelled to the extent of the unpaid notes. This opera- tion would not disturb business, nor change the status of the currency. § 148. The office of Comptroller of the Currency should be continued, and he should be directed and compelled by law to frequently estimate the value of the currency in exchange for a multiple standard of merchandise. This standard should consist of all the leading articles of American production, and be selected with a view to their uniformity of lal)or cost CONCLUSIONS. 187 and freedom from monopoly. This would constitute the multiple stiindard advocated by Joseph Lowe (1822); G. Pou- lette Schorpe, G. R. Porter (1838); W. Stanley Jevous and others. This is the usual method of measuring the " pur- chasing power " of money which is defined by all intelligent writers as its true value. Prof. Simon Newcomb, says: *" Dollars, and all other kinds of money, are worth what they will buy j'ou to eat and wear ; and measuring value by any otlier standard is like trying to feed a hungry man on acts of Congress." John Stuart Mill uses the following language: ifThe value of money is inversely as general prices; falling as they rise and rising as they fall." And many other authors might be cited to like effect. § 149. It should be further enacted that if, upon such •estimate, it should be found that the currency was below the standard value of 1870 (or, in other words, exchange for less of the standard merchandise), its use should forthwith cease, and if deemed necessary, a provision for funding might be added. On the other hand, should it be found above the standard, the Secretary should be compelled to call in and pay off' bonds in such amount as might be necessary to reduce the value of money to the standard by increasing its supply. This system would be simple and reliable, and could not be tampered with by any man or combination of men. The issuing and retiring of the currency would depend upon the market price of a vast amount of American products. This great body of goods would be too enormous and diversified to be cornered by any of the methods of gold or wheat gam- blers. Should currency ba hoarded to induce a fall of prices or panic, the Secretary would be compelled to replace the hoarded currency with a fresh issue, and when the hoarded money came forward again, a like amount would be with- drawn as soon as prices began to be affected; the result would be to prevent any disturbance of business. The law and market reports woild enable any man of ordinary intelligence to prove whether the Comptroller was * A, B, C of Finance : Prof. Simon Newconib, Harpers, N. Y. X Mills' Prin. Pol. Ecoupmy, p. 297. 188 AMERICAN FINANCES. performing Ms duty or not. He could hide nothing by any system of book-keeping. There would be no element of uncertainty on the score of lost and destroyed currency, as in a per capita arrangement. Every note lost would be a gain to the Treasury, and that through shortening of supply, induce replacement. Every contract to pay money would then represent exactly so much purchasing power, never more nor less. It would always convey to the creditor the ability to go into the markets and get a fixed amount of goods generally. In case of the coin standard, the same is not true, it means only a fixed amount of bullion, regardless of its exchange ratio, with other things. § 150. Upon this plan there might come a time when there would be no more bonds to be called. The whole, by increase of population and production, might become current. It would then be in order to reduce taxation to such extent as to afford the requisite amount of debt. So long as it could be kept current, it would be no burden to the people. Here- after, should war or any other cause occasion enlarged ex- penditure, the means should be raised by taxation, instead of borrowing, unless our resources were inadequate, which is never the case when loans can be negotiated within our own territory. When a man can lend he can be taxed, the same as when a man can volunteer if he chooses, he can be drafted. § 151. With regard to international trade, there is much confusion in the minds of many. Because nearly all nations use silver and gold for domestic currency, it has come to be considered a sort of international, or "' money of the world." But this is in no sense tme. Suppose boxwood was used for measures in both France and America, they using the meter, we the foot. It would not follow that boxwood, any more than pine, was the measure of the world; any thing re- presenting a difterent amount of extension could be used in either country quite as well. So also the use of a variety of meiisures is of no consequence, we may use both the foot and the yard, and the " par of exchange " with the meter would differ, but there would be no loss or gain by virtue of using one or the other to effect exchanges. So also with the use of two CONCLUSIONS. 189 dollars differing in value, the par of exchange with the franc would differ, but there would be no difference in the amount of cloth, gold, or anything else, that could be procured for a given amount of wheat, corn, or other commodity, in con- sequence of using either dollar. In the case of the boxwood, however, if there should be an export demand for boxwood, it would affect the value of foot rules, whereas, if we used pine it could not. Or, to carry the simile further: Suppose we reverse the usual order of measurement, and declare that the pound shall consist of a piece of cast iron of certain quality and of fixed value/thus measuring weight by value, instead of value by weight, as is now done. In this case an export demand for iron would change our standard pound weights. Cutting loose from the " money of the world " removes us from the influence of the foreign money markets, and enables us to protect ourselves from the machinations of foreign money changers. If A contracts with a man in France. A will agree to pay francs. If he contracts with A in America, he will agree to pay dollars. Neither promises any merchandise of any specific kind or quantity, and the laws of France will de- termine what A pays him, and the laws of the United States what he shall pay A. Until there is some treat 1/ between the two nations determining tJiis, there is no money of the worlds and all international trade is barter. At present there is no international legal tender. The fixity of purchasing poAver given to our currency by the plan proposed, would soon convince men of its superiority and should other nations adopt a similar scheme, the par of exchange could be quoted in such m'oney, as well as gold, and instead of draining it ofi" to settle balances, thus disturbing business, bullion might still be used at its merchantile value, constituting, as it does now, the barter standard of exchanges between nations. We have seen that preceeding system would return to cred- itors the purchasing power borrowed, and enable them to go to market and get the exact amount of merchandise that they could with the money loaned. This would certainly be just, 190 AMERICAN FINANCES. for it would be exactly equivalent to an indestructible invest- ment for the time plus the usurj'. § 152. As an abstract question of " value received," how- ever, there might be a change of value if the debt continued any great lengtli of time. In our discussion of the science of value and measurement, we found labor to be the true standard. As Hon. T. W. Ferry said: "" Labor alone is the true standard of value and is its origin in the cost of produc- tion.'"* § 153. As soon as it is understood that the standard of meas- nreuient for value and the actual tool used to measure with can be distinct and separate things, it will appear that any thing valuable may be made the standard, regardless of its quaiiiications as a currency. This is best illustrated by the specie basis system adopted by the Bank of Venice. If we regulate the value of currency by convertibility, the standard must be of a nature to serve as a currency. By the incon- vertible plan, however, this is not necessary. § 154. If the currency can be got only in exchange for the standard, it will have the value of such standard exactly the same as though the standard could be had in exchange for the currency. Curreucy that always costs coin must always be of the value of coin; s-o also cur- rency that costs anything else will always be of the value of that which must be given for it. Upon this principle the inconvertible Venetian money was regulated by coin. § 155. But with such an arrangement, labor maybe substi- tuted for coin, and a day of hibor can as well be the standard as a piece of bullion. In this way an absolutely stable staudard can be devised for our currency. The details of such a sys*t'ra must needs, be somewhat as follows: 1. Substitution of a day of labor for a certain amount of metal as the unit of currency, standard, or coinage. 2. Free coinage of the same, by the Government receiving all labor offered at a fixed rate in currency. o. A system of receiving and applying this labor, distrib- uted over the country, at such pt)ints as would be easily ac- cessible and where public work was needed. Globe, Dec. 4, 74. CONCLUSIONS. 191 The present sj'stem proceeds upon the theory that 25 8-10 grains of gold is valuable just in proportion to the labor gen- erally, and on the average required to procure and bring it to market, certainly then the labor itself would have like value. Suppose, for convenience, we consider it to be a day of labor to 25 8-10 grains of gold. A million dollars of coin costs the people a million days of labor, and serves no other purpose if used as currency than a piece of paper would. Upon the plan proposed, the value of each rests upon exactly the same basis, the labor cost, and each would necessarily have the same value. The present system further proceeds upon the theory that free coinage prevents all monopoly interference. How much more true it is, of this plan, will appear when we con- sider that gold mines are local and isolated, and gold a mer- chandise in the hands of only a class, and that it can be easily hoarded and accumulated, therefore easily manipulated by designing men. Neither is its pioduction uniform either in quality or labor cost. On the other hand, labor is univer- sally possessed and diffused among men. It is uniform in quantity, and cannot be hoarded, but must go to market, in. fact, perishes every moment if not used; and a day of labor costs a given amount of effort and sacrifice to ail alike. g 156. The Government, by receiving and applying this labor, derives a net gam equal to the labor expended in pro- ducing a like value in coin. In the case supposed, there would result a million days of labor expended upon Fome useful public work, and a million dollars of currency; in- stead of, as now, a million days spent in digging holes in the ground and filling them up again to no purpose, and a mil- lion dollars in coin, not as convenient, and no more valuable as a currency. The details of management would be on a different scale, but no more difficult than that of coinage. Government officials have to be intrusted with weighing, assaying, aud alloying the metals. So, also, they would have to see that the work was performed, and the danger of their bribery or cor- ruption by bullion mongers and rich men, it seems to the writer is quite as great as by common laborers. 192 AMERICAN FINANCES. The Government lias to buy machinery, buildings, chemi- cals, f nel, alloy, etc. So, also, would it have to buy materials to be ATrought upon, and skilled labor to superintend the work, at whatever the m:irket price might be. Skilled labor being but compounded labor, serves only to stratify it, so to speak, and, of course, only the lower stratum would be oifered at the minimum rate. § 157. This system would be perfectly self-regulating. Should the currency inflate, prices and wages would rise. This, of course, would shorten the supply of men oifering at the fixed rate, and shorten the production of money. Should there be, from any cause, an increased demand for money, and consequent fall of wages and prices, the opposite effect would at once result, thus increasing the currency in an adequate manner. Should any man or combination of men Avithdraw currency by hoarding, it would be supplied as soon as the effect was felt. This system would solve the problem of able-bodied pauperism, or tramps^ for all could find employ- ment. It would save a vast amount of labor that now goes to waste for want of opportunity to work. It may be urged that it is not the duty of the Grovernment to furnish employment to any one. If, by so doing, it can " promote the general welfare," it becomes its duty to do so, more especially if, at the same time, it becomes an incident to the coinage of money and regulating its value. If it can procure labor at minimum wages, and with it pro- duce some public property and a currency at the same time, it is its duty to do so quite as much as to take bullion belong- ing to an individual and coin it at its own expense, producing nothing but the currency ; or buy silver bullion and make subsi- dary coinage on speculation, as it does now, putting in nearly all bullion and a little '' fiat," when it might as well put in nearly all '"fiat" and but little bullion. § 158. This system would allow no man to inflate the cur- rency by making promises which he never intends to fulfill if he can avoid it, and by lending them as money, draw inter- est on what he owes. Instead of this, every dollar would cost value received in hard work the same as a gold dollar, a bushel of wheat, or corn, or a like value in any other com- CONCLUSIONS. 193 modity. In fact, the currency would spring from the same source that gives rise to ail other valuable things, and under precisely the same laws of labor cost. This currency would always represent a fixed amount of labor, and generally, and on the average, the product of a fixed amount of labor. Should the effectiveness of labor be en- hanced during the time a debt has to run, unlike the first plan, the creditor would not only get the merchandise represented by the loan when it was made, but also an amount equivalent tothe gain due the improved processes of production. He would, in other words, get "value received"" instead of, as in the other case, " merchandise received," or. as with specie basis, "bullion received." Finally, it is the only system of which the writer has any knowledge, that conforms fully to all the conditions of a perfect and stable standard of value, as theoretically defined by the established philobophy of the schools. It is a system far in advance of the present stage of civilization, and not likely to be adopted at once. On the other hand, the first plan proposed conforms to the civilization and circumstances of our country; also to our laws and public debt contracts as they are, and it could be profit- ably advocated by currency reformers, and its adoption urged at this time. It would work no injustice to creditors — violate no contract — and would stop once for all the present swindling schemes of alternate inflation and depreciation, to be followed by con- traction and appreciation. § 159. It should be supplemented with legislation designed to prevent credit transactions. The system of compounding deposits already described would remain and do mischief, though not so much, because, as its inflation eflect was felt, contraction of currency would offset and discourage it, and as it collapsed, increasing currency would neutralize its dam- aging effect; as it is now, the currency expands and contracts with the loans and discounts, enhancing the mischief, appear- ing when it is not needed, and disappearing when it is most needed. The recommendation of Hugh McCulloch, that the payment of interest on deposits be prohibited, would have a -• o -i-0 194 AMERICAN FINANCES. beneficial effect, aud the Government ought to provide a deposit system of absolute safety to depositors for ail who chose to avail themselves of it. A system of postal savings banks somewhat similar to the British should be adopted. The Government receiving a deposit, and allowing the depositor to check out at the same or any other office, paying no interest and doing no loaning, receiving the use of the funds while on deposit, as compensa- tion for storage and transportation of funds. No actual transportation would, of course, be req,uired, except to settle balances between offices. This would be the safest possible deposit, and most convenient exchange system, and is quite as proper for the Government to undertake as the postal or money-order business. As it is, the Government coins money and transfers money, but will not take it on storage, which is absurd, and forces the people to deposit with loan and discount concerns, liable to explode at any time and leave them penni- less. CHAPTER XV. TABLES AND DIAGRAMS. § 160. In all logical processes, the first and most important matter is the collection of facts. The circumstances of the subject under discussion are many and complex, and it be- * comes necessary that the facts be properly collected. As the bases of our reasoning, we have taken the official and other reliable records, with regard to population, international trade, coinao-e, production of bullion, and its movements to and from this country; the rise and fall of prices; increase and decrease of bank and Government currency; loans, discounts, and specie of the banks; the public debt statements, aud statutes with regard to the debt. From these we have constructed tables showing these facts. To more readily comprehend these and their relationship to eai'h other, we have constructed diagrams in which the rise TABLES AND DIAGRAMS. 195 and fall of the lines represents the increase and decrease of numbers in the tables. From the public debt statements, and the price tables of merchandise and coin, we have calcu- lated other tables and diagrams, showing the transactions be- tween the Government and its creditors, and reducing such transactions from their nominal to their coin and merchan- dise values. These are purely mathematicah deductions froDi recorded facts relating to prices and transactions. As the premises are a matter of record, they cannot be considered in dispute. Deductions which depends upon pure mathematics must be accepted without controversy. We have also deductions and opinions depending upon processes of logic, which we expect to be criticised. If the enumerations are complete as regards the facts and principles, we must be guided by the philoso- pher's rule that, "a theory that conforms to all the known facts must be accepted as the true theory until further facts are discovered." There is one element of error which has not been eliminated. Because people are accustomed to quota- tions of prices according to calendar years, we have taken the same. The fiscal year, however, ends and begins six months earlier. For instance^ the fiscal year 1865, consists of the twelve months from June 30, 18G4:, to June 30, 1865; the highest prices of merchandise and gold were in 1864 calender, but 1865 fiscal year. This vitiates the result somewhat, and makes the difference between the nominal and coin or mer- chandise values less when we were borrowing, and more when we were paying, so that the tfbles show the amount bor- rowed a little too high, and the amount paid a little too low. § 161. Table No. 1 exhibits the average price each year of a fixed quantity of fifteen staple American products, selected with a view to their freedom from the influence of monopoly, or tariff, and as most likely to maintain their nominal value as related to each other, and their labor cost. Such quantities of each are taken that the v/hole aggregates 2,000 pounds, which constitutes our merchandise standard of value. This is the usual method of measuring or testijig the coin stand- ard by its purchasing power. This multiple standard we use precisely as we use 25 8-10 grains of gold, in our calculations 196 AMERICAN FINANCES. writing tons instead of dollars. Its stability of value we have- already discussed. In the same table appears the prices of coin in currency, and currenc)^ in coin, and the changes in the purchasing power or value of each measured by the stand- ard ton, 100 being considered the average. The gold and merchandise value of 412^ grains of standard silver bullion also appears in this table. § 162. Table No. 2 exhibits the international movements of merchandise and bullion, also the American production of bullion and relative amount of gold and silver, and the periods during which there was a residue of debit or credit to the account of this country in its international trade.. This table also shows the average prices during these periods,. showing that we always buy dear and sell cheap, except whert we export bullion in settlement of balances. This forcibly^ shows the folly of the ''commercial" theory, that a balance of trade payable payable in bullion is of advantage. Such bullion is always had at a sacrifice of reduced prices for goods. § 163. Table No. 3 exhibits the statistics of currency and population during the period from 1830 to 1880 inclusive, and requires no further explanation. § 164. Table No. 4 is a digest of the public debt statements for twenty-one years — 1860 to 1880 inclusive, giving each class and kind of paper issued since July 1, 1861; the amount of each outstanding each year, and the total. The number over each denomination refers to the statute in the apj)endix relating to that issue. The letters indicate that the authorizing acts were as follows: A, legal tender; B, payment of principal not specified; C, principal and interest payable in coin; D, payable principal and interest in currency. § 165. Table No. 5 exhibits the nominal transactions be- tween the Government and its creditors, showing the amount borrowed each year, with interest, without interest, and total. (This was all iu currency, or at currency value). It also shows the amount paid on the principal, and on the interest each year, and how much of such payments were coin and how much curi'ency, aud the total reduced to currency value at the time it was paid; also the balance outstanding each year, according to report of the Secretary of the Treasury. TABLES AND DIAGRAMS. 197 From this table is omitted the certificates of deposits of 1872, which are not a loan to the Government; also the silver certificates for the same season, and the Pacific R. R. bonds, which are, according to law, but an endoi'sement by the Government. All the other paper is properly Govern- ment debt^ except a small ami indefinite amount of the coin certificates. § 166. Table No. 6 shows the coin value of each transac- tion represented in table No. 5; also the coin value (consid- ering bonds at par) of the outstanding debt each year; also a column showing annual balances, the result of charging the Government with coin value borrowed, and crediting it with coin value paid on account of the principal of the debt, not considering the interest; also another column of annual balances, the result of charging the Government with the coin value borrowed, and 6 per cent, compound interest, and crediting it with total amount of coin value paid on account of principal and interest. § 167. Table No. 7 shows the value in standard tons, or the purchasing power of each transaction represented in table 5; also two columns showing the amount of standard merchan- dise represented by the outstanding debt each year. One column showing the number of tons required to pay in full in coin, the other the amount required to pay in full in cur- rency. It also shows a column representing annual balances, the result of charging the Government with tons received and crediting it with tons paid on account of the principal, not considering the interest. Also a column showing annual balances, the result of charging the Government with tons received and 6 per cent, compound interest, and crediting it with total amount paid on account of principal and interest. § 168. Table No. 8 gives a brief digest of the inflation, con- traction, funding, and repudiation legislation, and shows the amount outstanding each year of each class of paper A, B, C, and D, and exhibits the movement of the paper as related to the legislation, and the repudiatory changes of contract, both direct and indirect, by which the people have been defrauded jfor the benefit of the public creditors. 198 AMERICAN FINANCES. § 169, Table No. 9 shows the nominal and merchandise^ \a lie of the Government revenues, and the disbursements,., exclusive of the interest, which is shown elsewhere. This requires no explanation. § 170. Table No. 10 shows the leading facts set forth in the vari- ous precedinor tables, arranged in columns representing the years 1860, 1866, 1870, 1879, marking the commencement and close of the war, and inflation period, and also the first and second funding operations, and resumption. This table shows some of the deductions from the changes in amounts and values during these periods. Still other deductions can be made. It will be observed that while there has been a nominal reduc- tion of i)rincipal and interest, there has been an increase of the merchandise values, and the amount of plundering going on has been enormous. § 171. From these tables is constructed Diagram No. 1. The scales to which the lines are laid appear in the margin, and are numbered in parenthesis to correspond to the num- ber of the line to which it belongs. Commencing at the bot- tom as line 1, we have the international trade lines scale 150,000,000 to the square. The solid line ( ) represents exports, the dotied line ( ) imports — the distance of each from the base line at the bottom the total amount, and the distance apart the balance to debtor or creditor of the country on account of total foreign commerce, as imports or exports chance to be in excess. These amounts are expressed in coin throughout. To learn the real amount of merchan- dise repres-ented, the purchasing power of coin must be con- sidered. Line No. 2 is the population line, scale, 5,000,000 to the square from lower base lines. This line, considered with the two first, and the value of coin, gives some idea of the re- cent enormous international trade of this country. Line 3 exhibits the coinage at the United States Mint. Scale, one dollar per capita to the square from second base line. From 1870 to 1880 this line is dropped down six squares to accom- modate the trade and population lines. The upper line rep- resents total coinage, and the lower, silver; the space between the two the gold and minor coinage. Line 4 represents increase and decrease of stock of coin TABLED A2W DIAGRAMS. li)» and bullion in the country. Scale, ^^20,000,000 to the square from base line 3. The distance below the base line repre- sents the decrease during the year by virtue of production and trade, the distance above the increase. Two other lines are sprung off from base line 3. The scale is the same, and the upper line represents the total product of bullion in this country ; the space between the base and the lower line the silver and the space between the two the gold. The space between the total product line and the line of increase and decrease of stock represents the net export of coin and bullion for the year. Line 5 represents the rise and fall of the price of the standard ton, or the rise and fall of prices. From 1861 to 1879 the upper line is the paper price, and the lower the coin price. Scale, five dollars to the square, average coin prices, $46.13. Line 6 represents the increase and decrease of bank and Government currency, per capita, excluding all Grovernment paper not a legal tender, except the fractional, and including fractional silver and silver dollars since 1876. Scale, two dollars per capita to the square from base line 4. Line 7 represents the loans and discounts of the banks per capita. Scale, two dollars per square from base line 4. Line 8 represents the increase and decrease of the value or purchasing power of money, measured by the standard ton, the base line being the average for fifty years, and con- sidered as par, or 100, the fluctuations being on a scale of 10 percent, to the square. The lower line, from 1861, repre- sents currency, the upper, gold, and the dotted line silver. CO r»0 ?: 3. CO o — -^ Wo 03 B'"-5 S^ ?-= I BP = ^ 5:4c:='"~ rt^ •-*. --*^ h-, '^ ^, *> ^ ^ (Tt- (D c^ \jr ft> r^' ■" B >1 -J -3 ft ;:;■•* ^ so 2 5-1 Z- CO £1 ^5 CD ^ ^f^ ct £$ '-C — — < ■ — c C o OS -g 3 ^ ce o! ill CD f^ ^ 1830 . " 1 II r . \ — ti 1 ~" 1 j Ll? m ls;;i ^t ^ ! I =-. - ■!■■ t^^i is-.v i'l '1 • «=s ^ J A- ^ ! is;i;3 ll' i_ j' . ^ 1834 \i > I ^ ! !s;fo 1 ^ f ^^ -J fc-L ]. 183(; 'J r L ■^ kW _L I 1837 1 ir ( ^ > 1 1838 U > ^ ■=*i\! 1 18311 u \ ji J / ■ / V 1840 4 III / ^•' -P" <* M^l 1841 t ^ 1 1 i >< .11 1843 «< > <' 1 t^l 1 -if '1 1 ^ 1844 f^ N i ^ 1845 (\ I^ \ t \ 1 184(; V\ \. iv 1, . ^ 1 1 1847 i\ \ji ' ;f } ^ k 1848 Y < * > — ' i ^ X 1849 \ s !, \ f ^ ; 1850 I _L \ A 1 "s ^ ! 18ol ) / 1 ^, "5 1 i J 1852 1 N 1 / 1853 s ■" 1 [^ \ V -( £. !, 1854 \ 1 / / ^^ •^ 11 .-f 1855 i tt" \ y i ^ 1850 1 3v. > f 1 s, i' 1857 \>} < ' ^ > J 185S '■ r ' '> * \ i *-• 'f 185i» if-^ E 4 ^ ( ! 1800 1 E s r T ^»s / ^ 1 .. :^ 1861 *-- -"E ^ : '^ J ] 180L' X V T / .-^ \^ ""1 **« t ' -f 180H A ( \ ^^ "h-» -yl ^ 1/ ! 1804 1 ,> 2 !•- --— 4^ i^ ■ jn'-r-. 1805 ic; '~' c * fr-. <■' ' I > L^f isci; ^ ;? < "S ) i- ( >i 1807( 1 ( ,/ > I '^iv jf ■ 1 \ 3^ 180H fC I > y & 1 1809 , ^ y . \\ \ / 1 \ j!; , Tl 18 / 1 \ 1 1 \ 4' 1 1871 rf ^=5t= X 1 i 1 l;! I -1 — t' 1 1872 I NP' , ', 1 ' , i\l ft- 1873 -. 1 \ 1 > * \ 1 f 1 i % 1874 > \ f* > 1 / \ 1 |i *,^ 1 i 1875 < ^ V ^/ / X T I r / l/l ij 1 1 1 mi"' 1 1876 \ T' » \ I ^ / i? r 1 I 1 i 1877, \ I v '■N > i /' J^ >'i 1 \ J< ! 18V8: 1 Jr-A s ) >>!! ' ijii ^ J _ J^k 1879, 1 V ^-'■Atr, k f -^ n lJ \l _ jL^ 1«80| 1 • ' ■! iVr'-f-i i ^x ... 1 ^ i 1^ V 1 [_ t! M t— ihr 1 ^ ■^ M n Br:'-;- .= 5£' - 2 S: S C4- C a 55| : £.1 > P t3 |r _ - ; ?--3 2 f^ «^i^-:? '5 s. — 1 1 ▼ X W 1 X $ ■3 2 1 .it: )— » TABLES AND DIAGRAMS. >0i § 172. Ill diagram No. 2, the upper line represents tlie ontstanding debt, the next the nominal amount of interest paid, both coin and paper, the next the coin value of the in- terest paid, the next the amount of interest paid in coin, the space between this and the nominal (second) line the amount of currency interest paid, and the lower line the merchandise value or purchasing power of the total interest paid. The line representing the principal is on the scale of $200,- 000,000 to the square from upper base line. The interest lines are $10,000,000 to the square from lower base line, and the merchandise line is on the scale of 500,000 tons the square from lower base line. Nominal debt scale S200000000 to the sqr. from 2nd line. Interest scale .fio, 000,000 to the sqr fr : lower line ' Mdsesc'le 500000 tons to the sqr irhvr line 30 25 •M 15 10 5 140 130 120 110 100 90 80 TO 60 50 40 30 20 10 28 26 24 22 20 18 16 14 12 10 8 6 4 2 c :t^ [> ' T r - « r "^ r. IVl T "» \, \ Is 1 f. /■ ■'■" +- sJ ^ ^ ■^ / 1 V — ' ~' \ ■s !i >/ ■ V i\ / 1 ^ ■», ~t\ r*' 1 ":» 1 ' / ' 1 ] 1 1 j 1 /' 1 i f\ -i- 1 1 1 1 ■ ,^ , ! /] rN J /I /T] r ; "** -- T^ / ^4 r' V i ; 1 . • / / 1 1 1 * _ A J- _ J * ' 1 » Diagram No. 2. Nominal debt. Total interest Coin interest x — x Coin value of total in- terest Currency interest from X— X to Mdse tons value of total interest. O^C'l CO cc CO :o — OG 00 00 C. [ » 1 : V k <^ I > M hf ~~" — — > % / "^ H^ »^ I •v* .w* '**»* ^^• 1 - / .¥ ' sC "" — 1 1 ! -^ X 1 / ■i fx ^ "" — .- -'' rr ■s / ■^ i 1 K 1 k u 1 1 "v^ ^ 1 i r 1 ! ■■*., -*, / 1 1 "*1 f^ \ / ! 1 ; / ■*• 1 1 s ) r- ) a ^-1 ii 1 \i b- X -IT - t- ^x g X Coin val. of debt at par . Com value received, less val. pd on princ Coin val. rec'd plus 6 per ct. comp. int. less total coin value paid ++++ 202 AMERICAN FINANCES. In Diagram No. 7, the lines counting from the top, as arranged from 1870 to 1878, are as follows: The first line represents the nominal debt; the second the merchandise re- quired to pay it in coin; the third the merchandise to pay it in currenc}-; the fourth the merchandise value received less merchandise value paid on the principal; the fifth merchan- dise value received plus 6 per cent, interest less total amount paid on principal and interest. The scale of the merchandise lines is 5,000,000 tons to the square. Currency seal e. 1200- 00(1,000 to the square from bot- tom line. Mclse. scale, 500,- 000 tons to square fr bottom line. 60 55 50 45 40 30 25 20 15 10 5 28 26 24 22 20 18 16 14 12 10 8 6 4 2 "T~ 1 T ~ • m • ■5 T* - ( -^ k ] 1 * \ 1 ^ ■is 1 I 1 s. ^ ^ *, j [ — / '\^ / ^ ^- _^ -*; 1 ^'' "/ W « /, 1 ^v- _-^ ,v X 1 '/ t .**, ^ — ~^1 ■<- ^ ^ 1 |/. Y o- — -^ <. ■^ ~- ^ , ^. * ^ 1 '•~ ■•~. "" 1 % / I 1 •... ■^ 3 / '?- ■^ ! ' «« "?■■. Ji> 1 ; / ' I 1 * I ■ / - « • * \ * Ik 1 «« • ^• • m • » m 1 Diagram No. 7. Nominal debt [Currency scale.J JNIdse required to pay pub- lic debt in coin x=x Mdse required to pay pub- lic debt in currency Mdse tons vai. rec'd, less ain't, pd on princ Mdse tons vaiue rec'd plus (; i)cr cent coinp. int. less total amount paid +^++ S :; ?3 ?2 S' t2 !5 h: K P ^ *" ^"i ^ "*"" '-^ f~ «:■ 35 o I- I- 00 X X CO In Diagram No. 8, the upper line represents the total debt outstanding; the space between it and the second, Class A; the next space Class B; the next Class D, and the lower space Class C. The vertical dotted lines mark the inflation and funding periods. DiAGKAM No. 8. c 28 ^ T r T r ~ "> 3 r j~. 1 ) .- <- 26 24 22 20 18 16 It 10 8 6 4 • S S« « 1 ..^ -\ » f > —' V o'!^ » 1 ^ 1 ^s a o * 1 1 - .{^ rY--^ • t 1 i I / 1 o f • / r \ 1 i •*^ ^ « • ' r / 1 \ 1 / '/ -^ =-"^' t'^^-,^ ^^-.^^ /^N^^'^ 5 ^---=--j -tH" — =p:"~ ■ ~ "-"^ ol revenue. 7 G 5 4 3 Nominal revenue 2 in dollars. 1 \n L-: i.- 1- »-^ L-; »-- ic u- o CO t:: :o :o o c:? :s to '^ ^ t- r- i- i- r- i- r- i- i- ^- .o CC X */: X X X X Xi 00 X 00 X OC OC GC CC CC CC CC C/: X CC CiC X GC X CC CC CC X X i> ^ % M % -.^lA T 7-41- T ^ t zt itx zEyrLrri: 4: q / / ^ -^ Jj i ^ // I ' // ' Y"~"~— -T/ '^ U:^j.44i^ INI mnWi Ht^h 15 14 Scale, !i»l00,O()n.ooo, 13 or i,ooo,ouii tons 12 of indse to the 11 square. ]0 9 Mdse value of dis- bursements. t" I I 7 Nominal disburse- ments in dollars. DiAGR.\>i No. 9. 204 A3IERICAN FINANCES. STAJ^DAPtD TON OF MERCHANDISE— TABLE NO. 1. CALE>'DAK Year. m cr! — o re—' h-l s hH 3.21 3.46 3.37 2.89 2.65 2.73 2.97 3.13 3.05 3.37 3.13 3.29 2.89 2.65 2.49 2.41 2.01 2.33 2.25 2.41 2.50 2.71 2.41 3.06 3.46 3.54 4 34 4.66 3.78 3.78 3.38 3.14 3.89 4.67 6.19 5.63 5.55 4.92 4.46 4.82 4.67 4.50 4.67 4.50 4.67 4.59 4.02 3.94 o oo 3.38 3.74 ■■A n tH 0) iA o 1.82 1.96 1.77 2.13 2.03 2.29 2.99 3.01 3.64 4.28 4.10 4.30 3.25 3.00 3.54 4.10 3.36 3.19 2.90 3.47 O OQ 3.23 3.36 4.35 5.49 6.52 6.77 6.63 3.70 5.75 5.39 3.58 3.89 5.47 7.40 6.52 7.40 5.81 5.94 7.97 9.17 6.52 5.64 5.80 4.91 4.00 5.55 3.79 4.()7 4.59 5.40 X* 6'"' m d Ci o 2 i^ h v: VI 1830 1831 2.83 2.61 3.07 3 1 3 2.25 2.41 2.41 2.73 2.33 2.49 2.89 2.89 3.54 2.97 2.65 1.85 1.93 1.27 1.77 2.09 2.17 2.49 2.41 2.25 2.41 2.23 3.55 2.98 3.14 3.62 3 31 3.64 4.15 4.40 4.85 4.12 5.85 6.27 6.91 5.66 5..56 3.50 4.12 3.92 3.48 3.12 4.18 4.34 5.60 4.19 4.08 4.08 3.88 4.50 4.70 5.60 6.70 4..58 5.44 5.18 5.82 5.11 3.93 3.81 6.14 10.40 5.3S 6.82 7.74 7.82 6.15 6.15 5.05 4.51 4.09 4.41 4.02 2.80 3.19 3.38 3.30 3.03 1.73 1.96 2.02 1.93 1.69 2.12 2.75 2.99 2.57 2.39 1.79 1.96 1.71 1.60 1.48 1.82 i.(;o 2.85 1.91 1.78 1.79 1.45 1.69 1.99 2.89 2.81 2.17 1.77 1.44 1.69 1.57 1.53 1.39 2.11 3.05 2.22 2.74 2.83 2.49 1.80 1.70 1.87 1.93 1.91 1.81 l.(i9 1.61 2.05 1.49 1.61 1.02 2.89 2.S2 2!81 2.73 2.75 2.59 3.37 3.54 2.97 2.65 2.33 2.23 1.88 1.43 2.09 2.66 2.50 2.33 2.01 1.60 1.45 1.39 l.(il 2.13 2.40 2.04 2.14 2.11 1.58 1.72 1.53 1.43 1.52 2.50 3.96 3.06 3.12 2.81 2.61 2.57 2.19 2.22 3;04 2.87 2.52 2.26 1.98 1.71 1.54 1.69 1.63 1.96 1.89 1.96 2.02 1.86 1.99 2..57 2.47 2.34 1.99 1.60 1.54 1.28 1.57 1.86 1.89 1.80 2.18 1.54 1.67 1.77 1.62 2.00 1.90 1.55 2.03 3.78 3.70 2.52 2.80 2.93 2.74 2.59 .3.12 6.11 6.92 6.14 5.96 5.34 5.47 5.95 4.02 4.31 5.09 4.67 4.31 3.80 3.19 2.77 2.49 2.88 2.12 2.41 3.02 2.51 2.44 3.48 3.70 3.70 2.73 2.89 2.16 2.80 2.51 1.96 2.06 2.57 2.44 3.34 2.67 2.64 2.83 4.53 5.47 3.00 3.86 3.99 2.75 3.41 3.00 3.03 2.70 2.48 3.12 4.60 6.05 4.34 4.50 5.19 4.84 4.70 3.90 3.61 3.19 3.22 2.93 3.02 2.35 2.19 2.38 2.58 2.54 4.26 4 37 1832 1833 4.30 4 66 1834 2.01 3 57 4 46 ]835 5 14 1836 1837 3.66 4.18 4.82 4.58 3.94 7.70 6 51 1838 6 75 1839 1840 6.11 4 66 1841 2.27 2.33 2.31 1.88 2.49 2.37 3 54 3 57 1842 1843 1844 2.73 3.05 3 02 1845 1846 1847 . . , 3.57 3.70 4 22 1848 3 38 3 54 1849 3.70 2.85 2.68 4.03 2.90 3.38 3.58 3->3 3 88 1850 1851 1852 1853 1854 1855 1856 3.54 4.40 5.52 5.28 4.50 5.64 5 99 1857 1858 1859 I860 3.94 3.38 2.37 1.61 1.81 2.29 2.25 3.54 3.06 3.30 2.50 2.41 2.68 3.54 4.74 4.67 6.84 5.08 7.12 5.71 5.15 4.34 4.75 5.47 4.59 3.62 3.8(i 2.98 2.09 1.67 3.00 6.79 5.53 5.27 5 79 1861 4 87 1862 3 89 1863 1864 4.79 10.10 8.13 8.81 6.92 8.16 6 93 1865 1866 1867 1868... 3.70 5.15 6.45 5.83 1869 3.46 3.38 4.19 2.58 3.22 3 17 1870 1871 1872 1873 1874 8.05 5.77 4.63 5.15 6 12 1875 1876 2.90 3 14 6.56 6 11 1877 3.34 4 67 1878 3.62 3 42 1879 3.38 3 35 1880 4.43 3.60 TABLES AND DIAGRAMS. 205- STAND AED TO^ OF MERCHANDISE— COXTII^UED. Calendar Year. 1830. 1831. 1832. 1833. 1834. 1835. 1836 1837. 1838. 1839. 1840. 1841. 1842. 1843. 1844. 1845. 1846. 1847. 1848. 1849. 18.50. 1851., 1852. . 1853., 1854., 1855., 1856. . 1857.. 1858.. 1859.. I860., 1861 . . 1862.. 1863.. 1864.. 1865.. 1866.. 1867.. 1868.. 1869.. 1870. . 1871.. 1872.. 1873.. 1874.. 1875.. 1876.. 1877.. 1878.. 1879.. 1880. . rt 1.77 2.09 2.25 2.09 1.S9 2.; 2.; 2.61 2.77 2.57 2.17 2 '>5 L71 1..57 1.88 2.37 2.37 7.04 6.68 2.01 1.81 1.86 2.50 2.48 2.82 2.70 2.75 2.78 2.09 2.41 2.45 8.29 4.41 3.94 4.0-2 7.64 8.61 6.76 6.31 5.55 4.83 5.31 5.47 5.31 5.39 4.83 4.02 3.86 4.34 4.34 3.57 o H 1.60 1.44 1.44 1.77 1.93 2.73 2.57 1.93 2.73 3.86 3.05 2.89 1.77 1.44 1.29 1.44 1.44 1.60 1.77 1.93 3.06 2.72 1.93 2.26 2.58 3.00 3..54 4.34 3.86 2.90 2.58 3.06 5..5S 7.08 10.14 8.37 4.19 4.04 3.72 3.41 3.06 2.74 4.02 4.02 5.14 5.95 4.19 3.71 1.81 1.31 2.84 3.46 3.89 3.97 3.91 3.41 4.05 5.61 5.84 5.39 4.05 3.54 3.86 3.42 3.28 4.72 3.61 3.46 4.82 3.70 4.10 4.19 3.45 3..50 4.86 6.84 7.67 5.60 5.14 4..34 4.74 4.91 4.50 4.30 5.23 7.20 5.03 9.10 9.19 8.55 5.82 5.31 5.55 6.03 6.11 3.66 3.69 3.40 4.68 3.76 3.41 3.92 1.85 2.93 2.9 2.49 2.41 2.61 3.41 3.13 2.73 3.08 2.21 2.01 1.60 1.69 2.49 2.17 1.85 2.17 2.01 2.29 2^61 2.85 2.73 3.30| 2.61 2.33 2.75 2.97 2.77 3.18 2.97 2.70 3.57 5.11 7.43 5.90 2.09 4.84 3.88 4.06 3.15 3.82 4.50 3.70 3.37 3.46 2.73 3.00 2.13 1.84 2.92 , — VI CO 38.44 40.80 43.66 39.12 38.91 46.30 55.68 .55.97 54.34 52.84 43.16 41.93 3.5.18 32.25 35..50 39.23 37.34 49.63 42.65 39.58 10.20 40.79 46.73 47.13 53.13 53.33 55.64 59.31 47.96 49.94 47.27 43.11 48.83 63.45 94.02 81.08 84.52 80.97 80.00 74.45 68.76 62.41 60.91 62.31 58.97 57.49 51.06 47.42 41.95 .39.71 46.25 i£5 "en O 5S.. . 1.19 1.13 1.05 1.09 1.18 .99 .82 .82 .85 .87 1.07 1.10 1.30 1.41 1.29 1.17 1.23 .92 1.08 1.16 1.14 1.13 .99 .98 .87 .79 .83 .78 .95 ,92 .97 1.07 .94 .73 .49 .57 .54 .56 .58 .62 .67 .73 .76 .73 .78 .80 .90 .97 1.10 1.16 1.00 o o o 43.05 43.78 46.25 51.56 60.00 58.62 57.28 55.98 59.82 .58 85 54.21 54.83 53.07 50.01 45.75 45.28 41.53 39.71 46.25 1.07 1.05 1.00 .89 .77 .79 .81 .82 .77 .82 .86 .86 .87 .92 1.02 1.02 1.11 1.16 1.00 1.13 1.45 2.03 1.57 1.41 1.38 1.40 -! O'D L.OO 1.15 1.12 1.12 1.14 1.11 1.15 1.12 1.05 1.01 1.00 1.00 ,88.3 68.9 .49.2 63.6 71 72.4 71.6 .75.2 87 89.5 .89 .87.9 87.9 86.9 89.6 95.5 .99. 1.00 1.00 o O 1.05 1.03 1.04 1.04 1.04 1.03 1.03 1.03 1.02 1.02 1.02 1.02 1.02 1.00 .99 .96 .89 .91 .92 .85 1.01 1.10 1.11 1.09 1.04 .92 .79 .81 .83 .84 .79 .84 .88 .86 .86 .88 .90 .93 1.02 .99 206 AMERICAN FINANCES, INTEENATIONAL Til ADE— MOVEMENTS OE MERCHAN- DISE, COIN, AND BULLION.— TABLE NO. 2. Millions and thousands— hundreds omitted. Fiscal Year. 1830 1831 1832 1833 1834 1835 183G 1837... . 1838 1839 1840 1841 .... 1842 1843..... 1844..... 1845 .... 1846 1847..... 1848..... 1849 1850 1851..... 1852 1853 1854 1855 1856 1857 1858 1859 1860 .... 1861 1862 1863 1864... . 1865 1866 .... 18*>7..... 1868... . 1869 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 Merchant>ise. fe5 49,575 82,808 75,327 83,470 86,973 122,007 158,811 113,310 86,552 145.87U 86,2.^0 114,776 87,996 37,294 96,390 105,599 110,048 116,2."i7 140,G.il 132,505 164.034 200,476 195,387 250,157 275,991 231,650 295,650 333,511 242,678 316,823 336,28' 274,656 178,330 225,375 301,113 209,656 423,470 381,043 344,873 406,555 419,803 505,802 610,904 624,089 550,556 518,846 445,938 438,518 422,896 4.'53,679 tC35,144 P. a/ 58,524 59.218 61,726 69,950 80,623 100,459 106,570 94,281 95,560 101,625 111,660 103,636 91,799 77.686 99,532 98,455 101,718 1-50,575 130,203 131,711 134,900 178,620 154,931 189,869 215,328 192,751 266,438 278,906 251,351 278,392 316,242 204,899 179,644 186,003 143,.504 136,940 337.518 279,786 269,389 275,166 376,617 428,.39S 428,487 505,033 579,633 514,880 536,089 602,721 691,219 711,499 t797.,328 23,590 13,601 13,520 6,3.50 21, .548 52,241 19,031 44,245 11,140 7,144 8,330 10,448 854 29,134 21,856 40,456 60,288 60,663 38,899 29,212 54,605 38,431 20,040 69,757 39,372 157,609 72,716 85,952 101.25 75,484 131,389 43,186 77,404 182,417 119,656 3J966 to S 8,949 9.008 25,410 3,803 40,392 3,142 34,318 8,673 1,314 29,077 90,151 16-1,203 268,323 277,820 162,1841 Coin and Bullion. 8,155 7,305 5,907 7,070 17,911 13,131 13,400 10,516 17,74 r 5,595 8.882 4,9'<8 4,087 22,.320 5,830 4,070 3,777 24,121 6,.360 6,651 4,628 5,4.53 5,505 4,201 (5,939 3,6.59 4,207 12,461 19,274 7,4:m 8,550 46,339 16,415 9,584 13,115 9,810 10,700 j22,070 14,188 19,807 26,419 21,270 13.743 21,480 28,454 20,900 15,9.36 40,774 29,831 20,296 93.178 H 252 4,460 15,8:55 6.(S4 9,077 4,.541 14,240 466 20,800 377 22,215 1,24: 2,178 9,014 5,655 2,610 2,076 6.477 4,323 5,975 3,507 8,776 8,416 10,034 4,812 1,.520 5,453 8,60(i 3.904 1,906 15,841 5,404 7,522 29,472 42,673 27,486 41,280 56,440 45,745 69.1.36 52,632 6.3,887 66,546 29,790 36,887 (>4,156 105,395 (57,643 86.043 60,868 93,783 57,1371 58,1.55, 98,4-121 79.878 84,608 66.629 92,132 .56,."i05 .56,162 33,732 24,997 18,926174,252 5tD 5,977 16,549 f-r. 1,709 3,181 5,046 725 4,536 127 9,481 2,894 24,019 37,168 23.285 34;.34lj 52,587| 41,5.38; 5(i,6i5 .3:;;358 56,453 57,996 20,472 .54,572 92.280 .57, s::. 75.343 38,798 79,59.' 37,,330 31,736 77,172 66,135 6,3,128 38,175 71,232, 40.569: 15..388J 3,911 4,701 Coin, Btri.,- LION &MER- CHANDISB. .3® o '-' H 56,490 83.158 76,990 88.296 103,209 129.391 168,234 119,134 101,265 144,598 88,951 112,477 88,441 58,201 96,950 101,908 110,345 138,534 13.3.87I 134,768 163,186 194,.527 195,653 250,420 1279,712 ;233,020 1298,260 ;336,915 251,727 317,873 i335,233 [314,005 |1 88,902 '226,797 '3119.306 216,441 '4:50,770 1,397,222 349,024 1412,141 431,950 [513,031 [617,569 (535,467 1572,081 1.531,472 455,408 4(;6,2(;5 U(:.t>4(t 44(5.5:5;! 7u9.396 t Estimated from Keport of Bureau of Statistics, May, 1880. a. ■A I Ig30 2,972 24,944 1 1 1831 21,881 13.853 17.980 22,185 28,2U2 61,318 23,571 5,232 41,064 1,709 IgS"? 252 4,400 15,8.35 6,054 9,077 4,.541 14,240 1833 1834 1835 235,286 47.45 18.36 1 1^37 . . . ■ 1838 1839 3,181 1840 460 ' 1841 . . . 6,094 5,040 725 1842 4 528 r 45,735 37.60 '20^806 377 1843 19.:,92 2,765. 12,103 "2,'l63 - 1. 3,688" 12,326 2,070 42,031 18,022 ■ 37,956 21 ,'786 15,200 , 4,lli 1 67,'252° 67,266 130,720 179,591 • 272,234 282,521 87,932 1844 1S4.T . . . 2,608 8,203 3,528 i,'l75 6,353 1,840 6,072 35,180 "\\,iik i9,'5'9'5 10,672 1,385 ' '6,'03'7 1.008 1,239 889 10,000 40,000 50,000 55,000 00,000 65,000 60.000 .55,000 55,000 55.000 50,000 50,000 16,000 43,000 39,200 40,000 46,100 53,225 53,500 51,725 48,000 49,500 50,000 43,500 36,000 36,000 33,490 33,467 39,929 46,897 51,200 38,899 ' ' ' "506 500 500 500 500 500 500 500 500 500 100 150 2,000 4,500 8,500 11,000 11,250 10,000 13,500 12,000 12,000 10,000 23,000 28,000 35,750 37.324 31 ,727 38,783 39,793 45,281 40,812 1,008 1,239 1840 881 23,104 519 41,747 47,006 31,481 23,332 42,215 26,159 2,913 3,962 1847 880 1848 967 2,101 26,240 10,000 40,500 l84y 1850 50,500 1851 93,758 44.31 55,500 1852 3,288 37,003 26,322 60,500 1853. ... 65,500 1854 60,500 1855 55,.50O 1856 55,500 1857 55,500 1858 17,142 50,500 1859 76,771 55.98 50,100 I860 46,150 1861 86,306 61,549 23,229 45,000 1862 43,700 1863 '05,329 14,883 10,009 62,459 48,500 1864 57,100 1865 6,642 "26,427 '24,176 .34,264 '"8,'o'22 32,040 64,475 1866 63,500 1867 05,225 1868 427,722 ^58.44 74.94 60,000 1869 94,059 11,450 232 116,284 56,528 01,500 1870 00.000 1871 06,500 1872 64,000 1873 71,750 1874 70,815 1875 65,195 1876 1,087,516 $44.75 49.31 38,143 71,302 92,576 75,010 §74,252 78,712 1877 86,690 1878 96,487 1879 79,711 1880 X Coin. § Imports, add production for the year. 208 AMERICAN FINANCES. CO d < I O H o o Q EH JO n 1 J B inojij ■ o — t-- ^ *- 1- X w :o -r ro ?^ •* o ^ lO o lO w --C 1-t L^ — — t- L- o 5C -^ JUII\[ lilOIJ HIOJ l-t00\ ^\ C| O t^"^ c^ t — 1< o _ _ i -* I-' ?o cc c; O -t" '-o -t- * t- **— 'irf r-Tc^i- rTi-' o^-qi" ? t- -ri :o ^: CO CO L— o h- -f r- ::d t- en I- — ' o r: t- -t' X *^ c -H t- co'co'coc^lc^'c^j '-''^''M''co'"M'r-'c^'"'>rc ':' *' o i o OJ o LO CO CC' w ~ o *^ oi -t^ c: :c X -^ CO '^ t— '-^ ~ X ~ ?) r - * 'j:; l-- l-'C:)-f^-coot-0^^^0'#^'-'Cit::o:o?5X— x-*-Xuo.o-rxcoi CO CO CO CO t— UO t- CO ^ CO CO C^ -^ — t' 1.0 o ^ t-- LO -^ -T^ CO i -^ 1-^ X CO ~' CO x"or :-r^coO'i^w-rccoo XJ X) t- i-O CI l- M '^ CO -h 'C' O CO' : ^ -- oc r- O) ^ I CO ^1 1^ CO c: t— lo x x -^ c; : t-_^i^^oi^cc^c^h- I t^-^y^ O l-o" CO* I r^ Tf X) liO CO X' - CO ^ wrt<^^ : ' r^co I X X ' tr- OC - I— O O — — ' O Ol CO (MOl CO 9£ "t*^ oci : coco c : iC li^ v^O OJ Ol ^ CO . ^ , - . 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O C^ CO X UO • to lO CO o o • Ol X t^ o — C-. ^ -t- M 15 TT-ST II-6-9-S Xouaa mo I'BUOIIO'BIJ S9a-B^g pajiuji lO o - (M O : CO O c , <£- S3; 5 X C^l lO CO 1^ C'l '^ ^ : - ic M tro t- CO :d r- -c : - ir.' f — X X X 7-1 I — CO UO O CO t^ 5< is 5 S io 5< — X t^ Ci — X X -+ ; OCVC^CIOC^I'— oc CO 00 CO CO TP Tf -^ -ji c •ionai ■JTIO ipi'Ba 8}Bas lo'o^' OC-, •Xouaimo jpiBa I'BUOIJ'B^ ■sifUBa ■j^ii JO s}unoo -sip puB sauoi •sJiuBa -ads SB pajnnoo lodud jamo jy saj-GopitJaa niop ■sjinua I^non-BN nt '810 -ods s."v; pajunoo ladBdpnB aioadg in japuaj i^SaT: SilTIBa IBUOTJU^I am JO sjisodaa X r— X CO "1 '— — -^ CO O '- t- ci t- cc — — ^c- I>^^^o o;:f CO r- o — C' X :d x'cTcTr; -^c ' CO t — !• — -f CO X uo O ^ X t^c:ir;coi:-o a; > © 4^ o ■<—' bl „^ s> cS §• tn »• . O) M T3 n» d n-a aid S^ lij CO %•■ cat I O ^ 14 no AMERICAN FINANCES. O I H Q o p— I 53 « (4 I ■w a;—' ^o fl1 TT' o — _ - ^ "5 Ei o ^- — -2 gji r: — X X c "— -< '5l g. 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'^"^ ~v -^, "•*. • V - V ' "- '-^. ^. ^, if or o" S o' o' o' o' o' o" cT 'Oii-f-r-r-i'-tniii-'>-i * * * * » X 11 1- '.1^ O »- H 00 -t< 1.1 O t— X O O ^ U CO -f 1.1 'O t- X o o o o o o o o o o o o t- I- I- 1- r— i— t- i- i- 1- x XXXXXXXXXXjXXXXXXXXXXX TABLES AND DIAGRAMS. 211 M H O O d h^ w <^ EH I <1 H ai m § s o Ph .SCO fl C-r o is S .£2 o o oooooooooo ic "~ ir? i.o ^H o L-? I— o w o irf •>? 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X 5 wis tN oi o; -— ' • - a Cw_ X_ "-I -^^ 1^ Ci O "* ^ T — ^ — ' c; (m' s4" co o o o I X t- X ?r to r; CO O '— 'M "M "M -o^ ^__ o '-^^ :o__ ;o iC O CO CO to CO IC Iv^ iC i.O »C *r* ^r* O^ -"^ CO CM jj 5j oj 2J "^ ■^ "<^ ■* -rt^ CO CO CO CO CO ir.:!^ ■ "^ 2 . x't-' . ~f ~ • '-^^'-^ T— t «3 > a: ^ c o wo® s U a; c8 — ( o h-a - oo o • o >0 t— . CO en -N ; oi co' ^' = . CO CO t- J • "*^~ -V 'T ■ rt"" o CO »o o i.o o ^, C_ o_ t-__ -f^^ a to 1.0 "* a "S 'S o *^ a ei . re~ »o ^' lo" icT o fn L; f- O Ol -f X 0^1 CO 1 s il o c CO oof ire'i-To^" lO 1.0 -^ CO 1-1 cq ooooooooooooo <^ - lo lo lo lo o w o o o o o ire o o o oi^ CO CO, c:__ -+ ire_^ o, o_ x, x, co__ o_ co__ '''^• x'cs ire'x'oo ire*"Ti<"-^co CO •re'co'of cS 4^ -* CO C2 1— ' lO CO t— t— t- r~ CO o ire S5 l» CO lO 1- -* Ol CO Tl< -^ Tji -t- -* 1-1 t- C4 s ^^ t-ojCi cic;xt-J:-t-jp-r-0 o ^Tl^COOOCOOOCOCOCOCOCOOl u €& ^> o ^ P K ^ ^oooooooooooo o tre o ire ire lO o ire ire ire o o ire ■3 O 1— X t- C5 CO O -P t~ 1~ t- CO "* ^ ^ u 52 x' of 1 o" o" ~' -+' -f' of of — ' co" -p" o , }2; §3 4.; 'I' X o ^ c; — 1 -M oj oK •^ -* 05 c: oi --I o c; CO c? CO rf X -f -r '— 1 ^ O ^_^t- C':.C0_^-O_-i'__-* O iC^t- Ol CO i-H rH ^ ^'•'-' c; co" " t— ' of co' r-' cT lo of o-f o" i o" H a;o si O X O O Oi O lO O IC LO O CO tHt— i^^Oli— ir- 11— 11— It— IrHr- ( oa !25 s a JO ^ § W fl Q tH oooooooooooo ^ g o ^ ^ C' '^ ^O C> O* ^^ ^^ O" 05 ^^ ^^ ^^ .3 •rr o ooooooocooco J3 T? fi ^ o" o" o" c" o" o" o" o o" o" o" o" 4^ n^-a ^ o P-i c a o o, o, o, o, o, o, o, o, o, o, o. 4J <1 >-.r? o ^ -t' -* -»" '*' -t" -r^r -^ TjT -^' -ijT -i^jT Tf c o ^,-,^^^,Hl-,^l-,-Hrtl-, E-i « ^-^ ^ OOuOOOOOOOOOOOOOO o m •Sfe? (X) »0 !M irS O O O la O lO o o »o o >o o 4^ ««;■ t? '*_L'^__'T cc^iri cc_!» 1— 1 .— Ttf Go^co o^'-H^iq^os, t3 P^ on •r" *~" 5'^ "^ i-T t-' 1— ' o' "' c P 2 o i to lO -f< ^ -^ tC O CO t~ (M 05 GO CO in ■* -* 3 1 -f c CC S-l_!2_t-^^^«0 -*COo o o lO o O.O_C0^Cit CO .-1 ?5 rt O } ->} ^ c uj t~ --s to io > " .— "W f-> 5mO JO ' ^"--^-H„ 0. »:- - --0 (— GC' n o — ri CO -)< o CO r- X c: O •-S ■- -o o -^ t~ 1- I- 1— 1— t- t- I— I- I- X y. X X X X r. r. x x x x x x x x x 214 AMERICAN FINANCES. o H M Q K U !E <; CO Q M ;?; t3 « -f o — c o f; I- a: c S' — — 2 : t^ 1^ CI T- t >- — M M I— ' CO CC C' CC C-l ^j O C^ O C. O CO cccooo — »r;ir:r^^o -fccco r- o c: c^ ic lO o c:; t^ ^ ic o ^ :co».o-rcoo^c^i-H«— ^H ^-"i^ S o H c I o|_ i:^ t- cc lO■■ L:i CO o : — o o- cc — ;; iC I- '-T C^l C: t- f^ : I -, ~; '": t "^ ^ -O c i ?: ~ r: jc iT: i--^ CI : : -^ c^ t^ X -r T c: I ' --'^ r- — ' oc ?i lO -J c 00 l-- CO cc 1^ (M cc C c cc cri ic c: cc -t*cc 10 cc — (M (M CO-!f O O O O O O f>\'^ t— otccC'i-cr. 0000 o CO '^'^i ^•'^' ^ "t — , -^ "^ "^ c4" 10 cT — C ^^ 01 cc '-0 COC^CCOC-fOCCiCCj-l^ cr u'f ^c" cT r- 3 i-"" ci o -1- ■^ c — '~r ~ -o •. ci 'O -- c. cj ?i u ~ — -f x^ o cc Ci'o — ' I- t-' c; d c; of CD 13 0) o «© o C p w IC -^ OS : o — O) « ; 02 = « CO M CO I- C"! LO I-" x' -^ ■i I- M O] X ■* 10 CO CO cr. 1.0 ;~,^, ' 01' x' ! CO-fi iCO O I^CO CO Ci C! 3 (U '^ r- X Ol CO IC cc X -t" -hX rTi oco CO 5 "M 1— -^ 1-^ 00 '-"^t-^ X^ O^ J^^ -H-" 1-^ :0~ " o' iffl" o' o" -S !S X X X ^ i-H a^ :^ 'ti X — ' t- X lO X O 01 00 ■; c; I- X --2 ~ oi I- 00 — ' -- irr :o ~ ^ '^ O i.O 01 X X Ol O O 1.— ^ r-H X^ x__ x_ o_ ' o_ O0_ Cl_ • " o -* (m" ■*" » io' o" x' x' o" x" o4' ci" oo" -^CrO"— lO^iCOa — OSiCStN oq_ o^ -<' oo~ o o ira 3i o -* 00 'O t— I— o X o t-COiOOOtMOCSXt-OOiOO o o o OS -3 3; ^'■, B >= O tu :« - ■rt< oo O "lO O irS CI X ifO OT lO 00 c;_ x_^ t- __ -04^ — <_ X, o~ o'jr-"" -r^ """ o* -r >o CM -H c; X O 00 T— ' C2 T— I !J0 t-^ i.o~ x*" oo~ of cT O X x o o t— 3^ -^ X Oq X X >— i(M00OOC0OO01O'^O-n' itoc;— 't^>-iot~-*o-tx— lire ■^ -T fM 00 CI O >re O >— I tC '-'vO^ ■>! ■H<~ t-T cT x" -l^' "*" ' w*" "*" oo' x' cT cT !M loi lO X o) 00 t— 1— "O c; t— 00 <— I 're o t- J",^ o o_o t-^':£^oq^o_rH cfq_ X i-^ cT oo' —'' "^ o' ire* o~ cT oo~ o X Oi -t< TTi oi c; ~. -t 00 ^ c: Ci >re o t- t— I— ;r 't 00 ' oo oo O-l O) CO '^ X iO r-^ CO r- o CN O 5 -< H CO o o o H id r ~t Q 03 CO O H O -!! ;?; H H w Q o p o s OS c ;= pais o 00 -ti o -* o o -+ o oo oo Ci (M r- i-o t-; o cq^o^t-^o_io_ ci o x'l—' c;' cT (N O 'Tf CO O ^ Ol 00 1-^ ire_ r-i_ r-^ Tt^ 00__ Oi_ M*' t--" oo' go" o' lo' •— <" o o ire >re >re o i— •a§:lOJ ^ t- X t-_^C5_ 00 — I— 00 0^1 — ' o0_ 1-^ i-h" r-T i-T of of (jf ^ -^' 1— "-f of of of of C3 — t— •+ o -^ ire o lO ^ o Ol -H -+ i—^^ 00 t-_^ ^__ '-0 o ^' o cT ire' x' cT CO Ci 05 X -* o 1*' oo' -^' oo' o' O ^ f— I o) ire Jt- i-i oooxoi"T oi cc '^ 1-0 C-. ~ LO LO •-; X Ol (N I- 01 CO 'O lO — I — r T^ I- o O Ol X -f -O CO CO *r CO : — t- Oq — O ' — OC C Ol CO ■ :o CO Ol X 0-^ 00 to t— 00 0-* i-^of o c: I- ^ 05 «Tt< O H o o CO E-i 4— iXc::oot'CO(M CO CD^ Tf^ rr ^ -^ CO C^ -t^ iO^ irf irT zo" --^ c^r ^ cT -^ rf i-^ ^ ^ ^^ '^ "^ ^ T ^ "^ "^ CO t- -"O IC O] CO t- O IQ 1 O 00 CO ' C-1 IT: f— ■ . ~ ' CO Ol CO ■^5 I '-■-so 1- -M CO no 0:0 O C3 t' ^ O <:C> CO <— CO rH 00C05O CO I- OOCOCO — •-Ol-HC-lO-f ^oto ^J.^ t-^o -i< a; co^^ ic (M o -f t — M 01 coo -f o 1.0 -^co CO -^1- CO err ■-c'cf'- t- o ic c; c^ t— t— C-. iro 00 •-- 10 -t '- o 000 OiriX'OwC.CO-^OOO COOlrt^ o H •rt t-i — O) Ph.E S S3 o a CO 10 ir; ~ :o 00 C; O to O o -i* CO 1^ »— CO xi ^C5 10CO— •00O'fl"-HC5 ^ of OtT ^ OfT 0^ t-^ t-T .-T of -<■'(" ST^-Hrt 01 tOIMOOCO CO rH^CO O ICC^Ci^t- ^ CO t~;_ CO CO 01 -f •* CO of of cq oq w oco of -^iO" 00 C5 t- O CO 10 CO IC C-. o CO 10^ r Si.' 'S "coco CO 00 lOlOTtlCOl-COCOO^OO OOCOt-OCOOO-f-HOlO 00; OJ i-^0> O 00_^C3 O '-> (N -f C-l^m. CO^'>J_->l^-f CO O CC '-^ CO i--^ 1-^ «' t- o iC ^ C-1 o o fC' r^ O ri X;^iO_OC t- X" t- cc O O t- oc t- r- iM -r r: c: — o u- X^ ) o::o J CO o ■ O 00 ^ I 1— -f Ol w IC » » t3 u C> X 05 00 i> oc ■^ ^, ^l o;' 01 Lo' : o -^ = !: of of> Ol » I r* 01 » 00 r-< 05 1000 O lot- CO CO t- 00 -H 05 10 CO o b- ^ Tf X 00 X X 00 CO 00 I- X r; o — 01 CO -f i-o -o :o ^ 'c !■- I- t- I- r- t- I- X X X X X X X X X X r- X 05 1-1—1— XXX s o ^2 0) 3 o a- o a a> icT so CO a a 3 o >». eS a. o to 3- o o 00 TABLES AND DIAGRAMS. 217 TABLE KO. 9. 1850. 1851. 1852. 1853. 1854. 1855. 1856. 1857. 1858. 1859. 1860. 1861 1862 1863. 1864. 1865. 1866. 1867. 1868. 1869. 1870. 1871. 1872. 1873. 1874. 1875. 1876 1877. 1878. 1879. REVENUES. Nominal. Tons mdse. .S43,.-92,S88 52,555,039 49,846,815 61,587,031 73,800,341 65,350,574 74,056,699 6S.t)65,312 46,655,365 .52,777,107 56,054.599 41,476,299 51,919,261 112,094,945 243,412,971 322,031,158 519,949,564 462,846,679 376,434,453 357,188,2.56 395,959,833 374,431,104 364,394,229 322,177,673 299,941,090 284,020,771 290,066,584 281,000,642 257,446,776 272,322,136 1,084,400 1,288,429 1,066,698 1,306,748 1.389,052 1,120,3.59 1,330,997 1,162,794 971,986 1.056,810 1,185.740 962,103 1,063,265 1,766,665 2,588,948 3,971,770 6,151,793 5,716,273 4,705.430 4,797,693 5,758,570 5,999,536 5,98i5,502 5.170,561 5,086,333 4,940,351 5,680,896 5,925,783 6,113,1.53 0,857,772 disburse:ments. (War, Navy, Indians, Pen- sions, Miscellaneous.) Nominal. $37,165,990 44,0.54,717 40,389,954 44,078,156 51,907,528 56,316,197 66,772,527 66,041,143 72,330,437 66,355,950 60.656,7.54 62,610,055 456,379,896 694,004,575 811,283,679 1,217,704,199 385,954,731 202,948,733 229,915,088 190,496,354 164,421,507 157,583,827 153,201,856 180,488,636 194,118,985 171,529,848 164,8.57,813 144,209,963 134,463,452 161,610,934 Tons nulse. 924,527 1,080,()37 964,326 935,246 97.^120 965,475 1,200,081 1,113.491 l,.50(i.S84 1,32S.713 1,27<».141 1,452,522. 9,346.301 10,937,81 S 8,628,,S41 15,018,552 4,506,429 2,506,482 2,873,938. 2,558,71.5 2,391,237 2,524,977 2,51.5.216 2,89(5,636 3,291,826 2,983.59-1: 3,228,707 3,041.121 3,205,326 4,07(1,000- ■216 AMERICAN FINANCES. DIGEST OF LEGTSLATIOISr RELATIIS'G TO THE PUBLIC DEBT A^V> CURRENCY— ShowixNG the Inflation, Con- TB ACTION. AND EUNDING SCHEMES.— TABLE iSTO. 8. Fiscal, V EAR. I860. . . . 1861.,.. 1862... 1863... 1864... 1865... 1866 .. 1867... 1868... 1869 . . . 18T0.. 1871 . . 1872.. 1873.. 1874. 1875. 1876. 1877. 1878. 1879. 1880. Banks in control of the currency ; and Government limited to coin Outst;inaing GoveriiHient debt War coniiuenced. Government l>()rrowed $150,000,000 ; issued circulating notes : suspended coin payments First ttiLod— Inflation o/ Gurernment Currency. Borrowing. Original Cnntracta. Legal-tendere issued and paid lor all debts, except duties and interest on public debt ; $300,000,000 authorized Legal -tenders paid in settlement of previous coin contracts and notes : additional issue of $150,00o,ooo authorized ; National Bank act pas.sed ; $300,000,000 bank paper authorized and made payable for public con- tracts and notes 10.40 Bonds issued, payable in coin ; and short-time notes, payable, princi- pal and interest, in currency ; |400,oOO,ooo of said notes legal tender Secretary of Treasury authorized to change all contracts between the Gov- einment and its creditors at his pleasure ; also to reduce the legal-ten- der paper of the Government Close of the war and commencement of second period. Secretary hoards Government currency, and makes way lor bank currency Second Period--Contraction of Gocernmcnt Currency: payings- change of contract from paper to coin payment; first funding scheme. Secretary transfers large amounts of Government paper from Class D to Class B, increasing and changing the value of the interest paid, and changing the contract from specific to indefinite Keduces the currency, and appreciates the value of all contracts to pay money '. Congress declares its intention to pay all contracts of Class B in coin, ihas repudiating the original contract on all paper funded from Class D, and reversing tlie construction of the act of Feb. 25, 18G2 Third l^eriod- -ContracLion of Coin; Coin Payment; Change of Con- tract from " Coirt" to Coin of "present standard value: second funding scheme. Congress authorizes funding the entire debt into bonds payable in "coin of present standard vaiue," and exempt from Federal taxation. . Also authorizes the payment of 5-20 bonds at par in coin Congress demonetizes silver, thereby appreciating the coin about 38 per cent, above the standard of 1870 Congress agrees to pay coin for greenbacks on and after Jan. l, 1879 ; changes fractional currency from non-interest to interest debt Increa.ses the public debt by borrowing coin and is.sumg bonds therefor Hoards the coin, thus decreasing the supply and further appreciating its value Fourth Period— Resumption ; Inflation; Banks Again in Control of tilt: Volume of Currencii. Secretary receives the greenback for duties m violation of law, in order to maintain resumption Secretary (lisl)urses $l8."j,743,!i(i6 from tlie Treasury, pays off .$214,778,490 of publfc debt, and the banks inflate .$20,000,000, thus reducing tlie value of money abont 16 per cent TABLED AND DIAGRAMS. 219 DIGEST OF LEGISLATION EELATIXG TO THE PUBLIC DEBT AND CURRENCY— Showing the Inflation, Con- traction, AND Funding Schemes.— Table No. 8 (Coiit.). Outstanding Faper of Gov't, Classified According to Autliorizing Act. Kef'nce jium'rs. Year. I860.... Class A. Included u\ Classes B and D. 1861.... 1862.... 1863.... 1864.... 1865. . . . 1866.... 1867... 1868... 1869... 1870. . . . 1871 ... 1872... 1873.... 1874.... T875.... T876.... 1877.... 1878.... 1879.... 1880.... 3-6-9-11-12-14 Class B. Payment of the principal not specified. In- terest in coin. 124,550,325 § 149,660,000 C t 411.190,064 X 623,325,996 t 515,505,107 t 590,428,614 t 523,817,662 t 417,485,976 t 391.457,558 t 398..38G,122 J 397,G4(),4.'"i5 i 399,205,173 t 401,500,8.37 t 428,5011,862 t 418,451,876 i 404,719,263 i 380,623,786 t 363,656,486 1 362,930,366 ! 362,657,954 l-2-t3-t4-5-17 20-21-22-23 II 64,769.703 II 267,540,034 § 230,706,725 § 586,231,403 § 1,090.117,797 § 1,155,736,593 § 1,234,639,243 § 1,607,679,734 § 2,013,768,618 § 2,051,766,327 2.070,281,845 1,913,.378,320 1,880,887,245 1,631,.526,145 1,522,883,345 1,412,346,625 1,283,280,979 1,155,708,227 1,015,602,161 I 619,147,660 I 524,726,086 Class C. Principal and interest both in coin. Class D. Principal and interest both in currency. 10-13-15-16-25 26-27-30 II 116,010,023 !| 247,770,100 J 260,814,780 269,499,370 291,127,540 303,939,440 II 307,244,520 II 351,742,3.50 11 504,003,100 II 511,319,000 11 609,209,751 i| 704,615,6.50 11 815,113,200 II 959,579,250 1,161,223,650 I 1,667,157,310 II 1.547,075,550 +3-1-4-7-8-9-11 12-14-18-19-24 t 283,504,645 J 512,561,776 t 534,562,667 X 1,277,828,332 X 1,281,929,854 X 800,257,910 X 302,335,805 X 242,2.59,868 X 102,778,432 X 88,090,661 i 68,300,883 X 59,907,847 X 00,837,072 X 56,907,250 X 49,160,887 X 35,053,914 X 31.162,480 1 30,425,560 1 30,150,.398 Hoarding in the U. S. Treiisury. 32,979,530 30,963,857 46,964,304 36,523,046 134,433,738 33,933,657 165,301,654 198,076,537 158,936,082 183,781,985 177,604,116 138,019,122 134,666,001 159,293.673 178,833.339 172.804,001 149,909,377 214,887,645 286,591,453 386,832,588 201 ,088,622 c Made payable in bank notes. * Made payable in coin by resumption. + 3 Transferred to Class D by the act of Feb. 25. 1862. + 4 Construed to be so transferred by same act. See page 138. X Payable in currency. § Manner of payment in dispute. f Payable in co'iii. o APPENDIX. TJ. S. FINANCIAL LEQISLATIOS. —J — t, — J— The Statntes Relating to Coinage, Loans, and the Currency Passed Since 1861. THE ACT OF JULY 17, 1861. [Under this act were issued the 6 per cent, bonds now known as "The Loan of July and August, 1861," "The Seven-thirties of 1861," and " The Demand Xotes."] [2, 3, 4.] An Act to Authorize iv National Loan, and for Other Purposes.— Yol. XIL , p. 259, Stat, at Large. Section i. That the Secretary of the Treasury be, and he is hereby, autliorized to borrow on the credit of the United States, within twelve montlis from the passage of this act, a sum not ex- ceeding two hundred and fifty millions of dollars, or so much thereof as he may deem necessary for the public service, for which he is authorized to issue coupon bonds, or registered bonds, or Treasury notes, in such proportions of each as he may deem ad- visable; the bonds to bear interest not exceeding seven per centum perannum, payable semi-annually, irredeemable for twenty years, and after that period redeemable at the pleasure of the United States ; and the Treasury notes to be of any denomination fixed (4) by the Secretary of the Treasury, not less than $50, to be payable three years after date, with interest at the rate of 7 3-10 per centum per annum, payable semi-annually. And the Secretary of the (3) 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 $50, not bearing interest, but payable on demand by the Assistant Treasurers of the United States at Philadelphia, New York, or Boston, or Treas- ury notes bearing interest at the rate of 3 65-100 per centum, pay- able in one year from date, and exchangeable at any time for Treasury notes for $50 and upwards, issuable under the authority 229 230 APrEXDIX. of this act, and bearing interest as specifled above: Provided^ That no excliange of such notes in any less amount than ."$100 shall be made at any one time : And 2)rovided further, That no Treas- ury notes shall be issued of a less denomination than $10, and that the whole amount of Treasury notes, not bearing interest^ issued under the authority of this act, shall not exceed $50,000,000. Sec. 2 is devoted to prescribing liow the various notes and bonds shall be signed, issued, and made transferable. Sec. 3. And be it further enacted, That the Secretary oi tne Treasury shall cause books to be opened for subscription to the Treasury notes for $50 and upwards at such places as he may designate in the United States, and under such rules and regula- tions as he may prescribe, to be superintended by the Assistant Treasurers of the United States at their respective localities, and at other places, by such depositaries, postmasters, and other per- sons as he may designate, notice thereof being given in at least two daily papers of tins city, and in one or more puljlic news- papers published in the several places where subscription books may be opened; and subscriptions for such notes may be received from all persons who may desire to subscribe, any law to the con- trary notwithstanding ; and if a larger amount shall be subscribed in the aggregate than is required at one time, the Secretary of the Treasury is authorized to receive the same, should he deem it ad- vantageous to the public interest ; and if not, he shall accept the amount required by giving the preference to the smaller subscrip- tions ; [after providing for compensation for the officers receiving subscriptions, and for the receipt of the moneys realized there- from, the act continues:] And the Secretary of the Treasury is also authorized, if he shall deem it expedient, before opening books- of subscription as above provided, to exchange for coin, or pay for public dues or for Treasury notes of the issue of 23d of Decem- ber, 1857, and falling due on the 30th of June, 1861, or for Treasury notes issued and taken in exchange for such notes, any amount of said Treasury notes for $50 or upwards, not exceeding $100,000,000. Sec. 4. provides that proposals for the loan shall be published, and the most favorable offers accepted, but at not less than par. Sec. 5. provides that a portion of this loan not exceeding $100,- 000,000 may be negotiated in a foreign country, and prescribes the regulations therefor. Sec. 6. That whenever any Treasury notes of a denomination (3> less than $50, authorized to be issued by this act, shall have been redeemed, the Secretary of the Treasury may reissue the same or may cancel tliem and issue new notes to an equal amount. Pro- vided, That the aggregate amount of bonds and Treasury notes issued under the foregoing provisions of this act shall never ex- ceed the full amount authorized by the lirst section of this act; DIGEST Ol-' KlNACNi: LAWS. 231 and the power to issue or reissue such notes shall cease and de- termine after the 31st of December, 18(52. Sec, 7. That the Secretary of the Treasury- is hereby authorized^ whenever he shall deem it expedient, to issue in exchange for coin^ or in payment of public dues, Treasury notes of any of the de- nominations hereinbefore specified, bearing interest not exceed- ing six per centum per annum, and payable at any time not ex- ceeding twelve months from date, provided that the amount of notes so issued, or paid, shall at no time exceed $20,000,000, Sec. S provides that the Secretary of the Treasury shall report to Congress his proceedings under this act. Sec. 9. That the faith of the United States is hereby solemnly pledged for the payment of the interest and redemption of the principal of the loan authorized by this act. Sec. 10. That all the provisions of the act entitled "An act to authorize the issue of Treasury notes," approved the twenty-third day of December, eighteen hundred and fifty-seven, so far as the same can or may be applied to the provisions of this act, and not inconsistent therewith, are hereby revived or re-enacted. THE ACT OF AUGUST 5, 1861. [This act is supplementary to the foregoing, and relates to pre- cisely the same issues.] [2, 3, 4.] AN Act Supplementary to an act Entitled "An Act to authorize a N'ational Loan, and for other purposes." — Vol. XII., p. 313, Stat. at Large. Section l. That the Secretary of the Treasury is hereby (2) authorized to issue bonds of the United States, bearing interest at 6 per cent, per annum, and payable at the pleasure of the United States after twenty years from date ; and if any holder of Treasury- notes, bearing interest at the rate 7 3-10 per cent., which may (4) be issued under the authority of the act to authorize a national loan and for other purposes, approved July 17, 1861, shall desire to exchange the same for said bonds, the Secretary of the Treasury may at any time before or at the maturity of said Treasury notes, issue to said holder, in payment thereof, an amount of said bonds equal to the amount which, at the time of such payment or ex- change, may be due on said Treasury notes ; but no such bonds shall be issued for a less sum than $500, nor shall the whole amount of such bonds exceed the whole amount of Treasury notes bearing 7 3-10 per cent, interest, issued under said act; and any part of the Treasiiry notes payable on demand, authorized by said act, may be made payable by the Assistant Treasurer at St. Louis, or by the depositary at Cincinnati. 232 APPENDIX. Sec. 2 relates entirely to the method of making the Treasury notes. Sec. 3 reduces the lowest denomination of the Treasury notes (3j from $10 to $5. Sec. 4 appropriates .^100,000 more for expenses. Sec. 5 That the Treasury notes authorized by the act to (3) which this is supplementary, of a less denomination than $50, pay- able on demand without interest, and not exceeding in amount the sum of $50,000,000, shall be receivable in payment of public dues. Sec. 6 suspended those portions of tlie Sub-Trq^sury act (1 846, ch. ■90) which would not permit deposits in solvent specie-paying banks, and authorized such deposits. Sec. 7. That the Secretary of the Treasury may sell or negotiate, for any portion of the loan provided for in the act to which (2) this is supplementary, bonds payable not more than twenty years from date, and bearing interest not exceeding 6 per centum per annum, payable semi-annually, at any rate not less than the equiv- alent of par, for the bonds bearing 7 per centum interest authorized by said act. THE ACT or TEBEUARY 12, 1862. [This act authorized the issue of $10,000,000 more of "Demand Notes." making $60,000,000 in all.] An Act to Authorize an Additional Issue of United States Notes. —Vol. XII., p. 338, Stat, at Large. That the Secretary of the Treasury, in addition to the $50,000,000 of notes payable on demand of denominations not less than (3) $5, heretofore authorized by the acts of July 17 and August 5, 1861, be and he is hereby authorized to issue like notes and for like purposes, to the amount of $10,000,000. and said notes shall be deemed part of the loan of $250,000,000 authorized by said acts. THE ACT OF EEBRUAEY 25, 1862. [This act authorized the issue of the first "Greenbacks" of the bonds known as "the 5-20s of 1862," and of the earliest issue of the 'Temporary Loan Certificates."] [3, 5, 6, 7.] An Act to Authoriz the Issue of United States Notes, and for the Eedemption or Funding thereof, and for Funding the Float- ing Debt of the United States.— Vol. XII., p. 345, Stat, at Large. Section 1. That the Secretary of the Treasury is hereby (6) DIGEST OF FIXAXCE LAWS. 23? authorized to issue, on credit of the United States, S150,000,000 of United States notes, not bearing interest, payable to bearer at the Treasury of the United States and of sucli denominations as he may deem expedient, not less than ^5 each. Provided, However, that fifty millions of said notes shall be in lieu of the demand (.3) Treasury notes authorized to be issued by the act of July 17, 1861; which said demand notes shall be taken up as rapidly as practica- ble, and the notes herein provided for substituted for them: And provided farther. That the amount of the two kinds of notes together shall at no time exceed the sum of $150,000,000, and such notes herein authorized shall be receivable in payment of all taxes, internal duties, excises, debts, and demands of every kind due to the United States, except duties on imports, and of all claims and demands against the United States of every kind whatsoever, ex- cept for interest upon bonds and notes, which shall be paid in coin, and shall also be lawful money and a legal tender in pay- ment of all debts, public and private, within the United States, •exr(>pt duties on imports and interest as aforesaid. And any (5) holders of said United States notes depositing any sum not less than 850, or some multiple of $50, with the Treasurer of the United States, or either of the Assistant Treasurers, shall receive in ex- ■change therefor duplicate certificates of deposit, one of which may be transmitted to the Secretary of the Treasury, who shall there- upon issue to the holder an equal amount of bonds of the United States, coupon or registered, as may by said holder be desired, bearing interest at the rate of six per centum per annum, payable semi-annually, and redeemable at the pleasure of the United States after five years, and payable twenty years from the date thereof. And such United States notes shall be received the same as (6) -coin, at their par value, in payment for any loans that may be hereafter sold or negotiated by the Secretary of the Treasury, and may be re-issued from time to time as the exigencies of the public interest shall require. Sec 2. That to enable the Secretary of the Treasury to fund (5) theTreasury notes and floating debt of the United States, he is hereby authorized to issue, on the credit of the United States, coupon bonds, or registered bonds, to an amount not exceeding $500,000,000, redeemable at the pleasure of the United States after five years, and payable twenty years from date, and bearing in- terest at the rate of six per centum per annum, payable semi-an- nually. And the bonds herein authorized shall be of such denom- inations, not less than $50, as may be determined upon by the Sec- retary of the Treasury. And the Secretary of the Treasury may dispose of such bonds at any time, at the market value thereof, for the coin of the United States, or for any of the Treasury notes that have been or may hereafter be issued under any former act 15 234 APPEXDIX. of Congress, or for United States notes that may be issued under the provisions of this act ; and all stocks, bonds, and other securi- ties of the United States held by individuals, corporations, or asso- ciations within the United States, shall be exempt from taxation- by or under State authority. Sec. 8 relates to the form of the notes and bonds— their signing, etc., and appropriates S?X)0,000 for expenses and engraving, etc. Sec. 4. That the Secretary of the Treasury may receive from (7)' any person or persons, or any corporation, United States notes on deposit for not less than thirty days, in sums of not less than $100,. with any of the Assistant Treasurers or designated depositaries of the United States authorized by the Secretary of the Treasury to receive them, who shall issue therefor certificates of deposit made in such form as the Secretary of the Treasury shall prescribe?- and said certificates of deposit shall bear interest at the rate of five per centum per annum ; and any amount of United States notes so deposited may be withdrawn from deposit at any time after ten days' notice on the return of said certificates : Provided, That the interest on all such deposits shall cease and determine at the plea- sure of the Secretary of the Treasury. And provided further^. That the aggregate of such deposit shall, at no time, exceed the amount of $25,000,000. Sec. 5. That all duties on imported goods shall be paid in coin, (3) or in notes payable on demand heretofore authorized to be issued, and by law receivable in payment of public dues, and the coin so paid shall be set apart as a special fund, and shall be applied as follows : 1. To the payment in coin of the interest on the bonds and note, of the United States. 2. To the purchase or payment of one per centum of the entire debt of the United States, to be made within each fiscal year after the first day of July, 1862, which is to be set apart as a sinking fund and the interest of which shall, in like manner, be applied to the purchase or payment of the public debt, as the Secretary of the Treasury shall, from time to time direct. 0. The residue thereof to be paid into the Treasury of the United States. Sec. 6, provides penalties for forging, counterfeiting, etc. Sec. 7 does likewise. TPIE ACT OF MARCH 1, 18G2. [By this act the first issue of "Certificates of Indebtedness" was authorized.] [8.] An Act to Authorize the Secretary of the Treasury to Issue Certi- DIGEST OF FINANCE LAWS. 235 fieates of Indebtedness to Public Creditors.— Vol. XII., p. 352, Stat, at Large. Section 1. That the Secretary of the Treasury be, and he is (8) hereby, authorized to cause to be issued to any public creditor who may be desirous to receive the same, upon requisition of the head of the proper department, in satisfaction of audited and settled demands against the United States, certificates for the whole amount due, or parts thereof not less than one thousand dollars, signed by the Treasurer of the United States, and contersigned as may be directed by the Secretary of the Treasury ; which certifi- cates shall be payable in one year from date, or earlier, at the option of the Government, and shall bear interest at the rate of six per centum per annum. THE ACT OF MARCH 17, 1862. [This act authorized the additional issue of "Temporary Loan Certificates" and "Certificates of Indebtedness," and made the "Demand Xotes" a legal tender.] [3, 6, 7, 8.] An Act to Authorize the Purchase of Coin, and for other pur- poses.— Vol. XII., p. 370, Stat, at Large. Section 1. That the Secretary of Treasury may purchase coin with any of the bonds or notes of the United States, authorized by law, at such rates and upon such terms as he may deem most ad- vantageous to the public interesc ; and may issue, under such (8) rules and regulations as he may prescribe, certificates of indebted- ness, such as are authorized by an act entitled "An act to authorize the Secretary of the Treasury to issue certificates of indebtedness to public creditors," approved March 1, 1862, to such creditors as may desire to receive tlie same in discharge of checks drawn by disbursing officers upon sums placed to their credit on the books of the Treasurer, upon requisitions of the proper departments, as well as in discharge of audited and settled accounts, as provided by said act. Sec. 2. That the demand notes authorized by the act of July (3) 17, 1861, and by the act of February 12, 1862, shall, in addition to being receivable in payment of duties on imports, be receivable, and shall be lawful money and a legal tender, in like manner, and for the same purposes, and to the same extent, as the notes author- ized by an act entitled "An act to authorize the issue of United States notes, and for the redemption or funding thereof, and for funding the floating debt of the United States," approved Febru- ary 25, 1SG2. Seo. 3. That the limitation upon temporary deposits of (7^ United States notes with any Assistant Treasurers or designated 23G APPENDIX. depositaries, autliorized by tlie Secretary of the Treasury to re- ceive such deposits, at 5 per cent, interest, to ^25,000,000. sliall be so far modified as to authorize the Secretary of the Treasury to receive such deposits to an amount not exceeding 350,000,000, and that tlie rates of interest shall be prescribed by the Secretary of the Treasury, not exceeding tlie annual rate of 5 per centum. Sec. 4. That, in all cases where the Secretary of the Treasury (0) is authorized by law to reissue notes, he may replace such as are so mutilated or otherwise injured as to be unfit for use, with •others of the same character and amount; and such mutilated notes, and, all others which by law are required to be taken up and not reissued, shall when so replaced or taken up, be destroyed in such manner, and under such regulations, as the Secretary of the Treasury may prescribe. THE ACT OF JULY 1, 1862. [This relates entirely to the Pacific Railroad, and we give only those sections providing for the issue of bonds to those corpora- tions.] [31.] Section 5. That, for the purpose herein mentioned, the (31) Secretary of the Treasury shall, upon the certificate in writing of said commissioners of the completion and equipment of forty con- secutive miles of said railroad and telegraph, in accordance with the provisions of this act, issue to said company bonds of the United States of 81,000 each, payable in thirty years after date, Ijear- ing six per centum per annum interest (said interest payable semi- annually), which interest may be paid in United States Treasury notes, or any other money or currency which the United States have, or shall declare lawful money, and a legal tender, to the amount of sixteen of said bonds per mile of such section of forty miles; and to secure the repayment to the United States, as here- inafter provided, of the amount of said bonds so issued and deliv- ered to said company, together with all interest therein which slial! have been paid by the United States, tlie issue of said bonds aud delivery to said company, shall yj.so facto constitute a first moitgage on the whole line of the railroad and telegi'aph, together witli the rolling stock, fixtures, and property of every kind and description, and in consideration of which said bonds may be issued ; and on the refusal or failure of said company to redeem said ))onds, or any part of them, when required so to do by the Secretary of the Treasury, in accordance with the provisions of this act, the said road, with all the rights, functions, immunities, and appurtenances thereunto belonging, and also all lands granted lu tlie said company by the Unitw.1 States which at the time of DIGEST OF FIX A NTH LAWS. 2J7 said default shall remain in the owiuTrfhi]) of said conii)any, may" he taken possession of by the Secretary of the Treasury, for the use and benefit of the United States ; Provided, This section shall not apply to that part of any road now constructed. Sec. 0. That the grants aforesaid are made upon condition that said company shall pay said bonds at maturity, and shall keep said railroad and telegraph line in repair and use, and shall at all times transmit dispatches over said telegraph line, and transport mails, troops, munitions of war, supplies and public stores upon said rail- road for the Government, whenever required to do so by any de- partment thereof, and that the Government shall at all times have the preference in the use of the same for all the purposes afore- said (at fair and reasonable rates of compensation, not to exceed the amounts paid bs private parties for the same kind of service); and all compensation for services rendered for the Government shall be applied to the payment of said bonds and interest until the Avhole amount is fully paid. Said company may also pay the United States, wholly or in part, in the same or other bonds. Treas- ury notes, or other evidences of debt against the United States, to be allowed at par; and after said road is completed, until said bonds and interest are paid, at least live per centum of the net earnings of said road shall also be annually applied to the payment thereof. THE ACT OF JULY 11, 1862. [This act authorizes the further issue of " Greenbacks " and of " Certiflcates of Indebtedness."] [.5, 6, 7, S.] An Act to Authorize an Additional Issue of United States Notes and for other purposes.— Vol. XII., p. .5:]2, Stat, at Large. (6) Section l. That the Secretary of the Treasury is hereby au- thorized to issue, in addition to the amounts heretofore authorized, on the credit of the United States, 8150,000,000 of United States notes, not bearing interest, payable to bearer at the Treasury of the United States, and of such denominations as he may deem expedient: Provided, That no note shall be issued for the frac- tional part of a dollar, and not more than 8:>j.000,000 shall be of lower denomination than 85; and such notes shall be receival)Ie in payment of all loans paid to the United States, and of all taxes, internal duties, excises, debts, and demands due to the United States, except duties on imports and interest, and of all claims and demands against the United States, except for interest upon bonds, notes and certificates of debt or deposit; and shall also be lawful money and a legal tender in payment of all deltts, public and pri- vate, within tlie United States, except duties on imports and in- 238 APPENDIX. terest, as aforesaid. And any holder of said United States (5) notes depositing any sum not less than $50, or some multiple of $50, with the Treasurer of the United States, or either of the Assis- tant Treasurers, shall receive in exchange therefor duplicate cer- tificates of deposit, one of which may be transmitted to the Sec- retary of the Treasur}% who shall thereupon issue to tlie holder an equal amount of bonds of the United States, coupon or registered, as may by said holder be desired, bearing interest at the rate of six per centum per annum, payable semi-annually, and redeemable at the pleasure of the United States after five years, and payable twenty years from the date thereof: Provided, however, That (G) any notes issued under this act may be paid in coin, instead of being received in exchange for certificates of deposit, as above specified, at the direction of the Secretary of the Treasury. And (5) the Secretary of the Treasury may exchange for such notes, on terms as he shall think most beneficial to the public interest, any bonds of the United States bearing six per centum interest, and re- deemable after five and payable in twenty years, which have been or may be lawfully issued under the provisions of an existing act; may reissue the notes so received in exchange; may receive and cancel any notes heretofore lawfully issued under any act of Con- gress, and in lieu thereof issue an equal amount in notes such as are authorized by this act; and may purchase, at rates not exceed- ing that of the current market, and the cost of purchase not ex- ceeding one-eighth of one per centum, any bonds or certificates of debt of the United States as he may deem advisable. Sec. 2 relates to the details of printing. (7) Sec. 3. That the limitation upon temporary deposits of Uni- ted States notes Avith any Assistant Treasurer, or designated depos- itary authorized by the Secretary of the Treasury to receive such deposits to $50,000,000, be and is hereby repealed ; and the Secretary of the Treasury is authorized to receive such deposits, under such regulations as he may prescribe, to such amount as he may deem expedient, not excecfling $100,000,000, for not less tlian thirty days, in sums not less than $100, at a rate of interest iu)t exceeding five per centum per annum; and any amount so dei)()sited may be withdrawn from deposit at any time after ten days' notice, on the return of the certilicates of deposit. And of the amount of (6) United States notes authorized by this act, not less than $50,000,000 shall be reserved for the purpose of securing promi)t payment of such deposits when demanded, and shall be issued and used only when, in the judgment of the Secretary of the Treasury, tlie same or any part tlifrcol' may be needed for that puri)ose. And certificates of deposit and ni indebtedness issued under this or former (7 8) acts may be received on the same terms as United States notes in payment for l)()nds reil(>cnial)le after five ami payable in twenty years. DIGEST OF FINANCE LAWS. 239 bEC. 4. That the Secretary of the Treasury may, at any time, xintil otherwise ordered by Congress, and under tlie restrictions imposed by the "Act to autliorize a national loan, and for other purposes," borrow on the credit of the United States, such part ol the sum of $250,000,000 mentioned in said act as may not have been borrowed under the provisions of the same, within twelve months from the passage thereof. Sec. 5 relates to counterfeiting. Sec. 6 makes the provisions pf the act of February 25, 18G2, appli- -cable to this act. THE ACT OF JULY 17, 1862. [This was the act under which the "Postal Currency" was is- .sued.] [9.] An Act to Authorize Payments in Stamps, and to Prohibit Cir- culation of IN'otes of less Denomination than one dollar. — Yol. XII., p. 592, Stat, at Large. Section 1. That the Secretary of the Treasury be aud he is (9) hereby directed to furnish to the Assistant Treasurers, and such designated depositaries of the United States as may be by him selected, in such sums as he may deem expedient, the postage and other stamps of the United States, to be exchangetl by them, on application, for United States notes; and from and after the 1st ■day of August next such stamps shall be receivable in payment of all dues to the United States less than $5, and shall be received in •exchange for United States notes when presented to any Assistant Treasurer or any designated depositary, in sums not less than S5. Sec. 2. That, from and after the 1st day of August, 1862, no pri- vate corporation, banking association, firm or individual shall make, issue, circulate or pay any note, check, memorandum, token or other obligation for a less sum than $1, intended to circulate as money or to be received or used in lieu of lawful money of the United States; and every person so offending shall, on conviction thereof, in any district or circuit court of the United States, be punished by fine not exceeding $500, or by imprisonment not ex- ceeding six months, or by both, at the option of the court. THE ACT OF MAECH 3, 1863. [This act authorized still further issues of "Greenbacks" and " Certificates of Indebtedness," and constituted the authority for the issue of the boiads known as " the Loan of 1863," for the " One and Two-year five per cents," for the " Compound Interest Notes of 1863," for the "Coin Certificates," and for the "Fractional Cur- rency."] [5, 0. 7. S, 0, 10. 11, 12, 13. 1 1.] 240 APPENDIX. An Act to Provide Ways and Means for the Support of the Gov- ernment.— Yol. XII., p. 109, Stat, at Large. Section l. That the Secretary of the Treasm-y be and he i& hereby authorized to borrow, from time to time, on the credit of the United States, a sum not exceeding §300,000,000 for the current fiscal year, and §1600,000,000 for the next fiscal year, and to issue therefor coupon or registered bonds, payable at the pleasure (10) of the Government after such periods as may be fixed by the Sec- retary, not less than ten nor more than forty years from date, in coin, and of such denominations, not less than S50, as he may deem expedient, bearing interest at a rate not exceeding 6 per cent, per annum, payable on bonds not exceeding 8100, annually, and on all other bonds semi-annually, in coin; and he may, in his discretion, dispose of such bonds at any time, upon such terms as he may deem most advisable, for lawful money of the United States, or for any of the certificates of indebtedness or deposit that may at any time be unpaid, or for any of the Treasury notes heretofore issued, or Avhieh may l)e issued under the provisions of this act. And all the bonds and Treasury notes or United States notes issued under the provisions of this act shall be exempt from taxation by or under State or municipal authority ; Provided, That there shall be outstanding of bonds. Treasury notes, and United States notes,, at any time, issued under the provisions of this act, no greater amount altogether than the sum of §900,000,000. Sec. 2. That the Secretary of the Treasury be and he (11, 12, 14) is hereby authorized to issue, on the credit of the United States, $400,000,000 in Treasury notes, payable at the pleasure of the United States, or at such time or times, not exceeding three years from date, as may be found most beneficial to the public interests, and bearing interest at a rate not exceeding 6 per cent, per annum, payable at periods expressed on the face of said Treasury notes; and the interest on the said Treasury notes and on certificates (7, S) of indebtedness and deposit hereafter issued, shall be paid in law- ful money. The Treasury notes thus issued shall be (11, 12, 14.) of such denomination as the Secretary may direct, not less than SlO, and may be disposed of on the best terms that can be obtained, or may l)e paid to any creditor of the United States will- ing to receive the same at par. And said Treasury notes may be made a legal tender to the same extent as United States notes, for their face value, excluding interest; or they may be made exchangeable under regulations prescribed by tlie Secretary ot tiie Treasury, by the holder thereof, at the Treasury in the city of Washington, or at the office of any Assistant Treasurer or depos- itary designated for that purpose, for United States notes ecpial ia amount to the Treasury notes offered for excliange, together with the interest accrued and due thereon at the date of interest pay- DIGEST OF FINANCE i.AWS. 241 ment next preceding such exchange. And, in lieu of any amount of said Treasury notes thus exchanged, or redeemed or paid at maturity, the Secretary may issue an equal amount of other Treas- ury notes; and the Treasury notes so exchanged, redeemed or p.iid shall be canceled and destroyed, as the Secretary may direct. In ((J) order to secure certain and prompt exchanges of United States notes for Treasury notes, wlien required as above provided, the Secretary shall have power to issue United States notes to the amount of 6150,000,000, which may be used, if necessary, for such exchanges; but no part of the United States notes authorized by this section shall be issued for, or applied to, any other purposes than said exchanges ; and whenever any amount shall have been so issued and ajiplied, the same shall be replaced, as soon as prac- ticable, from the sales of Treasury notes for United States notes. Sec. 3. That the Secretary of the Treasury be, and he is hereby (0> authorized, if required by the exigencies of the public service, for the payment of the army and navy, and other creditors of the Gov- ernment, to issue on the credit of the United States the sum of $150,000,000 of United States notes, including the amount of such notes heretofore authorized by the joint resolution approved Jan- uary 17, I860, in such form as he may deem expedient, not bearing^ interest, payable to bearer, and of such denominations, not less than $1, as he may prescribe, which notes so issued shall be lawful money, and a legal tender in payment of all debts, public and pri- vate, within the United States, except for duties on imports and interest on the public debt; and any of the said notes, when re- turned to the Treasurj^ may be reissued from time to time, as the exigencies of the public service may require. And in lieu of any of said notes, or any other United States notes, returned to the Treasury, and cancelled or destroyed, there may be issued equal amounts of United States notes, such as are authorized by this act.. And so much of the act to authorize the issue of United States (5> notes and for other purposes, approved February 25, 1862, and of the act to authorize an additional issue of United States notes, and for other purposes, approved .July 11, 1802, as restricts the negotia- tion of bonds to market value, is hereby repealed. And the (6) holders of United States notes issued under and by virtue of said acts, shall present the same, for the purpose of exchanging the same for bonds, as therein provided, on or before the first day of July, I860, and thereafter the right so to exchange the same shall cease and determine. Sec. 4. That, in lieu of postage and revenue stamps for fractional currency, and of fractional notes, commonly called postage (9) currency, issued or to be issued, the Secretary of the Treasury may issue fractional notes of like amounts, in such form as he may deem expedient, and may provide for the engraving, preparation* 242 APPENDIX. and issue thereof in the Treasuiy Department Building. And alt such notes issued shall be exchangeable by the Assistant Treasurers and designated depositaries for United States notes, in sums not less than three dollars, and shall be receivable for postage and revenue stamps, and also in payment of any dues to the United States less than five dollars, except duties on imports, and shall be redeemable on presentation at the Treasury of the United States, in such sums and under such regulations as the Secretary of the Treasury shall prescribe: Frovided, Thut the whole amount of fractional currency issued, including postage and revenue stamps issued as currency, shall not exceed )?50,UOO,000. Sec. 5. That the Secretary of the Treasury is hereby authorized to receive deposits of gold coin and bullion with the Treasurer (13) or any Assistant Treasurer of the United States, in sums not less than $20, and to issue certificates therefor, in denominations of not less than 320 each, corresponding with the denominations of the United States notes. The coin and bullion deposited for or repre- senting the certificates of deposit shall be retained in the Treasury for the payment of the same on demand. And certificates repre- senting coin in the Treasury may be issued in payment of interest on the public debt, which certificates, together with those issued for coin and bullion deposted shall not at any time exceed twenty per cent, beyond the amount of coin and bullion in the Treasury; and the certificates for coin or bullion in the Treasury shall be re- <;eived at par in payment for duties on imports. Sec. 6 relates to form, signature, etc., of the various notes and bonds. Sec. 7. And he it furtlier enacted that all banks associations, ■corporations, or individuals, issuing notes or bills for circulation as currency, shall be subject to and pay a duty of one percent, each half year from and after April, 1, 1863, upon the average amount ■of circulation, and notes or bill as currency issued beyond the amount hereinafter named that is to say; banks, associations, cor- porations, or individuals, having a capital of not over $100,000, 90 per cent, thereof ; over $100,000 and not over $200,000, 80 per cent, thereof; over $200,000 and not over $300,000, 70 per cent, thereof; over $300,000 and not over $.>0().000, 00 i)er cent, thereof ; over $500,000 and not over $1,000,000, 50 per cent, thereof ; over $1,000,000 and not over $1,500,000, 40 per cent, thereof ; over $'1,500,000 and not over $2,000,000, 30 per cent, thereof; over $2,000,000, 25 per cent, tliereof. In the case of banks with branches, the duty herein provided for shall be imposed upon the circulation of notes or bills of sucli branches severally, and not upon the aggregate circulation of all, and the amount of capital of each branch shall be considered to be tlie amount allotted to or used by such branch. The same section imposes a duty of 5 per cent, on fractional DIGEST OF FINANCE LAWS. 243 ■notes, issued by a bank. It further levies a tax of one per cent ■on all deposits except in savings banks. Sec. S relates to counterfeiting, and iippropriates $000,000 to meet the expenses of the act. THE RESOLUTION OE JANUAEY 17. 18C3. [This resolution authorizes the issue of $100,000,000 in "Green- backs" for immediate use.] [6.] Joint Resolution to provide for the immediate payment of the Army and Xavy of the United States.— Vol. XIL, p. 822, Stat, at Large. Whereas, It is deemed expedient to make immediate provision for the payment of the army and navy; therefore. Be it Resolved, etc., That the Secretary of the Treasury be, (6) and he is hereby, authorized, if required by the exigencies of the public service, to issue on the credit of the United States the sum ■of 8100,000,000 of United States notes, in such form as he may deem -expedient, not bearing interest, payable to bearer on demand, and •of such denominations, not less than $1, as he may prescribe, which notes so issued shall be lawful money and a legal tender, like the rsimilar notes heretofore authorized, in payment of all debts, public .and private, within the United States, except for duties on im- ports and interest on the public debt; and the notes so issued shall ,be part of the amount provided for in any bill now pending for the issue of Treasury notes, or that may be passed hereafter by this Congress. LExiDING PROVISIONS OF THE NATIONAL BANK ACT. [Sections of Revised Statutes.] Sec. 5133. Associations for carrying on the business of bank- ing under this title may be formed by any number of natural persons, not less in any case tlian five. They shall enter into articles of association, which shall specify in general terms the object for which the association is formed, and may contain any other provisions, not inconsistent with law, which the association may see fit to adopt for the regulation of its business and the con- •duct of its afiairs. These articles shall be signed by the persons uniting to form the association, and a copy of them shall be for- warded to the Comptroller of the Currency, to be filed and pre- ■served in his office. Sec. '>]38. No association shall be organized under this title •with a less capital than one hundi-ed thousand dollars ; except that 2-54 APPENDIX. banks with a capital of not less than fifty thousand dollars may, with th e approval of the Secretary of the Treasury, be organized in any place the population of which does not exceed six thousand inhabitants. ISTo association shall be organized in a city the popu- lation of which exceeds fifty thousand persons with a less capital than two hundred thousand dollars. Sec. 5171. Upon a deposit of bonds as prescribed by sections fifty-one hundred and fifty-nine and fifty-one hundred and sixty,. the association making the same shall be entitled to receive from the Comptroller of the Currency circulating notes of difCerent de- nominations, in blank, registered and countersigned as hereinafter provided, equal in amount to ninety per centum of the current market-value of the United States bonds so transferred and de- livered, but not exceeding ninety per centum of the amount of the bonds at the par value thereof, if bearing interest at a rate not less than five per centum per annum : Provided, That the amount of circulating notes to be furnished to each association shall be in proportion to its paid up capital, as follows, and no more : First. To each association whose capital does not exceed five hundred thousand dollars, ninety per centum of such capital. Second. To each association Avhose capital exceeds five hundred thousand dollars, but does not exceed one million of dollars, eighty per centum of such capital. Third. To each association whose capital exceed one million of dollars, but does not exceed three million[s] of dollars, 75 per centum of such capital. Fourth. To each association whose capital exceeds three millions of dollars, sixty per centum of such capital. Sec. 5182. After any association receiving circulating notes under this title has caused its promise to pay such notes on de- mand to be signed by the president or vice-president and chashier thereof, in such manner as to make them obligatory promissory notes, payable on demand, at its place of business, such associa- tion may issue and circulate the same as money. And the same- shall be received at par in all parts of the United States in pay- ment of taxes, excises, public lands, and all other dues to the United States, except duties on imports ; and also for all salaries and other debts and demands owing by the United States to in- dividuals, corporations, and associations within the United States, except interest on the public debt, and in redemption of the natioiuil currency. Sec. 5214. In lieu of all existing taxes, every association shall pay to the Treasurer of the United States, in the months of January and July, a duty of one-luilf of one per centum each half- year upon the average amount of its notes in circulation, and a duty of one-quarter of one per cenluni each half-year upon the- DIGEST OF FINANCE LAWS. 245 average amount of its deposits, and a duty of one-quarter of one per centum eacli half-year on the average amount of its capital stock, beyond the amount invested in United States bonds. Sec. 5230. Whenever the Comptroller has become satisfied, by the protest or the waiver and admission specified in section fifty- two hundred and twenty-six, or by the reiwrt provided for in sec- tion fifty-two hundred and twenty-seven, that any association has refused to pay its circulating notes, he may, instead of canceling its bonds, cause so much of them as may be necessary to redeem its outstanding notes to be sold at public auction in the city ot New York, after giving thirty days' notice of such sale to the association. For any deficiency in the proceeds of all the bonds of an association, when thus sold, to re-imburse to the United States the amount expended in paying the circulating notes of the associa- tion, the United States shall have a paramount lien upon all its assets ; and such deficiency shall be niade good out of such assets in preference to any and all other claims whatsoever, except the necessary costs and expenses of administering the same. THE ACT or MAECH 3, 1864. [This act authorized the issue of the bonds known as the " Ten- forties of 18C4." and extended the scope of the provisions of the act of February 25, 1862.] [5, 15.] An Act Supplementary to an Act Entitled "An Act to Provide Ways and Means for the Support of the Government," approved March 3, 1863.— Vol. XIII, p. 13. Stat, at Large. Section 1. That, in lieu of so much of the loan authorized (15) by the act of March 3, 1863, to which this is supplementary, the Secretary of the Treasury is authorized to borrow, from time to time, on the credit of the United States, not exceeding $200,000,000 during the current fiscal year, and to prepare and issue therefor coupon or registered bonds of the United States, bearing date March 1, 1864, or any subsequent period, redeemable at the pleas- tire of the Government after any period not less than five years, and payable at any period not more than forty years from date, in coin, and of such denominations as may be found expedient, not less than $50, bearing interest not exceeding 6 per cent, a year, payable on bonds not over $100, annually, and on all other bonds semi-annually, in coin ; and he may dispose of such bonds at any time, on such terms as he may deem most advisable, for lawful money of the United States, or, at his discretion, for Treasury notes, certificates of indebtedness, or certificates of deposit, issued under any act of Congress, and all bonds issued under this act shall be exempt from taxation by or under State or municipal 246 APPENDIX. authority. And the Secretary of the Treasury shall pay the neo essary expenses of the preparation, issue, and disposal of such bonds out of any money in the Treasury not otherwise appropri- ated, but the amount so paid shall not exceed one-half of 1 per cent, of the amount of the bonds so issued and disposed of. Sec. 2. That the Secretary of the Treasury is hereby authorized to issue to persons who subscribed on or before the 21st day (5) of January, 1864, for bonds redeemable after five years, and pay- able twenty years from date, and have paid into the Treasury the amount of their subscriptions, the bonds by them respectively subscribed for, not exceeding .^11, 000,000, notwithstanding that such subscriptions may be in excess of $500,000,000 ; and the bonds so issued shall have the same force and effect as if issued under the provisions of the act to "Authorize the issue of United States- notes and for other purposes," approved February 26 [5th], 1862. THE KESOLUTIOK OF MARCH 17, 1864. [This relates to the payment of the interest on the public debt and sale of coin.] Joint Eesolution Authorizing the Secretary of the Treasury ta Anticipate the Payment of Interest on the Public Debt, and for Other Purposes. — Vol. XIIL, p. 404, Stat, at Large. Be it Resolved, etc., That the Secretary of the Treasury be authorized to anticipate the payment of interest on the public debt, by a period not exceeding one year, from time to time, either with or without a rebate of interest upon the coupons, as to him may seem expedient; and he is hereby authorized to dispose of any gold in the Treasury of the United States not necessary for the payment of interest on the public debt: Provided, That the obligation to create the sinking fund according to the act of February 25, 1862, shall not be impaired thereby. THE ACT OF JUNE 30, 1864. [This act established various limitations upon the previously authorized issues of "Temporary Loan Certificates," "Greenbacks," and "the Loan of 1863," and authorized the issue of the bonds known as "the Five-Twenties of 1864," and also of "the Seven- Thirties of 1804," and "tlie Compound Interest Notes of 1864," and authorized borrowing bank notes at 6 per cent, interest, and exempts them from taxes. [2, 3, 4, 5, 6, 7, 9, 10, 15, 16, 18.] An Act to Provide Ways and ]Means for the Support of the Gov- ernment, and for Other Purposes.— Vol. XIIL, p. 218, Stat, at Large. DIGEST OF FINANCE LAWS. 24T Section 1. That the Secretary of the Treasury be, and he is (U5> hereby, authorized to borrow, from time to time, on the credit of the United States, ©400,000,000, and to issue therefor coupon or registered bonds of the United States, redeemable at the pleasure of the Government, after any period not less than five nor more than thirty years, or, if deemed expedient, made payable at any period not more than forty years from date. And said bonds shall be of such denominations as the Secretary of the Treasury shall direct, not less than §50, and bear an annual interest not exceed- ing 6 per cent, payable semi-annually, in coin. And the Secretary of the Treasury may dispose of such bonds, or any part thereof, and of any bonds commonly known as Five-Twenties remaining unsold, in the United States, or, if he shall find it expedient, in (.5) Europe, at any time, on such terms as he may deem most advisa- ble, for lawful money of the United States, or, at his discretion, for Treasury ISTotes, Certificates of Indebtedness, or Certificates of Deposit issued under any act of Congress. And all bonds, Treas- ury notes, and other obligations of the United States shall be ex- empt from taxation by or under State or municipal authority. Sec. 2. That the Secretary of the Treasury may issue, on the (18) credit of the United States, and in lieu of an equal amount of bonds authorized by the preceding section, and as part of said loan, not exceeding $200,000,000, in Treasury notes of any denomi- nation not less than $10, payable at any time not exceeding three years from date, or, if thought more expedient, redeemable at any time after three years from date, and bearing interest not exceed- ing the rate of 7 3-10 per cent., payable in lawful money at ma- turity, or, at the discretion of the Secretary, semi-annually. And the said Treasury notes may be disposed of by the Secretary of the Treasury, on the best terms that can be obtained, for lawful money; and such of them as shall be made payable, principal and interest, at maturity, shall be a legal tender to the same extent as United States notes, for their face value, excluding interest, and may be paid to any creditor of the United States at their face value, excluding interest, or to any creditor willing to receive them at par, including interest ; and any Treasury notes issued under the authority of this act may be made convertible, at tlie discretion of the Secretary of the Treasury, into any bonds issued under the authority of this act. And the Secretary of (6, 3, 4) the Treasury may redeem and cause to be cancelled and destroyed any Treasury note or United States notes heretofore issued under authority of previous acts of Congress, and substitute, in lieu thereof, an equal amount of Treasury notes, such as are author- ized by this act, or of other United States notes : Provided, That (18) the total amount of bonds and Treasury notes authorized by the first and second sections of this act shall not exceed $400,000,000 248 APl'EXDIX. in addition .to the amounts heretofore issued; nor sliall the (6; total amount of United ."Mates notes, issued or to be issued, evei exceed 6400,000,000, and such additional sum, not exceeding 350,- 000,000, as may be temporarily required for the redemption of tem- porary loan ; nor shall any Treasury note bearing interest, (IS) issued under this act, be a legal tender in payment or redemption ■of any notes issued by any bank, banking association or banker, •calculated or intended to circulate as money. Sec. 3. That the interest on all bonds heretofore (2, .5, 10, 15, 16) issued, payable annually, may be paid semi-annually ; and in lieu of such bonds authorized to be issued, the Secretary of the Treas- uiy may issue bonds bearing interest, payable semi-ajnnually. (4) And he may also issue in exchange for Treasury notes heretofore issued bearing 7 3-10 per cent, interest, besides the 6 per cent, bonds heretofore authorized, like bonds of all the denominations in "Which such Treasury notes have been issued; and the interest on such Treasury notes after maturity shall be paid in lawful money, and they may be exchanged for such bonds at any time within three months from the date of notice of redemption by the Secre- tary of the Treasury, after which the interest on such Treasury notes shall cease. And so much of the law approved March 3, 1SG4, as limits the loan authorized therein to the current fiscal (16) year, is hereby repealed; and the authority of the Secretary (10) of the Treasury to borrow money and issue therefor bonds or notes, conferred by the first section of the act of March 3, 1863, entitled, " An act to provide ways and means for the support of the Government," shall cease on and after the passage of this act, except so far as it may effect $75,000,000 of bonds already adver- tised. Sec. 4. That the Secretary of the Treasury may authorize the (7) receipt, as a temporary loan, of United States notes or the notes of national banking associations on deposit for not less than thirty days, in sums of not less than $50, by any of the assistant Treas- urers of the United States or depositories designated for that pur- pose, other than national banking associations, who shall issue certificates of deposit in such form as the Secretary of the Treas- ury shall prescribe, bearing interest not exceeding 6 per cent, annu- ally, and payable at any time after the term of deposit, and after ten days' subsequent notice, unless time and notice be waived by the Secretary of the Treasury ; and the Secretary of the Treasury may increase the interest on deposits at less than 6 per cent, to that rate, or, on ten days' notice to depositors, may diminish the rate of interest as the public interest may require; but the aggre- gate of such deposits shall not exceed $150,000,000, and the Secre- tary of the Treasury may issue, and shall hold in reserve for pay- DIGEST OF FIXAXCE LAWS. 249 ment of such deposits, United States notes not exceeding $50,000,- 000, including the amount already applied in such payment ; and the United States notes so held in reserve shall be used only when needed, in his judgment, for the prompt payment of such deposits on demand, and shall be withdrawn and placed again in reserve as the amount of deposits shall again increase. Sec. 5. That the Secretary of the Treasury may issue notes (9) of the fractions of a dollar, as now used for currency, in such form, Avith such inscriptions and with such safeguards against counterfeiting as he may judge best, and provide for the engrav- ing and preparation, and for the issue of the same, as well as of all other notes and bonds, and other obligations, and shall make suck regulations for the redemption of said fractional notes and other notes when mutilated or defaced, and for the receipt of said fractional notes in payment of debts to the United States, except for customs, in such sums, not over five dollars, as may appear to him expedient; and it is hereby declared that all laws and parts of laws applicable to the fractional notes engraved and issued as herein authorized, apply equally and with like force to all the fractional notes heretofore authorized, whether known as postage currency or otherwise, and to postage stamps issued as currency; but the whole amount of all descriptions of notes or stamps less than one dollar, issued as currency, shall not exceed fifty millions of dollars. Sections 6 to 12, inclusive, relate to the details of the printing and issuing of these bonds and notes and to the penalties for their counterfeiting. Sec. 13. That the words "obligation or other security of the United States," used in this act, shall be held to include and mean all bonds, coupons, national currency, United States notes. Treas- ury notes, fractional notes, checks for money of authorized officers of the United States, certificates of Indebtedness, certificates of deposit, stamps, and other representatives of value of whatever denomination, which have been or may be issued imder any act of Congress. THE ACT OF JULY 2, 1864. Vol. XII., p. 356, Stat, at Large. [This act amends the Pacific Eailroad Act of 1862, and we give only the section relating to United States bonds.] Section 10. That section five of said act be so modified and (31) amended that the Union Pacific Railroad Company, the Central Pacific Railroad Company, and any other company authorized to participate in the construction of said road, may, on the com- :i50 APPEXDIX'. pletion of each section of said road, as provided in this act, and the act to which this act is an amendment, issue their first mort- gage bonds on their respective railroad and telegraph lines to an amount not exceeding the amount of the bonds of the United States, and of even tenor and date, time of maturity, rate and character of interest, with the bonds authorized to be issued to said railroad companies respectively. And the lien of the United States bonds shall be subordinate to that of the bonds of any or either of said companies hereby authorized to be issued on their respective roads, property and equipments, except as to the pro- visions of the sixth section of the act to which this act is an amendment, relating to the transmission of dispatches and the transportation of mails, troops, munitions of war, supplies and public stores for the Government of the United States. THE ACT OF JANUAliY 28, 1865. [This act was supplementary to two which had preceded it, and authorized no new issues of Government paper.] [5,6, 17, IS.] An Act to Amend An Act Entitled "An Act to Provide Ways and Means for the Support of the Government, and for Other Purposes," Approved June Thirtieth, Eighteen Hundred and Sixty-four.— Vol. XIII., p. 425, Stat, at Large. Section 1. That in lieu of any bonds authorized to be (17, 18) issued by the first section of the act entitled "An act to provide ways and means for the support of the Government," approved June 30, 1864, that may remain unsold at the date of this act, the Secretary of the Treasury may issue, under the authority of said act. Treasury notes of the description and character authorized by the second section of said act : Provided, That the whole amount of bonds authorized as aforesaid, and Treasury notes issued and to be issued in lieu thereof, shall not exceed the sum of $400,000,000; and such Treasury notes may be disposed of for lawful money, or for any other Treasury notes, or Certificates of Indebtedness, or Certificates of Deposit issued under any previous act of Congress; and such notes shall be exempt from taxation by or under State or municipal authority. Sec. 2. That any bonds known as Five-Twenties, issued un- der the act of February 25, 1802, remaining unsold, to an amount (5) not exceeding !54.00O,OO0, may be disposed of by the Secretary of the 'i'reasury in the United States; or, if he shall find it expedient, in Europe, at any time, on such terms as he may deem most ad- visaljle: Provided, That this act shall not be so construed as (6) to give any authority for the issue of any legal tender notes, in any form, beyond the balance unissued of the amount authorized by the second section of the act to which this is an amendment. DIGEST OF FINACNE LAWS. 2.-)l TPIE ACT OF MARCH 3, 1865. [Under this act were issued " the Seven-Thirties of 1865," and the various issues of bonds known as "the Five-Twenties, of 1865 " and " the Consols of 1805. 1807, and 18(;S." This act constitutes the first funding scheme.] [1, 2, 4, 5, 7, 8, 10, 11, 12, l.S, 14, 15, 10.] An Act to provide Ways and Means to support the Government. —Vol. XIII., p. 468, Stat, at Large. Section 1. That the Secretary of the Treasury be and he is (20) hereby autliorized to borrow, from time to time, on tlie credit of the United States, in addition to the amounts heretofore author- ized, any sums not exceeding in the aggregate $000,000,000, and to issue therefor bonds or Treasury notes of the United States, in such form as he may prescribe, and so much thereof as may be issued in bonds, sliall be of denominations not less than $50, and may be made payable at any period not more than forty years from date of issue, or may be made redeemable, at the pleasure of the Government, at or after any period not less than five years nor more than forty years from date, or may be made redeemable and payable as aforesaid, as may be expressed upon their face ; and so much thereof as may be issued in Treasury notes may be made convertible into any bonds authorized by this act, and may be of such denominations— not less than $50— and bear such dates and be made redeemable or payable at such periods as in the opinion of the Secretary of the Treasury may be deemed expedient. And the interest on such bonds shall be payable semi-annually ; (18) and on Treasury notes authorized by this act the interest may be made payable semi-annually or annually, or at maturity thereof; and the principal, or interest, or both, may be made payable in coin^ or in other lawful money : Provided, That the rate of interest (18, 20.) on any such bonds or Treasury notes, when payable in coin, shall not exceed 6 per cent, per annum, and when not payable in coin, shall not exceed 7 3-10 per cent, per annum; and the rate and character of interest shall be expressed on all such bonds or Treas- ury notes: And provided furtlier. That the act entitled "An (17) act to provide ways and means for the support of the Govern- ment, and for other purposes," approved June 30, 1804, shall be so construed as to authorize the issue of bonds of any description authorized by this act. (1, 2, 4, 5, 7, 8, 10, 11, 12, 13, 14, 15, 10, 17, 18, 21, 22, 23). And any Treasury notes or other obliga- tions bearing interest, issued under any act of Congress, may, at the discretion of the Secretary of the Treasury, and with the con- sent of the holder, be converted into any description of bonds authorized by this act ; and no bonds so authorized shall be con- sidered a part of the amount of $000,000,000 hereinbefore authorized. 252 APPENDIX. Sec. 2. That the Secretary of fthe Treasury may (18. 20, 21, 22.) dispose of any of the bonds or other obligations issued under this act, either in the United States or elsewhere, in such manner, and at such rates, and under such conditions as he may think advis- able, for coin, or for other lawful money of the United States, or for any Treasury notes, certiflcates of indebtedness, or certificates of deposit, or other representatives of value, which have been, oi may be, issued under any act of Congress ; and may, at his discre- tion, issue bonds or Treasury notes authorized by this act, in pay- ment for any requisitions for materials or supplies which shalls have been made by the appropriate department or offices upon the Treasury of the United States, on receiving notice in writing- through tlie department or office making the requisition, that the owner of the claim for which the requisition is issued desires to subscribe for an amount of loan that will cover said requisition or any part thereof; and all bonds or other obligations issued,. under this act shall be exempt from taxation by or under State or municipal authority. Sec. 3. That all the provisions of the act entitle act. Provided, That nothing herein contained shall be con- strued as authorizii'g the issue of legal tender notes in any form; and a sum, not exceeding one per centum of the amount of bonds and other obligations issued under this act, is hereby appropriated to prepare the expenses of preparing and issuing the same, and disposing thereof. THE ACT OF MAKCH 3, 1865. [This act levied a tax on State bank circulation.] An Act to Amend an Act Entitled "An Act to Provide Internal Kevenue to Support the Government, to Pay Interest on the I'ublic Debt, and for Other Purposes," approved June 30, 18G4. Approved March 3, 1865. Vol. XIII, p. 484. Section 6. And be it further enacted, that every National Banking Association, State Bank, or State Banking Association, shall pay a tax of ten per centum on the amount of notes of any State liank or State Banking Association, paid out by them after tthe first day of July, 1866. DIGEST OF FINANCE LAWS. 253 THE ACT OF APRIL 12, 18(i0. [This act authorized the funding of the short-lived issues of the Government paper into long term bonds, and the contraction of the "Greenbacks" at the rate of $10,000,000 in the coming six months, and of not more than $4,000,000 per month after that, and -completes the first funding scheme.] [0.] An Act to amend an act entitled ''An act to provide waj'S and means to support the Government," approved March 3, 1805. — Vol. XIY., p. 31. Stat, at Large. Section 1. That the act entitled, "An act to provide ways and (6) means to support the Government," approved March 3. 1865, shall be extended and construed to authorize the Secretary of the Treas- ury, at his discretion, to receive any Treasury notes or other obli- gations issued under any act of Congress, whether bearing interest or not, in exchange for any description of bonds authorized by the act to which this is an amendment; and also to dispose of any ilescription of bonds authorized by said act, either in the United States or elsewhere, to such an amount, in such manner, and at such rates he may think advisable, for lawful money of the United ■ States, or for any Treasury notes, certificates of indebtedness, or cer- tificates of deposit, or other representatives of value, which have been, or which may be, issued under any act of Congress, the pro- ceeds thereof to be used only for retiring Treasury notes or other -obligations issued under any act of Congress ; but nothing herein contained shall be construed to authorize any increase of the pub- lic debt : Provided, that of United States notes not more than $10,- 000,000 may be retired and cancelled within six months from the passage of this act, nd thereafter not more than $4,000,000 in any one month: And provided further. That the act to which this is an amendment shall continue in full force in allits provisions, except as modified by this act. Sec. 2 required a report to Congress of operations under this act. THE ACT OF MARCH 2, 1867. [This act authorized the issue of the "Three per cent. Certifi- ■ c^tes" to retire the "Compound Interest ISTotes."] [14, 24.] An Act to Provide Ways and Means for the Payment of Com pound Interest Xotes.— Vol. XIV., p. 558, Stat, at Large. Section l. Tliat for the purpose of redeeming and retiring, any compound interest notes outstanding, the Secretary of (14, 24.) the Treasury is hereby authorized and directed to issue temporary loan certificates in the manner prescribed by section 4 of the act entitled "An act to authorize the issue of United States notes and for the redemption or funding thereof, and for funding the 254 APPENDIX. floating debt of the United States," approved February 25, 1SG2,, bearing interest at a rate not exceeding three per centum per annum, principal and interest payable in lawful money on demand ; and said certificates of temporary loan may constitute and be held by any national bank holding or owning the same, as a part of the reserve provided for in sections 31 and 32 of the act entitled "An act to jirovide a national currency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof," approved June 3, 1864. Provided, That not less than two-fifths of the entire reserve of such bank shall consist of lawful money of the LFnited States. And Provided, fur- ther. That the amount of such temporary certificates at any time outstanding shall not exceed $50,000,000. THE ACT OF MARCH 26, 1867. [This act levied a tax on Corporate Scrip. We print it in full as a "specimen brick."] An Act to Exempt Wrapping Paper Made From Wood or Corn- stalks from Internal Tax and for Other Purposes. — Vol. XV., p. 6, Stat, at Large. Sec. 1. That from and after the passage of this act, wrapping paper made from wood or cornstalks shall be exempt from inter- nal tax. Sec. 2. And be it further enacted, that every National Banking Association, State Bank or Banker or Association, shall pay a tax of ten per centum on the amount of notes of any town, city or municipal corporation, paid out by them after the first day of May, A. D. 1867, to be collected in the mode and manner in which the tax oil the notes of state banks is collected. Sec. 3. And be it further enacted, that wrapping paper made from ant other material than that cited in the first section, shall be also exempt from internal taxation. Sec. 4. And be it further enacted, that from and after the ])ass- age of this act, ladders made wholly of wood shall be exempt from internal tax. THE ACT OF FEBRUARY 4, 1868. [This act stopped the destruction of the "Greenbacks" by Sec- retary McCulloch. An Act to suspend further reduction of the currency — Vol. XV., p. 34. Stat, at Large. [6.] Section l. That, from and after the passage of this act, the (6) DICEST OF FIXAXCK LAWS. -^-j authority of the Secretary of the Treasury to make any reduction of the currency, by retiring or cancelling United States notes, sliall be, and is hereby, suspended ; but nothing herein contained shall prevent the cancellation and destruction of mutilated United States notes, and the replacing of the same with notes of the same character and amount. SCHUYLER COLFAX, Speaker of the House of Representatives. B. F. AVADE, President of the Senate pro tempore. Indorsed by the President : " Received January 23, 1868." [Note of the Department of State.— The foregoing act hav ing been presented to the President of the L'l'nited States for his approval, and not having been returned by him to the House of Congress in which it originated within the time prescribed by the Constitution of the United States, has become a law without its approval. THE ACT OF JULY 25, 1868. [This act continued the issue of Government paper known as the " Three per cent. Certificates," which were used to retire the " Compound Interest ]!^otes."] [24.] An Act to provide for a further issue of temporary loan certifi- cates, for the purpose of redeeming and retiring the remainder of the outstanding compound interest notes. — Yol. XY., p. 183, Stat. at Large. Section 1. That for the sole purpose of redeeming and (24) retiring the remainder of the compound interest notes outstanding the Secretary of the Treasury is hereby authorized and directed to issue an additional amount of temporary loan certificates, not ex- ceeding §25,000,000 ; said certificates to bear interest at the rate of three per cent, per annum, principal and interest, payable in lawful money on demand, and to be similar in all respects to the certifi- cates authorized by the act entitled " An act to provide ways and means for the payment of compound interest notes," approved March 2, 1807 ; and the said certificates may constitute and be held by any national bank holding or owning the same as a part of the reserve, in accordance with the provisions of the above mentioned act of March 2. 1867. THE ACT OF MARCH 18, 1869. [This is the familiar statute popularly known as the "Public Credit act."] [1, 2. 3, 4, 5, O, 10, 17, 20, 21, 22. 23.] 256 • APrENDIX. Ajst Act to strengthen the public credit. — Vol. XVI., p. 1, Stat, at Large. Section 1. That in order to remove any doubt as to the purpose of the Government to discharge all just obligations to the public creditors, and to settle conflicting questions and interpretations of the laws by virtue of which such obligations have been contracted, it is hereby provided and declared, that the faith of the United States is solemnly pledged to the payment in coin or its equivalent of all the obligations of the United States not bearing interest, known as United States notes, and of all the interest-bearing obli- gations of the United States, except in cases where the law author- izing the issue of any such obligation has expressly provided that the same may be paid in lawful money, or other currency than gold and silver. But none of said interest-bearing obligations not already due shall be redeemed or paid before maturity, unless at such time United States notes shall be convertible into coin, at the option of the holder, or unless at such time bonds of the United States bearing a lower rate of interest than the bonds to be re- deemed can be sold at par in coin. And the United States also solemnly pledges its faith to make provision at the earliest prac- ticable period for the redemption of the United States notes in coin. THE ACT OF JULY 12, 1870. (24) [This act merely authorized the issue of $54,000,000 of National Bank circulation in addition to the $300,000,000 originally author ized, and provided for the retirement of " Three per cent. Certifl eates " as rapidly as such issue was made. It can be found in full on page 251, vol. XVI, Stat, at Large.] THE ACT OF JULY 14, 1870. [This is the well-known " Refunding Act," and constitutes the second funding scheme.] [25, 26. 27.] An Act to Authorize the Hefunding of the ]S"ational Debt.— Vol. XVI., p. 272, Stat, at Large. Section l. That the Secretary of the Treasury is hereby (25) authorized to issue in a sum or sums not exceeding in the aggre- gate $200,000,000, coupon or registered bonds of tlie United States, in such form as he may prescribe, and of denominations of $50, or some multiple of that sum, redeemable in coiia of the present standard value, at the pleasure of the United States, after ten years from tlie date of their issue, and bearing interest, payaljle semi- annually in such coin, at tlie rate of 5 per cent, per annum; (20) DKIKST OF FINANCE LAWS. . 257 also a sum or sums not exceeding in the aggregate 6300,000,000 of like bonds, tlie same in all respects, but payable at the ])loasure of the United States, after hfteen years from the date of their issue. and bearing interest at the rate of 4)4. per cent, per annum ; (27) also a sum or sums not exceeding in the aggregate 81.000,000,000 of like bonds, the same in all respects, but payable at the pleasure of the United States, after thirty years from the date of their issue, and bearing interest at the rate of 4 per cent, per annum; all of •which said several classes of bonds, and the interest thereon, shall be exempt from the payment of all taxes or duties of the United States, as well as from taxation in any form, by or under State, municipal or local authority, and the said bonds sliall have set forth and expressed vipon their face the above specified conditions, and shall, with their coupons, be made payable at the Treasury of the United States ; but nothing in this act, or in any other law now in force, shall be construed to authorize any increase whatever of the bonded debt of the United States. Sec. 2. That the Secretary of the Treasury (5, 15, 16, 17, 20, 21, 22, 23) is hereby authorized to sell and dispose of any of the bonds issued under this act, at not less than their par value for coin, and to apply the proceeds thereof to the redemption of any of the bonds of the United States outstanding, and known as 5-20 bonds, at their par value, or he may exchange the same for such 5-20 toonds, par for par; but the bonds hereby authorized shall be used for no other purpose whatsoever. And a sum not exceeding one- half of 1 per cent, of the bonds herein authorized is hereby appro- priated to pay the expense of preparing, issuing, advertising and disposing of the same. Sec. 3. That the payment of any of the bonds hereby (25, 26, 27) authorized, after the expiration of the said several terms of ten, -fifteen and thirty years, shall be made in amounts to be determined, from time to time, by the Secretary of the Treasury, at his dis- cretion, the bonds so to be paid to be distinguished and described by the dates and numbers, beginning for each successive payment with the bonds of each class last dated and numbered, of the time ■of which intended payment or redemption the Secretary of the Treasury shall give public notice, and the interest on the particu- lar bonds so selected at any time to be paid, shall cease at the ex- piration of three months from the date of such notice. Sec. 4. That the Secretary of the Treasury (4, 5, 1 5, 16, 17, 20, 21 , 22, is hereby authorized, with any coin of the Treasury of the 23.) United States which he may lawfully apply to such purpose, or which may be derived from the sale of any of the bonds the issue of which is provided for in this act, to pay at par and cancel any «6 per cent, bonds of the United States of the kind known as 5-20 t)onds, which have become, or shall hereafter become, redeemable 258 , APPENDIX. by the terms of their issue. But the particular bonds so to be paid" and cancelled shall, in all cases, be indicated and specified byclass^ date and number, in the order of their numbers and issue, begin- ning with the first numbered and issued, in public notice to be given by the Secretary of the Treasury, and in three months after the date of such public notice the interest on the bonds so selected and advertised to be paid shall cease. Sec. 5. That the Secretary of the Treasury is hereby authorized, at any time within two years from the passage of this act, to (i;)) receive gold coin of the United States on deposit, for not less than thirty days, in sums of not less than $100, with the Treasurer or any Assistant Treasurer of the United States authorized by the Secretary of the Treasury to receive the same, who shall issue therefor certificates of deposit, made in such form as the Secre-^ tary of the Treasury shall prescribe, and said certificates of de- posit shall bear interest at a rate not exceeding 2^ per cent, per annum; and any amount of gold coin so deposited may h& withdrawn from deposit at any time after thirty days from the date of deposit, and after ten days' notice, and on the return of said certificates: Provided, That the interest on all such deposits shall cease and determine at the pleasure of the Secretary of the Treasury. And not less than 25 per cent, of the coin deposited for or represented by said certificates of deposit shall be retained in the Treasury for the payment of said certificates ; and the excess beyond 25 per cent, may be applied, at the discretion of the Secretary of the Treasury, to the payment or redemption of such outstanding bonds of the United States, heretofore issued,, and known as the 5-20 bonds, as he may designate under the pro- visions of the fourth section of this act ; and any certificates of deposit issued as aforesaid may be received at par, with the inter- est accrued thereon, in payment for any bonds authorized to be issued by this act. Sec. 6. That tlie United States b .nds purchased and now held in the Treasury, in accordance with the provisions relating to a sink- ing fund, of Section 5 of the act entitled "An act to authorize the issue of United States notes, and for the redemption or funding thereof, and for funding the floating debt of the United States," approved February 25, 1802, and all other United States bonds which have been purchased by the Secretary of the Treasury, with- surplus funds in the Treasury, and now held in tlie Treasury of the United States, shall be canceled and destroyed, a detailed record of such bonds so canceled and destroyed to be first made in the books of the Treasury Department. Any bonds hereafter applied to said sinking fund, and all otlier United States bonds redeemed or paid hereafter by tlie United States, shall also in like manner be recorded, canceled, and destroyed, and tlie auiount of DIGEST OF FINANCE LAWS. ?59 the bonds of each dass that have been canceled and destroyed shall be deducted respectively from the amount of each class of the outstanding debt of the United States. In addition to oilier amounts that may be applied to the redemption or payment of the public debt, an amount equal to the interest on all bonds belonging to the aforesaid sinking fund shall be applied, as the Secretary of the Treasury shall from time to time direct, to the payment of the public debt, as provided for in section five of the act aforesaid. And the amount so to be applied is hereby appro- priated annually for that purpose, out of the receipts for duties on imported goods. THE ACT OF JAo^UARY 20, 1871. [This act is supplementary to the refunding act of 1870.] [25.] An Act to Amend an Act Entitled "An Act to Authorize the Eef unding of the Xational Debt."— Vol. XYI., p. 399, Stat, at Large. Section 1. That the amount of bonds authorized by the act (23> approved July 14, 1870, entitled "An act to autliorize the refund- ing of the national debt," to be issued bearing 5 per cent, interest per annum, be, and the same is, increased to $500,000,000, and the interest of any portion of the bonds issued under said act, or tliis act may, at the discretion of the Seeretiiry of the Treasury, be made payable quarter-yearly: Provided, liowever, that this act shall not be construed to authorize any increase of the total amount of bonds provided for by the act to which this act is an amendment. THE ACT OF JUNE 8, 1872. [This act is the one which authorized the issues called " Certifi- cates of Deposit."] \:2S.'\ An Act for the better security of bank reserves, and to facili- tate bank clearing-liouse exchanges. — Vol. XVII., p. oo6, Stat, at Large. Section 1. That the Secretary of the Treasury is hereby (28) authorized to receive United States notes on deposit, without in- terest, from national banking associations, in sums not less than $10,000, and to issue certificates therefor, in such form as the Sec- retary may prescribe, in denominations of not less than 85,000, whicli certificates shall be payable on demand in L^nited States notes, at the place where the deposits were made. Sec. 2. That the United States notes so deposited in the Treasury of the United States shall not be counted as part of the legal re- ■2CA) APPENDIX. serve, but the certificates issued therefor may be held and counted by national banks as a part of their legal reserve, and may be ac- cepted in the settlement of clearing-house balances at the places where the deposits therefor were made. Sec. 3. That nothing contained in this act shall be construed to authorize any expansion or contraction of the currency ; and the United States notes for which such certificates are issued, or other United States notes of like amount, shall be held as special de- posits in the Treasury and used only for the redemption of such certificates. THE ACT OF TEBEUAEY 12, 1873. [This act demonetized silver."! An Act Revising and Amending the Laws Eelative to the Mints, Assay Office and Coinage Laws of the United States— Vol. XYIL, p. 424, Stat, at Large. [We print here only the sections demonitizing the silver dollar.] Sec. 15. That the silver coins, of the United States shall be a trade dollar, a half dollar or fifty cent piece, a quarter dollar or twenty-five cent piece, a dime or ten cent piece; and the weight of the trade dollar shall be 420 grains Troy ; the weight of the half dollar shall be 12 grammes and one half gramme, the quarter dol- lar and the dime shall be respectively one half and one-fifth of the weight of said half dollar; and said coins shall be a legal tende at their nominal value, for any amount not exceeding five dollars in any one payment. ******** Sec. 17. That no coins either of gold, silver, or minor coinage, shall hereafter be issued from the mint, other than those of the •denominations, standards, and weights herein set forth. THE ACT OF JUNE 20, 1874. [This act released the banks from keeping circulation reserves, and limited the greenbacks to 8382,000,000.] (0) An Act Fixing the Amount of United States Notes, Providing for a Redistribution of National Bank Currency, and for Other Purposes.— Vol. XVIII., p. 123, Stat, at Large. Sec. 1. Refers to a redistribution of National Bank Currency. Sec. 2. That section thirty-one of the National Bank act be so amended, that the several associations tlierein provided for shall not hereafter be required to keep on hand aay amount of money whatever, by reason of theamount of their respective circulations; fcut tlie moneys required by said section to be k('i)t at all times DIGEST OF FINANCE LAWS 26t Oil liiiiul sh;ill be determined by the amount of deposits in all re- spects as provided for in said section. Sec. 3 provides for a 5 per cent, redemption f nnd to be placed in the hands of the United States Treasurer and counted as a part of the reserves. Sec. 6. That the amount of the United States notes outstanding and to be used as a part of the circulated medium, shall not (6) exceed the sum of §382,000,000, which said sum shall appear in each monthly statement of the public debt, and no part thereof shall be held or used as a reserve. THE ACT OF DECEMBER 17, 1873. [This act provided for the payment in full of the bonds known as " The Loan of 1858," and for the issue of an equal amount of the five per cent, bonds provided for by fehe Refunding Act. It will be found in Volume XVIII., p. 1, Stat, at Large.] THE ACT OF JAi!^UART 14, 1875. [This is the •'Resumption Act. It undertakes to redeem the greenbacks in coin, and makes banking free to all bondholders.] [2, 9, 2, 5, 26, 27.] An Act to provide for the resumption of specie payments. — Vol. XVIII., p. 296, Stat, at Large. Section 1. That the Secretary of the Treasury is hereby (9) authorized and required as rapidly as practicable, to cause to be coined, at the mints of the United States, silver coins of the de- nominations of 10, 25 and 50 cents, of standard value, and to issue them in redemption of an equal number and amount of fractional currency of similar denominations, or, at his discretion, he may issue such silver coins through the mints, the Sub-Treasviries, pub- lic depositaries, and postoffices of the United States ; and, upon such issue, he is hereby authorized and required to redeem an equal amount of such fractional currency, until the whole amount of such fractional currency outstanding shall be redeemed. Sec. 2. That so much of section 3524 of the Revised Statutes of the United States as provides for a charge of 1-5 of 1 per cent, for converting standard gold bullion into coin is hereby repealed, and hereafter no charge shall be made for that service. Sec. 3. That section 5177 of the Revised Statutes, limiting the aggregate amount of circulating notes of national banking asso- ciations, be and is hereby repealed ; and each existing banking association may increase its circulating notes in accordance with 262 APFENDTX. existing law, without respect to said aggregate limit; and new banking associations may be organized in accordance with existing law, without respect to said aggregate limit; and the provisions of law for the withdrawal and re- distribution of national bank currency among the several States and Territories are hereby repealed. And whenever, and so often, as circulating notes shall be issued (6) to any such banking association, so increasing its capital or circu- lating notes, or so newly organized as aforesaid, it shall be the duty of the Secretary of the Treasury to redeem the legal tender United States notes in excess only of 8300,000,000, to the amount of 80 per cent, of the sum of national banks notes so issued to any such bank- ing association as aforesaid, and to continue such redemption as such circulating notes are issued until there shall be outstanding the sum of $300,000,000 of such legal tender United States notes and no more. And on and after the 1st day of January, 1879, the Sec- retary of the Treasury shall redeem in coin the United States legal tender notes then outstanding on their presentation for redemption at the office of the Assistant Treasurer of the United States, in the city of New York, in sums of not less than $50. And (25, 2(5, 27) to enable the Secretary of the Treasury to prepare and provide for the redemption in this act authorized or required, he is author- ized to use any surplus revenues, from time to time, in the Treas- ury, not otherwise appropriated, and to issue, sell, and dispose of, at not less than par, in coin, either of the descriptions of bonds of the United States described in the act of Congress approved July 14, 1870, entitled " An act to authorize the refunding of the national debt," with like qualities, privileges and exemptions to the extent necessary to carry this act into full effect, and to use the proceeds thereof for the purposes aforesaid. And all provisions of law inconsistent with the provisions of this act are hereby repealed. THE KESOLUTION OF JULY 22, 1876. [This related to the substitution of silver coin for fractional cur- rency, and demonetized the trade dollar. — Vol. XIX., p. 215, Stat, at Large.] [9.] Section 1. That the Secretary of the Treasury, under such (9) limits and regulations as will best secure a just and fair distribu- tion of the same through the country, may issue the silver coin at any time in the Treasury, to an amount not exceeding $10,000,- 000, in exchange for an equal amount of legal tender notes, and notes so received in exchange shall be kept as a special fund, separate and apart from all other money in the Treasury, and be re- issued only upon the retirement and destruction of a like sum of DIGEST OF FINANCE LAWS. 263 fractional currency received at the Treasury in payment of dues to the United States, and said fractional currency, whensosulisti- tuted, shall be destroyed and held as part of the sinking fund, as provided in the act approved April 17, 1876. Sec. 2. That the trade dollar shall not hereafter be a legal ten- der, and the Secretary of the Treasury is hereby authorized to limit, from, time to time, the coinage thereof to such an amount as he may deem sufficient to meet the export demand for the same. Sec. 3. That in addition to the amount of subsidiary silver coin authorized by law to be issued in redemption of the fractional currency, it shall be lawful to manufacture at the several mints, and issue through the Treasury and its several offices, such coin to an amount that, including the amount of subsidiary silver coin and of fractional currency outstanding, shall in the aggregate not exceed at any time ^50,000,000. Sec. 4. That the silver bullion required for the purposes of this resolution shall be purchased, from time to time, at the market rate, by the Secretary of the Treasury with any money in the Treasury not otherwise appropriated, but no purchase of bullion shall be made under this resolution when the market rate for the same shall be such as will not admit of the coinage and issue as herein provided without loss to the Treasury, and any gain or seigniorage arising from this coinage shall be accounted for and paid into the Treasury as provided under existing laws relative to subsidary coinage : Provided, That the amount of money at afty time invested in such silver bullion, exclusive of such result- ing coin, shall not exceed ^200,000. THE ACT OF FEBKUARY 28, 1878. [This is the bill partially remonetizing "the Silver Dollar," and .authorizing the silver certificates. An Act to authorize the coinage of the standard silver dollar, and to restore its legal tender character. — Vol. XX., p. 25, Stat, at Large.] Section 1. That there shall be coined at the several mints of the United States silver dollars of the weight of 4123^ grains Troy, of standard silver, as provided in the act of January 18, 1837, on wliich shall be the devices and superscriptions provided by said act, which coins, together with all silver dollars heretofore coined by the United States, of like .weight and fineness, shall be a legal tender at their nominal value for all debts and dues, public and private, except where otherwise expressly stipulated in the con- tract ; and the Secretary of the Treasury is authorized and directed to purchase, from time to time, silver bullion at the market price 164 APPENDIX. thereof, not less than $2,000,000 worth per month, nor more than $4,000,000 worth per month, and cause the same to be coined monthly, as fast as so purchased, into such dollars, and a sum suff cient to carry out the foregoing provision of this act is hereby appropriated out of any money in the Treasury not otherwise- appropriated, and any gain or seigniorage arising from this coinage- 'shall be accounted for and paid into the Treasury, as provided un- der the existing laws relative to the subsidiary coinage : Provided^ That the amount of money at any one time invested in stock and silver bullion, exclusive of such resulting coin, shall not exceed $5,000,000: And Provided, further, ThKt wothmg in this act shall be construed to authorize the payment, in silver, of certificates of deposit issued under the provision of section 254 of the Revised Statutes. Sec. 2. That, immediately after the passage of this act, the President shall invite the Governments of the countries compos- ing the Latin Union, so called, and of such other European nations as he may deem advisable, to join the United States in a confer- ence tOj.adopt a common ratio between gold and silver, for thfr purpose of establishing, internationally, the use of a bi-metiillic money, and securing the fixity of the relative value between those metals, such conference to be held at such place in Europe or in the United States, at such a time, within six months, as may be- mutually agreed upon by the executives of the Governments joining in the same. Whenever the Governments so invited, or any three of them, shall have signified their willingness to unite in the same, the President shall, by and with the advice and can- sent of the Senate, appoint three commissioners, who shall attend such conference on behalf of the United States, and shall report the doings thereof to the President, who shall transmit the same- to Congress. Said commissioners shall receive the sum of $2,500 and their reasonable expenses, to be approved by the Secretary of State, and the amount necessary to pay such compensation and expenses is hereby appropriated out of any money in the Treasury not otherwise appropriated. Sec. 3. That any holder of the coin authorized by this act may deposit the same with the Treasurer, or any Assistant Treasurer of the United States, in sums not less than $10, and receive therefor certificates of not less than $10 each, corresponding with the de- nominations of United States notes. The coin deposited for or representing the certificates shall be retained in the Treasury for the payment of the same on demand. Such certificates shall be receivable for customs, taxes, and all public dues, and, when sa received, may be reissued. Sec. 4. All acts and parts of acts inconsistent with the pro- visions of this act are hereby repealed. DIGEST OF FINANCE LAWS. 2G5 THE ACT OF MAY 31. 1878. [This act is the one which forbade the further contraction ol the '-Greenbacks."] [6.] An Act to Forbid the Retirement of United States Legal Tender Notes.— Vol. XX., p. 87, Stat, at Large. Section 1. That, from and after the passage of this act, it (6) shall not be lawful for the Secretary of the Treasury, or any officer under him, to cancel or retire any more of the United States legal tender notes, and. when any of said notes may be redeemed, or be received into the Treasury under any law, from any source what- ever, and shall belong to the United States, they shall not be re- tired, cancelled or destroyed, but they shall be reissued and paid out again, and kept in circulation : Provided, That nothing herein shall prohibit the cancellation and destruction of mutilated notes, and the issue of other notes of like denomination in theirstead, as now provided by law. All acts and parts of acts in conflict here- with are hereby repealed. THE ACT OF FEBRUARY .36, 1879. [This act defeats the preceding law and allows the funding of greenbacks into 4 per cent, bonds.] An Act to Authorize the Issue of Certificates of Deposit in Aid of the Refunding of the Public Debt.— Vol. XX., p. 321, Stat, at Large. That the Secretary of the Treasury is hereby authorized and (6) directed to issue, in exchange for lawful money of the United States that may be presented for such exchange, certificates of (30) deposit, of the denomination of 610, bearing interest at the rate of 4 per centum per annum, and convertible at any time, with ac- crued interest, into the 4 per centum bonds described in the re- funding act ; and the money so received shall be applied only to the payment of the bonds bearing interest at a rate of not less than 5 per centum in the mode prescribed by said act, and he is authorized to prescribe rules and regulations in comformity with this act. THE C0I:N'AGE laws of THE m^ITED STATES. [Taken from the Revised Statutes of 1874, with foot-notes con- cerning all amendments.] SiiiCTiON 3511. The gold coins of the United States shall be a one dollar piece, which, at the standard weight of twenty-five and eight-tenths grains, shall be the unit of value; a quarter eagle, or 17 '266 APPENDIX. two and a half dollar piece ; a three dollar piece ; a half eagle, or five dollar piece; an eagle, or ten dollar piece; and a double eagle, or twenty dollar piece. And the standard weight of the gold dol- lar shall be twenty-five and eight-tenths grains; of the quarter eagle, or two and a half dollar piece, sixty-four and a half grains of the three dollar piece, seventy-seven and four-tenths grains; of the half eagle, or five dollar piece, 129 grains; of the eagle, or ten dollar piece, 258 grains; of the double eagle, or twenty dollar piece, 516 grains. Sec. 3512. Any gold coins in the Treasury of the United States, when reduced in weight by natural abrasion more than one-half of one per centum below the standard weight prescribed by law, shall be recoined. Sec. 3513. The silver coins* of the United States shall be a trade dollar, t a half dollar, or 50 cent piece, a quarter dollar, or 25 cent piece, a dime, or 10 cents piece; and the weight of the trade dollar shall be 420 grains Troy ; the weight of the half dollar shall be 123^ grammes; the quarter dollar and the dime shall be, respectively, one-half and one-fifth of the weight of said half dollar. Sec. 3514. The standard for both gold and silver coins of the United States shall be such that of 1,000 parts by weight 900 shall be of pure metal and 100 of alloy. The alloy of the silver coins shall be of copper. The alloy of the gold coins shall be of coi)per, or of copper and silver ; but the silver shall in no case exceed one- tenth of the whole alloy. Sec. 3515. The minor coins of the United States shall be a five cent piece, a three cent piece, and a one cent piece. The alloy for the five and three cent pieces shall be of copper and nickel, to be composed of three-fourths copper and one-fourth nickel. The alloy of the one cent piece shall be 95 per centum of copper and five per centum of tin and zinc, in such proportions as shall be deter- mined by the Director of the Mint. The weight of the piece of five cents shall be 77 and 16-lOOths grains Troy; of the three cent piece, 30 grains; and of the one cent piece, 48 grains. *** ***** Sec. 3548. For the purpose of securing a due conformity in weight of the coins of the United States to the provisions of this title, the brass Troy pound weight procured by the Minister of the United States at liOndon, in the year 1827, for the use of the Mint, and now in the custody of the Mint in Philadelpiha, shall be the * By tlie Act of March 3, 1865, a twenty cent piece of ^he weight of Ave grammes was liiovided for, iiDrl by the act of Feb. 28, 1878, the silver dollar of the 4i2"i grains was added to the silver coins. By the act of May 2, 1878, the further coin- age of the twenty cent piece was prohibited. t Thi- further coinage of the trade dollar was stopped by the *5ecretjiry of the Treasury, under the power conferred upon him by Sec. 2 of the act of July 22, 1876. DIGEST OF FINANCE LAWS. CGI staiulard Troy pound of the Mint of the United States, confonu- iibly to which the coinage thereof shall be regulated. Sec. 3563. The money of account of the United States shall be expressed in dollars or units, dimes or tenths, cents or hiindredtlis, and mills or thousandths, a dime being the tenth part of a dollar, a cent the hundredth part of a dollar, a mill the thousandth part of a dollar; and all accounts in the public ollices and all proceed- ings in the courts shall be kept and had in conformity to this reg- ulation. Sec. 3564. The value of foreign coin as expressed in the money account of the United States shall be that of the pure metal of such coin of standard value; and the values of the standard coins in circulation of the various nations of the world shall be esti- mated annually by the Director of the Mint, and be proclaimed on the first day of January by the Secretary of the Treasury. Sec. 3565. In all payments by or to the Treasury, whether made here or in foreign countries, where it becomes necessary to com- IHite the value of the sovereign or pound sterling, it shall be deemed equal to four dollars eighty-six cents and six and one-half mills, and the same rule shall be applied in appraising merchan- dise imported where the value is, by the invoice, in sovereigns or pounds sterling, and in the construction of contracts payable in sovereigns or pounds sterling; and this valuation shall be the par of exchange between Great Britain and the United States; and all contracts made after the first day of January, 1874, based on an assumed par of exchange with Great Britain of lifty-four pence to the dollar, or four dollars forty-four and four-ninth cents to the sovereign or pound sterling, shall be null and void. Sec. 3566. All foreign gold and silver coins received in payment for moneys due to the United States shall, before being issued iu circulation, be coined anew. Sec. 3567. The pieces commonly known as the quarter, eighth, and sixteenth of the Spanish pillar dollar, and of the Mexican dollar, shall be receivable at the Treasury of the United States, and its several oflSces, and at the several post offices and land offices, at the rates of valuation following: the fourtli of a dolhir, or piece of two reals, at twenty cents; the eighth of a dollar, or piece of one real, at ten cents ; and the sixteenth of a dollar, or half real, at five cents. THE EEYISED STATUTES AS TO THE CUKRENCT. [Taken from the Revised Statutes.] Section 3571. United States notes shall be of such denomina- tions no[t] less than one dollar, as the Secretary of the Treasury 2G8 APPENDIX. may prescribe, shall not bear interest, shall be payable to bearer, and shall be in such form as the Secretary may deem best. Sec. 3576. Xo portrait shall be placed upon any of the bonds, securities, notes, fractional or postal currency of the United States, while the original of such portrait is living. Sec. 3579. When any United States notes are returned to tlie Treasury, they may be re-issued, from time to time, as the exigen- cies of tlie public interest may require. Sec. 3580. When any United States notes returned to the Treas- ury are so mutilated or otherwise injured as to be unfit for use, the Secretary of the Treasury is authorized to replace the same with others of the same character and amounts. Sec. 3581. Mutilated United States notes, when replaced accord- ing to law, and all other notes which by law are required to be taken up, and not re-issued, when taken up, shall be destroyed in such manner and under such regulations as the Secretary of the Treasury may prescribe. Sec. 3582. The authority given to the Secretary of the Treasury to make any reduction of the currency, by retiring and canceling United States notes, is suspended. Sec. 3583. Xo person shall make, issue, circulate, or pay out any note, check, memorandum, token, or other obligation for a less sum than one dollar, intended to circulate as money or to be re- ceived or used in lieu of lawful money of the United States; and every person so offending shall be fined not more than 8500 or imprisoned not more than six months, or both, at the discretion of the court. THE REVISED STATUTES AS TO LEGAL TENDER. [Taken from the Revised Statutes.] Section 3584. No foreign gold or silver coins shall be a legal tender in the payment of debts. Sec. 3585. The gold coins of the United States shall be a legal tender in all payments at their nominal value, wlien not below the standard weight and limit of tolerance provided by law for the single piece, and, when reduced in weight below such standard and tolerance, shall be a legal tender at valuation in proportion to their actual weight. Sec. 3580. The silver coins of the United States shall be a legal tender at their nominal value for any amount not exceeding live dollars in any one payment.* ♦Amended by the act of .July 22, 1876, discontinuing the legal tender quality of the trade dollar, and by tlie act of Feb. 2X, isTs, making the silver dollar a legal tender at its nominal value for all debts and dues public and private. DIGEST OF FINANCE LAWS. 269 Sec. 3587. The minor coins of the United States shall be a legal tender, at their nominal value, for any amount not exceeding twenty-five cents in any one payment. Sec. 3588. United States notes shall be lawful money, and a legal tender in payment of all debts, i)ublic and iH'ivate, within the United States, except for duties on imports and interest on the public debt. Sec. 3589. Demand Treasury notes authorized by the act of July 17, 1861, chapter 5, and the act of February 12, 1862, chapter 20, shall be lawful money and a legal tender in like manner as United States notes. Sec. 3590. Treasury notes issued under the authority of the acts of March 3, 1863, chapter 73, and June 30, 1864, chapter 172, shall be legal tender to the same extent as United States notes, for their face value, excluding interest: Provided, That Treasury notes issued under the act last named shall not be a legal tender in pay- ment or redemption of any notes issued by an> bank, banking association, or banker, calculated and intended to circulate as money. THE REVISED STATUTES AS TO RECEIVABILITY FOR PUBLIC DUES. [Taken from the Revised Statutes.] Section 3473. All duties on imports shall be paid in gold and sil- ver coin only (or coin certificates), or in demand Treasury notes, issued under the authority of the acts of July 17, 1861, chapter 5; and February 12, 1862, chapter 20; and all taxes and all other debts and demands than duties on imports, accruing or becoming due to the United States, shall be paid in gold and silver coin. Treasury notes, United States notes, or notes of National banks ; and upon every such payment credit shall be given for the amount of prin- cipal and interest due on any Treasury note (or notes) not received in payment on the day when the same are received.— [As amended by the act of February 27, 1877.] Sec. 3475. The notes of national banks shall be received at par for all debts and demands owing by the United States to any per- son within the United States, except interest on the public debt, or in redemption of the national currency. Sec. 3476. Treasury notes bearing interest may be paid to any creditor of the United States at their face value, excluding inter- est, or to any creditor willing to receive them at par, including interest. 270 APPENDIX. THE EEYISED STATUTES AS TO THE PUBLIC DEBT. [Taken from the Revised Statutes.] Sec. 3693. The faith of the United States is solemnly pledged to the payment in coin or its equivalent of all the obligations of the United States not bearing interest, known as United States notes, and of all the interest-bearing obligations of the United States, except in case where the law authorizing the issue of any such obligation has expressly provided that the same may be paid in lawful money or other currency than gold and silver. But none of the interest-bearing obligations not already due shall be re- deemed or paid before maturity, unless at such time United States notes are convertible into coin at the option of the holder, or un- less at such time bonds of the United States bearing a lower rate of interest than the bonds to be redeemed can be sold at par in coin. The faith of the United States is also solemnly pledged to make provisions, at the earliest practicable period, for the redemp- tion of the United States notes in coin. Sec. 3701. All stocks, bonds, Treasury notes, and other obliga- tions of the United States, shall be exempt from taxation by or under State or municipal or local authority. AFFIDAVIT. STATE OF MICHIGAN, ) County of Kent, and [• ss. City of Grand Bapids. ) Franklin L. Lord, being duly sworn, says that he resides in the city of Grand Rapids, in the State of Michigan. That he was employed by L. V. Moulton, author of the book entitled "The Science of Money and American Finances," to examine, correct, and verify the facts, figures, and calculations stated in said book! That for that purpose he has carefully examined indexes, manu- scripts, books, records, pamphlets, papers, and reports upon the subject now in the Micliigan State Library at Lansing, Michigan and has had access to and consulted other libraries, records, and sources of information. That he has spared no time, labor, or expense in comparing and verifying the calculations made from such figures, so as to obtain the utmost accuracy. That the state- ments and figures in the book have been compared, so far as pos- sil)le, with tlie oflicial records and original authorities, so as to obtain the utmost exactness and to secure freedom from mistake. That whenever any difference was found to exist between records or authorities which were equally official or of equal value, the one was chosen wliich was least favorable to the conclusions laid, down in the book. DIGEST OF FINANCE LAWS. 271 That no fact or figure in the book has been left to any loose, vague, or uncertain conjecture, but by rigid comparison with the very best authorities, he has endeavored to make such facts and figures definite and correct, and believes them to be, in every resjtect, just and true, and to correspond with the actual facts at their respective dates. That he has critically and carefully com- puted and tested every calculation made in the book based upon the figures therein mentioned, and has found tlie same to be accu- rate. Subscribed and sworn to before me this SOth day of August, 1S80. Chas. J. Potter, Justice of the Peace, Kent Co., Mich. Prank L. Lord. ^K^'n^m^^^ UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. iVi mn 24fS«f Form L9-50rn-9,'60(B361064)444 UC SOUTHERN REGIONAL 1 iHliARY FACILITY Ilf AA 000 590 439 6 /