IC-NRLF CD >4 A PLAN X fc, GRADUAL RESUMPTION OP SPECIE PAYMENT, SUBMITTED IN A LETTER TO HON. R. C. SCHENCK. CHAIRMAN COMMITTEE OF WAYS AND MEANS, BY R COWLES, EDITOR CLEVELAND LEADER. SHOWING HOW RESUMPTION CAN BE BROUGHT ABOUT WITHOUT EMBARRASSING THE DEBTORS ; HOW THE PA- PER CURRENCY CAN BE MADE PRECISELY EQUAL TO GOLD IN VALUE; HOW TO SUPPLY BANKS WITH THE NECESSARY AMOUNT OF COIN TO ENABLE THEM TO RE- SUME; AND HOW THE GOVERNMENT CAN RESUME AND MAINTAIN SPECIE PAYMENT. CLEVELAND, 0: PRINTED AT THE LEADER JOB KOOMS, 144 SUPERIOR STREET. 1868. HON. ROBERT C. SCHENCK, Chairman of the Committee of Ways and Means : DEAR SIR : In compliance with the request you made last winter, I write this letter to you for the purpose of submitting for your consideration certain views in regard to the best and most feasible mode of resuming specie payments. The plan I submit is the result of much study, and so thor- oughly am I convinced of its entire feasibility that I cannot refrain from laying it before you, even at the hazard of being deemed presumptuous in attempting to master a finan- cial problem so difficult of solution. My views upon this subject, in the main, I believe to be original, and it is not necessary to my purpose that I should criticise any of the various plans of resumption heretofore submitted to Congress and rejected as impracticable. In the general estimation, the great obstacle to a re- turn to specie payment, is the danger that Government would not be able to maintain it with the amount of gold it now has against the present volume of paper currency, inasmuch as the banks, which control nine-tenths of the circulation of the country, would be likely to distrust the ability of the Government to continue its payment of coin, and, in anticipation of another suspension, obeying the instinct of self-preservation, would draw from the Treasury all the specie they could, for the purpose of substituting it for their legal tender and deposit reserve* amounting to say $165,000,000 ; thus swamping the Treasury in the very inception of the purpose. 3&3260 Another difficulty, so serious as to create great apprehen- sion, is, that if banks wm compelled by law to resume spe- cie payment at a a fixed date in the future, say by the first of July, 1869, as Mr. Merrill proposed, without being fur- nished with the necessary amount of coin, they would have so little confidence in their, own ability to meet the require- ments of the law, that they would at once commence to withdraw their circulation in anticipation of the dreaded day, thus causing a great scarcity of currency and wide-spread embarrassment and disaster in commercial circles.. Another objection urged against a return to specie pay- ment is, that the goods in the warehouses of the importer and jobber, and on the shelves of the retailer, would depreci- ate to gold values, subjecting them to a corresponding loss. Another, that whenever a financial revulsion should occur in Europe, we are liable to have our bonds, now held abroad, returned to us by the tens of millions for gold, so much so as to endanger our ability to maintain specie payment. And another, and most serious objection is, that all individual debts created on a depreciated paper basis, would have to be paid in gold, thus making the amount due just as much more as the premium on the gold now is. These impediments, especially the last, are deemed so serious that it is quite generally conceded that resumption must be postponed to the indefinite future, awaiting, either hoped-for, but uncertain, accumulations of gold, or se- vere contractions in the volume of paper currency a remedy which encounters universal opposition or for that arcadian time when the generosity of banks will prevent their troubling the Government for its coin. Procrastina- tion alone will not solve the problem. The perplexi- ties besetting the question now will continue to beset it so Ions: as no steps are taken to bring about a safe resumption of specie payments. To await the accumulation of $200,- 000.000 or more in coin is a remedy too slow to meet the exigencies of the case. The cry of " commercial disaster and ruin," consequent upon resumption, will be heard in the future as well as now, and gold in the future is likely to be about as high as it is now. What then is to be gained by delay? Absolutely nothing ; but, on the other hand, it will continue indefinitely the evils we are now staggering under, such as clouding the credit of the Government; causing our bonds to be quoted abroad at about seventy cents on the dollar ; increasing the expense of carrying on the Govern" nient by at least $30,000,000 a year ; depriving us of a currency with a fixed value, so essential to enable the busi- ness man to make reliable calculations with reference to future operations; and lastly, demoralizing the minds of many with the rascally idea that the people in their collective capacity are not bound by the same rules of morality in the payment of debts. as are obligatory upon individuals. The recent contraction policy of Mr. McCulloch was a most erroneous one ; not because contraction was not a thing to be desired at that time, when our circulation was, includ- ing compound interest notes, $210,000,000 greater than it is now, but by reason of the particular plan adopted. The error consisted in endeavoring is force depreciated paper up to par by contraction, without a detailed plan for resump- tion. In other words, while the volume of the currency was being lessened, its value should have appreciated correspond- ingly, and when that appreciation ceased, then contraction should have ceased also. Instead of such a result, we had a contraction of $60,000,000, (saying nothing of the retirement of compound interest notes to the amount of over $150,000,- 000,) while the depreciation in the currency continued, and was even worse than before the contraction policy was inau- gurated, thus proving clearly that appreciation of the currency cannot be attained without first fixing on a plan and a day for resumption. The question now presents itself, " How shall we resume specie payments with the present amount of coin in the 6 Treasury *" " What plan can be devised which will steer clear of all the obstacles that will be presented ?" The answer is, we must first prepare for resumption by giving the debtors an opportunity to change their present debts to debts formed on a gold basis, which can be done by legalizing gold contracts. Secondly, place the government in a position to obtain gold at all times, without cost for pre- mium, whenever it should need it. Thirdly, we must make paper precisely equal in value to gold all over the land ; and Fourthly, the Secretary of the Treasury should be placed in a position to be able to check any unusually great flow of gold out of the country to pay for bonds sent home from abroad. It will be readily conceded that whenever these four prop- ositions can be carried out, the question under consideration has become susceptible of solution. But how can the results embodied in these four propositions be attained? I answer, they can be secured by the adoption of the following financial programme : 1st, Legalize Gold Contracts. 2d, Establish, under the direction and control of a board of trustees, to be selected by the Secretary of the Treasury and the banks, a Redemption Bureau in the city of New York. Require national banks to redeem at this Bureau as well as at their counters ; and, for this purpose, to keep on deposit there say one-half of their coin reserve. 3d, Let the Government redeem at this Bureau precisely as banks are required to do ; and for that purpose let it keep a coin deposit there, say, in accordance with the table appended. 4th, Let the Government exchange with the banks $75,- 000,000 in coin for an equal amount of legal tender notes^ which notes are to be cancelled and retired. 5th, National banks, in consideration of having received $75,000,000 in coin from the Government, shall be required to keep their deposit reserve in IT. S. notes, (new notes, to be in unbroken sheets until full resumption,) for the period of one year after full resumption by the Government, and after that period to keep fifty per cent of their deposit reserve in U. S. notes. 6th, Let the Government issue immediately new notes, re- deemable at the rate of 10 per cent per month, commencing January 1st, 1871, to be exchangeable as soon as printed for legal tender notes, which legal tenders are to be retired and cancelled. These new notes to be printed ten of each denom- ination on a sheet ; the first note to read " redeemable on and after January 1, 1871;" the second, u redeemable on and after February 1, 1871 ;" the third, "redeemable on and after March 1, 1871," and so on till each succeeding month' up to and including October 1, 1871, is printed on each succeeding note. These notes to be perforated like postage stamps for the purpose of easy separation. Legal tenders to be ex- changeable for new notes, in sums of ten dollars and the multiples of ten ; enabling one sheet of ones to be exchanged for ten dollars ; one sheet of twos for twenty dollars ; one sheet of tens, or two sheets of fives, or ten sheets of ones for one hundred dollars, and so on, thus distributing the short and long time notes in equal proportion. 7th, These new notes to be legal tenders till full resump- tion takes place, but no longer, 8th, The new notes to be receivable for taxes at all times and for customs ...... days before becoming redeemable. 9th, National banks to be required to resume January 1st, 1871. 10th, Authorize the Secretary of the Treasury to issue $200,- 000,000 of bonds, payable in years, drawing per cent. ; interest and principal on a certain portion to be paya- ble in sterling in the city of London ; on another portion pay- able in thalers in the city of Hamburg ; and the balance pay- able in francs in the city of Paris ; a small portion of these bonds to be deposited with a responsible house in each of those cities, according. as they are made payable, subject to 8 the order of the Secretary of the Treasury. These bonds are to be thrown on the market whenever in the judgment of the Secretary it may be necessary, and in quantity sufficient to create the necessary amount of exchange on Europe, with which to pay for old bonds at ruling rates, that may be sent home. By carrying into operation the first provision, namely, legal- ising gold contracts, every debtor has the opportunity till October 1st, 1871, of paying off his old debts, created on a paper basis, in legal tender notes, and at the same time create all his new debts on a gold basis and payable in gold or its equivalent in legal tender notes. Thus, when resumption conies he will not be embarrassed, inasmuch as he will have paid off all, or nearly all of his old debts in legal tender, and all his new debts will have been created on a gold basis. This will render transition from depreciated paper to gold currency perfectly easy to at least nine-tenths of the debtors. The other tenth, having debts running a longer period of time, may have to suffer some inconvenience, but it will be for onlv a portion of their indebtedness, as a part will have been paid in the interim in paper. It will readily be seen that legali- zing gold contracts will smooth the way to resumption most admirably, and it should be done as a primary measure by all means. Carry out the second and third provisions, and U. S. notes and National Bank currency become precisely the same as gold after full resumption ; if anything, better, on account of greater convenience in handling. Exchange will rarely go above par in the States east of the Rocky Mountains, never exceed one-fourth of one per cent. , and in some cases it will be below par. A Redemption Bureau of this kind would operate precisely like a clearing house. Each bank, in order to keep up its balance, would send for redemption notes of other banks, or U. S. notes, with directions to pass proceeds to its credit. This would in the long run result in exchang- ing notes with each other, and paying whatever balances there might be in gold. Whenever the Government needed the gold to keep up its balance, it would send national currency for redemption in the same way. Thus the $60,000,000 to $80,000,000 of gold lying in the vault of the Bureau would remain comparatively undisturbed, its ownership changing somewhat from day to day on the books of the Bureau. Owing to the truly national character of bank money, it being so thoroughly scattered and mixed together all over the country, it would be difficult to assort it, consequently no run could be made upon any one bank at its counter or at the Bureau. Whenever there was a run it would be on the Bu- reau, and it would be borne alike by all the banks and the Government in almost exact proportion to their circulation. Consequently banks would not undertake to run the Bureau, nor would they attempt to run the Government for its gold, simply because the Government in self defense would demand of banks gold for their notes lying in the Treasury, more or less. Should the Government have occasion to draw out an unusual amount of gold, it would draw from all the banks alike. By making all national banks redeem in New York, their bills become national in character, instead of local as was the case with bank currency before the war. Conse- quently it would be less difficult to keep circulation outstand- ing. This feature will commend itself to the banks. Owing to the magnitude of the operation, no combination of parties, outside of bank organizations and the Government, could raise a sufficient amount of notes to make disastrous runs upon the Bureau. Government would be able to pay its coin obligations by check, which would be paid in gold or paper, AT THE OPTION OF THE HOLDER, who would generally take paper in preference to gold, because more easily handled. Under the fourth proposition, the banks will have furnished them coin equal in amount to 25 per cent, bf their circula- tion. This, under the present National Bank system, and 10 this programme carried out fully, would be 10 per cent, more than necessary to enable them to protect their circula- tion after confidence had been established. Therefore banks would be abundantly able to carry out the fifth proposition to aid the Government to resume by keeping their deposit re- serve in legal tender notes. Under the fifth provision, the National Banks, in consider- ation of receiving so liberal a supply of gold from the Gov- ernment, would be required to use U. S. notes, (new notes in unbroken sheets, till after full resumption,) for their deposit reserve, amounting to at least $100,000,000, thus relieving the Government from protecting that amount for one year after full resumption takes place, equal to one year and ten months from commencement of resumption ; and giving it ample time to accumulate gold, if necessary, to protect the full amount of its circulation. After that time good policy and fairness would require banks to keep 50 per cent, of their deposit reserve in U. S. notes, inasmuch as about an equal amount of National Bank notes would be constantly lying on deposit in the U. S. Treasury. The sixth provision speaks for itself. Under it legal tender and new notes become equal to gold, less the interest on the time they remain unredeemable, and as the time approaches for resumption to commence, they will soon pass at par in most business transactions. The fact that the new notes would be legal tender, would about offset the extra value of national notes, caused by their becoming redeemable immedi ately, while legal tender is only being gradually redeemable. Redemption on this gradual plan is perfectly feasible, and Government could maintain it without difficulty, as the ap- pended table will show. The seventh and eighth propositions require no argument. Under the ninth provision banks would be required to re- sume January 1st, 1871, the same time that Government 11 commences gradual resumption. This rather far-distant time is set in order to give the debtor time to change his debts cre- ated on paper basis to debts on gold basis, under the act le- galizing gold contracts ; also for the purpose of allowing the paper currency to appreciate so gradually as not to disarrange commercial matters, and also to enable Government to accu- mulate more gold if necessary. The eleventh provision is somewhat original and of great magnitude. It proposes a scheme to stop the flow of gold to Europe in case of panic or revulsion there. With a skillful financial gentleman at the head of the Treasury Department, with authority to keep bonds on deposit at the principal points in Europe, to be sold whenever he deems it necessary ; these bonds made payable at those points in gold, with the facilities he would have for being posted in regard to the amount of bonds being sent home, and ascertaining the point least affected by the revulsion over there, he could order so much of the new bonds thrown on the market at that point, thus creating exchange to pay for all bonds sent home. With the avails of the sales of such exchange, he would be required to replace the new bonds sold with old bonds ; thus keeping our bonded debt at same figures. The fact of the interest and principal of these new bonds being payable without doubt in gold, in the country where sold, and in the coin of that country, would make them ex- ceedingly salable, even at a less rate of interest than the present bonds, especially so after the resumption of specie pay- ment. It will be objected by some that good policy forbids making our bonds payable in Europe. The fact that the new bonds were payable over there would make no difference, for the gold would have to be sent over, precisely the same as if they were only held there, and not payable there. Therefore the difference in the two kinds of bonds in that respect would be just as broad as it is long. 12 The question now remains can the Government resume with the amount of gold left after giving the banks $75,000,- 000? According to Treasury Report of March 1st, 1868, the amount of legal tender notes and fractional currency out- standing is $387,142,457. Assuming that the destruction of fractional currency from wear and tear, losses, and other causes during the ten years ending October 1st, 1872, (the time for full resumption by the Government, when banks will only hold 50 per cent, of their deposit reserve in legal tender should amount to 2J per cent, per annum, which would be 25 per cent, of the total yearly average amount outstanding ) that the loss and destruction of legal tender notes for the same period, would reach 3 per cent., (all of which would be clear gain to the Government,) the amount of U. S. notes outstand- ing would be reduced $18,250,000, or in round numbers down to $370,000,000, of which amount $75,000,000 will have been retired, it having been received in exchange for that amount of gold. This would reduce the legal tender to $295,000,000. Deduct $100,000,000 which the banks will keep for their deposit reserve, and $195,000,000 besides the gold certificates, will be all that the Government will have to protect. We will assume, also, that during the process of gradual resumption, an average of about eighty per cent, of the legal tender will have been exchanged for the new gold notes, and this is a very liberal estimate, consider- ing that people will not care about exchanging their legal tenders for new notes, knowing that they can do so at any time. This would require $156,000,000 of new notes, and which the Government would have to protect at the rate of ten per cent, per month, for ten months previous to full re- sumption. The following table will show the amount redeemable each 13 month during the process of this plan of gradual resumption, and the necessary amount of specie to maintain it : Amount New Notes redeemable. Per ct. coin necessary Am'tCoin necessary. 15 600 000 100 15 600 000 Fphrnarv 1871 31 200 000 80 24 960 000 Marph 1871... 46 800 000 65 30 420 000 Arml 1871... 62 400 000 55 34 320 000 May 1871 78 000 000 45 35 100 000 June 1871 93 600 000 40 37'440 000 July 1871 109 200,000 35 38,220 000 124 800 000 32 39,936 000 140 400 000 29 40,716,000 October 1871 195 000 000 25 48,750,000 October, 1872, $50,000,000 legal tender, held by banks, becomes redeemable 245,000,000 20 49,000,000 From the above calculation it will be seen that at the com- mencement of resumption, Government will need $15,600,000 and banks $75,000,000, total ,$90,600,000, which amount has been held frequently by Government, independent of the gold deposit, for which it has given receipts, and independent of the millions it has sold. When full resumption takes place the Government will need $49,000,000, banks $75,000,000, total $124,000,000. That amount has been held by Government, and it would had more than that now on hand, if it had not sold its gold. After furnishing the banks with $75,000,000, and starting with $15,600,000, the Government would soon accumulate from its custom receipts to reach $49,000,000, before the year was out. This would be an easy matter to accom plish, when it is considered the custom receipts are $40,000,000 more than sufficient to pay the gold interest, and that the total gold re- sources of the country including California, would un- doubtedly reach over $150,000,000. The next question to be considered is, how will the volume of circulation after full resumption, October 1, 1871, compare with the present circulation, which is as follows : 14 Bank Notes, $300,000,000 Legal Tender and Fractional Currency 370,000.000 Gold in Banks and Treasury 135,000,000 $805,000,000 The dormant circulation is Gold $135,000,000 Legal Tender Reserve, to redeem Bank Circulation 65,000,000 200,000,000 Leaving for active circulation $605,000,000 After resumption, agreeably to the programme laid down in this letter, the circulation would stand October 1st, 1871; as follows : Bank Notes, $300,000,000 Legal Tender and Fractional Currency 295,000,000 Gold, probably. 150,000,000 $745,000,000 The amount dormant, will be in Gold 135,000,000 Leaving for active circulation $610,000,000 Present population of the country is 38,500,000, which would give the present active circulation a per capita of $15,71. Population October 1st, 1871, will be after allowing the set back of the war, 42,000,000, (vide Census Report estimate.) This would give a per capita at that time of $14,51. During the war, the highest amount of active circulation was $850,- 000,000, and the currency using-population, after omitting the slave population and about one-half of the rebel element, amounted to 26,000,000. The per capita then was $32,69, or about 122 per cent, more than it will be after full resumption. Active circulation in 1860 was $300,000,000, (after allowing a dormant circulation of $50,000,000 in gold.) The currency- using population (after leaving out the slaves, who never used money) was 27,000,000. This gave a per capita of $11,11. In view of the fact that before the war credit was expanded at least double what it is now, that due-bills and orders on stores were used to a great extent, and that $11,11 went as far then as $13 will after full resumption, that business will have increased in a greater ratio than the population has ; and 15 that a greater extent of territory is used now than then, it must be admitted that a per capita active circulation of $14,51 would not be too large. But granting that a'per capita of $14,51 would be too large, losses of notes from wear and tear, and the increase of population would reduce the per capita to $13,30 by Oct 1, 1874. Therefore a further contrac- tion cannot be necessary, after having retired $75,000,000 legal tender notes, and substituted that amount in gold. In conclusion, permit me to say that the necessity for a plan and a fixed day for resumption of specie payment is more apparent than ever; the more so by reason of the mischievous discussion now being carried on as to whether our national obligations should be paid in gold or a depreci- ated currency, or be partially repudiated, as President John- son proposed in his last message. I am, Very Truly Yours, E. COWLES. THIS BOOK IS DUE ON THE LAST DATE STAMPED BELOW AN INITIAL FINE OF 25 CENTS WILL BE ASSESSED FOR FAILURE TO RETURN THIS BOOK ON THE DATE DUE. THE PENALTY WILL INCREASE TO SO CENTS ON THE FOURTH DAY AND TO $1.OO ON THE SEVENTH DAY OVERDUE. LD 21-100m-7,'40 (6936s) UNIVERSITY OF CALIFORNIA LIBRARY