form of Government paper money, are legal tender, and are in terms payable in gold, of which reserves equal to twenty-five per cent. of their amount are assumed to be provided. The notes of 1890, constituting the second form of paper money, are also legal tender, which implies an obligation on the part of the Government to pay them in the kind of money demanded by the holder. They are also supported by a declaration of Congress that they are to be paid in gold at the option of the holder. But such a declaration has not the force of positive law. For these Government does not assume to provide any reserves whatever. The third form are the silver notes of 1878 to which it is assumed that the declaration of Congress in favor of the notes of 1890 applies. They are not legal tender, and it is purely optional with the Government whether it will make any provision for them other than the silver which they represent, the value of which somewhat exceeds fifty per cent. of their nominal amount. So far as reserves are concerned the silver notes are the best secured of all. Although the notes of all still circulate at the nominal value of gold, banks and bankers are very careful never to have any considerable amount of notes of 1878 on hand. They are not available for settlements of balances at the clearing houses in the leading cities, especially in the city of New York. Silver dollars, a fourth kind of debased money, worth less than one-half their nominal value, are scrupulously avoided by all classes for fear that any day they may circulate at their real value. The result is, that instead of one kind of debased money, as in England, we have four in the United States United States notes the greenbacks, the silver certificates of 1878, the silver notes of 1890, and silver dollars, all with a well-marked difference in value. By means of them almost all the business operations of the country are carried on. All are inflations of the currency for the discharge of not one of which in gold any adequate provision has been or ever will be made. With so many different kinds of money differing in value, is not the paralysis resting upon all business affairs, extending backwards through several years, readily accounted for? The condition of things in England two hundred years ago, described so graphically by Macaulay, was normal compared with the confusion and chaos that exist here. Can the crisis here be met with the sense and courage which was displayed in a similar one two hundred years ago? Is the officer who presides over the department of the Treasury of the United States,

like the one who presided over a similar department in England, ready to declare his determination to "kill or cure"? The motives that press upon him are ten-fold more urgent. In the place of 7,000,000 people we have here 70,000,000 groaning under the evils of a vicious monetary system, all apprehensive of the crowning disaster which may happen at any moment suspension of specie payments alike by the Government and people. The operations of society here resting upon a debased currency are twenty-fold greater per head than they were two hundred years ago. The boon which he would confer should he succeed in the great task before him is beyond estimate, and would entitle him to the highest position among those who have deserved well of their country.

PAPER MONEY IN FRANCE.

THE MISSISSIPPI SCHEME.

One of the most striking and instructive examples of a credit currency was that of France, under the leadership of the celebrated John Law. He proceeded upon the assumption that "as the credit of a merchant amounted to ten-fold his capital, that of a bank might be still greater; while there was no limit to that of a State or a king; " that as money is that which sets everything in motion, the prosperity of a people or State is in ratio to its amount; and metallic money receives its value from the insignia of Government. He began his vast schemes by securing (May 7, 1716) an edict for the establishment of a private institution called "La Banque Générale." As at the outset it was conducted in a business-like manner, it met with great success, increasing the supply of money, and thereby reducing by one-half the rates previously paid. Its capital consisted of 6,000,000 livres (the equivalent of about $1,200,000), divided into shares of 5,000 livres each. Its capital was paid one-fourth in coin and three-fourths in Government funds. On the 10th of April, 1717, an edict was passed ordering the collectors of taxes to receive in their payment the notes of the bank, thereby securing for them a large circulation. From the uses they served their amount was presently increased to 60,000,000 livres.

A high credit having been secured by such measures for his bank, Law proceeded to the development of his grand schemes of controlling, through the money supplied by it, the whole machinery of society and state. In August, 1717, he procured an edict for the establishment of the "Compagnie des Indes-Occidentales," which

secured to him the virtual sovereignty of the most fertile portions of the continent of North America. This was the beginning of the famous " Mississippi scheme," of which so much has been written and said. The capital of the new company was 100,000,000 livres ($20,000,000), divided into shares of 500 each, payment being made one-fourth in coin and three-fourths in government funds. On the fourth of September, 1718, the bank became a government institution, under the title of "La Banque Royale," of which Law retained the management, the king guaranteeing its notes, the stockholders of the old bank being paid off in coin. To increase the importance of the bank the transfer of money between the cities in which it had branches was forbidden. The bank now allied itself to the Mississippi Company, which became the great instrument of Law in carrying out his vast schemes, its issues being increased to 110,000,000 livres. In 1719 the East India and Senegal Companies of France were united with the Mississippi Company, a union which secured to the latter the greater part of the foreign trade of the kingdom. From the assumed advantages that would result, the stock of the Mississippi Company rose to a premium of 450 per cent. In August, 1719, the company undertook to advance to the Government, at the rate of 3 per cent., the sum of 1,500,000,000 livres for the payment of the public debt, which had previously borne interest at the rate of 5 per cent. As a part of the transaction the farming of the revenues was conceded to the company in consideration of the annual payment of 52,000,000 livres. The coinage was also conceded for a period of nine years in consideration of the payment of 5,000,000 livres.

The stock of the Mississippi Company now rose to a premium of 1200 per cent. To aid it in its various undertakings the bank increased its issues to 1,000,000,000 livres. Money became so abundant that lands sold at fifty years' purchase. From November, 1719, to April, 1720, the market value of the stock of the company rose to a premium of 2050 per cent. Law, capable of giving to the most worthless substances the value of gold, became the greatest figure in Europe. Its proudest aristocracy bowed in humble reverence at his feet, while the favor and admiration of the masses was won by his liberal use of his apparently boundless wealth, the creation of the printing-press. He was now made Controller-General of the finances of the kingdom, one of its most distinguished citi

zens being compelled to make way for him. As Paris was the theatre of this vast creation of apparent wealth, all France literally flocked to it as the place where money was to be had for the asking. Trade received a mighty impulse. Everybody seemed to be getting richer and richer, and no one poorer. It was the halcyon era of pure populism. The market value of the shares of the bank reached 10,000,000,ooo livres. Upon such a sum a revenue of 500,000,000 was necessary to pay 5 per cent. Its whole income from all sources did not equal one-sixth part of that sum. As was inevitable, the more reflecting classes began to exchange their shares for other kinds of property. The example was contagious, and shares began to fall rapidly in price. To meet the fall a series of edicts was rapidly issued, one of which provided that the notes should command a premium over gold, the use of which was to be greatly restricted, every one being forbidden to have any considerable amount in his possession. All such measures only served to accelerate the decline. To arrest it the gross value of the shares was fixed at 9,000,000,000 livres, the company being required to purchase and sell at that rate. To add to the confusion and distress metallic money was not to be had, the greater part of that previously in circulation having been sent out of the kingdom. Universal disaster and distress took the place of the extravagance and waste which had so recently prevailed. The money of the bank became almost wholly valueless. The untold wealth of the Mississippi Company was seen to be only a dream. Great masses of people who had invested their all in Law's schemes were reduced to abject want. The vast fabric that was reared and the terrible catastrophe that followed were rendered possible only through the issue of a "credit currency" precisely similar in kind to the United States notes. With the turn of the tide, Law, speedily stripped of all his offices and honors, fled secretly and in disgrace from France, never to return. To restore the situation in part, the government again assumed the charge of the public debt, the interest on it being reduced about half to 40,000,000 in the place of 80,000,000 livres. The charter of the bank was abrogated, and the famous Mississippi Company, divested of all its vast powers, was reduced to the condition of a private and insignificant trading corporation. That the issue of United States notes, a currency precisely similar in kind to those of the Bank of France, has not been followed by

calamities similar to those which overtook Law's bank, is due to the fact that it has not been made the basis of vast speculative operations, its orderly retirement being still within our reach.

But France, as well as England, had an illustrious citizen, Turgot, capable of demonstrating, and who did demonstrate most conclusively, the laws and nature of money, whether metallic or paper. Law's assumption that

66

To

These two metals - gold and silver- are only the signs that represent real wealth, that is to say, commodities. . A crown is a note conceived in these terms: Any seller shall give to the bearer the article or merchandise of which he may have need, to the amount of three livres, for as much of another merchandise which has been delivered to me;" and the effigy of the prince stands for the signature. Now what does it signify whether the sign be of silver or of paper? Is it not better to choose a material that costs nothing and which we are not obliged to withdraw from commerce where it is employed as merchandise, in fine, that is fabricated in the kingdom and does not subject us to a necessary dependence on foreigners and owners of mines, who greedily profit by the seduction into which, by the glamour of gold and of silver, other nations have fallen, a material which we can increase according to our needs, without fear of its ever being deficient? Paper has all these advantages which render it preferable to hard money.1

Turgot replied:

one,

Here would be a benefit as grand as the philosopher's stone if all these reasonings were just. We should have need of neither gold nor silver to buy all kinds of commodities. But has it been left to Law to remain ignorant that gold falls in value like everything else by becoming more plentiful? If he had read and studied Locke, who wrote twenty years before him, he would have known that all commodities of a country are balanced between themselves, and with gold and silver according to the proportion of their quantity and the demand for them; he would have learned that gold has not a value which corresponds always to a certain quantity of merchandise, but that when there is more gold it is cheaper, and gives more of it for a determinate quantity of merchandise; that thus gold, when it circulates freely, suffices always to the need of the State, and that it becomes a matter indifferent to have one hundred millions of marks, or one million, if we are to buy all commodities dearer in the same proportion. It is ridiculous to say that metallic money is only a sign of value, the credit of which is founded on the stamp of the king. This stamp is only to certify the weight and the title. Even in its relation to commodities the metal uncoined is of the same price as that coined. The marked value is simply a denomination. This is what Law seems to have been ignorant of in establishing his bank.

It is then as merchandise that coined money is, not the sign, but the common measure, of other merchandise, and that not by an arbitrary convention,

1 Stephens' "Life of Turgot," page 206.