use.

for the reason that, from their representative value, they performed all the functions of metallic money. The term "money" might in fact be well applied to bills of exchange, -instruments of distribution, — these, like the notes issued in their discount, being retired by their Such instruments of distribution, from the greater safety and convenience of their use, were preferred to metallic money irrespective of the saving effected thereby. As already shown, the process of issue is a mutual exchange of obligations; of payment, the mutual cancelling of the same obligations. As the bills discounted by the Bank matured within periods of, say, sixty days, the notes issued in their discount and used in their payment were necessarily returned within similar periods, and without any interposition on its part, its bills, representing merchandise in demand for consumption, being certain to be paid. Issues made in the discount of fictitious paper were, from the credit of the Bank, accepted by the public equally with those issued in the discount of business paper. Both alike were treated as capital. But issues made in the discount of the former would not, for the want of means on the part of their makers, be returned by them in its payment, but by other issuers into whose hands they would fall, who would demand the daily discharge in coin of all balances in their favor. Against such issues the Bank would have nothing by way of offset but its own capital in the form of coin. For reasons well understood it would,

as a rule, lose an amount equal to that of fictitious paper discounted. If it discounted none other it would, in spite of its reserves, speedily become bankrupt.

That Smith's theory of "credit money" never obtained in England was due to the fact that the Bank of England was forbidden by its charter to deal in anything but bills of exchange and gold and silver bullion. It would never, unless imposed upon, exchange its obligations based upon capital but for those equally well based. If possessed of capital, no conditions, in fact, need be imposed upon issuers, as their chief care will always be its preservation. The Bank of England, exacting daily settlements with all other issuers (it alone having the prerogative of issuing notes), virtually imposed upon all the restrictions imposed by law upon itself. As the Bank of England was a permanent institution, Smith's "credit money" never had a foothold in that country. It never had any in the United States during the existence of the two National Banks, both being based on capital,

and both being restricted in their operations to bills of exchange and to gold and silver bullion. As they greatly ranked, in means and influence, all other institutions of the kind; as they had branches in every considerable place of business; and as they received on deposit, and in the payment of their bills, and of the public revenues of which they were the custodians, the notes and credits of all similar institutions, occupying positions in reference to the Government similar to that now occupied by the Independent Treasury, but receiving every kind of money, they necessarily, for their own protection, enforced daily settlements with all other issuers, in this way imposing upon all the restrictions imposed by law upon themselves. During their existence the currency, whoever the issuer or wherever. issued, was, as in England, always the equivalent of coin, being always based upon capital, and in great part upon merchandise in process of distribution.

The winding-up of the first Bank was the first opportunity for Smith's "credit money" here. In a very short time after its charter expired the issues of the State Banks, subject to no proper restraint, rose speedily from $80,000,000 to $300,000,000, chiefly by the discount of fictitious paper. The second Bank, supplying everywhere, through its branches, good money, and enforcing daily settlements with all other issuers, speedily drove "credit money out of existence. The second opportunity for this came with its overthrow. General Jackson in his assault upon it, borrowing almost the exact language of Smith, who had drawn his inspiration from Law, declared that the notes issued by it were mere forms of credit, and that the interest charged for their use was pure robbery. The "wild-cat money" of the South and West, and for a time of the whole country, Smith's "credit money," was the result. Within a short period from its overthrow the currency rose from $116,000,000 to $276,000,000, to speedily fall, from its inherent rottenness, to $114,000,000. Of the terrible disasters that resulted from the use of "credit money "the extracts given from the annual message for 1857, of President Buchanan, present a striking but by no means extravagant picture. In the mania for it vast numbers of banks were created like those described by the governor of Indiana, having no offices or places of business but saddle-bags.

As the people, left to themselves, always seeking the best methods to given ends, will never long tolerate a vicious currency of banks,

the situation when the war of the Rebellion broke out was, through the operation of what may be termed natural laws, in great measure restored. The Independent Treasury, established by the Government to avoid the use of Smith's "credit money," and into which nothing but metallic money was to enter, unfortunately remained. In the payment of the loans negotiated on a large scale with the Banks for carrying on the war, the Secretary, Mr. S. P. Chase, would accept nothing but metallic money. The result was, as already shown, the speedy suspension by them of specie payments. Their suspension, accompanied by the refusal to use the money of banks, necessarily led to the issue for the first time in our history of Smith's "credit money by the Government.

It was to avoid the use by the Government of "credit money" that the Independent Treasury was established. Its establishment forced in the end the adoption of the very kind of money sought to be avoided. The remedy for a vicious currency of banks will, sooner or later, always be applied, as no one will understandingly accept anything in exchange but an equivalent. But a remedy so effectual in correcting a vicious currency of banks cannot be so readily applied to the notes of a government armed as they are with the legal tender attribute. When one refuses the note of a bank, for the reason that it is not good money, he has his own immediate interest only in view. He is indifferent as to the effect of his refusal in curtailing the currency. When the same person is called upon to take action to retire, as it were, the great mass of currency in circulation, he naturally hesitates, from the consequences involved. He may, he fears, be for a time without any medium of exchange whatever. This is the reason why the retirement of a currency of Government notes is so difficult a matter. This hesitation will give place to action when it is seen that the reform of the currency is a matter of absolute necessity, and that, with provision for funding the notes of the Government, the amount of the currency remaining in circulation will never fall below that necessary for the distribution of the products of the people, than which nothing more is to be asked.

The amount of the advances in the form of credits to be made by banks and bankers to merchants or undertakers was not, said Smith, to equal the whole amount of the capital of the former, but only an amount equal to that of the gold and silver they would be obliged to keep on hand to meet occasional calls. But banks and

bankers are never to advance to merchants or undertakers any portion of their reserves, the chief function of the former being to issue instruments of distribution. To make advances of their credits to serve as the reserves of others in affairs would be to bring speedy ruin upon themselves. Every one in affairs is to provide his own reserves, but those of merchants and undertakers may be in the form of the products in which they deal and which are to have the value of an equal nominal amount of metallic money.

What, asks Smith, is the proportion which the circulating money of any country is to bear to the whole value of the merchandise to be circulated by it? And he replies by stating that it may equal a fifth, a tenth, a twentieth, or a thirtieth of the value of such merchandise. The inquiry and reply show his profound ignorance upon the subject on which he wrote. In commercial countries, like Great Britain and the United States, merchandise entering into consumption is moved by the issues of banks and bankers which, from the services they perform, are called money, the nominal value of one equalling the actual value of the other.

As Smith's "credit money" is, from its very nature, always an instrument of fraud and waste; as hardly a day passes that does not, in this country at least, show its real character in the disasters that follow its use (for it may be in the form of cheques as well as notes), how is it that he is still the unquestioned authority? The reason is, that as one with money is possessed of everything else, he who can show how it is to be had in abundance is sure of the popular ear. If one scheme fail, another is certain to take its place, as upon this subject there is no end to human credulity. Smith, the greatest schoolman of modern times, and one of the greatest of all times, dreaming away his life in his closet, showed how money was to be had for nothing. The scholasticism of the middle ages was almost unhesitatingly adopted by modern universities, over which, till within a recent period, men of affairs have had no control. The graduates of these, armed with the lessons taught them by schoolmen, became the teachers of our youth, entered into the halls of legislation, and have had almost the entire direction of the popular mind. All "learned men," so far as money was concerned, were naturally followers of Smith. By all," fiat money" is held to be good money. Of this, one illustration will suffice. In the 66 Popular Science Monthly" for December, 1883, Professor Taussig, who now fills the chair of Political Economy in Harvard University, said:

Paper money, though of the purest fiat character, with no hope or promise for its redemption in specie, may yet perform with reasonable efficiency, the functions of a circulating medium.

THE SECRETARY OF THE TREASURY ON

THE MONETARY SITUATION.

On the 29th of October, 1897, the Secretary of the Treasury submitted to the Cabinet an elaborate paper upon the monetary situation, in which he set forth the demand liabilities of the Government in the form of money,-$346,000,000 in greenbacks, $114,000,000 in notes issued under the Act of 1890, and $470,000,000 in silver certificates and silver dollars issued under the Act of 1878, -the several sums aggregating $930,000,000, all of which he declared is, under the Act of 1893,

To have equal purchasing power with gold at all times in the markets and in the payment of debts. Conformable to the spirit of this declaration the Treasury Department has treated gold and silver coins, and the paper representatives of both, as of equal dignity and value in all its operations. In the collection of its revenues it has made discrimination against neither, while upon the other hand it has held itself ready to pay to the public creditor whichever of the two he might choose to receive as the more desirable to him. Even further than this, it has declared itself ready, whenever necessary to the maintenance of this parity, to exchange on even terms, at the pleasure of the holder, either form of the metallic money for the other. These practical operations and declarations were necessary, and they have operated to keep in concurrent circulation, on terms of equality, the two kinds of metallic money, notwithstanding the varying but never ceasing disparity between the natural or commercial value of the one as compared with the other.

For the maintenance of the "parity" of the several kinds of money described the "traditional sum of $100,000,000 only in gold is provided.

The recognized inadequacy of such amount, continued the Secretary, has on more than one occasion brought fear and derangement to all interests, industrial, commercial, and financial. The losses by the body politic through the derangements having their origin in the state of the public Treasury exceed the demand liabilities of the Treasury. As long as the Government shall operate to any considerable extent in supplying the currency of the country, either by the direct issue of its notes, or by maintaining, through its guarantees of "parity," so