machinery therefor. They could not be in excess, as they were presently used in the place of metallic money to reach their constituent, being retired by their use. No restriction was imposed as

to the amount of notes that might be issued other than the limit to the discount of merchants' bills.

At the foundation of the Government State Banks were in operation. Their number was rapidly increased and to such an extent that they always supplied the greater part of the currency. Their issues were received by the National Bank in the payment of the revenues, as in the ordinary course of business. As the Bank had to account to Government, at the par of coin, for the notes, received in the payment of the revenues, of the State Banks, it required the daily discharge of all balances found against their issuers. In this way the restriction imposed upon the National Bank was imposed upon all others, so that there could be no excess of issue either by the National or State Banks. The result was a currency perfect in its kind, convenient in use, and always of the value of the merchandise which it represented, and consequently of metallic money, being accepted equally with this in the sale or purchase of merchandise.

The Bank, upon which the whole monetary system of the country necessarily rested, was overthrown, being, as was alleged, a menace, through the vast capital wielded by it, to the liberties and welfare of the people. The State Banks took its place as the custodian of the public revenues received and disbursed in its notes. As they were not restricted in their issues to the discount of merchants' bills, and as with most of the States the object was an increase of money, whatever the kind, they were speedily compelled to suspend specie payments. As the National Bank was not to be restored, and as the State Banks could be no longer used, the only alternative to the Government was to collect the revenues in metallic money to be held in its own strong box, leaving the people, always to use paper money in some form, to take care of themselves. In time measures were gradually adopted by them for the improvement of the currency, among the most important of which were Clearing Houses, at which the rule of the stronger became that of the weaker, so that on the breaking out of the war of the Rebellion, especially in the older States, a currency well based and adequate to the wants of the people was provided.

While the operations of the Government were on a small scale, their

amount not exceeding $100,000 daily, the payment and disbursement of the revenues in metallic money was not a matter of much inconvenience or disturbance, only small balances remaining in the Treasury. Upon the outbreak of the war of the Rebellion, the experditures of the Government reaching $3,000,000 daily, a return by it to the use of the money of banks, of commerce, or to notes of its own to serve as money, was inevitable. At the time the metallic money, gold, held as reserves by banks of the cities of New York, Philadelphia, and Boston equalled $63,000,000. To reduce the amount would be to reduce in fourfold greater ratio their ability to make loans. One of the first measures of the Government, when the situation was adequately appreciated, was to apply to the banks for a loan of $150,000,000, these being the only parties or institutions that could undertake to supply so large a sum. The banks urged upon the Secretary of the Treasury, Mr. S. P. Chase, that payment should be made in their issues, as these would be wholly acceptable to those who were to receive them, representing as they did the subjects of consumption to secure which the proceeds of the loan sought, whatever their form, would be used. The Secretary refused to accept anything but gold. In the law authorizing the loan was a provision for the issue by the Government of notes to serve as money to the amount of $500,00,000. These, freely thrown into circulation pending the advances made by the banks, were largely used in place of gold or its equivalent in the payment at banks of their bills. Although the notes were not legal tender the banks could not refuse to receive them without inflicting a fatal blow to the credit of the Government. The inevitable result was that in consequence of the action of the Government the banks, some time before they had completed their advances, were forced into suspension of specie payment. As the Government would not accept their issues, and as all the specie in the country suddenly disappeared, being hoarded or exported, no alternative was left to it but to carry on its operations by its own legal tender notes, which were issued until the amount in their various forms reached the sum of $700,000,000.

Upon the close of the war the Government, as was natural, at once entered upon the work of retiring its notes, which were regarded as only a temporary or war measure. Their retirement went on until their amount was reduced to $346,000,000. As the banks were required to put up government bonds for their notes, the amount

of these, from the burden imposed, fell far short of the public wants. By the time that the government notes were reduced to the sum named, great complaint arose of the inadequacy in amount of the currency. There would have been no complaint had the privilege of issue of notes which the banks had previously enjoyed been restored to them, as they could have supplied all the currency wanted, a currency of the value of gold. The provision for the further retirement of the government notes was not only repealed, but their reissue was made obligatory. With the law forbidding their further retirement came the Act of February 28, 1878, authorizing the purchase for coinage of silver to the amount of $2,000,000 monthly at the ratio of 16 to 1, although the value of silver compared with that of gold had recently fallen 10 per cent. The act would have been harmless, as no one would have used the silver dollars as money, but for the provision that the holder of $10 and upwards might deposit them in the Treasury, receiving certificates therefor. These certificates, having all the outward appearance of paper money ordinarily in use, were from the outset regarded as promises of the Government payable at the option of the holder in gold. They consequently readily circulated as money. Under the Act of 1878 silver to the amount of 291,272,018 ounces, the equivalent of about $377,000,000, was purchased at a cost of $308,279,260. The Act of July 14, 1890, superseding that of 1878, authorized the purchase of silver at the rate of $4,500,000 monthly. Under it 168,674,682 ounces, the equivalent of about $218,000,000, were purchased by an issue of legal tender notes equal in amount to the cost of the silver purchased. Under the two acts, up to November 1, 1897, 452,715,792 silver dollars had been coined, of which 392,517,014 were in the Treasury and 60,196,778 in circulation. Against the dollars in the Treasury silver certificates to the amount of $372,838,919 had been issued. The amount of legal tender notes outstanding against the silver bullion in the Treasury equalled $109,313,382; the silver coinage and silver notes equalled the sum of $562,626,072. The greenbacks, $346,681,016, added made an aggregate, in round numbers, of $908,000,000 of government money at present in circulation, or in the Treasury.

As the moneys of the Government were debt for the discharge of which, previous to their issue, no adequate provision was made, they were to their whole extent inflations, instruments of disturbance and

waste.

Their effect was to create large balances, to be discharged

in gold, in the foreign and domestic trade of the country, the amount required for their discharge to be supplied by the Government as the great issuer of currency. The demand had to be met by it by the creation of debt in another form. That it was forced to resort to borrowing to meet its obligations in the form of money showed how improperly these were issued. Banks resorting to similar expedients would be immediately seized and wound up a fact illustrating the wide difference between them and the Government as issuers of currency. Could the Government be subjected to the restrictions imposed by common consent upon banks it would long since have been driven out of the field as an issuer of currency. To meet the calls upon it, nominally to take in its notes, it was, by an issue of bonds, compelled in a comparatively short period to provide gold to an amount of nearly $300,000,000. Loans by banks when well made, equalling in amount the demand obligations of the Government, are returned to them without the payment on their part of a dollar in gold —another pertinent illustration of the difference between the moneys of governments and of banks. No issues by governments on a large scale like that of the United States are ever well made, for the reason that no means will ever be provided previous to their issue for their discharge, the test, as to fitness, to which all kinds of paper money are to be subjected. As the Government was reduced to great straits, its gold reserves falling at one time below $50,000,000, excessive alarm was created, resulting in losses exceeding, according to the Secretary of the Treasury, the whole amount, $930,000,000, of the demand obligations of the Government at the time outstanding.

On the coming in of the present Administration attention was at once turned to the situation and to measures proper to meet it. On the 29th of October, 1897, the Secretary of the Treasury, Mr. Gage, submitted to the Cabinet an elaborate paper, the recommendations in which were afterwards embodied in his annual report of December 7, 1897. On the 16th of December, in conference with the Committee of Banks and Banking of the House, he restated the situation and the measures considered by him necessary to be taken. The principal recommendation submitted was that the amount of the demand obligations of the Government, $930,000,000, then outstanding, be reduced by $200,000,000. With such a reduction all, he declared, would be well. He differed from the advocates of unlimited issues

of government money only in amount, not in kind, a fatal error, as paper money properly issued is only an instrument for the distribution of merchandise to consumers, a function which, having nothing for distribution, governments can never exercise. In assuming that our own may issue notes to serve as money he threw himself, so far as the argument was concerned, wholly into the hands of the advocates of the unlimited issue of government notes. If $730,000,000 of government notes be good money to-day, certainly $830,000,000 will be good money a year hence from the constantly increasing use therefor. As the occasion was one of the greatest importance and significance the proceedings of the Conference have been given at great length, from the additional opportunity afforded for restating the laws of money, of which neither the Secretary nor the Committee on Banking and Currency seem to have had any adequate conception.

Another matter to which much attention has here been given is the report of the Committee of the Indianapolis Convention, and that of the Commission appointed by it. The Convention was the voluntary gathering of the friends of sound money throughout the country. It is needless to repeat that the Commission appointed to reflect its views, in pronouncing in favor of the silver coinage at the rate of 16 to 1, and of maintaining in circulation the certificates representing the same, as imperfectly mastered the subject as the Secretary of the Treasury or the Committee on Currency and Banking of the House. The test to which the conclusions of all have been subjected has been that money must be capital, or the symbol, retired by its use, of capital. If the proposition be correct the conclusions of the Secretary of the Treasury, of the Committee of the House, so far as they were expressed, as well as those of the Monetary Commission, in retaining a large amount of government money in circulation, must be wholly wrong.