would have to be acknowledged and declared to prevent unnecessary sacrifice and ruin. In our free Government the power to make such declaration would not be willingly intrusted to individuals, but should be determined by conditions known to all," that is, first. known to the Government, which would be the first called upon for coin, its notes serving as the reserves of all other issuers of currency. "In case of a suspension the fault would be that of the Government, not of the debtor; or, rather, it would be the result of an unforeseen stringency not contemplated by the contracting parties." But with a Government currency all contracts are entered into at the value of coin. The Government notes are assumed to be the equivalents' of coin. If, upon suspension, they fall greatly in value, the creditor must suffer in like ratio. The Continental currency, at the outset legal tender, and a very "convenient form of money," circulated for a considerable period at its nominal value. Those accepting it in exchange for property or merchandise, and holding it, made a loss equal to the nominal amount received. The history of the times is full of pictures of the terrible suffering that resulted. In the war of the Rebellion vast losses were suffered from the fall of value of the notes, at one time to about one-third of their nominal value. Fortunately, as was the case of the war of Independence, they have not been repudiated, still remaining the pest and menace of the nation. But where does this function or right of the Government to declare suspension of specie payments leave the commercial, industrial, and monetary interests of the country, with weak, ignorant, vain, or unscrupulous politicians in the Department of the Treasury, a prey to their caprices or fears; or posing as the particular champions of "the people"? Is it not better to leave the currency to the guidance of national laws than to such guardians as these?

UNITED STATES SAFETY-FUND BANKING SYSTEM.

The second measure that distinguished Mr. Chase's administration of the finances was the establishment of our present National Safety Fund Banking System. The first act therefor, greatly amended by that of June 3, 1864, was passed February 25, 1863. Its most important feature was the provision made for the conversion of the notes of issuers into coin by deposits of securities over which they had no control. No more absurd and ill-timed measure could have been devised. The Government derived no considerable advantage

therefrom, either in the sale of bonds or in the increase of the currency. There was never any difficulty in selling bonds, while it could readily create for itself all the currency that was wanted.

No National Bank currency, said Mr. Spaulding in his "Financial History of the War," was issued until about the first of January, 1864. After that time it was gradually issued. On the first of July, 1864, the sum of $25,825,695 had been issued; and on the 22d of April, 1865, shortly after the surrender of General Lee, the whole amount of National Bank circulation issued to that time was only $146,927,975. It will therefore be seen that comparatively little direct aid was realized from this currency until after the close of the war. All the channels of circulation were well filled up with the greenback notes, compound interest notes, and certificates of indebtedness to the amount of over $700,000,000, before the National Bank act got fairly into operation. This bank issue was in fact an additional inflation of the currency.

It has already been sufficiently shown that the conversion of notes of banks into coin can be amply secured by restrictions imposed upon issuers to the discount of merchants' bills. So long as such rule is observed the issues made will be employed as instruments to reach their constituents, for which they serve equally well with coin. With it the notes returning for coin will never as a rule exceed the amount of the reserves of the issuers. For a period of forty years under the two banks, the currency, whether issued by the State or National Banks, although in terms payable in coin, was almost wholly retired by its use in reaching its constituents. By such use it came directly into the hands of holders of merchandise, to be returned by them to the issuers in the payment of their bills. During the existence of the two banks the suggestion never occurred to the holder of a note, whether of National or State Banks, that it was not adequately secured; that it needed any other guarantee for its payment than its constituent, supplemented by the reserves of the issuers. The result was secured by restrictions imposed by law upon a single institution, the National Bank, which, from its commanding position as the holder of the public revenues, was able to compel all other issuers to make good daily all balances arising against them. As the charters of State Banks allowed them to make loans, no matter the kind of security, upon whatever promised the greatest return, no sooner was the National Bank out of the way and all restrictions removed, than the picture so graphically drawn by Mr. Buchanan became possible. As no other than paper money was to be that of the people, their instinct naturally turned to the improvement of that in use.

One of the first measures of the kind adopted was the Suffolk Bank system, by which all the banks of the New England States entered into an agreement to redeem daily in Boston, their business metropolis, at the Suffolk Bank, all balances found against them. It was a Clearing House which included the banks of six States. A bank which did not belong to it could obtain no circulation for its notes. It was the "Suffolk " system which suggested the establishment of Clearing Houses for banks of the same city, and which are now to be found in every considerable place of business in the United States. When Mr. Buchanan's picture was drawn the New England States had a currency perfectly sound and perfectly suited to the wants of the people, as had New York and other cities in which Clearing Houses had been established. With such establishments without the intervention of positive law, a perfect currency, through the operation of natural laws, would have been secured to every part of the country. A currency will always be relative to the condition of a people. In needy communities the temptation, too strong to be resisted, will lead to the issue of bank-notes without any proper constituent. Among other remedies adopted by many States following the overthrow of the Bank of the United States was the establishment of Safety Fund Systems upon which the present Safety Fund System was modelled, except in the kind of securities to be deposited. Those accepted under the State systems might be real property, or bonds, often largely depreciated, of State or municipal bodies. The weakness of every Safety Fund System is that, with provision of adequate security for their notes, the issuers part with the means necessary to carry on their operations. The first step in the direction of reform is the total abolition of the existing system, and in the place of securities, restrictions of issues to bills of exchange, by means of which a perfect currency will be created, always adequate and always flexible in representing the subjects of consumption.

But the burdens imposed by our present system and the obstacles it presents to all remedial measures are by no means the only wrongs committed by its establishment. State Banks as the issuers of notes existed at the foundation of the Government. The right was unchallenged for a period of seventy-two years. For the whole period of our existence as a nation the greater part of the currency has been supplied by them; for nearly seventy years the whole of it. The exercise of such right unchallenged for so long a period was

equivalent to a provision in the Constitution in its favor. It would have been such an equivalent with any other people than our own. We have a dual government with a vast number of powers reserved to the States. The creation of corporations was certainly a right which they might exercise. The National Government may levy taxes for the purpose of revenue, but it cannot, by the mode of their levy, purposely destroy rights or powers reserved to the States. All taxes must be uniform in their application. Now the tax of 10 per cent. on the circulation of States Banks was not levied for revenue; none was expected from it. It was equivalent to a declaration that the banks should not exercise one of the functions alike necessary and proper to their welfare. It was levied, not for revenue, but for the purpose of creating a market for bonds. If, under the pretext of taxation, the National Government can destroy the banks of the States, it could, under the same pretext, destroy or render valueless all corporations, insurance, manufacturing, railroad companies and the like, reducing the States to the position of mere creatures of its will.

In the denial to the State Banks of the right to issue notes, the National Banks, from the burdens imposed, restricting themselves to the minimum amount of issues, we seem to have exhausted human ingenuity in the creation of the worst possible monetary system that could be devised. If the State Banks had been left free we should have had long ago a currency perfect in its kind from the application of the methods that have been described. Left free, the inevitable antagonism that would have arisen between their issues and those of the National Government would have long ago driven the latter out of the field.

The climax of this strange episode in our history was the elevation of Mr. Chase from the office of Secretary of the Treasury to the Chief Justiceship of the Supreme Court of the United States. In that exalted position the question of the constitutionality of the issue, of which he was the chief instrument, of the legal tender notes, came up for adjudication and was declared by him to exceed the constitutional powers of the Government.'

1 In describing Mr. Chase, Mr. James Russell Lowell, in a letter from Washington, November, 1868, to Leslie Stephen, said: "As for Mr. Chase, he is a weak man with an imposing presence, a most unhappy combination of which the world has not wanted examples from Saul and Pompey down. Such men as infallibly make mischief as they defraud expectation."— Life of James Russell Lowell, Vol. II., page 7.

Statement showing the amount of notes issued to the National Banks from 1864

to 1896 inclusive.

Years.

1875 $354,408,009
1876

1880

344,505,427

1891 167,927,974

1870 299,766,984

1881

172,683,850

1893

178,713,872

1872 237,664,795

1883

356,073,281

1873 347,267,061

1884

339,499,883

318,576,711

1896 233,639,357

GOLD CERTIFICATES.

On the 3d of March, 1863, an act was passed authorizing the issue of certificates on deposits of gold in the Treasury to the amount of $20 and upwards. For several years the amount of deposits was comparatively small. On the 1st of July, 1883, they reached the sum of $74,428,580. July 1, 1891, they reached the sum of $157,562,979. The Government derived no advantage whatever from these transactions, while the act served as an example for two of the most disastrous measures ever adopted in this country, the issue of the certificates under the act of 1878, and the issue of notes under the act of 1890.

DEMONETIZATION OF THE SILVER DOLLAR. ACT OF 1873.

Up to the close of the fiscal year 1869, 4,709,590 silver dollars had been coined, the rate averaging about 60,000 dollars annually. Up to that time $444,904,787 of gold had been coined. Not one of the silver dollars remained in circulation, having been taken up for export or for use in the arts as fast as they came from the mint. From 1834 to 1853 they had, at the mint ratio, a value averaging about 3.50 per cent. greater than that of gold. Minor coins of silver had the same relative value as the silver dollar. To prevent their exportation was the purpose of the act of 1853. Up to 1873, eightyone years having elapsed from the establishment of the mint, there had been no revision of the coinage laws, although we had as a nation become the great producer of precious metals, and had established numerous local mints. In consequence, on the 25th of April, 1870, Mr. Boutwell, Secretary of the Treasury, transmitted to Mr. Sherman, Chairman of the Committee on Finance of the Senate, a bill for the revision of the coinage, and for the codification