can come only from systems of redemption which shall immediately return upon all the Banks every issue that is not employed in the distribution of its proper constituents. So far as the public is concerned, a note issued by a Bank, based upon an United States bond, produces precisely the same effect as a note issued in the discount of a fictitious bill. It serves not as the instrument of distribution for a corresponding amount of merchandise, but as one for the consumption of an equal amount of accumulated capital. As capital so symbolized is not, as a rule, made the basis of reproduction, there has been an excess of expenditure equal to its amount, with a contraction usually far more excessive than was the inflation. A safety-fund system, in whatever light viewed, is radically vicious. It is impossible that it should be established throughout the United States, and at the same time provide a currency that will not be either deficient in amount, or inconvertible and depreciated. Our present national system would never have been established, had Mr. Chase possessed a competent knowledge of the laws and functions of money. His great theme was a "credit circulation," — a circulation sustained by faith, not by works. When any one took a note of a Bank created by his system, he was told to look confidingly toward Washington, and believe that locked up in the vaults of the Treasury was a security which possessed a value in coin equal to all the notes the Bank might issue. Suppose the holder did not want a government security, but food. Could he avail himself of the former, he would still have to convert it into money, which could only be effected at an expense and loss of time, involving a loss of interest, equalling perhaps twothirds the value of his note. At one time, since the safetyfund notes have been issued, they were worth, in coin, only about one-third of their nominal value. It is little consolation to be told that Mr. Chase was as wise as his time. The misfortune is that he was as reckless and unscrupulous as he was ignorant. He could not rest till he had hopelessly involved the whole country in the meshes of paper money. His first achievement was the establishment of an inconvertible currency of United States notes. Upon this superstructure he erected his safety-fund system. But for one, he could not have established the other. By means of the former, the Banks were practically relieved of all responsibility, so far as concerned their note circulation. In consideration of taking away their means, he provided that they should never need them. The only way, consequently, in which they can provide for their liabilities is by the return to them of their means. Το insist upon the continuance of his system, is to insist upon continued suspension. The Banks of such States as Iowa and Minnesota cannot be permanent lenders to government, at 6 per cent, to an amount equalling their entire capital, and have any thing left to be loaned to the public. The idea is preposterous. It will appear so to every one who has emancipated himself from the idea that money is a fiction, not a substance; or that its value in exchange depends upon its amount, not upon any provision by merchandise or coin for its retirement. By allowing Banks to reclaim their bonds, and to issue notes for the future without any further provision for them but their capital and bills, they would, for the first time since they went into operation, be in a position in which they could resume. They would then eagerly avail themselves of the opportunity, as absolutely necessary to the preservation of their means. All of them must see, by this time, that every day passed without resumption is seriously impairing their value. Every day is the number of their bad debts increasing. Under the present system, time alone is wanting to complete their ruin. The great majority of them are now indifferent or opposed to any change, only for the reason that they see no way out of their present condition. Let it be known that they can get back their securities, become State organizations, or issue notes as National Banks without any deposit therefor, and the great majority will earnestly set their face toward resumption. Until they move, the most effective step in this direction will remain to be taken. The national system should be got rid of as fast as possible. The greater part of the currency is always to be furnished by local institutions, and all such should be under local supervision and control. The work of the central government, as far as the currency is concerned, should be at an end when it has created an United States Bank. It is easy to point out, even to demonstrate the way. Will those see and follow it who are charged with the work? Here lies the real difficulty. Mr. Sherman, now at the head of the Treasury Department, sees in it nothing but a ceremony. He has only to "salute the flag," and the thing is done : "Nor are we to decide whether our paper money shall be issued directly by the government or by Banks created by the government; nor whether at a future time the legal-tender quality of United States notes shall continue. I am one of those who believe that a United States note issued directly by the government, and convertible on demand into gold coin, or a government bond equal in value to gold, is the best currency we can adopt; that it is to be the currency of the future, not only in the United States, but in Great Britain as well; and that such a currency might properly continue to be a legal tender, except when coin is specifically stipulated for... "In my judgment, the real solution of specie resumption will thus come through the voluntary act of National Banks, each acting for itself, under the general direction of the law, precisely as the Bank of England, the Bank of France, and the New York Banks brought about and maintained resumption. I have never regarded with solicitude the amount of United States notes outstanding, for, as I will show, they can be easily maintained at par in gold; but the agency of the Banks in securing resumption, and the effect of resumption upon their customers, were matters of solicitude. This I no longer doubt or fear. The whole problem consists in a partial and limited transfer of capital, now invested by National Banks in United States bonds, to individuals. The high price of these bonds, and the idle capital that seeks investment in them, will enable each Bank to strengthen itself by a sale of bonds, without in the least impairing its ability to discount or loan, and, in fact, to increase its power to do so; and the bonds will be absorbed by the increasing demand for such securities. Strong Banks in cities do not need the currency, for their currency is certified checks. Their currency is largely held by them; or, if in circulation, it can be retired and cancelled without impairing in the least their ability to loan or discount. The Bank currency being thus diminished, as the time for resumption approaches, the United States notes, supported by a gold reserve and the power of the Secretary to sell bonds, will easily be maintained at the gold standard, and the problem is solved. "This partial contraction of Bank currency will unlock and dissipate a greater contraction which has gone on since the panic, and will go on until the public mind rests assured that the day of resumption is not only promised, but rendered certain by the course of events. An increase of currency will follow resumption. Great masses of notes now lie idle in bank-vaults and in the Treasury, and are hoarded in homesteads all over the land. There is deposited in the Treasury, without interest and belonging to Banks, $31,005,000, represented by currency certificates. There are now in the vaults of the National Banks $73,626,100 United States notes and frac tional currency, $17,166,190 bank-notes, in all $90,792,290; and in the Savings Banks, State Banks, and other Banks that have made returns to the Comptroller of the Currency, the sum of $48,431,409: in all making $170,228,699, and this is far more than the reserve required by law. The practice of hoarding currency has greatly increased from the day of the panic; and it may be safely said, that there is among the people, and in Savings-Banks and trust companies, not less than $200,000,000 of currency idle. Nothing but the best of security will tempt it from its hiding-places; but, that security offered, it can be had for a less rate of interest than ever before. Capital met its periodical shock in September, 1873; and great masses of it (some say one thousand millions) vanished as a dream, and are now represented by worthless bonds, bills, notes, and certificates of stock, worth but little more than the paper on which they are printed. This panic came upon us when the paper god was lord of the ascendant; when corner lots, at fictitious prices, were the par of exchange; when unproductive railroads were the El Dorados of visionaries, and wild schemes of improvement, both in this city and in all the cities of the Union, increased municipal debts to an unexampled degree. This reckless inflation of credits collapsed long before this law was passed. Money, the agent of capital, and, when idle, capital itself, was hoarded, and still remains inactive, or is loaned on call or unquestioned security. This is the contraction of which so many complain. It is not caused by the Resumption Act, but by a want of confidence in investments that offer. Confidence cannot be restored by a repeal, or by issuing more paper money. But the occasion does offer you an opportunity of withdrawing a portion of this idle money, and thus reaching a specie standard. The Banks can freely surrender a portion of their circulation, and thus be strong for resumption; while frightened and timid capital will gladly float into United States bonds when sold by the Banks. Nothing is wanted but confidence, faith, and time, to secure the closing triumph of our war policy, by the redemption of the only promise we then made that has not been honestly redeemed. . . . "The amount of United States notes outstanding to-day is $370,943,392, less those lost and destroyed. Now, many who fear resumption suppose the whole mass of United States notes will then be presented for the gold; and they have counted up the number of tons of gold that will be required to do it. They figure up the interest at 5 per cent on the whole sum, and state that as an addition to our annual interest account. It is not necessary to reply to such exaggerations; nor is it possible to state with precision what amount of United States notes would circulate at par in coin. They could then be made receivable for customs dues, without a violation of the public faith. They will always be the reserve of National Banks. They could then be made receivable for bonds of the United States. They could be supported by the power to sell bonds to redeem them. They would, as a matter of course, be supported by the whole gold reserve in the Treasury. They would take the place of certificates of deposit, and be used in clearinghouse exchanges. . . . "With all these advantages, with the growing wealth and credit of our country, I do not believe the present volume of United States notes need be largely if any reduced, to keep them at par in coin. We have now a gold balance in the Treasury of $37,120,772.73, and a currency balance of $9,529,404 over and above our currency and coin certificates. It is true this balance is subject to overdue and accruing demands, fully stated in a recent letter of the Secretary of the Treasury; but a certain amount of these demands. always remain uncalled for, and when presented are met by accruing revenue. Suppose (what I regard as an extreme case) that we add to this reserve $100,000,000,-fifty million in coin certificates, and fifty million in coin, does anybody doubt but it will be ample to redeem any note that is presented? Confidence being once established in their redemption, and who will want the gold for them? They can be and no doubt will be reissued, without or with the legal-tender clause, as the law may hereafter provide; and with their credit secured, established at par in coin, they will not only circulate in Texas and on the Pacific slope, as well as in other parts of the United States, but, like the Bank of England note, in all countries that have commercial relations with us."1 Had Mr. Sherman remained in the Senate, such remarks would have been passed over as but a repetition, after the fashion of the speaker, of the incoherent and meaningless talk which is the burden of all. The Senator has now become the Minister of Finance, charged with the duty of conducting the nation out of the perils which beset it. Upon him depends, very largely, whether it shall be carried through them, or whether it shall, by the inadequacy and absurdity of the method to be adopted, make disastrous shipwreck of all its dearest interests. The question before him is not, as he persistently and on all occasions asserts, the maintenance, with some slight modifications, of the financial system of the country, but a revolution as radical as that made by the issue of the legal-tender notes. This is the question. It is not one that will brook delay. Upon the answer, if he be to remain. Minister of Finance, depends whether the administration shall be a success, or make an utter and disastrous failure, in a matter by far the most important of those that are to engage its attention. "We are not to decide," he says, "whether our paper money shall be issued directly by the government or by Banks created by the government; nor 1 Speech of Hon. John Sherman, in the United States Senate, March 6, 1876. Pamphlet edition, pp. 4, 16, 17, 20, 21. |