BY
Anxious to promote the public interests as far as in my humble sphere I can do, I venture to suggest a plan for the restoration of the value of the public credit, which, I hope, if aided by your approval, will be adopted by Congress, and is therefore respectfully submitted for your consideration.
1. That all payments from the Treasury of the Confederate States be made in gold or else in coupon bonds, bearing a rate of interest which will be an equivalent for the use of money, or else in Treasury certificates bearing no interest, of denominations suitable for currency, not exceeding five hundred dollars, and convertible into bonds at the will of the holders.
2. That the bonds be of denominations not less than one thousand dollars, and convertible into certificates, deducting five per cent.
3. That all payments into the Treasury shall be made in gold or silver, or in Treasury Certificates.
4. That the Treasury Certificates shall bear date on the 1st of January, April, July and October, and, if not funded or paid on account of public dues, within six months from their date, shall be taxed five per cent., to be deducted when funded or paid; and if not funded or paid, as aforesaid, within twelve months from their date, then to be subject to a tax of ten per cent., and to an additional tax of five per cent for each additional three months, during which they may not have been funded or paid as aforesaid.
5. The whole of the public debt, as far as practicable, to be placed on the same basis, and all be made redeemable at the pleasure of the Government.
6. That the certificates be made a legal tender, and neither the certificates nor the bonds be taxed, except as above provided for, unless it becomes necessary to increase the tax on the certificates, as a means of maintaining their relative value as money.
If, at a cost not exceeding the cost of Treasury Notes, I could, on the 1st of January, April, July and October, of each year, deposit in the Treasury of the Confederate Government and of each of the separate States, a sum, in gold, equal to the disbursements of each, for the next succeeding three months, no one would dispute my claim as a public benefactor. I propose to demonstrate:
1. That Congress have power to make the certificates thus to be issued a tender.
2. That the certificates, if made a tender, will be money.
3. That this paper money will be more valuable than gold as a circulating medium.
4. That this money will be more stable and uniform in value than gold.
5. That Congress can regulate the value of such a currency and cannot regulate the value of gold.
6. That the measures proposed would not only diminish the burden of the public debt, but would convert it into capital, which would be much more available and beneficial in the progress and development of our industry, our agriculture, our manufactures, and our commerce, foreign and domestic, than if the whole disbursements of our Government, State as well as Confederate, were paid in gold.
7. That under such a system of paper money, the States can organize a system of banking, requiring each bank to place ample funds with the Treasurer of the State for the redemption of their notes, to be held in trust, and applicable solely to that object.
8. That this would protect the public against loss by bank failures; and, at the same time, enable the banks to increase their line of discounts and to greatly increase their profits.
9. That whilst it would greatly increase the public and individual resources, it would greatly diminish the burden of taxation.
10. That such a reform in our system of finance would ensure the payment of the interest and principal of the public debt, in a medium of much greater value than that in which it was created.
11. That the conversion of our present system of currency into a metallic, or into a paper, convertible into a metallic currency, would inevitably cause so great a depreciation of the values of labor and of property, as to render the payment of the public debt impossible, and to make revolution
and repudiation inevitable, after having reduced the whole country to a state of distress, bankruptcy and despair, in which we would be unable to make payment.
12. The measures which I propose will surely bring financial independence and prosperity, whilst the present system, if adhered to, will endanger our political independence, and surely overwhelm us with national and individual bankruptcy, and with unexampled disgrace, distress and ruin.
I am aware that many believe that ours is a hard money Government, and that nothing but gold or silver can be made a tender. I am also aware that many believe that it is impossible to prevent the depreciation of paper money. I am further aware that these opinions are so deeply impressed upon the public mind, that I must sustain my propositions by influential and reliable authorities, as well as by argument.
I proceed first to show what money is, and will then demonstrate that Congress has power to convert the Treasury Certificates into money, by making them a legal tender. The cause for which I plead, is the cause of Civil and Religious Liberty, of right, of justice, of good faith, of pecuniary independence, of human progress and prosperity, and I beseech you, the Congress, the Legislatures of the several States, and the people, for the sake of that cause, earnestly to consider the facts and arguments which I respectfully submit in support of it.
DUFF GREEN.
Worcester defines MONEY to be stamped metal, generally gold, silver or copper, used in traffic, or as the measure of price: coin.
MONEY differs from uncoined silver in that the quantity of silver in each piece of money is ascertained by the stamp it bears, which is a public voucher.-- Locke.
2. Cash generally; any current token or representative of
value, as bank notes exchangeable for coin, notes of hand, accepted bills on
mercantile houses, drafts, etc.
Wright.
Syn.-- Money, originally stamped coin, is now applied to whatever serves as a circulating medium, including bank notes and drafts, as well as metallic coins; cash is ready money, and is sometimes restricted to coin, or metallic money bearing a legal stamp; but it is commonly used to include bank notes, drafts, etc.
McCulloch, in his Commercial Dictionary, says:
When the division of labor was first introduced, commodities were directly bartered for each other; those, for example, who had a surplus of corn and were in want of wine, endeavored to find out those who were in the opposite circumstances, or who had a surplus of wine and wanted corn, and they exchanged the one for the other. It is obvious, however, that the power of changing, and consequently of dividing employment, must have been subjected to perpetual interruptions, so long as it was restricted to mere barter. The extreme inconveniences attending such situations must early have forced themselves on the attention of every one. Efforts would, in consequence, be made to avoid them, and it would speedily appear that the best, or rather the only way, in which this could be effected, was to exchange either the whole or part of one surplus produce for some commodity of known value and in general demand, and which,
consequently, few persons would be inclined to refuse to accept as an equivalent for whatever they had to dispose of. * * * * * Now this commodity, whatever it may be, is money.
An infinite variety of commodities have been used as money in different countries and periods. But none can be advantageously used as such unless it possesses several very peculiar qualities. The slightest reflection on the purpose to which it is applied must indeed be sufficient to convince every one, that it is indispensable, or at least exceedingly desirable, that the commodity selected to serve as money should be divisible into the smallest portions. 2d. That it will admit of being kept for an indefinite period without deteriorating. 3d. That it should, by possessing great value in small bulk, be capable of being easily transported from place to place. 4th. That one piece of money, of a certain denomination, should always be equal in magnitude and quality to every other piece of money of the same denomination. 5th. That its value should be comparatively steady, or as little subject to variation as possible. Without the first of these qualities, or the capacity of being divided into portions of every different magnitude and value, money, it is evident, would be of almost no use, and could only be exchanged for the few commodities that might happen to be of the same value as its indivisible portions, or as whole multiples of them. Without the second, or the capacity of being kept or hoarded without deteriorating, no one would choose to exchange commodities for money, except only when he expected to be able, speedily, to re-exchange that money for something else[.] Without the third, or facility of transportation, money could not be commercially used in transactions between places at considerable distance. Without the fourth, or perfect sameness, it would be extremely difficult to appreciate the value of different pieces of money; and without the fifth, or comparative steadiness of value, money could not serve as a standard, by which to measure the value of other commodities, and no one would be disposed to exchange the produce of his industry for an article that might shortly decline considerably in its power of purchasing.
The union of the different qualities of comparative steadiness of value, divisibility, durability, facility of transportation, and perfect sameness in the precious metals, doubtless formed the irresistible reason that has induced every civilized community to employ them as money.
John Taylor, Jr., defines money to be "a token issued by Government, and made a tender in payment of debts."
Adam Smith said:
A paper money consisting in bank notes, issued by a people of undoubted credit, payable upon demand, without condition, and in fact always readily paid as soon as presented, is, in every respect, equal in value to gold and silver money, since gold and silver money can at any time be had for it. Whatever is either bought or sold for such paper must necessarily be bought or sold as cheap as it could have been for gold and silver.
Ricardo says:
If there was perfect security that the power of issuing paper money would not be abused; that is, if there was perfect security for its being issued in such quantities as to preserve its value relatively to the mass of circulating commodities nearly uniform the precious metals might be entirely discarded from circulation.
Mr. Calhoun, in his speech in the United States Senate upon the removal of the deposits on the 3d of January, 1834, said:
Whatever the Government receives and treats as money, is money in effect; and if it be money, they have the right under the Constitution to regulate it * * * * *
If Congress has the right to receive anything else than specie in its dues, they have the right to regulate its value; and have a right, of course, to adopt all necessary and proper means, in the language of the Constitution, to effect its object.
McCulloch, under the title of "money," says:
No certain estimate can be formed of the quantity of money required to conduct the business of any country; this quantity being in all cases determined by the value of
money itself, the service it has to perform, and the devices used for economizing its employment. Generally, however, it is very considerable, and when it consists wholly of gold and silver, it occasions a very heavy expense. There can, indeed, be no doubt that the wish to lessen this expense has been one of the chief causes that have led all civilized and commercial nations to fabricate a portion of their money of some less valuable material. Of the various substitutes resorted to for this purpose, paper is, in all respects, the most eligible. * * * * * Hence, the origin of bank notes.
These extracts not only prove that money may be made of paper, but that all civilized and commercial people have used paper money because it is more convenient and cheaper than specie, and that if not issued in excess, it is more valuable than specie.
In his speech upon the Sub-Treasury, Dec. 19th, 1837, Mr. Calhoun said:
I am of the impression, to make this great measure successful, and secure it against reaction, some stable and safe medium of circulation, to take the place of bank notes, ought to be issued. I intend to propose nothing. It would be impossible, with so great a weight of opposition, to pass any measure without the entire support of the Administration; and if it were possible, it ought not to be attempted where so much must depend on the mode of execution. The best measure that could be devised might fail and impose a heavy responsibility on its author, unless it met with the hearty approbation of those who are to execute it. I now intend merely to throw out suggestions, in order to excite the reflection of others on a subject so delicate and of so much importance--acting on the principle that it is the duty of all, in so great a juncture, to present their views without reserve.
It is then my impression, that in the present condition of the world, a paper currency in some form, if not necessary, is almost indispensable in financial and commercial operations of civilized and extensive communities. In many respects, it has a vast superiority over metallic currency, especially in great and extended transactions, by its greater cheapness, lightness, and the facility of determining the amount. The great desideratum is to ascertain what description of paper has the requisite qualities of being free from fluctuation in value and liability to abuse in the greatest perfection. I have shown, I trust, that the bank notes do not possess these requisites in a degree sufficiently high for this purpose.
I go further. It appears to me, after bestowing the best reflection I can give the subject, that no convertible paper--that is, no paper whose credit rests upon a promise to pay, is suitable for currency. It is the form of credit proper in private transactions, between man and man, but not for a standard of value, to perform exchanges generally which constitute the appropriate functions of money or currency. * * * * *
On what, then, ought a paper currency to rest? I would say, on demand and supply, simply, which regulates the value of everything else--the constant demand which the Government has on the community for its necessary supplies. A medium, resting on this demand, which simply obligates the Government to receive it in all of its dues, to the exclusion of everything else, except gold and silver--and which shall be optional with those who have demands on the Government to receive or not, would, it seems to me, be as little liable to abuse as the power of coining. It would contain within itself a self-regulating power. It could only be issued to those who had claims on the Government, and to those only with their consent, and, of course, at or above par with gold and silver, which would be its habitual state; for, so far as the Government was concerned, it would be equal, in every respect, to gold and silver, and superior in many, particularly in regulating the distant exchanges of the country.
Nothing but experience can determine what amount and of what denominations might be safely issued; but it may be safely assumed that the country would absorb an amount greatly exceeding its annual income. Much of its exchanges, which amount to a vast sum, as well as its banking business, would revolve about it, and many millions would thus be left in circulation beyond the demands of the Government. It may throw some light on this subject to state that North Carolina, just after the Revolution, issued a large amount of paper, which was made receivable in dues to her. It was also made a legal tender, but which, of course, was not obligatory after the adoption of the Federal
Constitution. A large amount, say between four and five hundred thousand dollars, remained in circulation after that period, and continued to circulate for more than twenty years, at par with gold and silver during the whole time, with no other advantage than being received in the revenue of the State, which was much less than$100,000 per annum. I speak on the information of citizens of that State in whom I can rely.
Again, in a speech of Oct. 3, 1837, after demonstrating that in consequence of the receipt of bank notes by the Government they had in a great measure superseded the use of the precious metals, Mr. Calhoun said:
I am not the enemy but the friend of credit. Not as a substitute, but the associate, and the assistant of the metals. In that capacity I hold credit to possess, in many respects, vast superiority over the metals themselves I object to it in the form which it has assumed in the banking system, for reasons which are neither light or few, and that neither have been or can be answered. The question is not whether credit can be dispensed with, but what is the best possible form--the most stable, least liable to abuse, and the most convenient and cheap. I threw out some ideas upon this most important subject in my opening remarks. I have heard nothing to change my opinion I believe that Government credit, in the form I suggested, combines all the requisite qualities of a credit circulation in the highest degree, and, also, that the Government ought not to use any other credit but its own in its financial operations.
We are told that the form I suggested is but a repetition of the old Continental money--a ghost that is ever conjured up by all who wish to give the banks an exclusive monopoly of Government credit. The assertion is not true; there is not the least analogy between them. The one was a promise to pay when there was no revenue, and the other to receive in the dues of the Government when there was an abundant revenue.
We are told that there is no instance of a Government paper that did not depreciate. In reply, I affirm that there is none, assuming the form I propose, that ever did depreciate. Whenever a paper, receivable in the dues of Government, has anything like a fair trial, it has succeeded. Instance the case of North Carolina, referred to in my opening remarks. The drafts of the Treasury at this moment, with all their encumbrances, are nearly at par with gold and silver. I might add the instance alluded to by the distinguished Senator from Kentucky, in which he admits that as soon as the excess of the issue of the Commonwealth Bank of Kentucky were reduced to the proper point its notes rose to par. The case of Russia might also be mentioned. In 1827 she had a fixed paper circulation, in the form of Bank Notes, but which were inconvertible, of upwards of $120,000,000, estimated in the metallic ruble, and which had for years remained without fluctuation, having nothing to sustain it but that it was received in the dues of the Government, and that too with a revenue of only about $90,000,000 annually. I speak on the authority of a respectable traveller. Other instances might no doubt be added, but it needs no such support. How can a paper depreciate which the Government is bound to receive in all its payments, and while those to whom payments are to be made are under no obligation to receive it? From its nature it can only circulate when at par with gold and silver, and if it should depreciate none could be injured but the Government.
It will be seen that his purpose was to organize a financial system for the United States, in which the credit of the Government should be received and paid away at par with gold. Small as the minority in which he and his friends were, under the pressure of circumstances and the force of his arguments, Congress, in 1846, passed an act which, as quoted by Colwell, provides "that the Treasurer of the United States, the Treasurer of the Mint of the United States, the Treasurers, and those acting as such at the various Branch Mints, all Collectors of Customs, all Surveyors of the Customs acting also as collectors, all Assistant Treasurers, all receivers of public money at the several land offices, all Postmasters, and all public
officers of whatever character, be, and they are hereby required to keep safely, without loaning, using, depositing in banks, or exchanging for other funds than he is allowed by this act, all the public money collected by them, or otherwise, at any time, placed in their possession or custody, till the same is ordered by the proper department or officer of the Government to be transferred or paid out; that all collectors and receivers of public money of every character and description shall so frequently as they may be directed by the Secretary of the Treasury or the Postmaster General, to pay over to the Treasurers of their respective districts all public money collected by them or in their hands; and it shall be the duty of the Secretary and the Postmaster General respectively, to order such payments by the said collectors and receivers at all said places, at least as often as once in each week, and as much more frequently in all cases as they in their discretion may think proper." It is farther enacted in the same statute, "That on and after the first of January, 1847, all sums payable to the United States shall be paid in gold or silver coin, or in Treasury Notes issued by authority of the United States, that on and after the first of April, 1847, all payments shall be made in gold or silver coin, or in Treasury Notes, if the creditor agrees to receive said notes in payment."
Colwell quotes from the Secretary of the Treasury's (Mr. Guthrie) report, of December 3d, 1855, as follows:
The Independent Treasury Act still continues eminently successful in all its operations. The transfers, for disbursements, during the fiscal year, to the amount of $39,407,674.03, have been made at a cost of $10,762[.] 35, while the premium on the sale of drafts has amounted to $30,431.87. The receipts and expenditures during the fiscal year amounted to $131,413,859.59 have all been in the Constitutional currency of gold and silver without any perceptible effect upon the currency or upon the healthy business operations of the country.
And again from his annual report, December 1st, 1856:
The amount transferred, for disbursement, during the past fiscal year was $38,088,113.92, at a cost of $12,954.87; while the premiums paid on sale of Treasury drafts have been $54,924.16, leaving $41,978.29 over and above the expenses. * * * * * The receipts and expenditures, during the fiscal year, have amounted in the aggregate to $146,866,933.48, and have all been paid in the Constitutional currency of gold and silver without any disturbing effect upon the currency, the banks, or business of the country.
Commenting upon this act, Colwell says:
It proposed that all payments to and from the Treasury should be made in gold and silver coin, or in Treasury notes issued under the authority of the United States. Now this was offering to the creditors of the Government their choice of specie or the very best currency which could be issued in the country. No medium of payment which could be devised would better accommodate the public creditors than Treasury Notes, issued in forms and denominations to suit the wants and conveniences of the people.
I quote these extracts to demonstrate the correctness and wisdom of Mr. Calhoun's views of the proper use of public credit, intending, as I progress, to cite other facts, stronger if possible than these, to enforce the necessity of adopting the measures which I propose. It is true that the value of Treasury Notes, under the system adopted by the Federal Government, was kept at par with gold because the banks were required to redeem their notes with specie. I propose to make our Treasury Notes convertible into coupon bonds, worth as much as specie, and thus maintain their value.
In his speech upon the Sub-Treasury, delivered in the Senate March 10th, 1838, Mr. Calhoun said:
I do not deem it necessary to inquire whether, in conferring the power to coin money and regulate the value thereof, the Constitution intended to limit the power strictly to coining money and regulating its value, or whether it intended to confer a more general power over the currency; nor do I intend to inquire whether the word coin is limited simply to metals, or may be extended to other substances, if through a gradual change they may become the medium of the general circulation of the world. Whatever opinion there may be entertained in reference to them, we must all agree, as a fixed principle in our system of thinking on Constitutional questions, that the power under consideration, like other powers, is a trust power, and that, like all such powers, it must be so exercised as to effect the object of the trust, as far as it may be practicable; nor can we disagree that the object of the power was to secure to these States a safe, uniform, and stable currency. The nature of the power, the terms used to convey it, the history of the times, the necessity, with the creation of a common Government, of having a common and uniform circulating medium, and the power conferred to punish those who, by counterfeiting, may attempt to debase and degrade the coins of the country, all proclaim this to be the object. * * * * *
If Congress has a right to receive anything else than specie in its dues, they have the right to regulate its value, and have a right, of course, to adopt all necessary and proper means, in the language of the Constitution, to the object.
Again, in reply to Mr. Webster, March 22d, 1838, Mr. Calhoun said:
I now undertake to affirm positively, and without the least fear that I can be answered--what heretofore I have but suggested--that a paper, issued by Government, with the simple promise to receive it in all its dues, leaving its creditors to take it or gold and silver, at their option, would, to the extent that it would circulate, form a perfect paper circulation, which could not be abused by the Government; that it would be as steady and uniform in value as the metals themselves; and that if, by possibility, it should depreciate, the loss would fall, not on the people, but on the Government itself; for the only effect of depreciation would be virtually to reduce the taxes, to prevent which the interest of the Government would be a sufficient guarantee. I shall not go into the discussion now, but on a suitable occasion I shall be able to make good every word I have uttered. I would be able to do more--to prove that it is within the Constitutional power of Congress to use such a paper, in the management of its finances, according to the most rigid rule of construing the Constitution; and that those, at least, who think that Congress can authorize the notes of State corporations to be received in the public dues, are estopped from denying its right to receive its own paper. If it can virtually indorse by law, on the notes of specie paying banks, "Receivable in payment of the public dues," it surely can order the same words to be written on a blank piece of paper.
As the power to coin "money" and regulate its value, and to pass all laws necessary and proper to effect that object is expressly given to Congress, and, as the purpose of the Constitution was to enable Congress to give to the States "a safe, uniform, and stable currency," Mr. Calhoun refers to "the history of the times, and the necessity with the creation of a common government of having a common circulating medium," in support of his proposition, that whatever the Government may receive and pay away as money is money, and that it is the duty of Congress to regulate its value.
What was the history of the times? and what was the necessity for creating a common and uniform circulating medium?
Ayres, in his Financial Register for 1857, in his chapter on Banks and Banking in the United States, says:
The first description of paper money, as far back as 1690, was in form of Bills of Credit, secured on the property and revenues of the Colony, but war soon forced the
colonists to increase this currency to such an extent as greatly to depreciate its value compared with specie. This formed a very powerful difficulty with the States, yet it was made a legal tender, and received in payment of taxes and debts in New England at the rate of 6s. the Spanish dollar; in New York at 8s., and in Pennsylvania at 7s. 6d. These variations in the nominal value of the currency created the greatest confusion, which may be understood by the difference between its nominal and real value in 1748, when these bills, to the amount of $3,000,000, were issued. A bill on London for£100 in specie was equivalent to a bill for£1,100 of this paper money of New England; for £190 of New York; for£190 of East Jersey; £180 of West Jersey; for £180 of Pennsylvania; for£200 of Maryland; for£125 of Virginia; for £1,000 of North Carolina; and for£700 of the paper currency of South Carolina. A part of these issues were soon afterward redeemed at two shillings in the pound, but the War of Independence, in 1775, called forth the increased demand for an extended currency, so that, in September of 1779, $160,000,000 were issued; when Congress passed a law that it should never exceed $200,000,000, which sum it reached at the end of the year. In 1780 and 1781 these bills ceased to have currency.
Such was the "history of the times," which fully explains the necessity of giving to Congress, as the common agent of all the States, the exclusive and unrestricted power to coin money and regulate its value. The power is not to coin gold and silver money. It is to coin money. This brings us to the simple question: What is money? And inasmuch as the unrestricted power to coin money and regulate its value was given to Congress, without reference to the material of which it is to be coined, the power to determine of what material it may be coined as well as the fineness, weight and other properties of money, is necessarily vested in the discretion of Congress[.] For the clause forbidding the States to issue bills of credit, or to make anything else than gold and silver a legal tender proves that the propriety of our issue of paper money was under the consideration of the Convention which framed the Federal Constitution, and the fact that whilst the unlimited power to coin money and to regulate its value without reference to gold, silver, or paper, was given to Congress, and the power to issue paper money was not forbidden to Congress but was forbidden to the States, is conclusive to prove that it was not the purpose of the Convention to forbid the issue of paper money by Congress.
That Mr. Calhoun would concur in this construction of the power of Congress, appears in the quotation given above. He said: "Nor do I intend to inquire whether the word coin is limited simply to metals, or may be extended to other substances, if through a gradual change they may become the medium of the general circulation of the world." There can be no other interpretation to this quotation than that, if under any circumstances, it becomes necessary to issue paper money, then Congress may, if they deem it expedient, coin paper money, and have power to pass all laws necessary and proper to regulate the value of the paper money thus coined, and consequently to make it a tender.
In this view of the power of Congress, the Treasury Notes or Certificates issued and paid away by authority of Congress, are money, and the only question is, is it necessary and proper to make them a legal tender as a means of regulating their value? If so, then the power is vested in Congress.
The Edinburgh Review, of February, 1826, in a chapter on Banking, says:
Let us then endeavor briefly to inquire into the circumstances that determine the quantity of money in a country; first, when the currency is wholly of gold or silver; second, when it consists wholly of paper that is made a legal tender, but which is not convertible at pleasure into the precious metals; and third, when the currency consists partly of coin and partly of paper, immediately convertible into coin.
With respect to the first, or that in which the currency of any given country consists entirely of the precious metals, it is evident, inasmuch as they are always in demand, and can be imported and exported at a very small expense, that the quantity of precious metals which such a country would, in all ordinary cases, use as money, would be limited to the quantity which was required to preserve their value at the same level in it, as in other countries. If on the one hand, any greater additions were made to the amount of gold or silver in circulation, than were required to preserve the currency at this, its proper level, its value would fall, and there would, in consequence, be an immediate exportation of the precious metals; and if, on the other hand, the amount of gold or silver in circulation were unduly diminished, the opposite effects would be produced; the value of the currency would then be raised above its proper level, and there would be an importation of the precious metals from all the surrounding countries to restore that equality of value which could not in either case be permanently or even considerably deranged.
In the second case, we have supposed that of a country with a paper currency declared to be a legal tender but not convertible at pleasure into the precious metals, it is evident, inasmuch as such a paper can neither be exported to other countries, when it is issued in excess, nor imported when the issues are unduly limited; that it is not possessed of the same principle of self-contraction and expansion inherent in a currency consisting of the precious metals; and that, consequently, its value must always depend on the extent to which it has been issued compared with the demand. * * * * * The essential difference, then, between a currency consisting wholly of the precious metals and one consisting wholly of inconvertible paper, is this, that the value of the former, in any particular country, can never differ, either permanently or considerably from its value in others; and that its value, as compared with commodities, depend on the comparative cost of their and its production; whereas, the value of the latter, in any one country may vary to any conceivable extent from its value in others; and its value, as compared with commodities does not depend on the cost of producing it and them, but to the extent to which it has been issued compared to the demand. * * * * * It results from these principles, that convertibility into gold and silver, at the pleasure of the holder, is not necessary to give value to paper money; and that, if perfect security could be obtained that the power of issuing would not be abused, or that it would always be issued in such quantities as would render a one pound note uniformly equivalent to the quantity of standard gold bullion contained in a sovereign, the precious metals might be entirely dispensed with as a medium of barter, or used only to serve as small change. * * * * *
We are naturally led to the consideration of the third and most important head in our inquiry, or to that which has for its object to discover the circumstances which determine the amount and value of the currency of a country when it consists partly of coin and partly of paper, immediately convertible in to coin.
It appears, from what has been already stated, that an excessive quantity of the precious metals can never be imported into any country, which allows them to be freely sent abroad, without occasioning their instant exportation. But when the currency of any particular country, as of England, consists partly of the precious metals and partly of paper, convertible into them, the effects produced by an over issue of paper are the same as those resulting from an over issue of gold or silver. The excess of paper will not be indicated by a depreciation or fall in the value of paper, as compared with gold; but by a depreciation of the value of the whole currency, gold as well as paper, as
compared with that of other States. * * * * * It is obvious that this issue of paper must have precisely the same effect on the value of money as the issue of additional sovereigns. There cannot, it is clear, be any depreciation in the value of paper as compared with gold; for gold may be immediately obtained in exchange for it, and it is as readily received in all payments throughout the country. The effect of increased issues of notes, immediately convertible into gold, is not, therefore, to cause any discrepancy between the value of paper and the value of gold, in the home market, but to increase the amount of the currency, and by rendering it redundant or depreciated, as compared with that of other countries, to depress the nominal exchange; and thus, inasmuch as notes do not circulate abroad, to cause the exportation of coin, and, consequently, a drain upon the bank.
I have quoted thus at length from the Review, because it gives the argument relied upon by the advocates of a currency convertible into specie. It is the argument of the Bank of England, and lies at the foundation of the power and of the measures and policy of that institution. It assumes, 1st. That inasmuch as they are always in demand and can be imported and exported at a very small expense, the quantity of precious metals which would, in ordinary cases, be used as money in any country in which the currency consists entirely of gold and silver, would be limited to the quantity which may be required to preserve their value at the same level in it as in other countries. 2d. That the effect of a paper currency, convertible into specie in case of an over issue, will be to reduce the value of gold as much as if the excess consisted of gold, and in like manner to cause an export of specie. 3d. That the effect of a paper currency, which is a legal tender and not convertible into specie, would be, that inasmuch as it would not be exported to other countries when it is issued in excess, nor imported when the issues are unduly limited, its value may vary to any conceivable extent from its value in other countries; and its value, as compared with commodities, does not depend upon the cost of producing it or them, but upon the extent to which it has been issued as compared with the demand. 4th. That it results from these principles that convertibility into gold and silver, at the pleasure of the holder, is not necessary to give value to paper money, and that, if perfect security could be obtained that the power of issuing would not be abused, or that it would always be issued in such quantities as would render a one pound note uniformly equivalent to the quantity of standard gold bullion contained in a sovereign, the precious metals may be entirely dispensed with as a medium of barter.
The Constitution authorizes Congress to "levy and collect taxes, duties, imposts and excises for revenue necessary to pay the debts, provide for the common defence, and carry on the Government of the Confederate States," "To coin money and regulate the value thereof and of foreign coins," "To regulate commerce with foreign nations," "To raise and support armies," "To provide and maintain a navy," "To borrow money on the credit of the Confederate States," and to pass all laws which may be necessary and proper to carry into execution any of the foregoing powers, etc. If to make Treasury Certificates a legal tender be necessary and proper, as a means of carrying on the Government of the Confederate States, of regulating the value of money, of regulating commerce with foreign nations, of raising and supporting an army, of providing and maintaining a navy, or of borrowing money on the credit of the Government of the Confederate
States, then the power is expressly vested in Congress, and as Congress has authorized the issue of paper money, it is the incumbent duty of Congress to make its tender, because it is impossible otherwise to restore or maintain the value of Treasury Notes or Certificates as a circulating medium; and, as Adam Smith, Ricardo, McCulloch, the Edinburgh Review, the London Quarterly, Colwell, Mr. Calhoun, and all other reliable writers on the subject of currency, agree that if there is a perfect security that the power of issuing paper money would not be abused--that is, that if there can be perfect security that it will be so limited in quantity as to maintain its value relatively to the value of the mass of circulating commodities--not of gold, but of the mass of circulating commodities, nearly uniform, then the precious metals may be entirely discarded from circulation.
It is this principle which gives value to the notes of non specie banks during their suspension--because, inasmuch as the public owe the banks more than the banks owe the public, and the debt due the banks must be paid in bank notes or in specie, the demand for bank notes for this use maintains their value as a medium of purchase as well as of payment; and they are received and circulated by the public because, although they may not be a tender elsewhere, they are a tender to the bank of issue, and as the sum in circulation is presumed not to be more than is wanted for payment to the banks, that fact gives them credit and currency. Now, I will demonstrate not only that the Congress can, by a judicious system of funding and taxing, as I propose, so limit the quantity of certificates in circulation, as to make them uniform and stable in value, as currency, but that, inasmuch as they will not be subject to the contingencies which affect the value of gold in the foreign market, they will be more stable in value, and therefore a much better currency than gold.
The purpose of our Constitution was to enable Congress to create a common and uniform circulating medium for the people of the Confederate States[.] If it be true, as asserted by the Review, and as I admit it to be, that specie will be exported when the price in any foreign country is such as to pay a sufficient premium, and that it will return when the value be so much increased that the price in that country from which it was exported is so much greater than the price in that to which it was taken, as to pay a sufficient premium; then, as Congress cannot regulate the contingencies which may affect the value of gold in any foreign country, and consequently cannot regulate the quantity or the value of specie in any other country, it is manifest that Congress cannot regulate the value of a metallic or of a paper currency convertible into specie. Inasmuch as Congress cannot regulate the value of a metallic or of a paper currency convertible into specie, and can regulate the value of a fundable paper issued by the Government, then as the exclusive power to coin money and to regulate its value is vested in Congress, it is the imperative duty of Congress to regulate the value of the paper money which they have authorized to be issued. The question is not whether Congress shall authorize the issue of paper money. It is, will Congress regulate the value of the paper money which they have already issued, and is its being a tender necessary to regulate its value?
Can Congress discharge their duties in the exigencies in which we are placed, without the use of the public credit, as money? If Congress is compelled to use the public credit as money, who can deny the power of Congress to make it a tender, and to adopt all such measures as are necessary and proper to regulate its value? If we admit that the value of money, whether it be metallic or paper, depends upon the quantity in circulation, and that it is a fixed law of a metallic and a convertible paper currency that specie will be exported whenever its value is greater in any foreign market, and that it is a fixed law of paper currency not convertible into gold, that if the quantity in circulation be no more than is requisite for use as money, it will be of equal value as gold, and that the precious metals in such case may be dispensed with, then it follows that if Congress makes the paper, which they issue, a tender, and reduces the quantity in circulation to the sum required for use as money, the paper thus issued may be as stable and uniform in value as gold. Can Congress, by a judicious system of taxing, cause the excess of their issues to be funded? If five per cent. tax will not suffice, then impose a tax of ten per cent., but my earnest belief is that the tax proposed will be sufficient.
As such a currency will not be subject to the general laws which regulate the quantity and value of specie, it will be more uniform and stable in value than gold. For it is admitted that if, from any cause, gold is more valuable in England than elsewhere, then the quantity of gold in England will be so increased by importation from abroad, that its value will be reduced to the same level as it may be in the foreign countries from which it may have been imported; then, if it shall appear that the importation of gold will necessarily continue long after the requisite supply of specie has been obtained, and that the inevitable consequence will be an undue expansion of the currency to be followed by a re exportation of specie, and, consequently, by an undue contraction of the currency, then it follows that the precious metals, being thus liable to be increased and diminished in quantity, must necessarily fluctuate so much in value that it is impossible to predicate upon them a stable and uniform currency. This truth is forcibly illustrated by the annexed table, prepared with great care from authentic official sources:
Table showing the rate of interest charged by the Bank of England at the dates given, the quantity of bullion in the Bank, the notes in circulation and the notes in reserve, with a statement of the loans of the Banks of the City of New York, the amount of their notes in circulation, and of the specie in their vaults, given in millions, omitting the small fractions.
It will be seen that the average of specie and bullion held by the Bank of England, from January 1, 1852, to October 1, 1858, was about sixty-three millions of dollars. If we assume this to be the "proper level," then the fluctuations between ninety nine and thirty five millions of specie, and the various fluctuations between two per cent. and ten per cent. in the rate of interest, as charged by the Bank, show that specie, as administered by the Bank of England, instead of being the basis of a stable and uniform currency, is no more than the medium, through the agency of which a few monied men are enabled, by the use of their credit and the organization of the Exchanges, to control and regulate not only the value of money, but the values of property--spreading ruin and bankruptcy broadcast throughout the world, enriching themselves by creating those fluctuations in the values of money and of property, which, as they declare, it is their purpose to prevent.
It should be remembered that it was the wars in India and China which created an extraordinary demand for specie in 1857. That from the commencement of the war in the Crimea to the close of the wars in India and China, the export of specie from the United States was more than two hundred and eighty millions of dollars. That the average bullion in the banks of the city of New York, from 1st July, 1852, to the 20th October, 1857, was $11,774,785, and that Gibbon, in his history of the panic and the suspension in New York in 1857, says that although there were seven millions of dollars withdrawn between the 10th and 17th of October, the depletion in coin was but $5,483,864, and yet he says that the effect of the panic, created by the loss of this sum in specie, was that: "The regular discount of bills by the banks had mostly been suspended, and the street rates for money, even on unquestionable securities, rose to three, four, and even five per cent. a month. On the ordinary securities of merchants, such as promissory notes and Bills of Exchange, money was not to be had at any rate. House after house, of high commercial repute, succumbed to the panic, and several heavy banking firms were added to the list of failures. * * * * * Commercial business was suspended everywhere. The avalanche of discredit swept down merchants, bankers, monied corporations and manufacturing companies, without distinction; old houses, of accumulated capital, which had withstood the violence of all former panics, were prostrated in a day, and when they believed themselves to be perfectly safe against misfortune."
He gives a list of the sales at the broker's board of bonds and stocks, which, he says, includes a wide range of securities, from the best down to what are called "fancy," which shows an average depreciation of more than one third. These securities represented a class of investments exceeding one thousand millions of dollars, the depreciation of the exchangeable value of which, being more than three hundred millions of dollars, was caused by the withdrawal of five and a half millions of dollars from the Banks in the city of New York; which withdrawal was caused by the demand for specie to pay the expenses of the war in the Crimea, in India, and in China. Now, if the United States had made her disbursements in certificates, made a tender, and receivable in payment of taxes, and
convertible into bonds bearing six per cent. interest, and reconvertible into certificates which were a legal tender, and the banks had held twelve millions of such bonds, instead of twelve millions of specie, there would have been no panic--there would have been no run for specie-- no failure of merchants, bankers, monied corporations, and manufacturing companies-- there would have been no depreciation of the value of bonds and stocks, and no loss of hundreds and hundreds of millions of dollars in the exchangeable values of property.
Is it not apparent that a system of paper money, made a legal tender, resting upon the public credit as a basis, and regulated by a judicious system of funding and taxation, may be made more stable and uniform in value than the system of banking and currency as regulated by the Bank of England? And this, I affirm, is the question involving no less our interests and welfare than the question of our political independence. We have no alternative--we must adopt a system of finance which can be regulated by our Congress, or the values of our credit, of our currency, and of our property, will be regulated by the Bank of England, and the combination of monied men of whom that bank is but the agent.
In June, 1852, the Bank of England held more than one hundred millions of dollars of bullion and specie, and interest was but 2 per cent, and that on the 10th of December, 1857, this sum was reduced to thirty-five millions, and the bank interest was ten per cent.--the effect of this pressure, on the London market, was that by the 1st of October, 1858, the bullion and specie in the bank had again increased to ninety-five millions, and the rate of interest was again reduced.
The power of the Bank of England over the currency and credit of all foreign commercial nations is forcibly exhibited by the ruinous effect upon the credit and currency of the city of New York, and the consequent value of property. The average of specie held by the Banks of the city of New York, from 1st September, 1853, to 20th October, 1857, was, say eleven and a half millions of dollars; the pressure by the screw of the Bank of England reduced this quantity to $7,843,231, and interest rose to "three, four and five per cent. a month," "on unquestionable securities," and the exchangeable value of property depreciated one third. But the table before us shows that, although the demand for specie in London to meet the disbursements of the wars in the Crimea, and in India and China, had reduced the bullion and specie in the Bank of England from ninety nine millions, in June 1853, to thirty five millions in December, 1857, and had reduced the specie in the Banks of New York from seventeen millions, on the 26th of June, 1856, to $7,843,231 on the 20th October, 1857, yet the effect of the pressure by the Bank of England, and of the refusal of the Banks of New York to discount the best commercial paper, was to cause such a movement of specie that, whilst the bullion in the Bank of England had, on the 1st of October, 1858, increased from thirty five millions to ninety-five millions, the specie in the Banks of New York had, on the 8th of May, 1858, increased from $7,842,231 to $35,463,146.
Does it require argument to prove that this fluctuation in the quantity of specie held by the Bank of England and the banks of New York, and in
the rates of interest charged in London and in New York, was the consequence of the fact that the currency in London and New York was a convertible paper, predicated on a specie basis, and that, by refusing to renew discounted commercial paper and increasing the rate of interest, the demand for specie caused it to flow toward London and New York, the controlling commercial centres, until the accumulation was much beyond the sums requisite to maintain the value of specie at the "proper level?" Thus we see that the average held by the Bank of England was sixty-three millions, and that the average of the banks of New York was a fraction more than eleven millions, yet as soon as the banks in London and New York applied the screw with sufficient force, the quantity in the Bank in London rose from thirty-five to ninety-five millions, and the sum in the Banks of New York rose from less than eight to more than thirty five millions. Thus, the tide rose in London more than fifty per cent., and in New York to more than three hundred per cent. above the "proper level;" and it is worthy of note that the fluctuation of the quantity of bank notes, in London and New York, was much less under this severe pressure of the bank screw than the fluctuation of the quantity of specie. Thus the diminution of specie in the Bank of England was sixty[-] four millions, whilst the reduction of bank notes was but twenty[-]five millions, and the loss of specie by the New York banks under the panic was $5,483,864, whilst the notes in circulation were reduced but one million and a half.
Is it not apparent, from these facts, that, if the value of money is regulated by its quantity, the fluctuations in the quantity of specie being greater than the fluctuations in the quantity of bank notes, a paper currency, made a legal tender and predicated on an issue of public credit, and regulated by a proper system of funding and taxation, will be more stable and uniform in value than it is possible for a metallic or convertible paper to be? Is it not apparent that, if from any cause, gold is so much more valuable in London than it may be in the foreign market, that the Bank of England finds it necessary to so increase the rate of interest, and so reduce the discounted commercial paper as to cause the precious metals to flow back to London, the same pressure of the Bank screw which forces gold to flow from New York to London, will cause it to flow from South America, from Africa, from India and China, and from the Mediterranean and Continental Europe to London? And if we assume that sixty[-]three millions in the Bank of England indicates the proper specie level for England, and that eleven and a half millions in the Banks of the city of New York indicates the proper specie level for the United States, is not the fact that immediately after the pressure by the Bank of England, in December, 1857, the specie in that Bank increased from thirty-five millions to ninety-five millions, and that it also increased in the Banks of the city of New York from less than eight millions to more than thirty-five millions, conclusive to prove that Congress cannot regulate the quantity or the value of the precious metals; and that the public credit, in the form which I propose, may be so regulated as to create a currency more uniform and stable in value than gold?
The purpose of the Constitution is to establish justice, insure domestic tranquility, and secure the blessings of liberty to ourselves and our posterity.
Is it just that we should be compelled to pay a debt in a currency worth, to the creditors, twenty times the sum which they paid for it? Take the case of those who have made fabulous millions by dealing in foreign merchandise purchased with the public credit at the rate of twenty dollars of Treasury Notes for one of gold. Is it just that we shall be compelled to pay them one hundred and twenty per cent. per annum interest, when our promise is to pay them but six per cent.? And will not the payment, in gold, of six per cent. interest on the nominal amount of the debt, be equivalent to the payment of one hundred and twenty per cent. on the debt created? If the interest is paid in a currency of equal value to that in which the debt was created, will not the just claims of the public creditor be discharged? If, instead of making payment in the same medium in which the public debt was contracted, we are compelled to pay it in a medium worth twenty times as much, will we not increase the public debt twenty fold, and will not this increase the burden of the debt more than one hundred fold? Mr. Calhoun estimates the relative value of the property, as compared to the money of a commercial country, to be thirty for one. If we assume the amount of our public debt to be only two thousand millions of dollars, contracted in a medium so depreciated that it requires twenty paper dollars to purchase one of gold, the effect, upon the values of property, of paying that debt in gold will be not as twenty to one, but as thirty times twenty to one--that is, not only to increase the burden of our debt, payable in the medium in which it was created, to forty thousand millions of dollars, but to thirty times forty thousand millions of dollars--for whilst it will increase the value of the medium of payment twenty fold, it will reduce the value of our property thirty fold, and thus it will consequently increase the burden of debt and taxation in the same relative proportions, for the burden of the debt will be increased in the same proportion as the exchangeable value of our labor and of our property is diminished. If, on the other hand, we make payment in the same medium in which the debt was contracted, and so regulate that medium as to increase its exchangeable value nearly or quite twenty fold, and thus maintain the exchangeable value of our property, and at the same time that we diminish the burden of the public debt, relatively increase its value in the hands of the public creditor, the hopes of calculating avarice may be disappointed, but who can deny that the fullest claims of justice will be satisfied?
But, under the Constitution, Congress have power to regulate "commerce with foreign nations," and under that power can transfer to England, and to those who consume British goods, a large part of the burden of our public debt. As we progress, it will be seen that England is chiefly responsible for the war in which we are now engaged, and that strict justice, as well as a wise political economy, calls for the measures of retaliation which it is in our power to inflict.
In the Cotton Planters' Convention, held in Macon on the 4th July, 1861, I suggested the propriety of the purchase, by the Confederate Government, of the entire Cotton crop, as a means of sustaining the credit of the Government and providing funds for prosecuting the war. It was in reply to my personal argument, urging the propriety and necessity of this measure, that Mr. Memminger issued his remarkable letter, intended to act on the business convention
held in Macon, in October, 1861, in which he denied the power of Congress to authorize the purchase of Cotton!! There are none, now, so blind as not to see the propriety of my suggestion, and the culpable ignorance, to call it by no harsher name, of the Secretary of the Treasury. Cotton is now worth, in Liverpool, from fifty six to sixty cents per pound. The present high price is the result of a deficient supply, and the impossibility of obtaining it elsewhere than from the Confederate States. If the market is thrown open, the competition will soon reduce the price to less than one third the sum which the Government could realise if Congress were to authorize the purchase and hold it for an arbitrary price. The monopoly of tobacco by France and the high duties levied by England illustrates the effect. If we assume that the average cotton crops for the next ten years after peace will be but four millions of bales, of five hundred pounds each, and the whole is purchased at a price which will enable the Government to pay the producers twice the sum which they could otherwise obtain, and yet leave a margin of profit as great or greater than the price paid the producers, it is obvious that the monopoly by the Government would not only greatly benefit the producer, but place in the public Treasury ample specie funds to sustain the public credit so as to render the Treasury Certificates equal to gold. Say that the Government price to the producer was fixed at thirty cents per pound, and to the consumer at sixty; this, upon the four millions of bales, would give six hundred millions of dollars per annum to the producers and a like sum to the Government. If to this be added the like profits on our tobacco and naval stores, it will be seen that a wise administration of our finances will enable us to pay our debt and maintain the value of our currency. If the producer is unwilling to sell, and prefers a foreign market, then let the export duty be such as to protect the value of that purchased by the Government, and secure the profits on the Government monopoly.
I am aware that it is believed by some that Congress cannot make Treasury Certificates a legal tender, alleging that the effect will be to impair the obligation of contracts. The Federal Constitution provides that Congress shall pass no law impairing the obligation of contracts, and yet under the power to enact a bankrupt law, the old Congress released bankrupt debtors from the obligation to pay their debts. Our Constitution provides that "no law of Congress shall discharge any debt contracted before the passage of the same." To authorize payments in the certificates which Congress have issued and paid out as money, will not be to discharge the debt without payment. As properly remarked by Mr. Calhoun, the meaning and purpose of the Constitution are explained by reference to the history of the times and the circumstances connected with its adoption. Ours, with the exception of a few modifications, is a transcript of the Federal Constitution--that part which gives to Congress power to coin money and to regulate its value is a literal copy. We, therefore,
recur to the purpose of granting these powers, and find that it was "to secure to the States a safe, uniform and stable currency," and that it was given to Congress, because, if each State were permitted to coin money and regulate its value, and to make the money coined by them a legal tender, there would be no guarantee that each would not coin money for itself, and that, instead of having a money common to all the States, and of equal value in all, the value of the money of the several States would not be as various as the coinage and regulations of each might vary from the coinage and regulations of the other States. Thus the money of account of England is pounds and shillings; of France, livres and francs; of Germany, the Rix dollar; of Russia, the ruble, and of Spain, the dollar. As all contracts are made, and books and accounts are kept in the money of account, the necessity of having, for a people living under a common government, one common money of account, is obvious; and hence the necessity of vesting the power of coinage and regulating the value of money in Congress. If an Englishman, a Frenchman, a German, an American, and a Russian, were each, in his own money of account, to offer to purchase the same property, one offering to pay in sovereigns, another in livres, another in Rix dollars, another in rubles, and the other in American dollars, scarce one man in a million could estimate the relative value of the several offers, because all men are accustomed to the money of account of that country in which they live, and in which their transactions are made, and few, very few are sufficiently familiar with the money of account of other countries to use it in the purchase or sale of commodities without an estimate of its value in their own money of account. Thus, as the Spanish dollar was current in the States, and was worth in the money of account of New York eight shillings, whilst it was worth in the money of account of Virginia but six, if a citizen of New York were to offer thirty shillings per barrel for flour, the Virginian would inquire what shilling was meant? the shilling of New York or of Virginia? Was the offer at the rate of eight or six shillings to the dollar? As I have before remarked, it was not the purpose of our Constitution to restrict our Congress to the coinage of gold or silver. It was not to prevent the use of paper money, for inasmuch as it did forbid the States, and did not forbid Congress, to make paper money a legal tender, and gave to Congress an unlimited control over the coinage and the value of money, it is conclusively apparent that the subject of paper money was under the consideration of the Convention, and that Congress may, in their discretion, coin paper money. To me, it is an unanswerable argument in favor of the exercise of this power by Congress, that the purpose of the Constitution being to create, for the people of the Confederate States, a safe, uniform and stable currency, Congress can so regulate the value of paper money not convertible into specie, as to make it safe, uniform and stable in value, and cannot so regulate the value of a metallic or of a paper currency convertible into specie. It is generally assumed and admitted that the value of the precious metals, as well as of paper money, depends upon the quantity in circulation. I hold that this principle is modified by the circumstances under which they are used, and that their value, and the quantity requisite to maintain their relative value as compared with other commodities, depends upon the regulations which control domestic and foreign commerce.
Experience fully proves that the value, in the foreign market, of cotton, rice, sugar, naval stores and tobacco, does not depend upon the cost of production in the home market, but that it does depend upon the circumstances under which they are sold in the foreign market.
We have seen that the Constitution took from the States the power to coin money and regulate its value, and gave it to Congress because the purpose was to create a common currency, of uniform value in all the States, and experience had proved that it was necessary to deprive the States of the power to coin money and to regulate its value, and vest it in Congress as the common agent of all the States, as the only means of preventing that confusion and diversity of the money of account and depreciation of the value of the currency, which had been the result of the control over the coinage and the currency theretofore vested in each of the several States. We have also seen that the power which the Bank of England can exert over the currency of all other countries, which is predicated on a specie basis, is such, that, by refusing to renew the discount of commercial paper, and increasing the value of money in London, by increasing the rate of interest, that bank can compel the banks in the United States to suspend specie payments, as was the case in 1857, when but for the demand in London for specie to pay the expenditures of the wars in the Crimea, and in India and China, there would have been no pressure upon our banks, and no depreciation in the exchangeable values of our property; whereas, the actual depreciation was from thirty to fifty per cent. or more. Is it wise, or can any one believe that it was the purpose of the Constitution to vest in the Bank of England that power over our currency of which it was the purpose to deprive the States? What is the Bank of England, and what are the motives, and who are the persons, and what are the interests that regulate its measures and policy, that we should give to that Bank a control over the values of our currency, and of our credit and property, of which we have deprived the Legislatures of our own several States? Are not the directors and managers of that Bank English merchants, whose duty it is to exert the powers and influence which they possess for the advancement of British interests?
It is proper that, at this point, we should pause and inquire, WHAT HAVE BEEN THE MOTIVES WHICH HAVE REGULATED THE MEASURES AND POLICY OF THE BANK OF ENGLAND? And what has been the effect of the financial management of that Bank? It originated in a loan at eight per cent. of six millions of dollars to the Government, and became the agent of the Government in the collection and disbursement of the public revenue. Besides, the eight per cent. as interest on the sum advanced, the Bank received $20,000 a year as the expense of management.
The capital is now $72,765,000, all of which is lent to the Government at a rate of about three per cent. per annum, and yet it pays a dividend of seven per cent.!! Its notes are a legal tender, except at its own counter, and it is the only joint stock bank which can issue notes in, or within sixty-five miles of it, or can draw or accept bills of exchange on London. It receives the public revenues, and holds the deposits of the various public offices--being not less than $20,000,000. For discharging these duties and registering
transfers and paying the dividends on the public debt, it now receives $640,000. It is a close corporation, managed by twenty-four directors, who furnish no accounts to the proprietors. Eight go out every year and eight come in. When the period of election draws near, the directors make out what is termed a house list, giving the names of those whom they wish to have as colleagues, and this list is uniformly elected. This body is absolute in the extreme, and perfectly free to act as it sees fit under all circumstances. It is led by no authority and restrained by no responsibility.
The following table, carefully prepared from the official data, shows the amount of Exchequer bills and public deposits held by the Bank of England, the bank notes in circulation, the commercial bills discounted by the bank, and the actual taxation from 1808 to 1831:
By the reference to Mr.
Calhoun's speeches, as quoted, it will be seen that North Carolina maintained
for years a circulation of irredeemable paper money of four times the sum of the
annual taxation, which did not depreciate, although it was not a legal tender;
the value being maintained by the fact that it was receivable at par with gold
in the payment of taxes; and also, that Russia, upon a current revenue of ninety
millions of dollars, sustained, at par with gold, a current circulation of
irredeemable paper of one hundred and twenty millions of dollars. Is it not
apparent that, if instead
of borrowing the credit of the Bank, the Government of England had issued its
certificates, receivable in the payment of taxes and fundable at a proper rate
of interest, the value of the public credit would have been equal to the value
of the notes of the Bank of England? The table shows that the annual average of
the Exchequer bills held by the Bank, and upon which
Why did the Government pay
interest on the EXCHEQUER BILLS? Was it not because these bills, instead of
being a tender, represented the unfunded debt, and the payment of interest was
necessary to make them of equal value as bank notes, which were a tender? If so,
by making the public credit, issued as certificates, receivable in payment of
taxes, a tender (that is, converting them into money), the payment of interest
would no longer be requisite to maintain the value of so much as was requisite
for use as money? And who, with our own experience, will deny that Parliament
could, by a judicious system of taxing the unfunded certificates, cause all to
be funded, except the sum requ site for use as money? Is
it not further apparent that such a use of the public credit would save to the
people and the Government the whole of the interest on the sum used as currency?
If we assume that the sum thus used would be no more than the annual taxes, as
this average, as given in the table, was $305,446,758, the interest upon that
sum, at three per cent. only, would be an annuity of $9,163,402.74, which, if
compounded at three per cent., would create a sinking fund which would soon
absorb the whole public debt of England!! This, however, is apart from the
ruinous effect which the management of the Bank has had, and will have, upon
individual credit and upon the progress of individual industry and the general
prosperity of this country. That England herself is not
satisfied with that system appears in the fact stated by Hardcastle, in his
treatise upon Banks and Bankers, that the bare titles of the acts of Parliament
passed upon the subject of the affairs of the bank "occupy more than 200 pages
of the index of the statutes at large."
Surely there must be some defect in a system which requires so much
tinkering--and I, for one, am unwilling that the tinkers who have so botched
their own system shall be permitted to regulate ours. And that is the very
danger which threatens us. Let me be distinctly
understood. I do not complain of or censure the bank as a bank. It is not the
bank, but the system as regulated by Parliament, and those who manage the bank
under that system, which I believe rests upon three fundamental errors. 1st. That the paper
circulation should at no time exceed the value of the gold and silver of which
it supplies the place[.] 2d. That the paper
circulation should depend upon the quantity of the bullion in the Bank and be
regulated by the foreign Exchange. 3d. That whenever there is a
foreign demand for gold, the Bank, by refusing to discount commercial paper, and
the sale of Exchequer bills, shall diminish the quantity of bank paper in
circulation and so increase the demand for gold, as a means of payment, as to
render gold of more value in England than it may be in the country to which it
may have gone, and thus coerce its reflux to the Bank. These, we believe, are
fundamental principles in the management of the Bank, and we believe them to be
fundamental errors, as the history of the Bank and of the world, so far as the
world has been under the influence of the bank, demonstrates. This error is the
more striking, when we take into consideration the causes which induce the
export of gold. In case of wars, gold may be in greater demand elsewhere, and
being at a premium, will be sent abroad. In case of foreign loans, a premium
will be given which will cause it to be exported. In case of bad harvests,
foreign wheat must be paid for in gold. In all such cases the bank refuses to
renew discounts. If this does not produce a sufficient pressure, then she goes
into the market, sells Exchequer bills in exchange for bank notes, thus renders
the demand for gold so severe as to compel the reflux. That some idea may be
formed of the effect of this turning of the bank screw, I quote from Hardcastle.
He says: Our banking system is bad in
the extreme; it has been everything by turns, but what it ought to be, and
nothing long. It is not only bad itself, but it communicates evil to everything
around it. It is an epidemic that arrests and affects all classes; a plague that
corrupts and kills high and low, poor and affluent, without distinction--a
thousand incidents have taken place in this city within a year [London in 1842]
which exhibit our monetary affairs in a most deplorable condition . . . . I have
seen, last spring, a bill broker go from house to house, of an afternoon, with
the bills of a country bank, accepted by first rate firms in Lombard street, and
cash could not be got for them at five per cent. interest and one and a half per
cent. commission. I have known, about the same time, a man with £10,000
Exchequer bills, unable to raise £4,000 upon them at his banker's, and that bank
one of the best in Lombard street. I have known a city banker, at the beginning
of last year, confess, in a mixed company, that he would be glad to allow ten
per cent. for money for six months to come. At the same time, I have known
another banker in Lombard street pay eight per cent. for an advance of money on
Exchequer bills; and ten per cent. to be charged on the discount of a bill of
Exchange, the acceptor of which was then, and still is, a Bank Director. These
are facts that tell the true story of our banking system--these are realities
that prove our distress . . . . While they last, credit is prostrate, labor
fails of its market, and property almost ceases to be wealth . . . . Our
currency has resembled the shifting sands that impede the navigation of some of
our most capacious harbors, and shifting sands that impede the navigation of
some of our most capacious harbors, and
defy the skill of the most experienced mariners. We have been dealing with a
series of experiments, and each succeeding writer has distinguished himself by
showing where and how it was that the last experiment had proved a particular
failure. . . . The Bank of England had the complete control and absolute
management of the finances of the whole country, and the losses which the
country has now, for fifty years or so, sustained by repeated abuses of that
currency in the hands of the Bank, have been incalculable; so wild and
extravagant have been the alternate expansions and contractions; so suddenly and
capriciously have the value of money and prices been jerked up and tossed down,
that it is not unreasonable to compare the Bank Directors to a set of awkward
showmen at a fair, with the trading interests of the nation in a great
ill-contrived swing-swong, which at one moment they fling up high in the sky,
and at another bring down so low as to drag the ground and rake the gutters with
it. . . . The habit of tampering with the currency was contracted by these
gentlemen at an early period. We can trace it distinctly as far back as 1782,
and find it persevered in up to 1839, invariably with the same pernicious
results. . . . A heavy panic, fraught with great commercial distress, ran
through the years 1783 and 1784, which has been brought home to the Bank by more
than one conclusive witness. . . . . . In 1814, the Dutch ports were opened, the
harvest was deficient; and that most searching of the calamities, to which our
artificial condition is exposed, no sooner visited the land, than the
importation of foreign corn occasioned a great decline in the price of this
principal article of agricultural produce, which gradually extended to the price
of commodities generally[.] Unprecedented suffering now
took place; the storm swept the country through, and raged with increasing
violence until 1819, by which time the agricultural and banking interests
generally were reduced to the lowest pitch of distress. Farmers were insolvent
everywhere; mercantile firms became bankrupt by thousands and levelled their
connexions indiscriminately in the dust; whilst as to the bankers, between those
who either partially suspended business or wholly broke, in the years 1815 or
1816, there was a diminution of no less than 240 firms. . . . In noticing the
moving causes of the calamities of 1816, we should bear in mind that the
cessation of hostilities on the continent was an established condition of the
long promised resumption of cash payments. Much of the panic then existing is
referable to a proposal for carrying that measure into effect, in 1818. The Bank made some
preparations for the change by a partial contraction of its issues. But the
depression of all the leading interests of the country was too intense, and the
notion was quickly abandoned. He quotes Mr. Atwood, in
1818, as saying: In the midst of this fall of
prices, what operation in business could proceed without loss or ruin? There has
been no firm in which the capital of the merchant, none in which the capital of
the manufacturer, could be invested without the half of it being sacrificed
during this calamitous period. We have been thrown back upon a condition of
events in which all industry and enterprize have been rendered pernicious or
ruinous, and where no property has been safe, unless hoarded in the shape of
money, or lent to others on double security. He quotes further from Mr.
Atwood's evidence before a committee: The reward of labor being
destroyed, the laborers, who can each produce four times as much of the comforts
of life as they and their families could possibly consume, are starving while
superabundance reigns around them. They find no employment, because the organ of
industry, which is money, does not exist in sufficient quantities to give
productive classes a reward for their exertions. The peasant idly wanders about,
and looks over the hedge of the uncultivated farm, where the land is suffering
for want of his labor, but at the same time the farmer has neither the profit
nor the labor to bring the land into cultivation. Speaking of the crisis in
1836, Hardcastle says: Of the bankruptcies that then
took place, and of the extreme depression of our manufactures and commerce, it
would be impossible to give any exact account. Prices fell forty per cent. In
the manufacturing districts there was no employment for the workmen; merchants
stopped payment in numbers, not because they were insolvent and had
no property, but because no market was to be had for their goods, no discount
for their bills, no advance upon their stocks. It was a rare and melancholy
sight to behold English merchants going through the Gazette in numbers,
while their warehouses were full of commodities, and their characters
unimpeached for knowledge of business, integrity and exemplary conduct; yet such
were the incidents that characterized the panic of 1836. . . . . . There was another
panic in 1839 which may be said to have extended itself by a series of fits and
convulsions all though the years 1840 and 1841, at which date our commercial
system was reduced to the lowest ebb of distress. The number of banks which
stopped or disappeared during this interval was unusually great, the difficulty
of getting money as rigid as ever, find the stagnation of our commerce, the
scarcity of good merchant paper, extreme. . . . Late in 1840 began the storm
which, continuing to rage all through 1841, and not even as yet (in 1842) blown
over, has swept away, during its protracted and ruinous courage; an unusual
number of banking establishments. A history of these misfortunes, in their
various details, is here out of the question; to trace the separate cases to
their source, and detail at length their consequences, would fill a volume, and
then, in all probability, leave the subject unexhausted[.] I had prepared a summary of the losses occasioned by the
different failures amongst the private and joint stock banks during the last two
years, but the amount appears so formidably large on the one side and so small
on the other, that it would be invidious to publish it. . . . The cause of these disasters
are explained by the eminent banker, Jones Loyd, who, speaking of the crisis of
1840, said: Against the actual exhaustion
of its treasure by a drain through the foreign exchanges, the bank, under almost
any circumstances, has the power of protecting herself; but to do this she must
produce upon the money market a pressure ruinous from its suddenness and
severity; she must save herself by the destruction of all around her. I have said that, among other
causes, the creation of foreign loans in England will cause a demand for bullion
for export, and, consequently, cause fluctuations in the quantity and value of
money, and, in proof of this, I refer to[:] If we recur to the history of
the times it will do much to establish the truth of the arguments, and to
enforce the necessity of adopting the measures which I propose as the only means
of preventing the frequent recurrence of the overwhelming disasters which have
fallen upon the commercial world and especially upon the United States, as the
consequence of the demand for specie, created by the measures and policy of the
Bank of England. To supply the Government of
the United States with funds to prosecute the war of 1812, the Banks in the
Southern and Western States were compelled to suspend specie payment. Congress
in 1816 chartered the Bank of the United States as a means of aiding, or rather
of coercing, the resumption of specie payments. The Indian tide to large tracts
of fertile lands was extinguished by the peace, which lands were immediately
surveyed and put upon the market. The notes of the suspended banks were received
in payment for these lands and for duties; these notes were placed in the Bank
of the United States as Government deposits, and by that Bank presented to the
local Banks for specie. Sir Robert Peel's bill requiring the Bank of England to
resume specie payment of her one pound notes in 1822, and generally in 1825,
passed in 1819, the consequence was that the specie which was thus withdrawn
from the local banks by the Bank of the United States, was withdrawn from that
Bank by the operations of commerce and remitted to England, until, in
August; 1825, the specie in the Bank of England had increased to more than
seventy-five millions of dollars. But the pressure created by the Bank of the
United States upon the local banks had been such, and the opposition to the Bank
became so great in Virginia, Maryland, Tennessee, Kentucky, Ohio, and other
Southern and Western States, that it was arranged between Mr. Cheves, then the
President of the Bank, and Mr. Crawford, the Secretary of the Treasury, that
large sums were left on deposit with certain selected local banks, upon
condition that they would convert the notes of other local banks into specie, to
be by them deposited in the Bank of the United States. Thus, the Banks of
Edwardsville in Illinois, and of Missouri at St. Louis, being on opposite sides
of the river, were each made depositaries, with large standing deposits, upon
condition that they would cash the notes of each other and remit, by the same
steamer, the specie thus obtained to the Branch of the United States Bank in
Louisville, Kentucky. Mr. Cheves, then the President of the Bank, in a Report to
the Stockholders, in 1822, says: "The specie in the vaults at the close of the
day, on the 1st of April, 1819, was only 126,745 dollars and 28 cents, and the
Bank owed to the City Banks, deducting balances due to it, 79,125 dollars and 99
cents. It is true, there were in the mint 267,978 dollars and 9 cents, and in
transitu from Kentucky and Ohio, overland, $250,000; but the Treasury dividends
were payable on that day to the amount of near 500,000 dollars, and there
remained at the close of the day more than one half the sum subject to draft. *
* * * * On the 12th of the same month, the Bank had in its vaults but 71,522
dollars and 47 cents, and owed to the City Banks a balance of 196,148 dollars
and 47 cents; exceeding the specie in its vaults 124,895 dollars and 19 cents. *
* * * * The Bank in this situation, the office in New York was little better,
and the office in Boston a great deal worse. At the same time, the Bank owed to
Baring Brothers& Co., and to Thos. Wilson& Co., nearly 900,000 dollars,
which it was bound to pay immediately, and which was a charge upon its vaults to
that amount. It had, including the notes of its offices, a circulation of six
millions of dollars." The effect of this pressure
was another suspension of specie payments, and a depreciation of more than fifty
per cent. of the exchangeable values of property, and the Government of the
United States was compelled to compromise with the purchasers of public lands on
the deferred payments, allowing them to consolidate their payments theretofore
made at the rate of less than fifty cents on the dollar. That is, a party who
had purchased lands and paid ten thousand dollars, owing thirty thousand, was
permitted to relinquish lands to the amount of thirty thousand dollars in
payment of his debt, and apply the ten thousand paid, at the rate of less than
fifty cents on the dollar, in payment for lands not relinquished. Such were the
effects, in England and in the United States, of the delusion which enforced the
necessity of maintaining a specie currency. And for whose benefit? Did it
benefit the people, or the Government of England, or of the United States? No;
for inasmuch as the delay in the resumption of specie payment by the Bank of
England, and the large amount of its paper in circulation, enabled the country
banks and private bankers greatly to increase their issues, the effect was to
beget in England a spirit of speculation, which embraced not only large foreign
loans, but ran into the working of foreign mines and other visionary and
delusive schemes.
The Edinburgh Review, of 1826, gives a table showing in detail the
sums advanced by England on loans to Prussia, Spain, Naples, Denmark, Columbia,
Chili, Poyais, Peru, Portugal, Austria, Greece, Buenos Ayres, Brazil, Mexico,
Guatemala, Guadalaxara, which, with other advances on French, Russian and
American securities, made the sum $522,692,500 advanced by England, on foreign
account, during the eight years, from 1818 to 1825, inclusive. It is apparent
that the advances made upon these loans must have created an extraordinary
demand for specie in England, and it is obvious that, as the loss of five and a
half millions of dollars, in 1857, by the banks of New York, created results so
disastrous, as described by Gibbon, the export of so large an amount to pay off
the foreign loans, produced the overwhelming losses, bankruptcies and distress
so forcibly referred to by Hardcastle, and the Edinburgh and London Quarterly
Reviews, and that that monetary crisis was caused by the fact that the
currency of England was convertible into specie, and that the demand for specie
thus produced, compelled the bank, to use the words of Jones Loyd, quoted above,
to "save herself by the destruction of all around her." I give the following from the
London Quarterly, of September, 1832, illustrating the effect of changing
a paper into a metallic currency: "As a single specimen of the condition of our
internal trade, we give the memorial of the iron and coal masters of Shropshire,
Staffordshire and Wales, presented to Earl Grey by a deputation in October last,
after being signed by more than three-fourths of the trade in those great
manufacturing districts." We, the undersigned, iron
masters and coal masters of the Staffordshire iron and coal districts, think it
our duty respectfully to represent to His Majesty's Government the following
facts: 1. That for the last five
years, ever since what is called the panic of 1825, we have found, with very
slight intermissions, a continually increasing depression in the prices of the
products of industry, and more particularly in those of pig and bar iron, which
have fallen respectively, from upward of 81. per ton to under 31. per ton, and
from £15 per ton to under £5 per ton. 2. Against this alarming and
long continued depression, we have used every possible effort in our power to
make bread. We have practiced all manner of economy, and have had recourse to
every possible improvement in the working of our mines and manufactories. Our
workmen's wages have in many instances been reduced, and such reduction has been
attended with, and effected by, very great distress; but the royalties, rents,
contracts, and other engagements, under which we hold our respective works and
mines, have scarcely been reduced at all, nor can we get them effectually
reduced, because the law enforces the payment in full. 3. The prices of the products
of our industry having thus fallen within the range of the fixed charges and
expenses which the law compels us to discharge, the just and necessary profits
of our respective trades have ceased to exist, and in many cases a positive loss
attends them. 4. Under these circumstances,
we have long hesitated in determining what line of conduct our interest and our
duties require us to adopt. If we should abandon our respective trades, our
large and expensive outlays in machinery and erections must be sacrificed at an
enormous loss to ourselves, and our honest and meritorious workmen must be
thrown, in thousands, upon parishes already too much impoverished by their
present burthens to support them; and, if we should continue our present trades,
we see nothing but the prospect of increasing distress and certain ruin to all
around us. 5. In our humble opinion, the
great cause which has been mainly instrumental in producing this depression and
distress in our respective trades, and among the productive classes of the
country generally, is the attempt to render the rents, taxes, royalties,
and
other various engagements and obligations of the country, convertible, by
law, into gold, at £3 17s. 10 1/2d. per oz. This low and antiquated price of the
metallic standard of value is no longer capable of effecting a just and
equitable distribution of our products between the producer and the consumer; it
renders incompatible the permanent existence of remunerating prices, without
such a reduction of taxation as we cannot hope to see effected in time to afford
us any relief--and it thus tends, ultimately and surely, to destroy the
industry, and the peace and happiness of the country. 6. That until the
establishment of a circulating medium of a character better suited to the
various and complicated demands of society, and to the increased transactions
and population of the country, and more competent to effect an interchange, and
preserve a remunerating level of prices in the products of industry generally,
we can see no prospect of any permanent restoration of the prosperity of our
trades, or of the country being able to escape the most frightful sufferings and
convulsions. We, therefore, most
respectfully, but very earnestly, request the early attention of His Majesty's
Government to these great facts and considerations, and we insist that they will
recommend to Parliament the speedy establishment of some just,
adequate and efficient currency, which may properly support the
trade and commerce of the country, and preserve such a remunerating level of
prices as may ensure to the employers of labor the fair and reasonable profits
of their capital and industry, as well as the means of paying the just and
necessary wages to their workmen. Such are the views of
practical working men in England of the operation of contracting a debt in paper
money at the rate of $150 for one hundred, and paying the interest of three per
cent. on it in specie. If such was the effect there, what will be the effect
here of paying the interest, in specie, on so large a debt as we will have
contracted, at the rate of twenty for one? The London Quarterly says: Our country gentlemen must
learn to penetrate the arcana of the Exchanges, and fathom the depths of
the banking system, if they mean to preserve their broad acres from the grasp of
the mortgagee, and their title deeds and mansions from the blaze of
revolutionary fires. Difficult and obscure, indeed!! Yes, the subject is
difficult, just as difficult to the public comprehension as is a juggler's
trick, by which, with a "heigh, presto!!" he conjures the half crown we thought
we had safe in our pocket into his own. How the money vanished it is not so easy
to say; but it is nevertheless certain that we had it, and ought still to have
it, but he has got it. So it was exactly with the currency juggle. Few of the
sufferers can explain or understand how it happened, but the fact is very plain
to them that they have somehow lost a great deal of money, and other persons
have got hold of it. A little consideration, however, may, we think, render the
nature of the trick intelligible to the simplest. It is very clear that those
who are in business pay nearly the same sum in taxes, at present, as when
the goods they deal in sold for double their present prices; so that they really
pay two hundred weight of wool, or of cheese, or of sugar, or two pieces of
cloth, linen, or calico, or two tons of iron or hardware, to the tax gatherer,
for one that they formerly paid; and the taxes, reckoned in goods, which
is the only sure way of knowing their cost to the producers of goods, by whom
they are paid, are clearly twice as high at the end of sixteen years of peace,
as they were at the close of a long war!! Is it wonderful then that the
productive classes are laboring under severe distress? That peace, which usually
brings plenty, has thrown away her emblematic horn, and selected hunger for her
motto!! And can there be any doubt that the fall in prices, which has wrought
this fearful evil, is the necessary result, foretold by ourselves and many
others at the time, of the legislation of 1819 and 1826, which, by crippling the
banking system of England and attempting a currency of dear metal for one
of cheap paper, has caused a continually increasing scarcity of money and
contraction of credit!! If we succeed in showing that
the unjust restrictions, kept up by the present laws, on the circulating medium
of exchange, have had the effect, within a few years past, of silently but
forcibly transferring a vast amount of property from the possession of one class
to that of another, who had no just right or title to it--of covertly
despoiling, in short, one portion of the community, namely: the persons engaged
in industry, for the benefit of another portion, the owners of fixed money
obligations, payable out of the
labor and capital of the former--it will be acknowledged that, until the laws
which have perpetuated and continue to sanction this wholesale swindling are
repealed, there is no safety for property; nor can there be any reliance on the
stability of those institutions, of which a confidence in the security of
property is the indispensable foundation. Remarking upon the
Staffordshire memorial, the Review says: The sufferers here most
correctly attribute their losses to the late increase in the value of money, but
they seem to look for relief in a deterioration of the standard. In this view we
do not concur with them, only because we think so desperate a remedy is not
necessary, for that other and unexceptionable plans may be resorted to for the
relief of industry . . . . Next to a direct increase of the supply of the
precious metals, the most obvious resource seems to be to augment the efficiency
of that which we possess, by a degradation of the standard--in other words, by
diminishing the intrinsic value of the coinage; cutting, for instance, our
sovereigns, shillings and other pieces of money, into two or more parts, which
should each, by law, retain the nominal value of the whole. This is, in
substance, the proposal which seems to find most favor with the persons who have
spoken or written on the subject of the currency for some years past. It is
this, as we have seen, that is advocated by the iron trade, and by their
powerful champions, the Messrs. Atwood. It is this to which Mr. Westen, and a
large body of agriculturalists have been long pointing as the only practicable
mode of permitting them to come to an equitable adjustment with their
creditors, public and private. . . . . . . We acknowledge, indeed, the
force of the retorts levelled by the advocates of this alteration against their
opponents, when the necessity of preserving the national faith inviolate is
thrown in their teeth. They ask, with bitterness, and with justice, too: "Is faith to be kept only
with the monied interests? Was no good faith to be kept with the landholder, the
merchant, the manufacturer, the vast laboring population who bore the weight of
the national struggle, who cheerfully made great and numerous sacrifices during
the war, and who continue the real strength and greatness of the Kingdom? No
faith whatever was kept with them. They, through their representatives,
engaged themselves to a debt of so many pound notes--but not to the same
number of sovereigns--to a debt consisting of money, at its then value,
but they protest being held responsible for the same annual sum now that its
value has been artificially doubled. Does not good faith require that the
scale should be held fairly between debtor and creditor? Was it consistent with
the national faith, upon the plea of arresting the progress of depreciation in
1819, to turn the tables wholly the other way, and, by reviving an obsolete
standard, to give to monied obligations a value that is a command over the
produce and property of others, which the persons originally forming those
contracts could never have contemplated, and which consigned at once to
overwhelming and unmerited ruin, the commerce, the manufactures and agriculture
of the empire?" We freely admit the weight of
these remonstrances. We acknowledge that, through an overstrained anxiety for
observing the letter of the national faith, the spirit of the obligation was
disregarded and a gross injustice committed on the great body of producers
throughout the Kingdom, as well as on all debtors. It is true-- "Nothing could be more
honorable than the feeling which induced our statesmen to return to the ancient
standard; but, to our sorrow, their estimate of its effects was much below the
mark. They did not see what a revolution of property would ensue. They consulted
our honor, our reputed solvency, but not our real means. Mr. Ricardo told them
the change would be five per cent. Events have proved it fifty. . . . There
remains another course for consideration; one which we have urged for some time
past upon the public, as the true mode of relief from our monetary difficulties.
. . . We mean the removal of the mischievous restrictions which now fetter the
circulation of credit through this country, and the concession of the free right
of commerce to provide itself with whatever instruments it may require for
effecting its exchanges uninterfered with by those officious legislative
intermeddlings which experience has sufficiently proved to be fatal to almost
everything they touch, but to nothing so much so as to the currency. It is
physically impossible to carry on the commerce of the civilized world by the aid
of a purely metallic currency--no, not though our gold and silver coins were
every tenth year debased to a tenth!! Why, in London alone, five
millions sterling ($25,000,000) are daily exchanged at the Clearing House in
the course of a few hours. We should like to see the attempt made to bring this
infinity of transactions to a settlement in coined money. Credit money, in some
shape or other, always has, and must have, performed the part of a circulating
medium to a very considerable extent. And by one of those wonderful compensatory
processes which so frequently claim the admiration of every investigation of
civil as well as of physical economy there is in the nature of credit an
elasticity which causes it, when left unshackled by law, to adapt itself to the
necessities of commerce and the legitimate demands of the market. . . . The only
measures which appear to us to be needed upon the expiration of the Bank
Charter, are: 1st. That all banks be required to deposit security in Government
stock to the full amount of the notes they issue[.] 2d.
That the law be repealed which forbids the issue of notes under five pounds. 3d.
We would make the notes of metropolitan banks only convertible into bars
of bullion, on the plan of Mr. Ricardo, and allow the notes of country banks to
be paid in those of the metropolitan banks." The following table, compiled
from data given by John Taylor, Jr., and Ayres' Financial Register, gives
the amount of debt bonded, the equivalent in three per cent[.] consols, the stock created for one hundred pounds in money,
the highest and the lowest prices for consols, and the market value of paper
currency per cent., from 1800 to 1824, inclusive: It will be seen that,
although the Bank of England suspended payment in 1797, the notes were at par
with gold in 1800 and again in 1820, and continued at par until it resumed
payment in 1825, the average depreciation during the suspension being less than
seven per cent. It is a striking fact
that the greater part of this depreciation was during the years from 1810 to
1815, inclusive, when the loans and subsidies given to her allies, and the
expenditures of the French war, created an extraordinary demand for specie to be
disbursed on the continent (these loans and subsidies amounting to the enormous
sum of $301,047,813!!!). McCulloch, in a note (p. 78),
says: So early as December, 1794,
the Court of Directors (of the Bank) represented to Government their uneasiness
on account of the debt due by the Government to the Bank, and anxiously
requested a repayment of at least a considerable part of what had been advanced.
In January, 1795, they resolved to limit their advances upon Treasury bills to
£500,000; and, at the same time, they informed Mr. Pitt that it was their wish
that he would adjust his measures for the year, in such a manner, as not to
depend on any assistance from them. On the 11th of February, 1796, they
resolved, "that it is the opinion of this Court, founded upon the experience
of the late Imperial loan, that if any further loan or advance of money to the
Emperor, or to any of the foreign States, should, in the present state of
affairs, take place, it will, in all probability, prove fatal to the Bank of
England[.]" If we recur to the value of
money, as compared with the value of the mass of circulating commodities, it
will be seen that this difference between the value of bank notes (paper money)
and specie indicates an increased value of the precious metals rather than a
decreased value of paper money. By reference to the table
given above, it will be seen that, in 1814, the public credit was depreciated
nearly 84 per cent., and that the value of paper, as compared with gold,
fluctuated between 72 1/2 and 61 1/2 per cent., and yet, the Edinburgh
Review, speaking of the effect of the causes then operating on prices in
England, says: The bank failures that then
occurred were the more distressing, as they chiefly affected the industrious
classes, and frequently swallowed up in an instant the fruits of a long life of
unremitting and laborious exertion. Thousands upon thousands, who had, in 1813,
considered themselves as affluent, found they were destitute of all real
property, and sunk, as if by enchantment and without any fault of their own,
into the abyss of poverty!! The late Mr. Horner, the accuracy and extent of
whose information on such subjects will not be disputed, stated in his place in
the House of Commons, that the destruction of the country bank paper, in 1815
and 1816, had given rise to an universality of wretchedness and misery, which
had never been equalled, except, perhaps, by the breaking up of the Mississippi
scheme in France. Engaged, as England was, in a
struggle upon which, as she believed, depended her maritime and commercial
supremacy, she was compelled to advance loans and subsidies to her allies, and
hence we find that the Bank was allowed to suspend specie payment in 1797, and
that in the year 1814 and 1815 England advanced, in loans and subsidies, to
Spain, Portugal, Sicily, Sweden, Russia, Prussia, Austria, France,
Hanover, Denmark, and other minor powers of the Continent, £19,366,307 15s. 9d.
(or $96,831,539), and it is, therefore, apparent, that inasmuch as the current
expenditures of the British army on the Continent, as well as these large loans
and subsidies, were paid in specie, the demand for specie to these payments
caused the relative depreciation of bank notes, the fall of prices, the
destruction of the country banks, and the consequent failures, bankruptcies and
distress. Had England used her credit, as I propose, instead of using the Bank
credit, there would have been no such failures of her banks and no such fall of
prices or depreciation of the values of property. Is it not obvious that,
inasmuch as the whole capital of the Bank consisted of the public credit, the
Government,
having the power of taxing and funding, could have purchased gold at the same
price, or less, than that which the bank paid for it? Why, then, did the
Government give her credit bearing interest in exchange for bank notes bearing
no interest? As bank notes were not
current on the continent the Government could not pay the loans and subsidies to
their allies in bank notes, and were, therefore, compelled to give a premium for
gold; and hence the depreciation of bank notes as compared with gold. McCulloch, in his article
upon the general principles of banking, says: Every country has a certain
number of exchanges to make; and whether these are effected by the employment of
a given number of coins of a particular denomination, or by the employment of
the same number of notes of the same denomination, is, in this respect, of no
importance whatever. Notes which have been made a legal tender, and are not
payable on demand, do not circulate because they are of the same real value as
the commodities for which they are exchanged, but they circulate because having
been selected to perform the functions of money, they are as such received by
all individuals in payment of their debts. Notes of this description may be
regarded as a sort of tickets or counters to be used in computing the value of
property, and in transferring it from one individual to another. And as they are
nowise affected by fluctuations of credit, their value, it is obvious, must
depend entirely on the quantity of them in circulation as compared with the
payments to be made through their instrumentality, or the business they have to
perform. By reducing the supply of notes below the supply of coins that would
circulate in their place were they withdrawn, their value is raised above the
value of gold; while by increasing them to a greater extent it is
proportionally lowered. Hence, supposing it were
possible to obtain any security other than convertibility into the precious
metals, that notes declared to be legal tender would not be issued in
excess, but that their number afloat would be so adjusted as to preserve their
value as compared with gold nearly uniform, the obligation to pay them on demand
might be done away. But it is needless to say that no such security can be
obtained. Whenever the power to issue paper, not immediately convertible, has
been conceded to any set of persons it has been abused, or, which the
same thing, such paper has been uniformly over issued or its value depreciated
by excess. It will be seen that
McCulloch's objection to an unconvertible paper is limited to the fact that
whatever the power to issue such paper has been conceded to any set of
persons they have uniformly issued it in excess. It is apparent that he
refers to an issue of such paper by banks and bankers, and not to an issue by
Government under such a system of taxation and funding as would limit the sum in
circulation to the sum wanted as money. I agree that an over issue will
depreciate the vale of such a paper, and therefore I propose not that it shall
be issued by the banks but by the Government, and that the excess be funded, and
that the funding shall be coerced by a judicious system of taxing. He adds: In 1793, 1814, 1815, 1816,
and in 1825, a very large proportion of the country banks were destroyed, and
produced by their fall an extent of ruin that has hardly been equalled in any
other country. And when such disasters have already happened it is surely the
bounden duty of Government to hinder by every means in its power their
recurrence.PUBLIC CREDIT BETTER THAN THE NOTES OF THE BANK.
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placed by the Government
with the Bank as its agent, and which sum was used by the Bank as the basis of
its issues. If the Government had applied these resources to sustain its own
credit, and that credit had been made a legal tender, instead of making the
notes of the Bank a tender, inasmuch as the public credit of England would not
have been subject to the laws which regulate the export and import of specie,
the quantity of the public credit, in circulation, could have been regulated by
Parliament, and the value of the currency would have been much more uniform and
stable than it has been under the regulations of the Bank. Is it not also
apparent that, in that case, there would have been no such fluctuations in the
quantity and values of money and of credit; no such suspensions of banks; no
such depreciations in the values of property and of labor; and no such
individual distress and bankruptcies as the management of that Bank has caused,
not only in England, but throughout the commercial world?
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THE CRISIS OF 1820 AND 1826.
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PAPER MONEY