Part 2 — CONTENTS OF PART II.

PAGE

I. The Impending Revolution 277

II. The Philosophy of Money 283

III. A Bird’s-eye View of American Financial History. By Samuel Leavitt 307

IV. The Eight Money Conspiracies 345

V. Financial Authorities 352

VI. Interest and Usury 380

VII. Debt and Slavery 387

VIII. The Laws of Property. By Lyman Trumbull 393

IX. Direct Legislation 401

277

I. THE IMPENDING REVOLUTION.

“And the Lord said unto Moses, Wherefore criest thou? Speak unto the children of Israel that they go forward.”—Exodus 14:15.

THE purpose of the following pages is to present in compact form a series of articles on money and kindred subjects from the point of view of one who, realizing that a world-wide economic revolution is imminent, hopes that this revolution will be accomplished by reason and in peace, not by treason and violence—by book and ballot, not by bullet and bayonet. It is not intended to make a special plea for the doctrines of any particular school of economics, or of any political party. The object is rather to place in concrete the arguments and principles of many branches of Reform thought which, while widely divergent in respect of methods, have a common aim in the emancipation of industry.

The many elements which make up the great and growing army of Reform may be segregated into two divisions—individualists and collectivists. In the early history of this nation the men who had battled for its independence were similarly divided into two great parties—one advocating the centralization of power in the national government, the other demanding for each State sovereign independence. The flexibility of our Constitution is ascribed to the wisdom of the fathers, who sought out and adopted what was best in the ideas of both. So out of the apparently conflicting elements of the Reform movement will come the ultimate solution of economic problems.

278The editor is in thorough accord with the collectivists, whether they be known as socialists, nationalists or co-operators, in so far as they advocate the public ownership of monopolies. The people should own and operate the railroads, the telegraph, the telephone, etc., as they already own the post-office. The people should also own and operate the street railroads, water-works, gas-works, electric light plants, etc. The notorious corruption of our law-making bodies is due almost wholly to their power to grant special privileges and to sell public franchises to private individuals or corporations. Legislative reform that ignores the cause of corruption is never remedial and seldom even palliative. Public ownership of natural monopolies will abolish the bribe-taker by making impossible the bribe-giver.

The editor believes also that it is the duty of the government to provide for every citizen willing to work full and free opportunity to earn a livelihood, and therefore advocates government employment for the unemployed.

The editor further believes that reforms in these directions can only be accomplished by direct legislation, and a special chapter is therefore devoted to that subject.

The problem which now presses most persistently for immediate solution is that of money. The crying need of the hour is to provide work for the unemployed. Tinkering with the tariff will not do this, because you cannot make a people prosperous by taxation. You can set the wheels of industry in motion, however, by putting money in circulation.

And what is money?

Money is the public credit, stamped or imprinted upon, or represented by, metal, paper, or any other convenient substance recognized by law or usage, and employed as a medium of exchange and a measure of values.

279Money is money only so long and in so far as it represents the public credit. Moses, as well as the early fathers of the Christian Church, undoubtedly adopted this view of money when they denounced usury, which is the device whereby the drones in humanity’s bee-hive, monopolizing the public credit, have in all ages exacted tribute from the workers.

We have seen what money is. Now let us see how we can best circulate it.

Suppose that this country were governed by a czar, an autocrat, with absolute power to make what laws he pleased for the government of his people. Suppose this autocrat should issue an order increasing the standing army to one million men, these one million men to be armed, not with muskets and swords, but with pickaxes, shovels, etc., and to be set to work improving roads, reclaiming desert and waste lands, etc. Suppose these men were paid $1.50 a day in money issued for that purpose by the government. What would be the result?

One million of men would be taken from the overcrowded labor market, and at the end of each week nine million dollars would be put in circulation.

Would it be necessary to pay these men in gold and silver? No. Would not mere paper money inscribed something like this, in denominations of one, two, five, ten, twenty and fifty dollars, answer all purposes?

This certificate, to the amount of its face value, will be received by the government of the United States in payment of all public dues, and is a full legal tender in the payment of all debts, public and private.

280Would not these certificates pass everywhere for their face value? Would they not have back of them all the power of the law?

And would they not have the same power if they were issued and ordained, not by an autocrat holding merely a fictitious authority, but by the will and the vote of a sovereign people? Would they not be backed by all the wealth of the nation?

The right to issue money is a sovereign right and should be jealously guarded by a sovereign people. To delegate this power to banks and money-lenders is as grave an error as it would be to confer on a class the privilege of making laws for the whole community.

The volume of money should be regulated to suit the requirements of all the people and not the greed of those who thrive on usury.

The use of metals for money is unscientific, and they will eventually be relegated to obscurity with the shells, pelts, tally-sticks and other cumbrous mediums of exchange employed by our ancestors. But great reforms cannot be accomplished at once. Gold and silver are the money of the Constitution. The act of 1873, which made gold alone the basis of credit, and which, by reducing the volume of money, doubled the burden of debt, was a violation of the fundamental law of our government. The wrong perpetrated in 1873 must be righted now. This is the first great step in monetary reform.

Following this, the issue of interest-bearing bonds must be stopped forever. The careful student will find that interest is at the bottom of all our financial ills. Unselfish patriotism must abolish usury by substituting the credit of all the people for that of the banks.

Every physical or moral ill is the result of some breach of natural or divine law. For generations we have 281violated the laws of God as they relate to money and to land.

“And if thy brother be waxen poor and fallen in decay with thee, then thou shalt relieve him; yea, though he be a stranger or a sojourner; that he may live with thee. Take thou no usury of him or increase; but fear thy God, that thy brother may live with thee.” (Lev. 25: 36-37.)

Moses, the inspired law-giver, the great soldier-poet-statesman, who led a semi-barbarous people from the slavery of Egypt and made of them a nation which endured the longest in the world’s history, wrote these words.

We also read: “The land shall not be sold forever; for the land is mine [saith the Lord]; for ye are strangers and sojourners with me.” (Lev. 25: 23.)

Let the Christian world cease bickering over questions of dogma and study again the inspired law of Moses, the law which Christ came to fulfill, and a solution of all the many questions which now vex us will soon be found.

Under the Mosaic law, slaves were emancipated, human life was made sacred, debtors were liberated every seven years, inherited property was divided and paternal inheritances were alienated, luxury and extravagance were discouraged, and by forbidding land-monopoly and usury (in the Bible usury and interest are synonymous) disproportionate fortunes and vast accumulations of wealth, which have caused the decline of the world’s great empires and are now threatening the foundations of modern civilization, were made impossible.

Chattel slavery no longer exists in any part of the civilized world, imprisonment for debt has been abolished, the right of the people to rule is established, but humanity is still bound in chains of servitude as galling and oppressive as in any period of its history. The rule of kings is passing away, but the autocracy of money and monopoly 282is seated on the throne and swaying a more imperious scepter.

But the people have it in their power to overthrow their oppressors. In this country, at least, we have the ballot. The duty of the hour is to study political economy, so that this weapon may be wielded intelligently and effectively. “Education” must be our watchword. It is only by education that we may hope to gain the three great essentials for perfect liberty and equality: direct legislation—direct money—direct taxation. These will establish forever the sovereignty of the people.

283

II. THE PHILOSOPHY OF MONEY.

“The American people must learn the lesson of money or they are lost.”

THE word “money” is derived from the Latin moneta (from moneo, to warn), meaning “warned” or “admonished.” Moneta was a surname for Juno, because she was believed to have warned the Romans by means of an earthquake to offer sacrifice. In the temple of Juno Moneta coins were made; hence moneta, meaning either a mint, or coin, or coined money.

The English word “money” is defined by Webster as “any currency usually and lawfully employed in buying and selling;” and the word “currency” is defined as “that which is in circulation or is given and taken as having or representing value.”

Varieties of Money.

Until recent times many substances entirely foreign to our modern ideas of money were used as measures of value, among which were:

Leather. In Rome and Sparta 700 B. C., and in Persia, Tartary, France and Spain as late as the sixteenth century.

Bark. China used the inner bark of the mulberry tree in the fourteenth century.

Base Metals. Iron was used by the ancient Spartans, Romans and Hebrews; tin was used in ancient Syracuse and Britain, while lead is still used in Burmah and brass in China.

All of these forms of money were stamped with some 284sort of design indicating their exchangeable value and by whose authority they were issued.

Wood. Several ancient governments used money made of wood. From the time of Henry I. (A. D. 1273) up to the foundation of the Bank of England, in 1694, a period of over four hundred years, England circulated a legal-tender money make of wood, called “exchange tallies.” The “tally” issued by the British Exchequer was a stick or bit of peeled rod upon which notches were cut, indicative of an account, pledge or other commercial transaction. It was split in such a way as to divide the notches. One-half the “tally” was given to the payer and one-half was retained by the Exchequer; and the transaction might be verified at any time by fitting the two halves together, when the notches would be found to “tally” with each other if the check had not been tampered with. Jonathan Duncan said that these wooden representatives of value circulated freely among the people and sustained the trade of England.

Wampum. One of the prevailing forms of money in use among the New England colonies was wampum. This was simply strings of white and black beads made from sea-shells found along the New England coasts. In 1641 Massachusetts made these beads a legal tender at the rate of six for a penny up to the sum of £10; and they were receivable, at that rate, for all judgments and taxes. In 1643 the limit of this legal tender was reduced to 40 shillings. In 1649 the colony passed a statute forbidding the receipt of wampum for taxes, and its use as money rapidly declined, though it still circulated in a limited way in several of the colonies as late as 1704.

Tobacco. The people of Maryland and Virginia, before the Revolutionary war and for some time after, in default of gold and silver, used tobacco as money, made it money 285by law, reckoned the fees and salaries of government officers in tobacco and collected the public taxes in that article.

Peltries. In an early day several of the Western States made peltries a legal tender. In 1785 the people of the territory now called Tennessee organized a State called “Franklin” and passed the following act, which is illustrative of similar acts in other States:

“Be it enacted by the General Assembly of the State of Franklin, and it is hereby enacted by the authority of the same:

“That from the first day of January, 1789, the salaries of the officers of the Commonwealth be as follows:

“His Excellency the Governor, per annum, 1,000 deer skins.

“His Honor the Chief Justice, per annum, 500 deer skins.

“The Secretary to His Excellency the Governor, per annum, 500 raccoon skins.

“The Treasurer of the State, 450 raccoon skins.

“Each County Clerk, 300 beaver skins.

“Clerk of the House of Commons, 200 raccoon skins.

“Members of the Assembly, per diem, 3 raccoon skins.

“Justice’s fee for signing a warrant, 1 muskrat skin.

“To the constable for serving a warrant, 1 mink skin.

“Enacted into law the 18th day of October, 1788, under the great seal of State.”

Gold and Silver have been used as money metals from the earliest times of recorded history. The Bible has many references to the use of both gold and silver as early as the age of Abraham.

Paper. The first printed bank notes of which we have any record were issued by Palmstruck, a banker of Sweden, in 1660.

Intrinsic Value.

No kind of money, as such, has any intrinsic value, for the instant the material of which the money is made is 286used for another purpose it ceases to be money. As money, the sole value of the material arises from its function as a circulating medium; and even the value of gold and silver as used in the arts and sciences will be largely determined by the demand for them for money purposes. Of recent years the general demonetization of silver by the principal nations has depreciated the value of that metal about one-half, and there is but little doubt that if gold were similarly demonetized it would correspondingly decline in value. This was the opinion of Cernuschi. He says: “If all nations should demonetize gold it would be worth more than copper, but it would not be worth much more.”

Appleton’s American Encyclopedia (XI, p. 735) says: “After the discovery of gold in California, Austria, the Netherlands, Belgium and Germany all demonetized gold and adopted silver as the legal tender at a fixed rate. In those countries gold only circulated as a commodity, subject to daily fluctuations in value; and as a consequence, deprived as it was of legal support as money, it was but little used.”

Upon the subject of intrinsic value the following authorities are cited:

“Congress shall have power to coin money and regulate the value thereof.”—Constitution of the United States.

“To coin money and regulate the value thereof as an act of sovereignty involves the right to determine what shall be taken and received as money; at what measure or price it shall be taken; and what shall be its effect when passed or tendered in payment or satisfaction of legal obligations. Government can give to its stamp upon leather the same money value as if put upon gold or silver or any other material. The authority which coins or stamps itself upon the article can select what substance it may deem suitable to receive the stamp and pass as money; and it can affix what value it deems proper, independent of 287the intrinsic value of the substance upon which it is affixed. The currency value is in the stamp, when used as money, and not in the material independent of the stamp. In other words, the MONEY QUALITY is the authority which makes it current and gives it power to accomplish the purpose for which it was created.”—Tiffany, Constitutional Law.

“Whatever power is over the currency is vested in Congress. If the power to declare what is money is not in Congress, it is annihilated.... We repeat, money is not a substance, but an impression of legal authority, a printed legal decree.”—U. S. Supreme Court (12 Wallace, p. 519).

“The gold dollar is not a commodity having an intrinsic value, but money having only a statutory value; and every dollar has the same value without regard to the material. The gold dollar has not intrinsic value.”—Supreme Court of Iowa (16 Iowa Rep., p. 246).

“Money is the medium of exchange. Whatever performs this function, does the work, is money, no matter what it is made of.”—Walker, Political Economy.

“An article is determined to be money by reason of the performance by it of certain functions, without regard to its form or substance.”—Appleton’s Encyclopedia.

“Money is a value created by law. Its basis is legal, and not material. It is, perhaps, not easy to convince one that the value of metallic money is created by law. It is, however, a fact.”—Cernuschi.

Specie Basis.

Where paper money is made redeemable in gold or silver the paper money is said to rest on a “specie basis.” This monetary scheme now prevails throughout the civilized world. In almost every commercial nation a large portion of the currency in use is paper money, convertible in theory, at least, into metallic money, at the option of the holder. This financial system is framed upon the violent hypothesis that real money can only be made of the precious metals and that paper bills are not money, but only representatives of money. Those who are addicted to this theory 288are in the habit of designating coins made of the precious metals as “primary money,” “redemption money” or “standard money;” while paper bills are called “secondary money,” or “credit money,” and are worthless except as they may be redeemed in “primary money.” The specie basis may be gold or silver or both. Since the world-wide demonetization of silver,silver, gold only is the basis in the leading nations of the earth.

The specie basis theory is open to the following weighty objections:

1. It is contrary to the fundamental law of the United States—the Constitution.

Judge Tiffany, in his work on Constitutional Law, expounding the right of Congress “to coin money and regulate the value thereof,” says:

“The authority which coins or stamps itself upon the article can select what substance it may deem suitable to receive the stamp and pass as money; and it can affix what value it deems proper, independent of the intrinsic value of the substance upon which it is affixed.”

This learned opinion, which annihilates all necessary distinction between “primary” and “secondary” money, was followed by the United States Supreme Court in the celebrated Greenback cases, and hence has all the authority of law. (See 12 Wallace’s Reports, p. 519.)

2. The specie basis theory is contrary to the facts of history, some of which will be recited in succeeding pages. Many instances are recorded in which paper and other material have been successfully used as money where no redemption in coin was promised or possible.

3. The specie basis theory postulates that a certain amount of “redemption money” will support or float a proportional amount of “credit money;” as the specie increases the paper money may be safely increased; and 289as the specie decreases paper money must also be decreased—a philosophy that would lead to the absurd conclusion that when all specie disappears the people can have no money of any kind. Mr. R. H. Patterson, a distinguished English economist, truly puts the paradox as follows:

“The gospel of monetary science now is, that when a country does not want paper money, it ought to have a great supply of it; and when it does require paper money it shall have none. When a country has enough of specie it ought to double its currency by issuing an equal amount of bank notes; and when there is no specie there should likewise be no notes. Is it necessary to discuss such a theory? In order to be rejected it needs only to be stated; in order to be rejected it only needs to be understood. It is a theoretical monstrosity against which common sense revolts—a burlesque of reason which even the present generation will live to laugh at.”

4. The specie basis is insufficient in volume to redeem the credit money which is necessarily used in business. The entire circulating medium of the United States is, approximately, sixteen hundred millions of dollars, of which about one-third is gold, one-third silver and one-third paper. Since silver was demonetized it is now only credit money; hence we have but one dollar of redemption money (gold) with which to redeem two of credit money, or, taking into consideration, as we should, the vast volume of checks, drafts and other credits which must finally be redeemed in gold, it is perfectly apparent that the United States has not one dollar of redemption money with which to redeem one hundred dollars of credit—and thus the whole theory of redemption becomes a mere figment incapable of practical realization. And what is true of the United States is true of all other countries.

5. The specie basis is a breeder of panics. In times of prosperity and confidence credits are safely increased to 290accommodate the increasing volume of business, and the specie basis is sufficient merely because it is not put to the test, the people preferring paper money because of its superior convenience. But at such a time a pebble may start an avalanche. A startling failure occurs somewhere, creditors press for liquidation, the banks are besieged, and, being unable to redeem their promises to pay gold, they suspend—and the panic is complete. Such is the recurrent history of finance in all civilized lands.

Charles Sears, an eminent authority, says of the gold basis:

“Within the last fifty years, say, a money crisis has come quite regularly every ten years. Something—any one of a dozen causes, few know what—sets gold to flowing out. Fifty millions withdrawn in a short time from its usual place of deposit is quite sufficient to make the whole volume of coin disappear from ordinary circulation as completely as if it had never existed. The metallic basis is gone—slipped out; the pivot of the system is dislocated; somebody wanted it and took it, and the pyramid tumbles down, burying in its ruins three-fourths of a business generation.”

To the same effect is the opinion of the famous American jurist, Judge Walker. He says:

“The whole paper scheme is founded on the presumption that the holders of these bills will not generally ask for specie at the same time; and, therefore, the amount of specie kept in reserve bears but a small proportion to the notes in circulation. And this is the great evil of the system. A general and simultaneous demand for specie cannot possibly be met, and disaster must follow. To enforce a universal performance of these promises is to insure their being broken. Every sudden panic, therefore, must produce wide-spread calamity.”—Walker’s American Law, p. 152.

6. The specie basis affords a means by which greedy speculators work “a corner” in gold and thus extort large 291sums in profits which the people eventually have to pay. The laws and official rulings, for instance, which require the maintenance of a gold reserve in the Federal treasury and the payment of duties and interest on the public debt in gold, create a special and imperative demand for the yellow metal; and as the supply for that kind of money is almost entirely in the hands of a few great banking firms, the latter can, at their pleasure, extort such terms as they please when applied to for gold. An instance of the kind occurred on Feb. 8, 1895. On that day, in order to maintain its gold reserve, the United States government purchased of M. Rothschild & Sons and J. P. Morgan & Co., bankers of London, 3,500,000 ounces of standard gold coin of the United States at the rate of $17.80441 per ounce, and paid for it in United States four per cent. thirty-year coupon or registered bonds, interest payable quarterly. These bonds were taken by the British bankers at $1.04, and were sold by them within ten days at $1.18, by which the foreign gold exploiters made a net profit of about eight million dollars—to be eventually paid by the people.

7. The specie basis must inevitably become more and more insufficient with the lapse of time, and the disasters due to it in the past become more frequent and distressing. The population of the world is increasing, barbarous nations are becoming commercial, and commercial nations are extending their commerce with unexampled rapidity from year to year. With this increasing business must come a necessity for a corresponding increase in the medium of exchange—money. But no material increase of the precious metals is possible. On the contrary, as the mines successively become exhausted, or deeper and more difficult to work, it is clear that the annual supply of gold and silver must become increasingly insufficient to replace 292that which has been lost or consumed in the arts and sciences; and hence the difficulties of the specie basis will of necessity become more and more aggravated as time goes on.

Considerations such as the foregoing have led to the rapid development of a new school of finance which, rejecting the specie basis as antiquated and no longer tenable, professes to find a sufficient guarantee for the stability of money in

The Legal Tender Basis.

President Grant said:

“My own judgment is that a specie basis cannot be reached and maintained until our exports exclusive of gold pay for our imports, interest due abroad, and other specie obligations, or so nearly as to leave an appreciable accumulation of the precious metals in the country from the product of our mines.”—Message, Dec. 1, 1873.

Plentiful experience has demonstrated that a paper money based upon the authority, faith and credit of the government and made by law a full legal tender for all debts will serve all the purposes of a staple circulating medium as effectually as gold itself.

The effectiveness of legal-tender paper depends upon two circumstances:

1. Government can by law compel the people to take it in satisfaction of private debts, by refusing to enforce contracts payable in any other kind of money.

2. The government may receive such legal-tender paper in satisfaction of all kinds of taxes and duties, thus giving such money a positive value equal to gold.

The United States Supreme Court, in the celebrated Greenback cases, says:

“Making these notes legal tender gave them new uses (or functions), and it requires no argument to prove the 293value of things as in proportion to the uses to which they may be applied.”—12 Wallace Reports, p. 519.

Benjamin Franklin, defending the Pennsylvania colonial paper money before a committee of the English Parliament, in 1764, said:

“On the whole no method has hitherto been found to establish a medium of trade, in lieu of coin, equal in all its advantages to bills of credit founded on sufficient taxes for discharging it at the end of the time, and in the meantime made a general legal tender.”

Thomas Jefferson, in his letter to Mr. Epps, said of government paper money:

“It is the only resource which can never fail them, and it is an abundant one for every necessary purpose. Treasury bills, bottomed on taxes, bearing or not bearing interest, as may be found necessary, thrown into circulation, will take the place of so much gold or silver.”

President Jackson, in his message, 1829, said:

“I submit to the wisdom of the legislature whether a national one [currency] founded on the credit of the government and its resources might not be devised.”

John C. Calhoun, in a speech in the United States Senate, December 18, 1837, said:

“It appears to me, after bestowing the best reflection I can give the subject, that no convertible paper—that no paper that rests upon a promise to pay—is suitable for a currency. It is the form of credit paper in transactions between men, but not for a standard of value to perform exchanges generally, which constitutes the appropriate functions of money or currency. No one can doubt but that the credit of the government is better than that of any bank—more staple and safe. I now undertake to affirm, and without the least fear that I can be answered, that paper money issued by the government, to receive it for all dues, would form a perfect circulation which would not be abused by the government; that it would be uniform with the metals themselves.”

Legal-tender paper money is usually issued in times of 294war, when gold and silver are hoardedhoarded or exported from the country; and, as a consequence, such legal tender is put to the severest possible tests, those of an imperilled government, disturbed industry and impeded foreign trade. Nevertheless, history abounds with instances to prove the entire sufficiency of this kind of money.

In 1156 the Republic of Venice established a system of paper credits which served as the principal circulating medium of that country until 1797. This money was always at par and frequently at a premium. In 1770 the Russian government issued its own notes, which sustained the government through two wars and commanded a premium over coin. In 1797 to 1823 England issued $225,000,000 full legal-tender paper with which to carry on war against Napoleon. In his “Political Economy,” John S. Mill says of these notes: “After they were made a legal tender they never depreciated a particle.”

During the colonial period of American history several of the colonies issued and successfully maintained legal-tender paper money. One instance is illustrative of them all. In 1739 Pennsylvania issued $400,000 in legal-tender paper not redeemable in coin, but receivable for taxes, which was loaned directly to the people on security of land and plate. This money continued in circulation until it was prohibited by the British government in 1775. Commenting on the success of this system, Dr. Franklin said: “Between the years 1740 and 1775, while abundance reigned in Pennsylvania and there was peace in all her borders, a more happy and prosperous population could not, perhaps, be found on this globe.”

During the Franco-German war France issued an enormous volume of legal-tender paper money, of which Victor Bonnet, the eminent French economist, says: “In the midst of the greatest calamities that ever befell a nation, 295with an enormous ransom to pay a foreign nation, and with great domestic losses to repair, a credit circulation was maintained four times as large as its base, without depreciation. This circulation reached $600,000,000.”

During the war of the rebellion in the United States (1861-5) the government issued a volume of legal-tender “greenbacks” which, on July 1st, 1865, was outstanding to the amount of $432,687,966.

The first $60,000,000 of this paper money, issued under authority of the acts of July 17th and August 5th, 1861, and February 12th, 1862, called “demand notes,” was made a full legal tender for all debts public and private. This issue never fell below and often was above par as compared with gold. In a speech delivered in the United States Senate, July 4th, 1862, Hon. John Sherman said of these “demand notes”:

“The notes are now held and hoarded. The first issue of $60,000,000 were issued with the right of being converted into six per cent. twenty-year bonds and with the privilege of being paid for duties in customs. They are now far above par and hoarded.”

In Schuckers’ Life of Salmon P. Chase, p. 225, the author says:

“The demand notes, being receivable for customs the same as coin, kept pace with the advance in the price of coin.”

All of the greenbacks except the first $60,000,000 were purposely depreciated by the “exception clause;” that is, they were made a legal tender for all debts, public and private, except duties on imports and interest on the public debt, which latter were required to be paid in coin. This exception clause created a special demand for coin, and as a consequence metallic money rose to a great premium, at one time (July, 1864) being at a premium of $2.85 in greenbacks to $1 in coin. That these greenbacks were 296purposely depreciated stands upon the evidence of Hon. John Sherman, who, in a report as chairman of the Senate Finance Committee, made on the 12th of November, 1867, said: “But it was found that with such a restriction upon the notes the bonds could not be negotiated, and it became necessary to depreciate the notes in order to make a market for the bonds.”

Speaking of the amendment by which the “exception clause” was passed, Hon. Thaddeus Stevens, said in a speech delivered in the House, February 20th, 1862:

“It has all the bad qualities that its enemies charged in the original bill and none of its benefits. It now creates money and by its very terms declares it a depreciated currency. It makes two classes of money—one for the banks and brokers, and another for the people. It discriminates between the rights of different classes of creditors, allowing the rich capitalists to demand gold, and compelling the ordinary lender of money on individual security to receive notes which the government had purposely discredited.... But now comes the main clause. All classes of people shall take these notes at par for every article of trade or contract unless they have money enough to buy United States bonds, and then they shall be paid in gold. Who is that favored class? The bankers and brokers, and nobody else.”

This conspiracy of the lawmakers, by which the soldier in the field was paid in depreciated greenbacks while the Wall Street usurer received gold, did not deprive the paper money of its splendid functions. While coin rose to a great premium, owing to the special use made of it in payment of customs and interest on the public debt, the legal-tender money carried on the great war and conducted the business of the most prolific and prosperous epoch in the history of the United States.

As a matter of fact the greenbacks, discredited by legislation as they were, did not depreciate in comparison with 297commodities, but gold appreciated owing to the special demand created for it by law. The people never lost confidence in the government paper money, even in the darkest hours of the panic of 1873, as shown by the language of President Grant. He said:

“The experience of the present panic has proven that the currency of the country, based, as it is, upon the credit of the country, is the best that has ever been devised. Usually, in times of such trials, currency has become worthless or so much depreciated in value as to inflate the values of all necessaries of life as compared with currency. Every one holding it has been anxious to dispose of it on any terms. Now we witness the reverse. Holders of currency hoard it as they did gold in former experiences of like nature.”—Message, December 1, 1873.

The Functions of Money.

The functions or uses of money are three-fold:

It is a measure of value.

It is a medium of exchange.

It is a means of storing wealth.

As a measure of value money determines in what proportion commodities and services shall be interchanged. The yardstick measures the quantity of fabrics; but some fabrics are more valuable than others. A bolt of silk, for instance, is more valuable than a bolt of muslin—a difference which the yardstick, alone, cannot indicate; it merely measures quantities, not values. Here the money measure becomes necessary. The abstract unit which we call a dollar measures the values of both silk and muslin, and determines how many yards of muslin should be exchanged for a yard of silk.

Money is a medium of exchange. Smith has a horse and buggy which he wishes to exchange for a piano belonging to Brown. Brown is willing to part with the piano, but does not want a horse and buggy; he does want, however, 298a gold watch. Jones has such a watch, but wants to dispose of it for clothing. Wilson has clothing, but he wants coal. For these four parties to find out each other’s wants and effect an exchange of actual commodities and adjust the difference in value between the articles would involve time and labor and make so many difficulties that the transactions would be greatly delayed, if not defeated. Here money performs its beneficent offices as a medium of exchange. Smith sells his horse and buggy for money, and with it purchases Brown’s piano. Brown buys the watch he wants, and thus money goes from hand to hand, effecting innumerable exchanges, not only in the small neighborhood, but in great commercial circles, thereby bringing the antipodes together and enabling them to supply each other’s wants with the least possible loss of time and labor.

Money is, also, a means of storing wealth. Jackson has a valuable farm, but is getting too old or infirm in health to work it. He might exchange it for a great quantity of food, clothing, and other necessaries sufficient to last him the remainder of his life; but these articles could not safely be stored so as to preserve them for future years, and some representative, that can be stored, must be found. Money is that representative. Jackson sells his farm for money, and with the money purchases from time to time the necessaries required.

From a brief study of these three great functions performed by money may be readily determined what should be the characteristics of a perfect currency, one that would most effectually and justly serve mankind.

As a measure of values and as a means of storing wealth it is clear that money ought to be stable, that is, it should as nearly as possible have the same purchasing power from year to year and in all sections of the country; for when 299money fluctuates in purchasing power it is obvious that some men will gain and some will lose without any merit or fault upon their part, but simply in consequence of the fluctuations in the value of money. This is particularly true in case of debt, for if a debt be contracted when money is cheap, and paid when money is dear, the debtor will evidently lose by the change, and if the circumstances be reversed the creditor will lose.

To secure such stability or uniformity of purchasing power no measure or method is so effectual as for the government to make all its money a full legal tender for all debts, public and private.

As a medium of exchange the volume or quantity of money in circulation should be sufficiently large to accomplish the transaction of business without waste or delay. In estimating the necessary volume it is proper to take into consideration the numbers of population, the magnitude of business transacted, and, since a nimble dollar will perform the work of several slow ones, the “effectiveness” or rapidity with which money circulates; and, since population and business are, upon the whole, constantly increasing, and the rapidity of circulation (until some swifter method of locomotion be discovered) remains unaltered, the volume of money, clearly, ought to be increased from year to year. Few who have not patiently studied the problems of finance understand the mighty effects of an expansion or contraction of the money volume upon, not only the material, but the moral well-being of mankind.

The very heart of the complex money question, the center of all its divergent issues, is the question of

The Volume of Money.

The volume or quantity of money in circulation is always hard to determine, principally because banks, brokers and their allies in official and journalistic positions 300are generally interested in concealing or misstating the facts on purpose to mislead the public; so that, not infrequently, a period of financial disaster steals upon the people unaware and they are compelled to endure all the miseries of such an event without being able to detect the cause or apply the remedy. In such circumstances the masses may dimly perceive that they are being robbed, yet, unable to detect the means of their spoliation, they attribute it to every cause but the real one, and thus the spoliators are enabled to repeat their robbery again and again, undetected by any save a few whose complaints are regarded as the extravagances of uninformed or fanatic minds.

To fully comprehend how the exploiters of money may enrich themselves and impoverish others by merely manipulating the currency, it is necessary to understand the primary fact that an increasing volume of money brings rising prices and business activity, while a diminishing volume of money causes falling prices and business stagnation. Upon this proposition the following authorities are cited:

David Hume, the English historian, in his essay on “Money,” says:

“We find that in every kingdom into which money begins to flow in greater abundance than formerly, everything takes a new face; labor and industry gain new life, the merchants become more enterprising, the manufacturers more diligent and skillful, and the farmer follows his plow with greater attention and alacrity. The good policy of the government consists of keeping it, if possible, still increasing as long as there is an undeveloped resource or room for a new immigrant, because by that means there is kept alive a spirit of industry in the nation which increases the stock of labor, in which consists all real power and riches. A nation whose money decreases is actually weaker and more miserable than other nations 301which possess less money but are on the increasing hand.”—Essays and Treatises, vol. I, p. 283.

Henri Cernuschi, an ex-banker of Paris, and recognized as, perhaps, the most eminent of the French writers on finance, says:

“The value of money depends upon its quantity. It is the same with gold as with greenbacks. If the stock in circulation is augmented the purchasing power of every greenback is diminished; and so with gold and silver. The purchasing power is always in relation to the quantity of the money.”—Nomisma, p. 15.

“That commodities would rise and fall in price in proportion to the increase or diminution of money I assume as a fact that is incontrovertible. That such would be the case the most celebrated writers on political economy are agreed.”—Ricardo, Political Economy.

“If the whole money in circulation was doubled prices would double. If it was only increased one-fourth, prices would rise one-fourth. The very same effect would be produced on prices if we suppose the goods (the uses for money) diminished instead of the money increased; and the contrary effect if the goods were increased or the money diminished. So that the value of money, all other things remaining the same, varies inversely as its quantity; every increase in quantity lowering its value and every diminution raising it in a ratio exactly equivalent.”—J. S. Mill, Principles of Political Economy.

Wm. H. Crawford, Secretary of the Treasury, in his report, February, 1820, says:

“All intelligent writers on currency agree that when it [money] is decreasing in amount poverty and misery must prevail.”

By joint resolution of the United States Congress, August 15th, 1876, a “United States Monetary Commission” was appointed to inquire into the prevailing “hard times.” It consisted of Senators John P. Jones, Lewis V. Bogy and George S. Boutwell, and Congressmen Randall L. Gibson, George Willard and Richard P. Bland; to whom were 302added Hon. Wm. S. Groesbeck of Ohio, Prof. Francis Bowen of Massachusetts, and Geo. M. Weston of Maine, the three latter acting as secretaries of the commission. On March 2, 1877, the commission reported. The following extracts are taken from the report:

“While the volume of money is decreasing, though very slowly, the value of each unit of money is increasing in a corresponding ratio, and property and wages are decreasing. Those who have contracted to pay money find that it is constantly becoming more difficult to meet their engagements. The margins of securities melt rapidly, and their confiscation by the creditor becomes only a question of time. All productive enterprises are discouraged and stagnate because the cost of producing commodities to-day will not be covered by the price obtainable for them to-morrow. Exchanges become sluggish, because those who have money will not part with it for either property or service, for the obvious reason that money alone is increasing in value while everything else is decreasing in price. This results in the withdrawal of money from the channels of circulation and its deposit in great hordes where it can exert no influence on prices. Money in shrinking volume becomes the paramount object of commerce instead of the beneficent instrument. Instead of mobilizing industry, it poisons and dries up its life currents. It is the fruitful source of political and social disturbance. It foments strife between labor and other forms of capital, while itself, hidden away, gorges on both. It rewards close-fisted lenders and filches from and bankrupts enterprising producers. An increasing value of money and falling prices have been and are more fruitful of human misery than war, pestilence or famine; they have wrought more injustice than all the bad laws ever enacted.”—Report of United States Monetary Commission, vol. I, p. 10 et seq.

Pointing out how a contraction of the money volume increases the debt obligations of the past, R. H. Patterson, especially commended by Gladstone as one of the ablest of English writers on finance, says:

“And what is such a dearth of money and rise in the 303measure of value but an injustice to the many to the gain of the few—an unfair exaltation of the power of the past over the present, an unfair and undesirable aggravation of the poverty of the poor and the wealth of the rich—a stereotyping of classes according to wealth, until they tend to become permanent? We have seen how powerful and beneficial was the influx of the precious metals from the New World four centuries ago in breaking the social bondage which had settled over Europe during the long night of the Dark Ages, enabling that generation to escape from the heritage of the past and bound forward upon the new career then opening to mankind. Such times come from the hand of Providence, and with an exceeding rarity even in the long career of civilized mankind. But at least let us avoid the opposite and never allow successive generations to be unfairly—nay, most unjustly, though it may not be so meant—handicapped, each in its own race, owing to a growing dearth and dearness of money.”—The New Golden Age, vol. II, p. 500.

President Grant said:

“To increase our exports sufficient money is required to keep all the industries of the country employed. Without this, national as well as individual bankruptcy must ensue.”—Message, December 1, 1873.

Hon. John Sherman, in a speech in the Senate, January 27, 1869, said, in opposition to a bill to contract the currency by retiring the greenbacks:

“It is not possible to take this voyage without the sorest distress. To every person except a capitalist out of debt, or a salaried officer, or annuitant, it is a period of loss, danger, lassitude of trade, fall of wages, suspension of enterprise, bankruptcy and disaster.... It means the ruin of all dealers whose debts are twice their business capital, though one-third less than their actual property. It means the fall of all agricultural productions without any great reduction of taxes. When that day comes every man, as the sailor says, will be close-reefed; all enterprise will be suspended, every bank will have contracted its currency to the lowest limit; and the debtor, compelled to 304meet in coin a debt contracted in currency, will find the coin hoarded in the treasury, no representative of coin in circulation, his property shrunk not only to the extent of the depreciation of the currency, but still more by the artificial scarcity made by the holders of gold. To attempt this task by a surprise upon our people, by arresting them in the midst of their lawful business and applying a new standard of value to their property without any reduction of their debts, or giving them an opportunity to compound with their creditors, or to distribute their losses, would be an act of folly without an example in evil in modern times.”—Congressional Globe, 1869, p. 629.

In a speech in the United States Senate, March 17, 1874, General John A. Logan pointed out the cause of the panic of 1873 as follows:

“But, sir, that the panic was not due to the character of the currency is proved by the history of the panic itself.... No, sir, the panic was not attributable to the character of the currency, but to a money famine, and to nothing else. In the very midst of the panic we saw the leading bankers and business men of New York pressing and urging the President and the Secretary of the Treasury to let loose twenty or twenty-five millions more of the same paper for their relief—the very same men who to-day denounce it as a disgrace to our government. It was good enough for them when they were in trouble.

“Why is it that representatives forget the interests of their own section and stand up here as the advocates of the gold-brokers and money-lenders and sharks, the same class of men whose tables Christ turned over, and whom he lashed out of the temple at Jerusalem?... Carry out the theory of the contractionists, and what must be the inevitable result? Every enterprise and industry must be dwarfed in like proportion. The busy hum of the spindle will cease its sound in many a mill which now gives employment to hundreds of active hands and supplies the comforts of life to many a happy home. The bright blaze of many an iron foundry which gives life and cheerfulness to the grand scenery along the streams of Pennsylvania will cease to gild the night with its rays. And the same 305industry in my own State, and that of the Senator from Missouri, which has been so rapidly increasing of late, will be crippled, and hundreds who now find employment there will be compelled to seek a home elsewhere for want of work. The undeveloped resources of the South and West, which we have just begun to appreciate, will rest in abeyance until a wiser policy shall bring them into use.... Why, sir, the people were never freer from debt in proportion to the business done than in 1865, at the close of the war, when Mr. McCulloch began his system of contraction, and at the very time when eleven million more people were to be supplied. Was it to be supposed that the activity and energy which the adequate supply of money had put in operation, and which was giving prosperity and happiness to the country, would suddenly dwarf itself to suit financial notions without a struggle? The inevitable result was an expedient to meet the consequent want, and credit was expanded. At the very moment above all others when adequate supply was needed, the opposite course was adopted; and right here lies the true cause of the late panic, which resulted from a money famine and not from an excessive supply.... Sir, turn this matter as we will, and look at it from any side whatever, and it does present the appearance of being a stupendous scheme of the money-holders to seize the opportunity of placing under their control the vast industries of the nation. Therefore I warn Senators against pushing too far the great conflict now going on between capital and labor.... Capital rests upon labor; but when it attempts to press too heavily on that which supports it in a free republic, the slumbering volcano, whose mutterings are beginning already to be heard, will burst forth with a fury that no legislation will quell.”

From the foregoing, which is but a small fragment of the immense literature in harmony with the opinions cited, the following conclusions may be digested:

1. A diminished volume of money always causes a proportional diminution in the price of labor and commodities—or, 306to express it otherwise, money becomes dear and everything else cheap.

2. This redounds to the advantage of the capitalistic class, who are thereby enabled to exact more for their money in services and commodities, to purchase all kinds of stocks and properties at diminished rates, and to foreclose mortgages and collect other forms of debts under such conditions as to make “hard times” a harvest for the creditor class.

3. The debtor class is compelled not only to yield more services and commodities for the money which it receives or has previously received, but suffers the further hardship of languishing business and enforced idleness or diminished wages; and it should be remembered that every producer is a debtor, even though he has no specific obligations outstanding; for he will have to aid those who have such obligations by receiving less prices and wages and by paying relatively increased taxes, salaries, rents and profits to those members of the debtor class who are immediately above him in the social scale, and who will seek to save themselves by shifting the burden of their obligations onto those who are below.

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III. A BIRD’S-EYE VIEW OF AMERICAN FINANCIAL HISTORY.

By Samuel Leavitt,

Author of “Our Money Wars,” “Dictator Grant,” etc.

“I am astonished at nothing in our business life so much as the absence of an earnest, determined endeavor on the part of our men of brains to find the cause of these chronic crises and hard times and then set upon the track of some remedy therefor.”—Rev. Heber Newton.

WHAT may well be called the American system of money has been gradually evolved, during three hundred years, from the bitter experiences of the most practical people that ever trod this globe. Franklin, Jefferson, Jackson, Calhoun, Clay, Gallatin and Benton were its prophets. But it first began to take definite shape during our civil war under such men as Edward Kellogg, Thaddeus Stevens, Henry C. Carey, Stephen Colwell, Pliny Freeman, Ben Wade, Oliver P. Morton, Henry Wilson and John Thompson; and later, Warwick Martin, Peter Cooper, Thomas Ewing, Wendell Phillips, John E. Williams, George Opdyke, John G. Drew, John P. Jones, William D. Kelley, B. F. Butler and others.

What first strikes the observer in a bird’s-eye view is that the whole modern movement toward a rational money system was started by that much-maligned genius, John Law, in France, in 1715. His system was one of the first recent revolts against the tyranny of metal money. He was the real founder of the Bank of France and the present French system. The Encyclopedia Britannica calls him an “unequaled financier.” His great thought was plenty of 308government paper money, and France has kept that thought. Law was finally beaten by politicians and the King’s mistresses when he tried to improve his system.

Turning homeward, we find the first American coin money, succeeding the wonderfully useful wampum, came very curiously—coin usually does. In 1652 a mint was set up in Boston to coin silver into “pine tree” money. The silver came mostly from the West Indian trade. Our rulers in England then, as now, only busied themselves in stealing from us any good money we could get hold of. Singularly enough we depended largely then upon another class of pirates—the buccaneers of the Spanish main, who spent most of their plunder on our shores, where were the nearest civilized ports. This was a great blessing—“a blessed providence”—to our Puritan ancestors and the coin money economists of those days.

In 1745 we had another blessed influx of silver. Governor Shirley, of Massachusetts, and his pious Puritans, went over and captured Louisburg, Cape Breton, from the French, with fire and sword, and made a big loot. This so tickled Mother Britain that, for once, she sent us a lot of silver to “ransom” Louisburg. This enabled Massachusetts to steal away the trade of Rhode Island.

In 1690 the first issue of paper money was made in Massachusetts. This was before the establishment of the Bank of England. It was for £7,000. In 1703 £15,000 was issued, which was made a legal tender for private debts. In 1716 another issue to the amount of £150,000 was authorized. Mark the style of it, as compared with the wild-cat projects of the present Congress, and see which is the most reasonable and conservative, and then inquire if the Farmers’ Alliance plan is so foolish: “The bills were to be distributed among the different counties of the province, and to be put into the hands of five trustees in 309each county, to be appointed by the legislature, to be let out on real estate security in the county, in specific sums, for the space of ten years, at five per cent. per annum.” Another act for £50,000 in bills was passed in 1720, “which resulted in clearing MassachusettsMassachusetts of debt in 1773.”

In 1723 Pennsylvania led a number of States in issuing paper money. In this year a great crisis occurred in England and the Bank was suspended. The coin of the American colonies was required, and drawn over, in England’s selfish and peremptory way, to prepare the bank for resumption. All coin left Pennsylvania, though the State possessed laws raising its value. Then the State issued treasury notes, and kept them in use until 1773, when English jealousy caused Parliament to make all such issues void. Some of the money was issued, says Adam Smith, on land security of double the value, and redeemed in fifteen years. It was made legal tender and remained at par with coin for forty years. The necessary notes were redeemed, by their payment for taxes, without loss to any one. This is the familiar history of Pennsylvania and the statement of Franklin. The cutting off of this money was the chief cause of the Revolution. The tea-party in Boston harbor was only a side-show.

Continental money was issued by Congress when we had no government—no power to tax. Yet if made full legal tender, with no mad promise of coin, fifty million dollars might have been enough. Gallatin says: “It saved the country.” Jefferson: “It expired without a groan.” Calhoun: “It is the ghost conjured up by all who wish to give private banks control of government credit.” It was used in place of a war tax, and the people so regarded it.

French assignats broke the spell of royal tyranny in Europe. Such is the power of a live nation to use and absorb money that nine billion dollars’ worth of it was 310issued before it broke down. Even then the cause of the tumble was that it had no suitable foundation. It was founded on land taken from the priests, and naturally fell when that land was returned to the churches.

Our Coin for a Century.

We come now to the coin money of the last half of the eighteenth and the first half of the nineteenth century. Through ignorance of it, some silver advocates are dismayed by the fact that so little silver was coined here before 1878. The great point to be shown is that we had no need to coin, because so much came from abroad. The way metal money flowed here during the wars between England and Spain reads like a fairy story. The treasures of Mexico and South America passed through here and gave many temporary and flitting coin deposits. Then from the opening of the Napoleonic wars until 1820 the most of Europe, including England, was using paper money. So coin came and stayed here. In fact, coin stayed back in our Western wilds often when it was scarce in Eastern sections and large cities. Through all smashes and wild-cat times, Western banks paid coin until 1820. Those were good times for planters on new soil. The old Virginia planter, in his blue swallow-tail coat with brass buttons, and his ruffled shirt, always had a pile of doubloons in his desk. He did not know that European war and paper money put them there.

The banks, warned by wild-cat experiences, grasped at all coin as they do now at gold. One bank sucked all there was in North Carolina and owned the State. It was so plenty in the twenties, in New England, that they shipped it to Europe.

A point never to be forgotten by silver men, in answer to the gold man’s statement about small coinage of silver, is that from the foundation of the United States money laws 311were passed giving legal value to foreign coins. Our mistaken ratio of 16 to 1, instead of 15½ to 1, made it generally useless for us to coin silver, when we could have plenty from abroad that was legal tender. One fact alone shows how immensely we were using our own silver and foreign silver and gold—viz.: the panic of 1857 was largely due to the demonetization of our small silver and those foreign coins. In 1853 Congress demonetized all silver halves, quarters and dimes in sums of over $5.00. Much of the reserves of the banks was in these fractional silver coins, which had been full legal tender, and in larger gold and silver coins of the United States and other countries. The silver dollars of Spain, Mexico, South America and the United States were worth a premium over gold, and were bought by the Rothschilds and sent out of the country, though they did big service while they stayed here. But the banks did not hold them as reserves. So the demonetization of our small silver deprived the banks of a large portion of their reserves and of paying their circulation therein.

Up to February, 1857, all foreign gold coins and the silver coins of most nations were, in the United States, full legal tender with our coins at the values fixed by our laws; and gold being, since 1834, overvalued in the United States, immense quantities of these gold coins came here and remained. Another reason why we did not coin silver dollars is found in this fact: gold was superabundant. These gold coins were also held by the banks as reserves in large quantities.

But on February 21, 1857, Congress demonetized all foreign coins. This took them out of the banks. They went abroad never to return. And this was one chief cause of the panic of 1857. The facts above given, properly circulated, should forever silence the quibbles of the gold 312men about the non-use and non-coinage of silver up to 1878. From 1861 to 1878 we used but little coin.

The gold men sneeringly ask if we want to go on a 50-cent dollar like Mexico. It is true they have worked their diabolical will on some of those weak nations, where the currency is thrown into horrible confusion thereby, and foreign business is made almost impossible by the rise in the gold dollar to a $2.00 dollar. They have come near Mexicanizing us in this respect, but have failed as yet. Their plea for the deposits of workingmen in savings banks is like the howl the mortgage people are always raising about the poor widows and orphans of the East, to whom the Western farmer should willingly pay high interest. Wise nations legislate for producers, rather than for interest-suckers—male or female.

United States Banks—Wild-Cat and State Banks.

Ever since the Revolution there has been war between Jefferson’s treasury notes and the sharp fellows who wish to collect interest on their debts. In the lush wild-cat times bankers did not care whether they made their scoop by shoving out bank notes so far that they would hardly ever come back, or lending interest-bearing credit to their neighbors. Now the telegraph, railroad and redemption banks would make hard sledding for State wild-cats.

The United States banks (private) were so mixed with the wild-cats for fifty years—1791 to 1841—that they need describing. The first, in 1791, was got up by Federals who hated treasury notes. But fortunately there was much honesty then, and it was so managed that its notes were like full legal-tender greenbacks. Those were halcyon days. The wild-cats were around, but got little game. They made their first big inflation in New England. The Yankees thought they could swing out to any degree 313when the Anglo-Spanish and the Napoleon wars made coin so plentiful?’plentiful?’ here.

There was a great rush of banks between 1811 and 1816, when the second United States Bank came in. It was a fraud from the start, violated its charter and was founded mostly on personal notes. But it swung its twenty years. The great plan of the wild-catters was to get its treasury notes, good as gold, and drawing interest, for their red dogs. Right here let us affirm that, for short, all State bank money may be called wild-cats, red dogs and shinplasters. For such it always proves in panic times. The Chicago Tribune says that the Democrats are “committed upon both principle and tradition against a Federal currency—committed also to State banking.” Not so. Jefferson was strong for Federal money, i. e., treasury notes. The Whigs were always as much given to wild-cats as the Democrats. Again the Tribune tells of 34,000 who took the benefit of the bankruptcy act in 1841-2-3, but says nothing of the hundreds of thousands who failed between 1873 and 1890, under the crush of Republican gold resumption, without any such release. Intelligent Democrats could show billions of loss from Republican financiering against hundreds of millions under Democracy. Give the poor devil Democrat his due. He makes a clumsy attempt now to cover his rascality in voting against silver bills by all his talk of returning to wild-cats. The cheeky Republicans offer no shadow of a real remedy for our financial ills.

To return to the time of the twenties. The new, hopeful country kept having booms in spite of bad money. After the close of the war of 1812-15, “blessed peace,” said Matthew Carey, “came and brought two thousand merchant buyers to Philadelphia.” Fortunes were made. It was funny as a circus. The brokers stuffed the United States treasury full of shinplasters, not good thirty miles 314from home. Congress said “resume” in 1817. Banks said, “Go to the devil.” With twenty-two millions “on hand,” Congress had to borrow half a million to keep house on. The big bank was given over to favorites, bribery and corruption, but ruled the land. There was a whirligig between the branches of the big bank and the little banks. The latter bought, with their red dogs, from the branches, drafts on Eastern cities. The drafts bought European goods. Meanwhile the branches socked it to the wild-catters up to five and ten per cent. a month, till they redeemed their red dogs with the proceeds of another crop.

In 1818 the president of the big bank resigned when it was near ruin. A new president, Cheves, saved the bank, in the Bank of England fashion, by ruining a lot of small banks and merchants. In 1820 came “stay laws” and a “relief system.” Men could redeem their lands and negroes in two years by paying ten per cent. down. North Carolina had an awful time. Robber bankers of Newbern became the practical owners of the State and sucked its blood. Were ruling still in 1833.

In 1825 the great Nick Biddle took the presidency of the bank, and ran the whole country, till knocked out by Jackson. Biddle was the biggest boss yet; moved crops; lent ten millions at a time to the government. Some thought he gave the rising sun a boost. When there was a run, he only allowed his branches to cash their own drafts. In 1832 was high water time for this fine old Philadelphia gent. President Jackson, who hated all undemocratic high kicking, made him pay the government debt from his government deposits. Jackson stopped the abnormal boom in wild lands by his “specie circular,” ordering only specie to be taken for United States lands. Then, to check the torrents of extravagance, he ordered 315the useless thirty-seven millions that he had foolishly put in State banks distributed back to the people of the States. The wild-catters paid eighteen millions, and then all broke, beginning in New York in May, 1837. That was a grand smash. Jackson had a glimpse of the greenback remedy in his muddled head. Jefferson and Calhoun always had it.

Parallel with all this was the Mississippi tomfoolery of 1830 to 1840. That State borrowed thirty millions on the old personal note plan from Holland, and fooled it away in ten years. Slaves were then the only good assets. These were run off to Texas, and “Gone to Texas” (G. T. T.) was a familiar inscription.

The College Professor and the Facts.

Prof. Laughlin of Chicago University said in his recent speech before the Sunset Club and the Bankers’ Association:

“It seems to me that one of the greatest misfortunes that this country ever suffered was that temporary, and to the present time lasting, intoxication connected with the issue of United States notes or greenbacks. From the foundation of our government, in 1789, to February, 1862, the United States government never issued any paper money.”

The Chicago Herald of December 10 voiced the same falsity thus:

“In fact, the government never did anything of the kind until 1862, when Congress authorized an issue of legal-tender notes.”

Are these men simply reckless liars, or are they ignorant of the facts? Here are the facts: From 1812 to 1860 U. S. treasury notes were issued at least twenty times; that is, in every time of emergency, when the bankers’ wild-cat money could not possibly keep business going. These 316notes were receivable for all debts due the government, including interest on the public debt and custom-house dues; and that fact made them universally acceptable by the people—better than gold. In these respects they were better than the greenbacks; for never until the infernal exception was put upon them, in 1862, did the government refuse to receive its own treasury notes.

Here are most of the dates and amounts of those issues—all by acts of Congress readily traced: June 3, 1812, $5,000,000; February 25, 1813, $10,000,000; March 4, 1814, $10,000,000; December 26, 1814, $25,000,000; February 14, 1815, $25,000,000; October 12, 1837, $10,000,000; March 21, 1838, $10,000,000; May 31, 1840, $5,000,000; June 30, 1842, $5,000,000; August 31, 1842, $6,000,000; July 22, 1846, $10,000,000; June 28, 1847, $23,000,000; December 23, 1857, $20,000,000; December 17, 1860, $10,000,000.

Is that lie nailed? The above treasury notes were hampered in various ways. The money-lenders persuaded Congress that it would be “contrary to the laws of the Medes and Persians” if the notes drew no interest. So they were generally heavily handicapped in that way. Sometimes they only drew one mill per annum, sometimes nothing. When they drew none the Shylocks at once cried that the country was ruined. They liked them well enough plus interest, because they were sharp enough to get hold of them and pull in the interest, while they managed to cram the United States treasury full of their wild-cat stuff.

To thoroughly verify these serious statements, let us look at the statutes under which these issues were made and the particulars of their issue:

Act of June 3, 1812 (Statutes 2, p. 366).—This law authorized the issue of $5,000,000 treasury notes, to run one 317year, bearing five and two-fifths per cent. interest. They were made receivable for all debts due the government, and were to be paid to such public creditors and other persons as were willing to receive them. They might also be used to procure loans, or might be placed to the credit of the treasury in banks at par and accrued interest.

Act of February 25, 1813 (Statutes 2, p. 801).—This law authorized the issue of $10,000,000 treasury notes to mature in one year, bearing five and two-fifths per cent. interest per annum. Terms same as act of June 3, 1812.

Act of March 4, 1814 (Statutes 3, p. 100).—Authorized an issue of $10,000,000 on same terms as above. No charge to the government was to be made by the banks which credited the notes.

Act of December 26, 1814 (Statutes 3, p. 161).—Authorized the issue of $25,000,000 treasury notes in place of a loan of $25,000,000 previously authorized. Ten millions of these notes were to be applied to the payment of $10,000,000 previously borrowed. Otherwise they were like the above.

Act of February 14, 1815 (Statutes 3, p. 213).—This law authorized the issue of $25,000,000 treasury notes in addition to other issues. Up to this time the Secretaries of the Treasury, Mr. Gallatin and Mr. Crawford, had complained that the treasury notes so far issued were made too large for common circulation, though their standing among the people was good and the people were desirous of having them. They said treasury notes had taken the place of coin and equalized the exchange throughout the country. To meet the wishes of these secretaries and of Jefferson and Madison, as well as the people, these $25,000,000 treasury notes for circulation were authorized and issued. The most of them were required to be less than $100 in denomination, and to be payable to bearer, 318while those of $100 and over were to be made payable to order and to pay by indorsement, and were to bear five and two-fifths per cent. interest. The smaller ones were to bear no interest. They were also, for the first time, made receivable for six per cent. bonds. They were made to circulate as money, and to have the characteristics of coin, but they were not redeemable therein. They were legal tender to the United States. These notes, after being paid into the treasury, were to be reissued.

When these $25,000,000 treasury notes of small denominations were made to circulate as money, and to bear no interest, the indignation of all the banks in the country was aroused. They saw that if those notes went out among the people, and became the money of the country, there would be an end to the circulation of bank notes. Such was the truth. There was, therefore, a general combination in New England, New York, Delaware and Pennsylvania to kill them off. The old Bank of the United States, chartered in 1791, the charter of which expired and which was not renewed in 1811, was then, as the law allowed, closing up its affairs. The debts of the people to this bank were very large. The bank was pressing for payment. The people presented these treasury notes, which did not bear interest, in payment. The bank, to destroy the credit of the notes, and to force the recharter of a national bank, refused to receive the notes of the government in payment to the bank. As the bank would not receive the notes from the merchants, the merchants were reluctantly compelled to refuse to receive them for debts due and for goods sold. The New England banks, and those of Delaware, were also deeply involved in this conspiracy to destroy the credit of these treasury notes, as all such are now. The embargo and non-intercourse laws of Jefferson and Madison had destroyed the carrying trade of 319New England, and had caused a suspension of the New England banks in 1809 and 1810. The people of New England were, therefore, greatly opposed to the war with England. They did all they could to cripple the government in carrying it on. They refused all loans, even of bank notes, and were very hostile to all treasury notes, especially to those intended to take the place of bank notes, as were those of 1815.

By a general combination between State banks, the old national bank bondholders and bullion brokers, these notes of the United States were forced to a discount for a short time. One of the strongest arguments in favor of having all treasury notes made full legal tender is here presented. Had they been legal tender to the people, as well as to the government, all the efforts of the banks and brokers to reject them and reduce their value would have been fruitless. If the legal tender character were removed from the greenbacks the national banks would at once discredit them to-day.

Immediately after these efforts of the banks to discredit treasury notes, an application was made to Congress for a charter for another United States bank, which proposed to take from the government, as part of its capital, $15,000,000 of these same treasury notes, to withdraw them from competition with bank notes. (Just as the rascally conspirators at Washington are now trying to do with three hundred and forty-six million greenbacks.)

Mr. Madison vetoed the bill, principally on account of this provision. But $28,000,000 of bonds were substituted for treasury notes, as capital of the bank; and by a combination of the Federal party and a few Democrats it was chartered. The charter provided that no other such bank should be chartered by Congress for twenty years. This implied, also, that all treasury notes intended to circulate 320as money should be withdrawn, and that this bank should furnish all the national paper circulation for twenty years.

For this privilege the bank paid $1,500,000. The contract on the part of the government was disgraceful, but, having been made, it had to be carried out; and it was carried out, as the following acts of Congress show:

The Act of March 3, 1817 (Statutes 3, p. 377).—The second Bank of the United States had just gone into operation. Congress was compelled to comply with its part of the contract. It, therefore, passed this law, which repealed all laws authorizing the reissue of the “treasury notes of 1815.” But the people had these government notes, and they preferred them to bank notes or coin. They knew that the repeal of the law authorizing their reissue could not affect the value of those then in their hands, for a valuable consideration paid the government. They, therefore, held on to the notes (as our people should now, in spite of Sherman, Gage & Co.) Instead of paying them into the treasury, where the law required them to be destroyed, the people held on to them, and used them in business, greatly to the annoyance of the bank and of the Secretary of the Treasury, then a bank man (Mr. Dallas). This officer ordered the collector of revenue to refuse to receive these notes for duties on imports, supposingsupposing that by this means he could injure their credit and force their presentation at the treasury for payment in coin or national bank notes, that they might be canceled. This gave rise to a suit in Boston. A firm presented treasury notes in payment of duties on imports, for which the law creating them provided that they should be received. The government refused to receive them, and brought suit for the duties. The defendants pleaded a tender of treasury notes. The government answered that they were not legal tender. 321Judge Story, in 1819, heard the case, and decided for the defendants. The decision is that “Treasury notes are legal tender for everything for which the government makes them receivable.” This decision is in 2 Mason, pages 1 to 18. This decision, though against the government, was never appealed to the Supreme Court. It, therefore, stood as the law of the land.

The Act of May 3, 1822 (Statutes 3, p. 675).—Treasury notes still remained out among the people, to the annoyance of the bank and the Secretary. The decision of Judge Story raised instead of depreciating them in the estimation of the people, and increased the anxiety of the bank and the Secretary respecting them. The notes did not come to the treasury for destruction. (Just so the people acted when John Sherman tried to make them take 5-20 bonds and give up the greenbacks.) They remained among the people until May 3, 1822, when Congress again came to the rescue of the bank and passed the law of that date, which provided that these treasury notes should not be received by any collector of revenue in the United States, and that they should be received and paid at the treasury only. All that came into the treasury were to be destroyed. The people wished to retain these notes; but the bank forced Congress to act against them; and Congress, by destroying their receivability, compelled their surrender by the people. We hear no more of treasury notes thereafter until 1837, when, as usual, the necessities of the government again called them into being.

The Act of October 12, 1837 (Statutes 5, p. 201).—The banks had all suspended, with nearly $40,000,000 government bonds. Not one year before the law had made these banks public depositories, with their promise that they would always pay coin for all liabilities. The government had, in 1835, paid off the last dollar of the national debt. 322The surplus then in the treasury was nearly $40,000,000. This was in the banks. The government had no money to pay ordinary expenses, unless the treasury used suspended bank notes. This Mr. Van Buren, the President, refused to do. He called Congress together to meet the emergency. Its remedy for the emergency was treasury notes (as it should now be), which Jefferson says are the only reliance of a nation. This act of October 12, 1837, provided for the issue of $10,000,000 treasury notes, in denominations not less than $50, running one year. The law left the interest which they were to bear discretional with the President and the Secretary of the Treasury; but in no case was it to exceed six per cent. Congress appeared too timid to make these notes money bearing no interest. The Secretary, knowing that the people needed them as money, complied with the law by making many of them bear one mill interest per annum. As such they circulated freely as money, and the people were delighted to get and use them. They answered all the purposes of coin, and equalized the exchanges throughout the country. The banks did not, at that time, possess sufficient power to injure them. Men now living remember them and their usefulness, although, imitating the foolishness of the Bank of England, they were never paid out of the treasury but once.

The Act of May 21, 1838 (Statutes 5, p. 228).—This act authorized the reissue of the $10,000,000 treasury notes issued under the act of 1837, which had been canceled. They should have been used till worn out, and then replaced ad infinitum. It has taken time and a great war to open the eyes of the people and Congress to see what Jefferson saw in 1813. And now, again, many are forgetting the facts.

The Act of May 31, 1840 (Statutes 5, p. 370).—This law renews the act of 1837, relating to the issue of treasury 323notes, and makes the following modifications: 1. That they were to be issued in place of those redeemed; not to exceed in this issue $5,000,000. 2. They were to be redeemed in less than a year, if the treasury was in a condition to redeem them. 3. When ready to redeem them, the Secretary of the Treasury was to give notice. 4. After due notice, these notes should cease to bear interest, if they remained out. This act was to continue only one year. It is evident that Congress supposed the necessity for issuing treasury notes would soon cease. But it was mistaken. Treasury notes continued to be issued up to 1848.

The Act of July 4, 1840 (Statutes 5, p. 385).—This was the first independent treasury act of the days of Van Buren. It had good features, but was badly bungled. The money of the government was to be kept by the government (instead of the banks), in the mints, custom-houses, post-offices and treasury building. The fool part of it was that after January 3, 1843, no payment should be made to the government in anything but gold and silver coin. The banks were suspended. The government was being sustained by treasury notes. But still this law provided that after January 3, 1843, treasury notes should be excluded from the treasury as well as bank notes. An appeal was made to the people, in that year’s election, upon this law, and Van Buren and his coin payments were knocked out by Harrison with wiser plans.

The Act of July 21, 1841 (Statutes 5, p. 438).—This was among the first Whig acts, and they in turn made fools of themselves. They favored a national bank, but opposed treasury notes. The law provided for the issue of $12,000,000 six per cent. bonds. The principal purpose was to redeem the good treasury notes of the Democrats. A Pittsburg man was sent to England to sell the bonds. 324Though the United States had paid its national debt in 1835, the bonds were no go. The Whigs, having failed to found a bank and sell these bonds, were compelled to rely upon the much-despised treasury notes of the Democrats.

The Act of April 15, 1842 (Statutes 5, p. 473), was a final effort to shove the bonds. They were increased to $17,000,000, the time extended indefinitely up to twenty years. They could be sold at less than par. The rich, strong young nation could not do it, though taxes and duties were pledged for payment. The war was going on between the Whig Congress and sensible President Tyler. The latter advocated the issuing of all the paper money as well as metallic money by the government; but Congress wished the money issued by a national bank. The President vetoed the bank bill. Congress, by way of heading him off, passed the act to make treasury notes bear six per cent. interest, to hinder their being used as money.

The Act of June 30, 1842 (Statutes 5, p. 766).—This provided for $5,000,000 treasury notes to run one year. Interest five per cent. Otherwise like most of the others, as to legal tender, payment to public creditors and placing them in banks.

The Act of August 31, 1842 (Statutes 5, p. 581), shows a lingering hope of selling the bonds. If not successful, the government was to issue $6,000,000 more of treasury notes (trotting out the despised pack-mule again), which might even be reissued. What a let-up! Br’er Fox Shylock, he lie low!

The Act of March 3, 1843 (Statutes 5, p. 614), authorizes the issue of new treasury notes to supply the place of those redeemed.

The Act of July 22, 1846 (Statutes 5, p. 39).—The DemocratsDemocrats resumed power in 1845. This act authorizes $10,000,000 treasury notes in place of those destroyed.

325The Act of August 6, 1846 (Statutes 9, p. 59), finally established the independent treasury on a sensible basis. It made all treasury notes and gold and silver coins equal in payment of all debts to the government. This held till 1861, and many of the provisions are still law, but badly enforced, as when our recent Presidents deposited many millions in banks.

The Act of January 28, 1847 (Statutes 9, p. 118), authorized $23,000,000 (more than $500,000,000 now) to fight the Mexican war. No interest was fixed. They mostly drew one mill, and the people gladly used them as money.

The Act of December 23, 1857 (Statutes 11, p. 237), provided for $20,000,000 treasury notes to take the place of coin, the banks having suspended with the coin in their vaults. (Heaven, or something, generally saves the banks.) These were, like most of the previous issues, with nominal interest. The plain people took them gladly.

The Act of December 17, 1860 (Statutes 12Statutes 12, p. 121), provides for $10,000,000 treasury notes, running one year, at six per cent. The interest was to run and the notes remain out until sixty days after notice of readiness to redeem. Otherwise they had the old provisions.

The Act of February 8, 1861, authorized the issue of treasury notes, or a loan of $25,000,000 to take up treasury notes.

The Act of March 2, 1861 (Statutes 12, p. 178), provides for a loan of $10,000,000 to take up treasury notes and for government expenses. Same old story. If bonds not sold, then more notes.

This brings us to the act of July 17, 1861, when the gigantic $250,000,000 of loans and notes came up. The further history is well known. That just given will surprise those who thought treasury notes began with the rebellion.

326

Safety Fund—Suffolk and Redemption Banks.

As many of the foolish propositions now put forth for “reforming the currency” are only feeble imitations of the Safety Fund, Suffolk System and Redemption Bank System that arose before the Rebellion, a brief account of them will be given here. In the thirties and forties there were as many so-called systems as there were States. The Suffolk System of Massachusetts, among those first started, alone deserved the name of system. In 1829 that State decreed that no bank should operate unless fifty per cent. of its capital was paid in coin. Notes must not exceed twenty-five per cent. of the capital. Liabilities, except deposits, must not exceed twice the capital. Such provisions, however, amounted to little, because, much of the loans being simple credits, there was small inducement in the strong banks to overissue notes. As no provision was made for reserves, the coin to set a bank in motion could be bought and sold again right after the organization. The Redemption system, afterward adopted, was much better, but, as will be shown, only a harm in panic times.

The New York banks were placed mostly in New York City and the Hudson River towns. In 1829 the Safety Fund System arose there. It allowed the banks under it to issue notes to twice the amount of their paid-up capital, and loans to twice and a half the amount. Every bank under it had to pay the State Treasurer, annually, one-half of one per cent. upon its share capital—these payments to continue till each bank had a sum equal to three per cent. of its share capital. The amounts so paid were to be held as a common fund for the discharge of notes or other liabilities of any bank of the system.

In 1841 and 1842 eleven of the Safety Fund banks failed, making a loss to the creditors of $2,588,933. The fund was then $86,274. The whole amount of the fund to September 32730, 1848, was only $1,876,063. The balance of the loss was provided by the State, which was to be reimbursed by further additions to the fund. That was very nice for the banks. In 1842 the act was so amended that the fund became chargeable only with the losses to the public on the note circulation, just as it is the case with the national banks now.

In 1838 New York founded the “Free Banking System,” by which banks could be formed without application to the legislature. These associations were required to deposit with the State Comptroller United States or State stocks equal to a five per cent. stock, or bonds and mortgages on improved real estate worth twice the sum secured, and equal in amount to their note circulation. The Comptroller issued the notes to them. Up to 1843 twenty-nine of these banks failed—circulation, $1,233,374; nominal value of securities, $1,555,338. These produced $953,371, or 74 per cent. of the circulation secured. The law was then amended to exclude all but United States stocks, and those of the State, which must be equal to six per cent.

A wiser provision had been adopted in 1840, requiring all the State banks to redeem their notes, either in New York City, Albany or Troy, at a discount of one-half of one per cent. In 1851 this discount was reduced to one-quarter of one per cent. After 1851 two New York banks started the Redemption System. The notes of such of the country banks as kept deposits with them were returned, the redeeming banks dividing the discounts between themselves and the issuers. This system was useful, as it forced a constant redemption; but see how it worked in 1857.

After 1838 no more Safety Fund banks were chartered, and the system gradually lapsed. But a curious story could be told of how it ran through the West. That 328region was deluged with “safety” money—all but the safety. In 1846 the new Constitution of New York took from the legislature all power to pass any act granting any special charter for banking purposes; such organizations to be under general laws. After 1850 bank stockholders were to be liable to the amount of their shares for all the debts, and holders of notes to be preferred creditors.

Now, for the redemption banks in 1857. These banks, useful in their way in ordinary times, did harm in that panic. A few years before a new source of profit was suggested to some New York banks. If the redemption that was distributed among the money-brokers could be monopolized by one or two institutions it would yield a rich revenue; and it could easily be attracted by reducing the rates of redemption so low as to exclude individual competition. The system was based somewhat upon the Suffolk system. Coupled with the payment of interest on country deposits, it had grown into astonishing activity before 1857. It worked admirably as a piece of machinery, with the popular commendation that it restricted the bank currency by enforcing prompt redemption, and saved the merchants a heavy brokerage. It was a great convenience in the first days of the panic, when private capital was withdrawn from the purchase of currency, and when the merchants, but for the redeeming banks, would have been overburdened with unavailable notes.

But the redemption system, like everything else that was susceptible of abuse, was turned aside from its legitimate purpose and made to answer a mischievous end. The low rate at which the bills were taken in New York accelerated their return in bulk, as a basis of exchange, or for credit in account. Thus their distinctive character as circulation was in a great measure destroyed. The cheap redemption, so desirable in a common state of the market, 329became virtually a premium on the currency of New York. The tendency, then, was to take it out of a healthful circulation and throw it back to its source, whereby it profited nobody so much as the stockholders of the express companies. The country banks might keep their own bills in a perpetual circulation, by exchanging them with each other, and thus creating a trade in them. The same packages were not unfrequently kept unopened in the circuit, and reissued in bulk, as often as they were needed to supply balances.