Front matter (continued 4)

In May of the same year, the famous traveler, John Ledyard, and twenty-five other merchants of Connecticut caught up the theme, and in a petition to their legislature said: "The medium of trade whereby our dealings are valued and weighed, ought to be esteemed as sacred as any weights and measures whatever, and, to maintain justice, must be kept as stable, for as a false weight and a false dollar is an abomination to the Lord, a false and unstable medium is equally so, as it occasions as much iniquity, and is at least as injurious."

The Connecticut Assembly supported these memorialists, excluded the bills of paper money of Rhode Island, and overcoming every embarrassment, at last, like Massachusetts, redeemed every nine shillings of its paper money with one shilling in specie. After the first day of November, 1756, all accounts in Connecticut were kept in lawful money.

Mr. Manufacturer: The experience of the other New England States is practically the same as that you have just recited in Connecticut. In 1717 the Council of New Hampshire was zealous to follow the fashion of issuing paper money by loan and issued £15,000.

Rhode Island, also, in July, 1710, on its first emission of Bills of Credit, declared them equal in value to "money," and made them receivable in all public payments. In November, 1711, Rhode Island discharged a claim by a loan of its Bills of Credit to the amount of £300 for four years free of interest.

New Jersey, too, tried its hand at the same scheme, following the lead of Pennsylvania. In December, 1783, it issued £31,250, and in 1786, it struggled hard to issue a larger amount, but William Patterson, who was afterwards a member of the Supreme Court, resisted the proposal with inflexible courage, and here are some of the words which he employed: "An increase of paper money, especially if it be a tender, will destroy what little credit is left, will bewilder conscience in the mazes of dishonest speculations, will allure some and constrain others into the perpetration of knavish acts, will turn vice into a legal virtue, and sanctify iniquity by law. Men have, in the ordinary transactions of life, temptations enough to lead them from the path of rectitude; why then pass laws for the purpose, or give legislative sanction to positive acts of iniquity? Lead us not into temptation is a part of our Lord's prayer worthy of attention at all times, and especially at the present."

In March, 1723, when there was universal peace, borrowers undermined the scruples of Pennsylvania, and that colony issued bills of credit for loans to individuals, and not only compelled creditors to receive the bills at par, or "lose their debts," but ordered sellers to receive them at their nominal value in the sale of goods, or lands, or tenements or "forfeit a sum from 30 shillings to £50."

Again, on March 21, 1783, Pennsylvania, which hardly knew what it was doing and had not yet gathered up the strength of its will, was the first to renew in peace the evil usage of the times of war, and issued $300,000 in what was called Treasury Notes, the lowest of one-quarter of a dollar, the highest at twenty dollars. Two years later, but after great resistance, its legislature issued £150,000, the lowest note of 3 pence. But in the decisive hour Pennsylvania, too, proved the implacable foe of paper money.

In 1733, £90,000 in its bills of credit were brought into circulation by loans of 4 per cent by the legislature of Maryland.

Virginia was involved from May, 1755, in measures of war, and immediate and increasing issues of paper bills were made which from the beginning were a lawful tender for private debts. For the new "notes" of April, 1757, it was further ordered that any seller who should demand more for his goods in notes than in gold or silver coin, should "forfeit 20 per cent of their value." ... In 1781, in the month of March, Virginia directed the emission of £10,000,000 and authorized £5,000,000 more; and the Continental paper currency and its own were made a legal tender in discharge of all debts and contracts, except contracts which expressly promised the contrary.

In 1780 North Carolina directed the emission of more than £1,000,000, and such further sums as the exigencies of the state might require; in the next year gave authority at one dash to issue $26,250,000 of paper dollars bearing 6 per cent interest. Again in 1783, North Carolina emitted £100,000, declaring each pound of the emission equal to two and one-half Spanish milled dollars, and a tender in all payments whatever. In 1785, the state emitted £100,000 more.

South Carolina, too, as late as 1785, permitted itself to be persuaded to lend among the constituents of its legislature £100,000 in paper bills of the state, which were to pass in payments to the treasury of the state but were not otherwise made legal tender. The state soon perceived that the paper banished more gold and silver than the amount of the bills which were to take their place.... This was done, although its legislature on the pretext of creating a fund to sink former Bills of Credit, and to encourage trade and commerce in July, 1712, had ordered £52,000 in new bills of credit to be stamped and put out at interest in loans. In December, 1717, they passed this statute: "It is found by experience that the multiplicity of the Bills of Credit hath been the cause of the ruin of our trade and commerce, and hath been the great evil of this province, and that it ought with all expedition to be remedied."

Finally, the great Empire State, with all the rest, entered eagerly into the defense of its northern frontier, and in November, 1709, for the first time involved itself in the use of Bills of Credit. In 1770, the legislature of New York passed an Act for emitting £120,000 in Bills of Credit to be put out on loan. Again in April, 1786, the opening year of the final great movement for a closer union of the state, it placed an emission of £200,000 in Bills of Credit with loan officers, to be loaned on mortgage security; and they were made a legal tender in any suit for debt or damages, and the costs of suit. The bills were further to be received for duties to be collected at the Port of New York by the state. Gen. MacDougal, the brave soldier and patriot, though sick unto death, insisted upon being carried to the Senate, that, as the last act of his public life, he might give his voice against the proposal to emit paper money.

In 1780, the United States began repudiation by issuing a new paper dollar equal to forty of their previous issues. After their new constitution was established, all that remained of the bills of the Continental Congress were called in at the rate of one dollar in silver for one hundred dollars impressed on paper.

Mr. Farmer: While you gentlemen were studying Bancroft, I have been reading Horace White upon this question of Government issues of money, and thought I would not give myself away until after you exposed your hands. You've piled up facts, but you've given us a very slight impression of the effect that these money issues had, and therefore I am going to give you the benefit of my explanation which I think throws another and very important light upon the subject.

Mr. White refers to a pamphlet circulated in 1743, which speaks of the Bills of Credit in New England issued on loan "to themselves, members of the legislature and to other borrowers, their friends, at easy and fallaceous Lays, to be repaid at very long Periods; and by their provincial laws made a tender in all contracts, trade and business, whereby currencies, various and illegal, have been introduced which from their continued and depreciated nature in the course of many years, have much oppressed widows and orphans and all other creditors."

The same writer gives special attention to the colony of Rhode Island, which had "defrauded more in a few years than any of the most wicked administrations in the several nations of Europe have done in several centuries. A contract made thirty years ago for £100,000 sterling in value is at present reduced to a nominal 32 shillings."

White says that in addition to legal tender acts there was a great variety of laws to compel people to sell their property at the same price for bills of credit as for silver. The debtor class was not satisfied with forcing depreciated paper upon creditors for past obligations, but insisted that they ought to be able to buy as much property with the paper as with specie. Those who had been forced to take the paper for past debts naturally joined in this demand, and the legislatures agreed with them. Hence we find in nearly all the colonies severe penalties on those who charged more for their goods, lands or services in Bills of Credit than in money. In some cases the penalty was a fine, in others imprisonment, in others confiscation of property offered.

The usual course of events where Bills of Credit were issued was as follows: (1) emission; (2) disappearance of specie; (3) counterfeiting; (4) wearing out of bills; (5) calling in and replacing worn and counterfeited issues with new ones; (6) extending the time for old ones to run, especially those which had been placed on loan; (7) depreciation; (8) repudiation of early issues in part and the emissions of others called "New Tenor."

Dr. Douglas says that Massachusetts had at one time "old tenor, middle tenor, new tenor first, new tenor second." Rhode Island had an indefinite number of tenors.

All sorts of opprobrious epithets were heaped upon them. They were called invidious statutes, old, worn, torn, tattered, shattered, ragged, mutilated, defaced, obliterated, illegible and "unfit to pass."

The depreciation of the Colonial bills varied in the different colonies. In Massachusetts the maximum depreciation was 11 for 1 (the standard being "proclamation money"). In Connecticut it was 8 for 1. In 1763, the value of the New Hampshire shilling was a little less than a half penny; in 1771, it vanished altogether. Rhode Island owed tenor bills in 1770 that were worth 26 to 1. Those of North Carolina were 10 for 1; of South Carolina 7 for 1.

Here is Mr. White's graphic description of the times: "The pamphlets and records of the colonial period are filled with accounts of the distress and demoralization caused by depreciated paper made legal tender. As all loans were so payable, the accumulations of age, and the inheritance of orphans dwindled. So, too, did the earnings of the wageworker. In order to avoid the losses from a depreciating standard of value, resort was had by working men to 'store pay,' and here they were generally cheated. Trustees and executors, who had money in their hands which belonged to other people, and who saw how things were going, often postponed the payment on frivolous pretext, since each delay enabled them to settle their accounts with less value, thus devouring widows' houses. Not only was bad blood stirred up by the resistance of the Royal Governors, but a spirit of lawlessness was engendered against the local assemblies, if they showed a disposition to resist the demands of the green-backers of that day. Even after the revolution the legislature of New Hampshire was mobbed because it refused to legal tender bills. One of the demands of Shays' rebellion in Massachusetts was for more paper money. In Rhode Island, after the revolution, a general system of repudiation of debts, public and private, was undertaken, and carried through by means of legal tender paper in spite of the decisions of her courts."

However bad these colonial bills of credit proved to be, if it were possible those of the revolutionary period were still worse.

Even before the Continental Congress assembled the separate colonies began to issue Bills of Credit. When the Continental Congress met in June, 1775, Franklin urged that the bills should bear interest, in order to prevent depreciation. He even urged that the interests should be payable in "hard dollars," but this was voted impracticable.

All seemed to be in confusion, and in this unsettled state it was voted in July, 1775, to issue due bills for 2,000,000 Spanish milled dollars, to be sunk by taxes in four successive years, beginning November 30, 1779, the taxes to be levied and collected by the states in proportion to their population. These bills were not legal tender at the time of their issue. The Congress had no power to make them so, but in January, 1777, it was recommended that the States should do so, and this they did, one after another, in one way or another. Before the two millions were issued, another million was wanted, and was authorized with three million more, before the end of the year; and still they came nine millions more, or until fifteen in all were out, before independence was declared. This was called Continental Currency to distinguish it from the issues of the separate states. Mr. White says from this time the demon of "fiat money" had possession of the country, and worked its will on the inhabitants. The issues ran on in an increasing volume till they amounted to $240,000,000 in the year 1779. In 1781 the whole mass became worthless. On this subject the essays of Pelatiah Webster have become classic. Mr. Webster, it is thought by some, was the author of the Constitution. He was a merchant of Philadelphia and an ardent patriot. He wrote "we have suffered more from this than from every cause of calamity; it has killed more men, pervaded and corrupted the choicest interests of our country more and done more injustice than even the arms and artifices of our enemies."

Professor Sumner says that when the depreciation was going on rapidly a man might lose his whole wages while earning them.

Naturally, the next thing in order was the establishment of prices, for which purpose conventions were called. The first one held at Providence was composed of delegates from the four New England states. It fixed the prices at which imported goods might be sold, but an exception was made of arms and ammunition in order to encourage their importation.

Of course the proceedings in Connecticut were substantially the same. This state, however, had a law to prohibit persons from buying any more goods than the select men, or county commissioners, should judge to be necessary for the use of their respective families. Anything like prudence in laying in supplies was thus forbidden.

A Price Convention of the six Middle States was held at York, Pa., in March, 1777, but was unable to agree upon a single point.

When the Price Conventions failed of their object, new ones were held fixing new limits, for example fourfold the prices of 1774, then eightfold, then tenfold, then twentyfold—terrorism being applied in each case to enforce the decrees. Country folks accused town folks of extortion, and threatened to come in and take what they wanted by force. Town folks accused country folks of withholding their produce, and so laws were enacted against withholders. Anonymous hand bills and broad-sides were circulated threatening vengeance on merchants.

As a result of such irrational business disturbances, Boston was, in October, 1779, on the verge of starvation; money transactions had nearly ceased and business was done by barter.

A soldier's pay had dropped by depreciation from $7.00 per month to 33 cents, although it had been twice raised by Congress. Washington could not move his soldiers to Yorktown till Robert Morris had borrowed hard money from Rochambeau for their back pay.

In March, 1780, Congress tried the colonial experiment of "new tenor" in a very awkward and roundabout way, and declared that "old tenor" to be worth 40 to 1; the actual depreciation being 60 for 1. As it was supposed that $200,000,000 of Continental money was out, this was a repudiation of all but $5,000,000 of it. The depreciation then went on more rapidly than before. The "new tenor" bills started at a depreciation of 2 for 1, which became 3 for 1, even before they reached the army, and dropped to 6 to 1 in a few months. Old tenor went at a galloping pace at 500 for 1 in Philadelphia, when it ceased to circulate. In the remoter districts of the South, it continued in circulation nearly a year longer, and until the depreciation had reached 1,000 to 1. The southern people, when they learned that they had been using the stuff long after it had become worthless in the North, thought that they had been cheated by the Yankees, thus intensifying the sectional distrust which was already so dangerous.

Continental money was now an object of execration and afterwards of derision. "Not worth a continental" became a synonym for absolute worthlessness, and remains an axiom to this day. In the Act of Congress approved August 4, 1790, authority was granted for funding the bills in 6 per cent bonds "at the rate of $100 in the said bill for $1.00 in specie." Only $7,000,000 turned up to take advantage of this provision.

Mr. Banker: I want to be perfectly frank with the rest of you men. Last Thursday I was over at Mr. Lawyer's office and we got into a discussion about this matter. I was literally astounded to find him in favor of Government issues of money, and that he actually thought such issues were constitutional. I knew how Mr. Merchant and Mr. Manufacturer stood, for we had talked the matter over some time ago. So we got together and divided up the work we should each of us do in order to convince Mr. Lawyer that he was wrong on both points.

From what has been shown with respect to the facts I am sure that Mr. Lawyer must be convinced that the principle at least of Government issues of legal tender paper money is unsound; for all the evidence, as we have seen for 100 years, from 1690 to 1790, is all on one side. Indeed not a single exception can be found anywhere. You will remember that everyone of the thirteen original states tried fiat legal tender paper money, and then when they all united under the Continental Congress, they tried it altogether; but the result was precisely the same.

First: You will remember, came the issuance of the Bills of Credit, as they called them, or Greenbacks, as we call them, paper money.

Second: And immediately all the gold and silver disappeared because driven from the channels of trade, with something cheaper with which the debtor could cancel his obligations.

Third: Dishonesty, dishonor, fraud, disaster, ruin and repudiation followed each other in quick succession.

Fourth: Then came the return to sound conditions when paper issues were discarded and the effort to make something out of nothing was abandoned.

Mr. Lawyer, I want to ask you now whether you do not think we have made a case against you so far as the unwisdom and utter folly of Government issues of paper money is concerned.

Mr. Lawyer: I must admit that the facts are overwhelming. I had never taken the time nor trouble to investigate the subject, but had assumed that one of the functions of our Government was the issuance of money, even paper money, if you like. It seems from what has been shown here and last Wednesday night as well that this scheme of issuing paper money has been tried, not only by everyone of our thirteen Colonies and the Continental Congress, but by practically every country of the world at some time or other. It was tried in Austria, England, France, Germany, Italy, Russia and is now going on in nearly every one of the South American countries with the same experience, I am informed, that other countries have suffered. Now, so far as the facts have been disclosed, there is not a single instance in which the scheme has been tried that has not resulted in precisely the same way—complete failure and ultimate dishonor and repudiation if persisted in as a principle.

Under the circumstances I must say, as every fair-minded man must, that the practice has been an absolute failure, and therefore it must be admitted that the principle must be unsound, for it seems to have worked nowhere, although tried under every conceivable condition. Of course I am compelled to give in on the unsoundness of the scheme. Now, you understand, that my admission as to the unsoundness and unwisdom of the practice does not carry with it my admission that the United States Government has no constitutional right or authority to issue paper money if it chooses to do so.

Mr. Banker: I understand perfectly well that your admission of the one point has nothing whatever to do with the constitutional question, but I wanted to know your conclusion after a consideration of the facts as presented first.

I think everyone here will agree that the disastrous experiences of the colonies and of the Continental Congress in issuing paper money must have forced this question upon the minds of the framers of the Constitution, as one of the very greatest importance to be settled by them. Certainly what they thought about it would indicate what they intended to do. I will first show this by what they said, and then I will demonstrate what they intended to do by what they actually did do in the Constitutional Convention.

Alexander Hamilton, in June, 1783, set forth explicitly in a resolution for a new Constitution of the United States of America his deliberate opinion in these words: "To emit an unfunded paper as the sign of value ought not to continue a formal part in the Constitution, nor ever hereafter to be employed; being in its nature pregnant with abuses and liable to be made the engine of imposition and fraud; holding out temptations equally pernicious to the integrity of Government and to the morals of the people."

In 1786, Thomas Paine, the author of "Common Sense," in an opinion on Paper Money used this language: "The laws of the country ought to be the standard of equity and calculated to impress on the minds of the people the moral as well as the legal obligation of political justice. But tender laws of any kind operate to destroy morality and to dissolve by the pretence of law what ought to be the principle of law to support, reciprocal justice between man and man; and the punishment of a member who should move for such a law ought to be death."

In the summer of 1785 Richard Henry Lee, then president of Congress, warned Washington of a plan formed for issuing a large sum of paper money in the next assembly of their state, adding as his opinion: "The greatest foes in the world could not devise a more effectual plan for ruining Virginia. I should suppose every friend to his country, every honest and sober man, would join heartily to reprobate so nefarious a plan of speculation."

Washington replied to Lee in these words: "I never have heard, and I hope I never shall hear, any serious mention of a paper emission in this state. Yet ignorance is the tool of design and is often set to work suddenly and unexpectedly."

In 1787, on the 9th day of January, Washington wrote to Jabes Bowen as follows: "Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice."

To Mr. Stone, a member of the Senate of Maryland, who appealed to Washington to allow his opinion on this subject to be made publicly known, Washington wrote just three months before the opening of the Constitutional convention, as follows: "As my sentiments thereon have been fully and decidedly expressed long before the assembly either of Maryland or of this state was convened, I do not scruple to declare, that if I had had a voice in your legislature, it would have been given decidedly against a paper emission upon the general principles of its utility, as a representative and the necessity of it as a medium.

"To assign reasons for this opinion would be as unnecessary as tedious. The ground has been so often trod that a place hardly remains untouched. In a word the necessity arising from the want of specie is represented as greater than it really is. I contend that it is by the substance, not with the shadow of a thing, we are to be benefited. The wisdom of man, in my humble opinion, cannot at this time devise a plan, by which the credit of paper money would be long supported; consequently, depreciation keeps pace with the quantity of the emission, and articles for which it is exchanged rise in a greater ratio than the sinking value of the money. Wherein then is the farmer, the planter, the artisan benefited? An evil equally great is the door it immediately opens for speculation, by which the least designing, and perhaps most valuable part of the community are preyed upon by the more knowing and crafty speculators."

In 1785, George Mason wrote "they may pass a law to issue paper money, but twenty laws will not make the people receive it. Paper money is founded upon fraud and knavery."

On the first day of August, 1786, Washington wrote to Jefferson: "Other states are falling into the very foolish and wicked plans of emitting paper money."

In May, 1788, Charles Pinckney, in a speech in the Convention of South Carolina, said: "I apprehend these general reasons will be found true with respect to paper money; that experience has shown that in every state where it has been practiced since the Revolution, it always carries the gold and silver out of the country, and impoverishes it."

John Marshall, the greatest of all our Chief Justices, the man who breathed into the dry bones of a constitutional contract, the soul of nationality, expressed himself at various times in these words: "He had 'an unabated zeal for the exact observance of public and private engagements.' He rightly insisted that the only ways of relief for pecuniary 'distresses' were 'industry and frugality'; he condemned 'all the wild projects of the moment; he rejected as a delusion every attempt at relief from pecuniary distresses' by the emission of 'paper money' or by 'a depreciated medium of commerce.'" George Bancroft said: "These were his opinions through life. He gave them to the public in 1807, and twenty-four years later in a revised edition of his 'Life of Washington,' he confirmed his early convictions by the authority of his maturest life."

James Madison, who was probably more responsible for the Constitution than any other single individual, used these words in addressing the delegates of Virginia in the year 1786: "Paper money is unjust; to creditors, if a legal tender; to debtors, if not legal tender, by increasing the difficulty of getting specie. It is unconstitutional, for it affects the rights of property, as much as taking away equal value in land. It is pernicious, destroying confidence between individuals; discouraging commerce; enriching sharpers; vitiating morals; reversing the end of government, and conspiring with the examples of other states to disgrace Republican Government in the eyes of mankind." As the result of his words and the well-known opinions of Washington, Lee and Mason, the House of Delegates of Virginia on the first day of November resolved by a vote of 85 against 17 that an emission of paper money would be "unjust, impolitic and destructive of public and private confidence, and of that virtue which is the basis of Republican Government."

Disquieting symptoms having appeared in Virginia, Madison, in April, enjoined Monroe, a member of its assembly, to battle paper money.

Madison enumerated among the evils for which the new Constitution should provide a remedy, the "familiar violation of contracts in the form of depreciated paper, made a legal tender." In his notes for his own guidance in the Federal Convention, he laid down the principle that "Paper money may be deemed an aggression on the rights of other states," and just five weeks before the time for the meeting of the convention, he wrote from Congress, then sitting in New York, to Edmund Randolph, as follows: "There has never been a moment since the peace, at which the federal assent would have been given to paper money."

In conclusion, Mr. Lawyer, I want you, because you are a particularly good reader, and ought to be more interested in this subject than anybody else, if you are wrong, to read the story of the Constitutional Convention as related by George Bancroft.

Mr. Lawyer: I will very gladly do so.

"The convention of the states for the reform of the confederacy organized itself by electing as its president George Washington, who of all the public men in his day was the most decided in his convictions and the most outspoken in his words on the inherent dishonesty of irredeemable paper bills.

"Virginia took the lead, and Randolph, its governor, in his opening speech drew attention to paper money by reminding its hearers that the patriotic authors of the confederation did their work 'in the infancy of the science of constitutions and of confederacies, when the havoc of paper money had not been foreseen.'

"Among the delegates from Connecticut were Oliver Ellsworth, who in the Federal Congress had repeatedly served on committees for the reform of the federal constitution, and Roger Sherman, who, in 1752, had published his conviction that good laws and poor money are irreconcilable. They agreed to insist in the convention 'that the legislatures of the individual states ought not to possess a right to emit bills of credit for a currency, or in any manner to obstruct the recovery of debts, whereby the interests of foreigners or the citizens of any other state may be affected.'

"The refusal of the convention to confer on the legislature of the United States the power to emit bills of credit or irredeemable paper money in any form is so complete that, according to all rules by which public documents are interpreted, it should not be treated as questionable; but as the truth in this case is of infinite importance, and has been questioned by those in authority, the wrong done to the Constitution may justify a simple narrative of the facts, which ample and indisputable records establish, and which no power can alter.

"The journal of the convention for framing the Constitution was kept under the supervision of its members, and its authority is vouched for by Washington, not only as the presiding officer of the convention, but as President of the United States in a special message to Congress.

"By a clause in the ninth article of confederation of the United States of America, and only by that clause, the confederated states had authority 'to emit bills on the credit of the United States.'

"Of the legislature of the United States, under our present constitution, the court insists that 'Congress is clearly authorized to emit Bills of Credit.' But is it so?

"The eighth clause of the seventh article, in the first draft of the Constitution, was as follows: 'The legislature of the United States shall have the power to borrow money and emit bills on the credit of the United States.' The journal of the convention for August 16th makes this record: 'It was moved and seconded to strike out the words "and emit bills," and the motion to strike out these words "passed in the affirmative. Yeas: New Hampshire, Massachusetts, Connecticut, Pennsylvania, Delaware, Virginia, North Carolina, South Carolina, Georgia—9. Nays: New Jersey, Maryland—2." So the convention by a vote of more than four to one, refused to grant to the legislature of the United States the power "to emit bills on the credit of the United States."'

"For the interpretation of this record, Madison, the best possible witness, has left this note: 'Striking out the words cut off the pretext for a paper currency, and particularly for making the bills a tender either for public or private debts.'

"Madison was the chief author of the new Constitution. Its opponent, Luther Martin, the attorney-general of Maryland, a delegate to the Federal Convention and present at the debate, read to the Maryland House of Delegates a paper, in which he gave his account of the purpose of the Convention; his evidence agrees exactly with that of Madison, and for nearly a hundred years his fidelity as a witness was as little questioned as that of Madison. Here are two witnesses: Madison, who approved the prohibition, and Martin, who condemned it; the court pushes the testimony of Madison aside as if he had 'not explained himself,' though on the point in question his words are as clear as sunlight. The address of Martin the court rejects as a 'philippic,' though it contains not a word of invective against any individual, and does contain the clearly expressed wish of its author 'not to wound the feelings of any person.'

"We have a record of what was spoken and of what was done in the Federal Convention kept by Madison, who took upon himself the most solemn engagement to preserve the truth for the instruction of coming generations, and whose opportunity, capacity, and integrity no one questions. His report of what was said and done on the 16th of August in the Federal Convention preserves the testimony of many witnesses, taken down as it were by the most capable notary.

"The question before the Convention was: Shall power be granted to the legislature of the United States 'to emit bills of credit'? The first witness is Gouverneur Morris, a man free from illusions; a delegate from the state which contained Philadelphia, then the most opulent city in the thirteen states; and as by its interests he was nearly connected with the city and state of New York, he thoroughly represented the interests of commerce. He moved to strike out the grant of power to 'emit bills on the credit of the United States,' saying: 'If the United States have credit, such bills will be unnecessary; if they have not, will be unjust and useless.' The seconder of Gouverneur Morris was Pierce Butler, a delegate from South Carolina, then the richest commercial state in the South. He remarked in the course of debate that 'paper is a legal tender in no country in Europe,' and he was urgent to withhold from the Government of the United States the power to make it so.

"Madison interposed: 'Will it not be sufficient to prohibit the making' the bills 'a tender'? Gorham, in reply to Madison, held that no accompanying prohibition was sufficient to make it safe to grant to the legislature of the United States the power to emit bills of credit. He spoke absolutely 'for striking the words out,' saying: 'If the words stand, they may suggest and lead to the measure.'

"The words of Oliver Ellsworth, our third chief justice, were: 'This is a favorable moment to shut and bar the door against paper money. The mischiefs of the various experiments which have been made are now fresh in the public mind, and have excited the disgust of all the respectable part of America.'

"Randolph expresses 'his antipathy to paper money'; but, 'could not agree to strike out the words, as he could not foresee all the occasions that might arise.'

"James Wilson, in concurrence with Ellsworth, said: 'It will have a most salutary influence on the credit of the United States to remove the possibility of paper money. This expedition can never succeed whilst its mischiefs are remembered; and, as long as it can be resorted to, it will be a bar to other resources.'

"George Reed spoke for Delaware: 'The words, if not struck out, would be as alarming as the mark of the beast in Revelation.'

"John Langdon, of New Hampshire, conforming to the wise instructions of the towns of his state, said: 'I had rather reject the whole plan than retain the three words "and emit bills."'

"Madison, agreeing with the journal of the convention, records that the grant of power to emit bills of credit was refused by a majority of more than four to one. Eleven men took part in the discussion; and every one of the eleven whether he spoke for or against the grant of the power, Gouverneur Morris, Pierce Butler, James Madison, Nathaniel Gorham, George Mason, John F. Mercer, Oliver Ellsworth, Edmund Randolph, James Wilson, George Reed and John Langdon, each and all, understood the vote to be a denial to the legislature of the United States of the power to emit paper money. Take the men, one by one, and see how weighty is the witness of each individual; take them together and add the consideration that they, every one of them, unanimously support each other and are contradicted by no one, and who shall dare question their testimony? The evidence is perfect; no power to emit paper money was granted to the legislature of the United States.

"By refusing to the United States the power of issuing bills of credit, the victory over paper money was but half complete. The same James Wilson, who twelve days before, with Oliver Ellsworth, had taken a chief part in refusing to the United States the power to emit paper money, and the same Roger Sherman, who in 1752 had put forth all his energy to break up paper money in Connecticut, jointly took the lead. The first draft of the Constitution had forbidden the states to emit bills of credit without the consent of the legislature of the United States; on the 28th of August they jointly offered this motion: 'No state shall coin money, nor emit bills of credit, nor make anything but gold and silver coin a tender in payment of debts,' making the prohibition absolute. Roger Sherman, animated by zeal for the welfare of the coming republic of countless millions, exclaims in the debate: 'This is the favorable crisis for crushing paper money.' His word was the will of the convention, and the states, by a majority of eight and a half against one and a half—that is, by more than five to one—forbade the states, under any circumstances, to emit bills of credit. This is the way in which our Constitution 'shut and barred the door against paper money' and 'crushed' it.

"Nothing is wanted to the perfect strength of the truth, that the constitution put an end to paper money in all the United States and in all the several states.... 'No suggestion of the existence of a power to make paper a legal tender can be found in the legislative history of the country. Had such a power lurked in the Constitution, as constructed by those who ordained and administered it, we should find it so recorded. The occasion for referring to it has repeatedly arisen; and had such a power existed, it would have been recognized and acted on. It is hardly too much to say, therefore, that the uniform and universal judgment of statesmen, jurists, and lawyers has denied the constitutional right of Congress to make paper a legal tender for debts to any extent whatever.'"

Thomas Jefferson's opinion: "The Federal Government—I deny their power to make paper a legal tender."

Mr. Banker: Now, Mr. Lawyer, you undoubtedly with all your profession will recognize Daniel Webster as the greatest expounder of the Constitution. I want you to read what he says and then my case will be closed on the constitutional right and authority of the Government to issue paper money.

Mr. Lawyer: I will gladly do so. "Most unquestionably there is no legal tender, and there can be no legal tender, in this country, under the authority of this Government or any other, but gold and silver, either the coinage of our own mints, or foreign coins, at rates regulated by Congress. This is a constitutional principle, perfectly plain, and of the very highest importance. The states are expressly prohibited from making anything but gold and silver a tender in payment of debts; and although no such express prohibition is applied to Congress, yet as Congress has no power granted to it, in this respect, but to coin money and to regulate the value of foreign coins, it clearly has no power to substitute paper, or anything else, for coin, as a tender in payment of debts and in discharge of contracts. Congress has exercised this power, fully, in both its branches. It has coined money, and still coins it; it has regulated the value of foreign coins, and still regulates their value. The legal tender, therefore, the constitutional standard of value is established and cannot be overthrown. To overthrow it would shake the whole system. The constitutional tender is the thing to be preserved, and it ought to be preserved sacredly, under all circumstances."

Mr. Merchant: Well, Mr. Lawyer, what do you really think about the constitutional question now?

Mr. Lawyer: In the light of the facts preceding the Constitutional Convention, the personal opinions of those who framed it, and what they actually did in the convention, I will admit I have not a leg to stand on. The story of our experience so well told by you gentlemen demonstrating the utter unwisdom of government issues of money, and the overwhelming evidence on the constitutional question has completely converted me to your contention. But I was relying in a sort of a blind way upon the fact that our Supreme Court has held that the United States notes were lawfully issued. How about that? Have you investigated it?

Mr. Banker: I have, but the story of the Greenback will take the best part of another night. Therefore, I move we adjourn. It is enough glory for one night to have a layman knock out a lawyer upon a constitutional question.

Mr. Lawyer: There is no humiliation in being shown that you are wrong upon so great a question; I regard it as a piece of disgraceful cowardice for a man to persist in holding to a position when he is clearly wrong.

Uncle Sam: That is the way I like to hear my boys talk. This is really the longest siege we have had, and you all look as though you had been undermined, and so we had better say good night.

NINTH NIGHT

UNITED STATES NOTES

Uncle Sam: Here we are again and all present. Not a single man has been sick or even reported as indisposed or indifferent since we began these discussions. You must all be thinking that we are engaged in a religious duty, a patriotic service, or you are mightily interested in the subject.

Before we begin, let me recall what was so fully presented last Wednesday night so that we can keep the mile posts constantly before us.

We then learned that during a hundred years, from 1690 to 1790, every one of the thirteen colonies experimented with "Bills of Credit," "Legal tender" "paper money," or "Greenbacks," as we call them, and that they issued fiat or "legal tender money" in almost every conceivable shape, form and way. They issued money against their own credit; they issued it against real estate mortgages, that is, in the form of loans secured by mortgages; they issued it against the personal credit of men in the form of ordinary loans; they issued it under the authority of the Continental Congress when the Colonies were all united. But in no case did any one of them, or all of them combined, escape the certain and universal fate of all such efforts. The order of events was always the same: (1) Emission of paper money; (2) depreciation of the issue; (3) disappearance of coin; (4) emission of more paper money to make up for the depreciation of that already issued; (5) defrauding of creditors; (6) repudiation; (7) cancelation; (8) reappearance of gold and silver; (9) resumption of species or coin payment; (10) a return of that degree of prosperity that the times and the conditions of the country justified.

Then came that review of the opinions of the framers of the Constitution and the vote in the Constitutional Convention to strike out the power to issue "bills of credit" by the general Government by the decisive vote of 9 to 4, backed up subsequently by the opinions of Thomas Jefferson and Daniel Webster.

As a result of the night's discussion, Mr. Lawyer was forced to admit the unwisdom of any such issue of legal tender money, and that in the light of the evidence, such an issue was without authority of law and unconstitutional.

Mr. Banker: Uncle Sam, I think it should be stated right here that every President of the United States and every successive Congress of the United States down to 1862 recognized the fact that it was the intention of the members of the Constitutional Convention "to shut and bar the door against any such issue." Here is what Horace White says: "During the war of 1812, the Government of the United States issued Treasury notes to the amount of $36,680,794. All except $3,392,994 were payable to order and payable at a definite time and bore interest at the rate of five and two-fifths per cent. About two-thirds of them were of denominations of $100 or more. They did not become a part of the circulating medium and were not intended to. They were paid to such creditors of the Government as were willing to receive them, and they were generally at par until specie payments were suspended in September, 1814. On November 12, 1814, Mr. Hall, a member of Congress from Georgia, introduced a bill into the House for an issue of Treasury notes to be legal tender. The House, by vote of 42 to 95, and without debate, refused to consider this bill. No other attempt was made to pass a legal tender bill until 1862.

"In the panic and crisis of 1837-43, during a portion of which time specie payments were suspended, the Government issued Treasury notes to the amount of $47,000,000 to meet deficiencies of revenue. All of these notes bore interest, and were payable at a fixed time. They did not become a part of the circulating medium. A few were issued by the Secretary of the Treasury in 1842, bearing only a nominal rate of interest (one mill per $100 per annum). Such notes had not been contemplated by Congress. The Committee of Ways and Means of the House, to whom the subject was referred, reported that the Secretary had exceeded his authority, but Congress took no action on the report. It was the opinion of the Committee that these notes were 'Bills of Credit' within the meaning of the Constitution, and that Congress had no power to issue 'Bills of Credit.' In 1847, during the war with Mexico, Treasury notes to the amount of $26,122,100 were issued. They bore interest at the rate of five and two-fifths and six per cent. They did not enter into the circulation, and were not intended to. The foregoing issues of interest bearing Treasury notes were merely Government loans, of which the securities were in small denominations and had only short periods to run.

"When specie payments were suspended in 1814, and again in 1837, silver and small change disappeared because it was worth more per dollar than the bank notes in circulation. On both occasions private notes and tickets or less denomination that $1.00, and copper coins were issued and put in circulation by bridge, ferry, and turnpike companies and by tradesmen and manufacturers. One hundred and sixty-four varieties of private copper coin of the period of 1837 have been preserved in numismatic collections. Most of them bore the names of the issuers who promised to redeem them.

"Prior to the Civil War, the fiscal operations of the Government were transacted exclusively with coin, by its own officers, without the intervention of banks."

Mr. Merchant: Now it seems to me an interesting question why after maintaining this policy for more than seventy years from 1789 to 1862, a fundamentally different view was taken in 1862.

Mr. Lawyer: I think I can answer that question, if you will allow me. You see, I have been looking this matter up since our last discussion, when you fellows knocked me out, and I am now loaded for bear myself.

Salmon P. Chase, Secretary of the Treasury, probably knew as little about finance as any man of his great ability could. He did not seem to be able to think in the terms of economics at all. When the war broke out he happened to do the natural thing by first going to the bankers of New York, Philadelphia and Boston, and making loans amounting to one hundred and fifty million dollars. Though prior to that time the Secretary of the Treasury had had no authority to deposit the Government money in the banks, Congress then authorized him to do so, and he was enabled to leave it in the banks until he wanted it; but he did not know enough to do that even. He required the banks to pay the gold into the Treasury at New York at the rate of $5,000,000 per week. Fortunately, the public creditors knew more about this question than he did, or had more confidence in the country than he seemed to have; and so when they received the gold they immediately returned it to the banks. Chase's utter incapacity to deal with the question in his report as Secretary of the Treasury in the fall of 1861, and a threatened war with Great Britain, growing out of the Trent affair, so shocked public confidence that by January 1, 1862, our national finances were in a state of complete and utter collapse, and the consequence was that specie payments were suspended. I do not see how anyone can fail to conclude, after a careful study of the situation, that had Chase allowed the bankers to finance the war, we should have fared very much better than we did. We should probably have saved thirty-three per cent of the cost of the war, or approximately one billion dollars ($1,000,000,000), the total cost of the war being three billion two hundred million ($3,200,000,000).

Mr. Banker: I agree with you absolutely, Mr. Lawyer, Chase seemed to be as unfit to run the Treasury Department, as a fish is to run a foot race. If he had allowed James Gallatin, Moses Taylor and George S. Coe, three great New York bankers, who arranged the first loan to formulate a financial policy for him, the war could undoubtedly have been carried on without issuing greenbacks, or any "legal tender money." But after specie payments had been suspended, the situation was certainly critical, and became more difficult to manage. However, there were those who thought, and I agree with them, that it was never necessary at any time, even then to resort to "legal tender money," or greenbacks.

Mr. Farmer: How do you think it could have been avoided? How do you think James Gallatin, Moses Taylor and George S. Coe would have provided the money for carrying on the war?

Mr. Banker: By selling the bonds of the Government upon the best terms possible, as to rates and interest and time, and by such a system of taxation, as would help produce the necessary means for prosecuting the war. These bankers had already furnished one hundred and fifty million dollars ($150,000,000), and stood ready to go on and finance the war as they certainly could have done, if they had been permitted to do so.

When they, in August, 1861, arranged to furnish the first $150,000,000, the banks of New York, Philadelphia and Boston held gold amounting to $63,200,000, and on December 7th, they held practically the same amount, or $58,100,000, although they had already furnished $100,000,000 of the $150,000,000 they had loaned. However, Chase was both ignorant and obstinate and the result was a crisis in our national affairs.

Mr. Lawyer: That is the fact, and as you said a moment ago even then there were those, and they were among the greatest of our public men, who were convinced that it was unwise, dangerous, unconstitutional and unnecessary to issue "legal tender money," or greenbacks, as they are called. Just hear what some of them said. Justin S. Morrell used this language in the House of Representatives: "If this paper money is a war measure, it is not waged against the enemy, but one that may well make him grin with delight. I would as soon provide Chinese wooden guns for the army, as paper money alone for the Treasury.

"What is it that we most need? Clearly we lack money, and wish to inspire our own people with that confidence that will induce them to lend the requisite amount. But the very first step we propose is one to destroy whatever of confidence yet remains among those who have a dollar to lend. We proclaim by an engraved advertisement—to be forced into the pockets of every man by the fiat of the Government—that we will hereafter liquidate all of our debts with paper only....

"I object to this bill on the ground of its utter impolicy. I admit that from the contracts entered into—many of which are now due—I regret have not been paid as promptly as they deserve to be, and from the heavy monthly disbursements to our armies, that the Government can flood the country with even $150,000,000 of paper dollars. But from that amount, you would vastly increase the cost of carrying on the war; prices would go up and the addition we should pile upon our national debt would prove that it might have been even wiser to have burned our paper dollars before they were issued; the inflation of the currency would be inevitable....

"It will be conceded that the power is no where contained in the letter of the Constitution, and that, in all our history since the adoption of the Constitution, it has never been exercised.... By making paper a legal tender, no more specie will be seen, except through offers of rewards to draw it from its hiding places, until we emerge from our present difficulties, and not for an indefinite period perhaps, thereafter. The $300,000,000 of specie said to be in the country, though I think there is not quite so much, will be hoarded and remain useless and idle for the rest of the war. I am for keeping this, the vital fluid of commerce, in healthy, active circulation."

Charles Sumner used this language in the United States Senate: "Is there not bad faith toward creditors who are compelled to receive what is due to them in a depreciated currency? Is there not bad faith toward all abroad who, putting trust in our integrity, national and personal, have sent their money to this country, in gold or its equivalent? And, surely, just in proportion as this is so, you cannot doubt that we shall suffer alike in character and resources; for what resource is greater to a nation, or to an individual, than a character for integrity?... Is it necessary to incur all the unquestionable evils of inconvertible paper, forced into circulation by an Act of Congress—to suffer the stain upon our national faith—to bear the stigma of a seeming repudiation—to lose for the present that credit which in itself is a treasury—and to teach debtors everywhere that contracts may be varied at the will of the stronger? Surely there is much in these inquiries which may make us pause. If our country were poor or feeble, without population, and without resources, if it were already drained by a long war, if the enemy had succeeded in depriving us of the means of livelihood, then we should not even pause. But our country is rich and powerful, with a numerous population, busy, honest and determined, and with unparalleled resources of all kinds, agricultural, mineral, industrial and commercial; it is yet undrained by the war in which we are engaged; nor has the enemy succeeded in depriving us of any of the means of livelihood. It is hard—very hard—to think that such a country, so powerful, so rich and so beloved, should be compelled to adopt the policy of even questionable propriety."

James A. Bayard, of Delaware, used this language: "The thing is to my mind so palpable a violation of the Federal Constitution, that I doubt whether in any Court of Justice in this country, having a decent regard for its respectability, you can possibly except that this bill, which you now pass, will not, whenever the question is presented judicially, receive its condemnation as unconstitutional, and void in this clause."

Roscoe Conklin used this language in the House: "I propose to assign my reasons briefly for voting against the attempt by legislation to make paper a legal tender. The proposition is a new one, no precedent can be found in its favor; no suggestion of the existence of such a power can be found in the legislative history of the country; and I submit to my colleague as a lawyer, the proposition that this amounts to affirmative authority of the highest kind against it. Had such a power lurked in the Constitution as construed by those who ordained and administered it, we should find it so recorded. The occasion for resorting to it, or at least referring to it, has, we know, repeatedly arisen, and had such a power existed, it would have been recognized and acted on. It is hardly too much to say, therefore, that the uniform and universal judgment of statesmen, jurists and lawyers has denied the constitutional right of Congress to make paper a legal tender for debts to any extent whatever....

"It will, of course, proclaim throughout the country a saturnalia of fraud, a carnival for rogues. Every agent, attorney, treasurer, trustee, guardian, executor, administrator, consignee, commission merchant, and every debtor of a fiduciary character, who has received for others money, hard money, worth 100 cents on the dollar, will forever release himself from liability by buying up for that knavish purpose, at its depreciated value, the spurious which we shall have put afloat. Everybody will do it, except those who are more honest than the American Congress advises them to be. Think of Savings Banks, entrusted with enormous aggregates of the pittances of the poor, the hungry and the homeless, the stranger, the needle woman, the widow and the orphan; and we are arranging for a robbery of 10 per cent, if not of 50 per cent, of the entire amount, and that by a contrivance so new, as never to have been discovered under the administrations of Monroe, Adams or James Buchanan....

"Such a step, if it should ever be taken by a Government, should be taken when everything else has failed, and the last extremity has been reached. It is the last expedient to which kings and nations can resort."

William Pitt Fessenden, of Maine, used this language:

"With regard to the particular bill now before the Senate, we all know that it was resorted to as a temporary measure, not in the beginning, but in consequence of the necessities of the treasury, arising from a greater expenditure than the Secretary could have imagined, and arising from the necessary delay with reference to other measures. Can it be said that a measure like the one now pending before the Senate and the country is a measure of a day or an hour? Why, what does it propose? It proposes something utterly unknown in this government from its foundation; a resort to a measure of doubtful constitutionality, to say the least of it, which has always been denounced as ruinous to the credit of any government, which has recourse to it; a measure, too, about which opinions in the community, as perhaps they never have been divided upon any other subject; a measure which, when it has been tried by other countries, as it often has been, has always proved a disastrous failure....

"Everybody who has spoken on this question, I believe without an exception—there may have been one or two—but all the opinions I have heard expressed, agree in this: that only with extreme reluctance, only with fear and trembling as to the consequences, can we have recourse to a measure like this of making our paper a legal tender in the payment of debt....

"A measure of this kind certainly cannot increase confidence in the ability, or the integrity of the country. It can make us no better than we are today, so far as the foundation of all public credit is concerned.

"Next, in my judgment it is a confession of bankruptcy. We begin and go out to the country with the declaration that we are unable to pay or borrow, at the present time, and such a confession is not calculated to increase our credit.

"Again, say what you will, nobody can deny that it is bad faith. If it be necessary for the salvation of the Government, all considerations of this kind must yield; but to make the best of it it is bad faith, and encourages bad morality both in public and in private. Going to the extent that it does to say that notes thus issued shall be receivable in payment of all private obligations, however contracted, is in its very essence a wrong, for it compels one man to take from his neighbor in payment of a debt that which he would not otherwise receive, or be obliged to receive, and what is probably not full payment....

"Again, in my judgment it must inflict a stain upon national honor. We owe debts abroad. Money has been loaned to this country, and to the people of this country, in good faith....

"Again, it necessarily changes the values of all property. It is very well known that all over the world gold and silver are recognized as money, as currency; they are the measure of value. We change it here, what is the result? Inflation, subsequent depression, all the evils which follow from an inflated currency....

"Again, a stronger objection than all that I have said to this proposition—I am stating the objections which everybody must entertain, because I suppose these facts are palpable—is that the loss is to fall most heavily upon the poor. I believe it never was disputed, it cannot be in the light of experience, that those who are injured most by an inflated currency are the laboringmen, the poor.... The poor laborer suffers in the first place more than all; then small capitalists, if I may so call them; and the rich capitalist, last of all. Such is the necessary result and consequence always of this system."

Thaddeus Stevens used this language in the House:

"This bill is a measure of necessity, not of choice. No one would willingly issue paper currency, not redeemable on demand and make it a legal tender. It is never desirable to part from that circulating medium which by the common consent of civilized nations forms the standard of value. But it is not a fearful measure, and when rendered necessary by exigencies, it ought to produce no alarm."

John Sherman used this language:

"I agree that this measure can only be justified on the ground of necessity. I do believe there is a pressing necessity that these demand notes should be made a legal tender, if we want to avoid the evils of a depreciated, dishonored paper currency."

E.G. Spalding, the reputed father of the legal tender act, used these words:

"These are extraordinary times, and extraordinary measures must be resorted to, in order to save our Government, and preserve our nationality....

"This being accomplished I will be among the first to agitate a speedy return to specie payment, and all measures that are calculated to preserve the honor and dignity of the government in time of peace."

Mr. Merchant: From what transpired there was undoubtedly an overwhelming opinion that there was a necessity, and therefore the issue of United States Notes was justified. No one will deny this power, if placed upon that ground, that the issuance of the Notes was essential to the preservation of the life of the Nation. But certainly that reason no longer exists, and therefore we should now act as we would then have acted, if we had not believed that it was a national necessity.

The measure for the first issue of $150,000,000 of United States Notes was passed and signed by the President February 25, 1862. The second issue of $150,000,000 came very soon, on July 11, 1862. The third issue of $150,000,000 followed on March 3, 1863, making a total issue in about a year of $450,000,000. If the result of the war had been doubtful and long continued, God only knows what the results would have been, as these United States Notes came very near reaching the zero point, as it was. The astounding fact, as the result of having practiced the law of making something out of nothing, followed in 1868 when one of the great political parties in the hot pursuit of political success declared in its platform that it was in favor of paying off the national debt with the I.O.U.'s of the Government or United States Notes. Of course, this action would have been the natural and necessary prelude to national repudiation.

Mr. Farmer: What I want to know is how much those greenbacks actually depreciated.

Mr. Banker: I have a sheet here furnished by the Government showing precisely what they were worth from February, 1862, to January 1, 1879, when we resumed specie payment, and began their current redemption in gold coin. It shows that they were worth 97 cents on the dollar in February, 1862, when the President signed the bill; in one year, or February 15, 1863, they were worth 60 cents on the dollar; and in a little more than a year afterwards, in July, 1864, they were worth only 35 cents on the dollar. That is, if you had bought a horse for $100 in January, 1862, and given a note due in July, 1864, you could have paid for the horse with $35.

You will perceive that every creditor was defrauded going down hill until you struck the bottom on that July day in 1864, when it took $2.85 of United States Notes to buy $1.00 of gold coin, and you defrauded every debtor climbing up that long hill from that July day in 1864, when the United States Notes were worth 35 cents, until January 1, 1879, when they became worth 100 cents. It took us just two years to go down the hill, and fifteen years to reach the top of the same hill, only to find the crater of a sleeping financial volcano beneath our feet; for if war clouds should now encompass us, or we should take one single step in the wrong direction, our National Credit would again be shattered, and must fall into utter ruin.

Mr. Farmer: Well, it then came out just as those men said it would, didn't it?

Mr. Banker: Certainly, and I want to call your attention to another thing, and that is that the additional cost of the war, because of issuing United States Notes, was greatly increased precisely as they predicted it would be.

Mr. Farmer: Oh, yes, we must find out about that. You remember we investigated the cost of the greenbacks since the war, and that Mr. Banker then demonstrated to our entire satisfaction that the United States Government would have been better off by $339,984,222, if at the close of the war we had issued bonds, bearing 4 per cent, and taken up these United States Notes and paid them off. Now, it would be mighty interesting to know just how much the war cost because we issued these United States Notes, and went off the Gold Standard.

Mr. Lawyer: I have something here right on that point. Let me read it: In his work on Public Debts, Prof. H.C. Adams computes the extra cost of the war to the tax payers in consequence of the depreciated currency at $850,000,000. And Mr. Wesley Hill, in the "Journal of Political Economy," March, 1897, computes the net cost of the war, due to this cause at $528,000,000. Now to be fair and take the average of these two estimates or $689,000,000, and add the cost of meeting greenback redemption since the war, or $339,984,222, we have $1,028,984,222, or about one-third of the cost of the war which, as I told you a while ago, was three billion two hundred million dollars, proving everything that was said by those who were opposed to issuing the greenbacks.

Mr. Manufacturer: I beg your pardon, sir, except one thing, Mr. Lawyer. According to the decisions of the Supreme Court, up-to-date, and that is, that they are constitutional. You remember, of course, that the question of the constitutionality of the Legal Tender quality of the United States Notes has been before the United States Supreme Court three different times.

This question came up in the case of Hepburn vs. Griswold, December, 1869, and was held by five judges against three, the Court then consisting of eight judges, the opinion of the Court being delivered by Salmon P. Chase, himself, who was then Chief Justice, "that the making of the Notes, or Bills of Credit, a legal tender in payment of pre-existing debts, is not a means appropriate, plainly adapted, or really calculated to carry into effect any power vested in Congress; is inconsistent with the spirit of the Constitution, and is prohibited by the Constitution."

Mr. Farmer: Well, this man Chase, who was then Chief Justice, was Secretary of the Treasury, and favored the issuance of these same United States Notes, didn't he?

Mr. Lawyer: Yes, he is the same person. But you must remember that he was a politician in the one case, and a Chief Justice in the other. Possibly, I should have said a statesman in the first place, but Thomas B. Reed said that a statesman was a dead politician, and probably, you might say, according to his theory, that Chase is a statesman now.

Chase also held that the clause in the Acts of 1862 and 1863, which makes United States Notes legal tender in payment of all debts, public and private, so far as it applies to debts contracted before the passage of these Acts, is unwarranted by the Constitution: "The legal tender quality," Chase said, "was valuable only for the purpose of dishonesty, every honest purpose was answered as well without it."

Just one year afterward, in December, 1870, the question of the legal tender of the United States Notes was again before the United States Supreme Court, which now consisted of nine members. In a decision of five against four, the above decision was reversed; one judge had died, and a new judge had been created, and these two joined the three formerly in favor of the Act.

Mr. Manufacturer: That looks a little as though General Grant wanted that kind of a decision, and had picked out the right kind of men to get it. Possibly it was more this decision than pressure of business that called for the creation of an additional member of the Court—was it not?

Mr. Lawyer: A great many have thought so, and that makes it look as though the Supreme Court does some legislating occasionally on its own account. However, the same question came up again in the case of Juillard vs. Greenman, and was decided the same way in March, 1884. It was then held that Congress has the constitutional power to make Treasury Notes of the United States a legal tender in payment of private debts in time of peace, as well as in time of war.

Justice Gray uses this language: "The power is incident to the power of borrowing money, and issuing Bills or Notes of the Government for money borrowed, of impressing upon those bills or notes, the quality of being a legal tender for the payment of private debts was a power universally understood to belong to sovereignty in Europe and America at the time of the framing and adoption of the Constitution of the United States." It appears that he based his decision upon this fact, but George Bancroft, the historian, reviewed this opinion in both its legal and historical aspects. And referring to the statement quoted above, this great historian declared it to be a stupendous error, and further affirmed that no such power was understood to belong to sovereignty in Europe at the time of the adoption of the Constitution, that is, in 1788.

Mr. Manufacturer: Well, I assume that we have another guess coming yet, haven't we? You know this same Court has guessed four times already on the Sherman Anti-Trust Law. In the Knight case, they declared that manufacturing was not and could not be considered as United States Commerce. Then came the Trans-Missouri case, then the Northern Security Co. case, and last the Tobacco and Standard Oil cases, wherein this august body ran amuck the word "reasonable," although that very word was not in the Act at all, and although it had been impossible to get Congress to put it into the Act. But after all, is it not the very soul of the whole question? And is it not a fact that the Supreme Court of the United States ought to be constantly interpreting the Constitution of the United States in the light of changed conditions, and ever advancing public opinion?

Mr. Lawyer: It looks as though it might be well to give the Supreme Court one more chance to guess; they might possibly guess right next time. It is certainly "reasonable" to hope so, both in accordance with the Constitution, and in accordance with economic law, and in accordance with the experience of the whole world.

Mr. Merchant: Well, what would happen if, when the Supreme Court guesses again, it should guess right? Would the fact that the Court declared that Congress had no power to make paper money a legal tender render the greenbacks unfit for reserves, or illegal, as reserves?

Mr. Banker: Congress cannot, by law, make anything fit for reserves, which by economic law is unfit for reserves; but Congress may make anything, however unfit for reserves from an economic point of view, a legal reserve; they might make potatoes, wheat, corn, a bale of cotton, or a bundle of hay reserves. Therefore, although the Supreme Court should declare the Legal Tender Act unconstitutional, as it ought to, the United States Notes might still be held as reserves. The silver certificates and the gold certificates are both legal reserves, but neither of them are made legal tender by law, nor should they be, as nothing but gold, which is our standard of value, should be made legal tender. However, all of these barbarous forms of currency, United States Notes, Silver Certificates, bond-secured National Bank Notes should, and must be maintained upon a parity with gold, if possible, as they now are; because the faith and honor of the Government is at stake. It is this very fact that is the source of our weakness from a national point of view, for the United States has no assets with which to meet these enormous liabilities. The United States has no resources, such as a bank has. It has nothing to sell in the way of grain, meat, cotton, or manufactured goods, or personal property of any kind. It has no capital, and no deposits, as our banks have, whose resources today exceed twenty-five billion dollars ($25,000,000,000). The individual deposits of the United States today exceed seventeen billion dollars ($17,000,000,000). Every month about three billion dollars' worth of notes come due. Compare this situation with the condition of the United States Treasury, and its ability to meet obligations. The Treasury does not control a single dollar's worth of assets, except the incoming taxes, which are more than pledged every year to meet the current demands arising from the expenses of the Government.

Mr. Lawyer: That is correct, as we learned upon a former evening. The United States is bound for more than one billion seven hundred million of demand liabilities, directly and indirectly, and has only one hundred and fifty million of gold with which to meet them. All the Government has is the power to tax the property of the people. Of course it can anticipate this taxing power by selling bonds to meet an emergency; but let us imagine for a moment what may happen. This very night we may be looking out upon a perfectly clear and peaceful sky, and even so soon as tomorrow morning war clouds may curtain the rising sun, and before nightfall blacken the zenith of the heavens, and hang low and lowering the whole horizon round, presaging the most titanic and wicked struggle in blood that has ever stained the history of the human race. What do you think the effect would be upon our credit, with all these demand obligations outstanding? Would not that fact, coupled with a great war on our hands, impair our credit to a very great degree, compelling us to sell our bonds at much lower prices, and at rates of interest far higher than could be possibly necessary, if there was no question whatever about our remaining steadfastly upon the Gold Standard instead of resorting to fiat paper money, as we did the very last time we had to meet a similar difficulty, or crisis?

Mr. Banker: There is no doubt whatever about the imperative necessity of our relieving the United States Treasury from the load it is now carrying, and placing the United States Government in the same position precisely that every state and municipality is in, so far as its credit is concerned; for the treasury of the Government, when filling its normal and proper functions, is no more fit to carry on the banking business than a man who may be wealthy in land, but has no cash assets; or a township, city, county or state is. And until the United States Government divests itself of these unnatural burdens, which it is unfitted to carry, we shall continue to suffer immeasurably whenever called upon to use our national credit to any great extent.

Let me explain this principle a little more fully so that we will all get it so thoroughly fixed in our minds that we shall not forget, or overlook it, as we go on. A farmer, however wealthy in lands and prosperous he may be, even though he may be worth half a million, or a million dollars, should not have demand obligations outstanding for any considerable amount because his resources are in lands or fixed investments. If he borrows to enable him to produce his crops, he should make his notes come due when he can meet them with the money he receives from the sale of his crops, and the balance, or his profits, will go to pay the interest on the mortgage, and possibly reduce it. So a township, a city, county, or state has no personal property worth considering to meet demand obligations. It has no liquid property of any kind, in fact, nor any resources whatever, except its power to tax the property within its jurisdiction; and therefore, if it needs money, it may borrow to meet expenses; but it will make its notes come due when the taxes come in, precisely as the farmer times his notes' maturity with the sale of his crops. If a municipality has no demand obligations, and its bonded debt is low, it can borrow on its bonds at a low rate of interest. But if its demand obligations are enormous in proportion to its ready cash, high rates of interest, and possibly even bankruptcy, will always be staring it in the face. Granting or assuming that the United States Government has no power to issue legal tender, or fiat money, which is the greatest peril and most unmitigated curse that ever hung over any country, the United States Treasury is in precisely the same position, or situation, that the farmer is, whose property is in land; that the township, the city, the county and the state is in, and should always keep itself in a position where, in case of war, or any other great emergency, it could use its credit to the best possible advantage to itself; that is, to us, the people who must pay the taxes to liquidate whatever debt it may incur.

Mr. Farmer: I for one want to thank you for this explanation, for I have always had a sneaking idea that the United States Government owned everything, and was, as we say, the richest Government on earth, when it could not possibly mean anything except that the people who constitute the nation are the richest people on earth. Of course the Government doesn't own anything worth speaking of, and cannot take any property, without due process of law, that is, either through the process of taxation or through condemnation proceedings, for public uses. It is perfectly plain to me now that the United States Government is no more fitted to carry on the banking business than Lorrain township, where I live, nor this city, this county, nor this state, except that it operates on a bigger scale, that's all. Do you know that's as clear as a pike staff to me now.

Mr. Manufacturer: Now, gentlemen, I want you to correct me if I don't state this credit question right, from beginning to end; for I'm not sure that I have followed all that has been said with sufficient care to understand it perfectly. I appreciate the fact that we must grasp this question of credit, and comprehend it very clearly, if we are going to prepare a banking bill in which credit must play a most important part.

First: We have credit, which is the result of confidence and trust and gives us the right to demand payment.

Second: If credit is granted for the purpose of producing and distributing consumable commodities, it should be for a short period, proportioned to the time involved to complete the transaction.

Third: If credit is granted upon real estate, it should be for a long period, because the security is not readily convertible into cash.

Fourth: Credit granted to a Government, by purchasing its bonds, should be for a long period, unless for some temporary purpose.

Fifth: Neither real estate nor Government credit are a fit basis for currency, because neither is a fit security for a demand debt, nor cash credit, such as consumable commodities are.

Sixth: Government credit should never be used in the form of legal tender money, because it must itself be redeemed in coin. It never has been, and never can be its own redeemer, and is always subject to unlimited abuse which must necessarily result sooner or later in repudiation.

Mr. Banker: Mr. Manufacturer, you have summarized the discussion upon credit remarkably well, I think.

Mr. Merchant: So do I, and I am sure that we all understand what constitutes the difference between the right and wrong basis of demand obligation—convertibility or non-convertibility—quick assets or slow assets—the commercial fund and the investment fund. If we keep this thought steadily in view it will help us amazingly when we come to draw a banking bill demanding the recognition of this fundamental distinction.

Mr. Lawyer: Gentlemen, don't you see that the very nature of things forces the recognition of this fundamental distinction, because you can keep your currency, if of the right kind, and all your credit used in the production and distribution of consumable commodities convertible into gold coin. But you cannot keep all the railroad bonds, all the municipal bonds and all the real estate of the country convertible into coin, practically on demand. That is impossible, and has been proved times without number, as we have already seen.

Mr. Laboringman: Mr. Lawyer, I have been sitting here with a very hazy kind of an idea about this credit matter, until this moment, but that last point you made seems to me to clinch things, for I saw in the "Evening Journal" last night that there was about one hundred and twenty-five billion dollars' worth of property in the United States. Of course you can't cash that all in tomorrow, nor next week, nor next month, nor next year even, and the fortunate thing about it is that the owners don't want to. When you come to think of it, there is a mighty small part of it that the people want to turn into cash each day.

Mr. Banker: Mr. Laboringman, that is the point exactly, and our problem is to make it absolutely sure that those who have a right, and want to demand cash, can always get it. This can only be accomplished by two things, adequate gold reserves to protect all current demands, and such assets or commercial credits as can be converted into gold, at once to meet any extraordinary demands—yes, even satisfy the panic-stricken mob, and carry the country through such crises as 1893 and 1907 without unnecessary loss, indeed, prevent the recurrence of any such experiences again.

Mr. Laboringman: Do you really think that that can be done? What a blessing that would be to labor.

Mr. Banker: I certainly do believe it can be done; indeed, I know it. But every banker must be compelled to do his part; that is, be ready at all times to carry his proper share of reserves against his deposits. One half of the bankers of this country cannot ride the other half, that is certain.

Mr. Merchant: Mr. Banker, what amount, or percentage of reserves do you think a banker should carry?

Mr. Farmer: Now, hold on, just a minute. You can't get into that subject, because I want to hear it, and I've got to go home right now.

Mr. Banker: Very well, gentlemen, we will put it off, if you say so, until next Wednesday night.

Uncle Sam: This is the second time you men have said that you would take up reserves. Indeed, it has been so long since you talked about taking it up before, that I was afraid that it would be overlooked entirely, and yet nothing but the standard of value itself is more important. Now, mark this, we want the right kind of reserves, and plenty of them.

Good Night.

TENTH NIGHT

RESERVES

Uncle Sam: Here we all are, every man in his accustomed place for the tenth night. Not a man has been late on a single occasion, although Mr. Farmer just got in under the wire one night by the skin of his teeth. It is most agreeable and satisfying to note that there has been no lagging in interest since we began. Indeed, there seems to me to have been a most pronounced gain in your enthusiasm, at times amounting almost to religious fervor.

Mr. Laboringman: That's the way it always is; the more you know about anything, the more interesting it becomes.

Mr. Merchant: Certainly the man who has a fad or who is even a crank upon any subject, enjoys life a good deal more than a dead level commonplace fellow, who never takes any particular interest in anything—just passes the time. Every man for his own pleasure, if for no other reason, ought to have something in which he is interested outside of his regular employment. It may be a good horse, a good cow, a good dog, or some fine chickens—a good garden, a fine front yard, or just some flowers, or some subject affecting the welfare of his fellows. Every man ought to have something; it doesn't matter so much what it is, so long as he is devoted to it intensely. Of course, if he can profit by it, or help his fellows at the same time, so much the better. However, we have our hands full just now with a subject which has become mighty interesting, I think, to all of us, and I hope that our work will prove not only interesting to us, but profitable to our fellows. At all events, it can do no one any harm, and will better fit everyone of us for our duties as citizens. There is too little work of this kind done all over the country; men can accomplish so much more, if they only get together in small groups like this, instead of plugging along alone. It's a good deal like the football game, where team work counts for so much. It may be that what we are now doing will inspire thousands of other little groups to get together and discuss this, the greatest, the most important business question that can possibly come before the American people, and then when this is finished, they will, as a matter of habit, take up others, in precisely the same way.

Uncle Sam: Hold on there, Mr. Merchant, you've lectured us long enough this evening, now let us get down to business. You know if there is anything that your Uncle Samuel is noted for all the world over, it is business, and business is business, you know. But, before we tackle the tenth topic, tonight, I am going to retrace the road we have traveled, and see if you can all recall and recognize the mileposts we've passed.

First: There was the Standard of Value, gold.

Second: Money, our only money is gold.

Third: Currency, the wrong kind.

Fourth: Currency, the right kind.

Fifth: Exchange by which one debt is made to pay another.

Sixth: Value, the value of anything is measured by the thing for which it is exchanged.

Price, the amount of money received for anything.

Wealth, what can be exchanged for money.

Property, the right of ownership.

Capital, anything that may be so used as to result in a profit.

Credit, result of confidence and trust; creates a debt, and is the right to demand payment.

Seventh: Land or Government credit is unfit as a basis for money or currency.

Eighth: Our Colonial experience proved that land and Government credit were unfit as a basis for money or currency.

Ninth: Our United States Notes again demonstrated the fact that Government credit should never be used as a basis of legal tender money. Tonight we are to discuss Reserves, which are the protection or guarantee of credits granted or debts created.

Is that a correct definition of reserves?

Mr. Banker: Uncle Sam, I don't think anyone could give a better one.

Uncle Sam: By way of encouragement to you men, before you begin to discuss the subject of reserves, I want to gamble the prophecy that if you will work out some method or plan that will make it possible for the banker to pay all his deposits on demand, and at the same time will enable him to continue to use practically all of them in profitable employment, I will guarantee you now the support of every banker for your plan, when you've completed it.

Mr. Merchant: I don't think you assume any risk in that guarantee, Uncle Sam.

Mr. Laboringman: Uncle Sam, you say that you will guarantee that every banker will support it. That insurance policy won't be any risk at all. Won't cost you a cent. I tell you now that if you can work out a plan that will amount to an absolute guarantee of deposits, as a matter of administration, I will guarantee the support of every depositor in the country, and if I could prove it to their satisfaction, every depositor would gladly pay me from one-quarter to one-half per cent on his deposit. Do you know what I would get at that rate, say at one-quarter per cent, only $42,000,000 every year; for our deposits you say are now seventeen billion ($17,000,000,000).

Have you men ever looked up bank failures in the United States? Here is something I stumbled upon yesterday.

Our country is so extensive and our banks are so numerous that nothing whatever is thought in one part of a bank failure in another part. Especially is this so since they occur so frequently. Like the operation of the guillotine during the French Revolution and the automobile manslaughter of today, bank failures in the United States have become mere passing occurrences. Is this putting it too strongly? Let us see.

Since the establishment of the national system in 1864, 518 national banks have failed, with liabilities reaching $244,000,000. The direct losses of the failed banks amount to $38,000,000.

Two thousand and fourteen state and private banks have failed since 1864, with liabilities amounting to $825,000,000, and probable losses of $200,000,000.

The total liability of all banks, national, state and private, failing since 1864 is $1,069,000,000. Their aggregate is 2,532 banks. In other words, fifty-six banks have failed every year on an average, or nearly five banks every month, and more than one bank every week.

Three hundred and fifty-one national banks have failed since 1890, with liabilities aggregating $174,000,000.

One thousand four hundred and six state and private banks have failed since 1890, with liabilities aggregating $694,000,000.

The total liabilities of all banks failing since 1890 aggregate $898,000,000.

The total number of all banks failing since 1890 is 1,757. In other words, eighty-eight banks have failed every year on an average, or more than seven banks every month, and one bank about every four days, during the last twenty years.

But who can estimate the indirect losses or depict the consequences of these bank failures?

If this tragic condition can be obviated, it is a crime against the people of the United States, it is a crime against civilization itself, to permit its continuance.

Mr. Banker: No, indeed, neither Uncle Sam nor Mr. Laboringman assume any risk in their guarantees. They certainly do not, and I will go still further, and under those circumstances will guarantee the support of every merchant, manufacturer, farmer, laboringman, and every man, woman and child, whether depositors or not, as we would be the greatest benefactors of the human race, if we could devise a plan that would remove all risk from every deposit. And yet, humanly speaking, I am not sure that this very result, the absolute guarantee of all deposits may not be accomplished, and the chief factor in the accomplishment of so great a blessing to the people is locked up in the principle of reserves, assuming, of course, that the administration of the banking business is such as to keep it sound.

If all the deposits made with the bank were in gold, or were convertible into gold, and held to meet the deposits when called for, the problem would be simple indeed, and would be solved already. But such a plan would be impracticable and archaic. Indeed, it would preclude all profit, unless a charge were made for such service, and would reduce a bank to a safe deposit company. It would exclude the use of all credit, and therefore destroy the possibility of doing approximately more than nine-tenths of the business carried on today, unless we should go back to actual barter. Our problem is to make the business of banking absolutely safe and yet preserve the great credit structure by which the business of the country and the world is carried on.