bodies it. It is impolitic and inexpedient as well as unconstitutional. It is a mere tem. porary expedient. It may give present inflation and present relief for the hour, and a very brief hour indeed, but it will be followed by a weakening of the resources of the Government, a depreciation of its credit, and it will produce nothing but disaster and ruin to the country. CHARLES SUMNER, OF MASSACHUSETTS. It is difficult to escape the conclusion that if Congress is empowered to issue Treasury notes, it may affix to these notes such character as shall seem best and proper, declaring the conditions of their circulation, and the dues for which they shall be received. Grant the first power, and the rest must follow. Careful you will be in the exercise of this power; but, if you choose to take the responsibility, I do not see what check can be found in the Constitution. * * * I declare that the present proposition, when exanined carefully, seems too much like bad faith. I say it seems; I would not speak too strongly. 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 resourse 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. On the amendment to strike out the legal-tender clause the vote stood 22 nays to 17 yeas. The amendment was therefore rejected. Some amendments were made to the bill, and after a short speech by Senator James A. Pearce, of Maryland, against the bill, a vote was taken and passed, 30 yeas to 7 nays. The vote in detail was as follows: YEAS-Anthony, Rhode Island; Chandler, Michigan; Clark, New Hampshire; Davis, Kentucky ; Dickson, Connecticut; Doolittle, Wisconsin; Fessenden. Maine; Foote, Vermont; Foster, Connecticut; Grimes, Iowa; Hale, New Hampshire; Harlan, Iowa; Harris, New York; Henderson, Missouri; Howard Michigan; Howe, Wisconsin; Lane, Indiana; Latham, California; McDougal, California; Morrill Maine; Pomeroy, Kansas; Rice, Minnesota; Sherman, Ohio; Sumner, Massachusetts; Teneyck, New Jersey; Trumbull, Illinois; Wade, Ohio; Wilkinson, Minnesota; Wilson, Massachusetts, and Wilson, Missouri. NAYS-Collamer, Vermont; Cowan, Pennsylvania; Kennedy, Maryland; King, New York; Pearce Maryland; Powell, Kentucky; Salisbury, Delaware. This measure was approved by the President, February 25, 1862. A second issue of $150,000,000 in treasury notes was authorized by law July 11, 1862; and a third issue of $150,000,000 was authorized March 3, 1863. Thus, within a period of twelve months notes were authorized to the amount of $450,000,000. The arguments in favor of the second and third issues added nothing to those advanced on the first issue. PUBLISHED SEMI-MONTHLY BY THE SOUND CURRENCY COMMITTEE OF THE REFORM CLUB. ENTERED AS SECOND-CLASS Matter at the NEW YORK, N. Y., Post-OFFICE. Publication Office, No. 52 William St., New York City. Vol. III., No. 2. NEW YORK, DECEMBER 15, 1895. SUBSCRIPTION, $1.00 SINGLE COPIES, 5 CENTS. Each number contains a special discussion of some Sound Currency question. No change that can be made in our currency system will afford the relief to which the Government and the people are entitled unless it provides for the retirement and cancellation of the legal tender United States notes. Anything less than this will be simply a palliative, and not a cure, for the financial ills to which the country is now subject. * * * In my opinion legislation in this direction at the earliest possible day is imperatively demanded by every substantial interest in the country, and its postponement upon any pretext of political expediency, or upon the assumption in advance that no satisfactory result can be accomplished, would be, to say the least, a very grave mistake.-JOHN G. CARLISLE, November 19, 1895. NECESSITY AND FEASIBILITY OF GREENBACK RETIREMENT... CANCELLATION OF THE LEGAL TENDERS THE REMEDY.. 160 161 161 OTHER AIDS TO RETIREMENT.. 162 WHAT ACTION SHOULD BE TAKEN... 162 WHY LEGAL TENDER NOTES MUST GO. IMPORTANCE OF A RETURN TO SOUND FINANCE. While we are waiting to see what answer the House of Representatives and the Senate will give to the President's request for currency reform, it is worth while to keep clearly in our minds a few of the facts of the financial situation and some idea at least of the importance and feasibility of a return to sound money. In the first place, we certainly have now, and have had continually since about July 1, 1892, such anxiety about the maintenance of the redemption of our currency in gold as to greatly harass all business men and to seriously check investment and enterprise here on the part of our own and foreign capitalists. This anxiety would have no existence were it not for the Government notes which we have in circulation. Maintaining constant prompt redemption of these notes is a task for which the Treasury is utterly unfit. All the resources of the Government are pledged, and must be used if needed, to redeem these notes, but the sooner all of them are retired and cancelled the better it will be. We have done wonders with our Government paper, having restored its redeemability after, in the stress of war, it had once been irredeemable. But we have since then followed in the course of other nations by increasing the quantity of the notes (contrary to everybody's confident expectation and intention) from $350,000,000 to $836,000,000,* and we have now got to the point where a little preference for gold is indicated by the way it goes out of the Treasury in return for paper and silver. We know that most, and perhaps all, nations that have used paper money at all, have tried our experiment of using as legal-tender currency demand notes on which the government is the promissor. These notes have always been defaulted. No such paper except ours is at par to-day in the whole world. All the intelligent nations have abandoned the effort and substituted metal as the only legal tender, and now have all their paper issued by banks. The Bank of England notes form no exception to the rule. They are so guarded as to be similar to gold certificates rather than notes. They are not legal tender by the Bank to pay its debts in any case, and they utterly cease to be legal tender for any purpose by anybody whenever their convertibility into gold on demand ceases; so that their fall below par does not affect the value of contracts to pay lawful money. Of course, too, these notes are issued by a powerful bank, with huge capital and deposits—not by a government treasury which has neither capital or deposits. It is certain, therefore, that we are using an antiquated and discredited form of currency and are neglecting the clearest and strongest warnings of experience. PRACTICAL TROUBLES WITH PRESENT CURRENCY. Now what are the practical troubles which we find in the present situation, and why do we think a reform of the currency, and that only, will cure them? FEAR OF REPUDIATION. First, the use, as legal tender standard money, of greatly overvalued silver coins and of promises to pay gold, makes everybody fear that contracts to pay lawful money will be practically repudiated-in part at least; that their value will be greatly reduced some day by a temporary failure on the part of the Government to redeem these promises to pay gold, and by a failure to maintain the parity between * It is a mistake to consider that the silver certificates should not be included with the greenbacks and treasury notes on the ground that they are not payable in gold, and that there is no doubting that their redemption in silver is perfectly safe. Since duties can be paid in them they prevent gold from flowing into the treasury just as an equal number of greenbacks and treasury notes do. Also, since they can be used as reserves by the banks, they have about as much effect in inflating the currency as the same number of greenbacks and treasury notes do. Moreover, since it is the declared policy of the Government to keep silver dollars at par with gold dollars, and since, if this policy were not successfully adhered to, gold would of course be at a premium and a run on the treasury would ensue, it is reasonable to suppose that the silver dollars, into which the silver certificates are convertible, help to produce distrust of our currency, and to necessitate the holding of a gold reserve by the Treasury to as great an extent as an equal number of greenbacks or treasury notes would. our silver and our gold coins. This fear is very natural in the light of the history of other nations. That it is not without foundation, too, is evident from the fact that beside our legal tender notes having been inconvertible and at a discount for sixteen years, one-half the whole period since they were issued, there has been here constant anxiety about them, twice culminating in panic, since July 1, 1892; and even in 1885 and 1886 we had some apprehension about them. Evidently, adopting gold as our only legal tender would remove this anxiety; and it is hard to conceive any other means which would establish confidence and permanently maintain it. The results of the anxiety about our currency are far more serious than is generally remembered. The contracts payable in lawful money in this country are probably at least $25,000,000,000, and anxiety about these contracts, and about the new ones which must be entered on by anybody who undertakes a new enterprise, paralyzes our energies, curtails our industries, and lessens our incomes very seriously. In the last panic year the aggregate of the incomes of our inhabitants was reduced probably twenty per cent. at least, and to-day our incomes are probably ten per cent. less than they would be if this fear of partial repudiation did not hang over us. The total incomes of our people are somewhere about $12,000,000,000 per year, and ten per cent. of this is $1,200,000,000. This is the sum, then, which the use of overvalued silver and untrustworthy legal tender paper as standard money takes from us each year. The figures are so large that people are incredulous of this conclusion and are inclined to laugh at it. But there is no escape from the belief that it is true. How ludicrous it is to be deterred from currency reform by the fear of being forced to spend $20,000,000 in annual interest on the bonds needed to retire our legal tender notes. The sum to be saved to us each year by this reform is $1,200,000,000. And this $20,000,000 that we fear to spend is less than two per cent. of the saving we can make. TREASURY UNFITTED FOR BANKING BUSINESS. The second trouble which we find is that the Treasury, having been organized for ordinary business, like the treasury of any industrial corporation, has not the assets which a bank has from which to get the gold it needs when its notes are presented for redemption.. And this same lack of assets prevents its having a ready control over the money market which banks always have. All solvent banks have constantly an amount of banking assets, that is, either cash or bills receivable, equal not only to all their liabilities, including both their deposits and the currency they have issued, but equal, besides their liabilities, to a substantial sum of money which the stockholders have put in as capital. These bills receivable bring into each bank a constant stream of money, and any bank by declining to loan so freely as usual can at any time dam up a part of this stream of money in its vaults, thereby tightening the money market, checking to some extent gold exports, and accumulating money to redeem its notes and deposits with. For instance, the banks of our country have $5,000,000,000 banking assets, bringing them in a stream of money at the rate of between $25,000,000 and $50,000,000 per day. If the $850,000,000 demand liabilities which our Government now has out, were cancelled and our banks should issue $850,000,000 demand notes to take their place, the banking assets of our banks would be increased $850,000,000 by the bills receivable which they would get from the people to whom they would loan this currency, and the stream of money flowing into their vaults would be from $30,000,000 to $55,000,000 per day. This would be all gold, as there would be under our plan no other legal tender. How easy then for our banks to control the money market, check gold exports, and redeem all this currency even within a few days if the redemption of it all were ever demanded. The Treasury is like a bank in which the stockholders are liable for all its debts, and have bound themselves to put in ample cash capital whenever it is wanted, but in which no cash capital has yet been called up. The Treasury has no bills receivable, no promises of other people to pay it gold coming due from day to day. It can borrow gold by selling its own promises to pay. Even in times of emergency it can sell its bonds for Jawful money readily enough, for the nation's credit is kept very high by the honor and resources of the country But we have found that it cannot easily get gold at such moments. Last February we ran in our panic to foreign bankers and paid them a huge bonus for gold because, apparently, we could not get it here Meantime our own banks with $5,000,000,000 banking assets and $170,000,000 gold, and white several other bundred millions of dollars of gold were floating in the country, stood paralyzed It our Treasury were managed by financial experts even the cumbersome and awkward method of controlling the money market and accumulating gold by the sale of bonds would be so availed of as :o make the situation tolerable But Congress and the public control the Treasury, and will not allow proper management of it To look at it from another point of view. We long ago decided in this country that industrial and transportation corporations ought not to issue paper currency, and many were the examples of disaster that sprung from not acting in accordance with this decision. Now, the Treasury is merely a business concern. And what are its resources? It usually gets by purchase some gold that comes to it from the mines to be minted, but probably not enough to pay the interest on the Government debt. It has no steady stream of money flowing in, except from duties and internal taxes But all that comes from these sources is pledged already in payment for services and materials, and, moreover, none of it is now in gold, which is the only kind of money the Treasury can use for redemption. While the duties and other taxes were putting a great surplus of gold into the Treasury, and while at the same time exports of gold were small, no anxiety about redemption arose. But now it has become clear that the Treasury is dependent for its gold supply on favorable conditions of business, and it is utterly helpless in the matter when these conditions are adverse. Our troubles come from issuing as currency Government notes direct to the public and thereby forcing the Treasury to try to perform the functions of a bank of issue, without giving it the assets and powers of such a bank. If the Treasury had a great capital and had attracted deposits by paying interest on them so that the total amount of funds at its disposal was $2,100,000,000, this amount would bear about the sanie relation to the currency it must protect as is the case with the Bank of England. I doubt whether it would even then have as much control over the money market as the Bank of England does. The National and State banks in this country have $5,350,000,000 capital, surplus and deposits—which gives them nearly two and a half times the resources above suggested for the Treasury. Again, every good bank has all its capital, and its surplus, and its deposits, and the business paper bought with the currency it has issued-it has all this property in the form of quick assets, and so arranged as to bring to it a constant stream of ready cash available for the redemption of its liabilities. Every bank by this method binds by contract a large number of honest and successful people to supply it with the cash it will need at the times when it will need it. The Treasury, on the other hand, instead of securing its money beforehand by contract, trusts to being able to borrow money when it shall want it. And what is still worse, it debars itself from adopting any sure means of getting the kind of money it wants-that is, gold-by agreeing to always over its counter give gold for its own notes. We have learned how serious a difficulty this is. Attention is so concentrated on the reserves of the banks and the reserve of the Treasury that people somehow seem to lose sight of this fundamental difference as to the assets of the two. It is certain that if one great bank, or many little banks, had the duty of redeeming this paper in gold thrown on them, they would easily get the needed gold from their bills receivable. It would come in according to the promises of the business community to whom it had been lent; and it is difficult to imagine any resource that will take the place of these promises (bills receivable). That is to say, if we do not relieve the Treasury of the duty of redemption we must, in order to be safe, turn it into a solvent bank bygiving it funds to the amount of, say, one-third more than its demand liabilities-that is about $1,100,000,00)—and by providing by law that it shall keep all these funds within reach, either in the form of cash in its vaults, or else loaned out to responsible |