confidently expect without taking the responsibility of intermeddling with matters beyond our control. The movement, which commenced in earnest as nearly as may be one hundred years ago, for the discarding of silver as a money metal, is now prac tically complete, having circled the commercial globe. Its incalculable force in tending steadily to depress the price of silver and appreciate that of gold is, therefore, practically spent; and we are relegated, as a basis for calculation as to the future, to the effect of the other causes noted, both of which are still in full operation. Commercial developments are still lessening the amount of metal required to facilitate a given quantity of exchanges; and the annual production of gold has of late so rapidly increased as to promise for the year 1895 a greater output of that metal alone than of both combined during any four years before 1850. Indeed, the rate of increase of gold production during the last two years-due apparently to causes which must continue until the world's supply of gold shall be materially increased from its present proportion to the demand therefor-has been such that, if continued until 1900, it will have added, in gold alone, to our stock of precious metals, during this decade, more than the production of both silver and gold for any ten years previous to 1890. It seems, therefore, clear, first, that the last quarter century has been that in which has culminated a world-wide movement to displace silver and appreciate, comparatively, the commercial value of gold; that the operation of this cause is not merely practically at an end, but that its workings have coincided with and set in motion compensating forces; as a result of which the value of gold must henceforth steadily depreciate, as a consequence of the steadily increasing proportion which its supply from this time on will bear to the world's demand for its use—even assuming that the world's finances are hereafter to be conducted upon a strictly monometallic basis-that of gold. SOUND CURRENCY. Published SemI-MONTHLY BY THE SOUND CURRENCY COMMITTEE OF THE Each number contains à special discussion of some Sound Currency question. The office of Congress in this case is simply to see to it that the notes of the State bank are constituted a sound instrument of exchange, safely usable, when necessary, in any part of the country. To insure that object, all that is needful is to require as a condition precedent to issuing such paper that it shall be subject to guarantees identical with those suggested as for the National banks, namely: (1) That the issues of banks doing business under the laws of a State shall not exceed in amount 75% of their paid-up capital; (2) That the notes of such banks shall constitute a first lien upon the whole assets of the bank and upon the duplicate liability of the stockholders; (3) That a series of central agencies shall be established for the redemption of their notes: (4) That these banks shall be subject to regular official examination; and (5) That State banks conforming to these conditions shall be exempt from the 10% tax; while all banks issuing notes in non-compliance with these stipulations shall remain subject to a tax of 10% on all such issues. OUR PAPER CURRENCY. AS IT IS AND AS IT SHOULD BE. W. DODSWORTH. A CENTURY OF MONETARY FAILURES. MEASURES OF REMEDY.... HOW SHALL THE LEGAL TENDERS BE RETIRED ?..... THE NATIONAL BANKS AS A FACTOR IN CIRCULATION.. AN AMENDED GUARANTY.. LIMITATION UPON ISSUES... IS THE PROPOSED GUARANTY SUFFICIENT?.. THE STATE BANKS A NECESSARY FACTOR.. THEIR PRESENT STATUS... RIGHTS AND DUTIES OF GOVERNMENT.. CURRENT REDEMPTION OF NOTES.. PAGE. 190 191 193 .... 184 194 195 .. 195 .. 196 . 197 197 198 199 A CENTURY OF MONETARY FAILURES. Whatever reasons for a high national pride the American people may legitimately advance, their monetary history is not one of them. A century of effort to produce a scientific, sound and convenient circulating medium has been productive of lamentable failure. We began our experience with fiat government paper. After the disastrous failure of that folly, we tried the expedient of issuing notes by two specially authorized United States banks; which equally ended in disaster, alike to the banks and the public. From an early period in the century up to 1864, our chief dependence for circulation was upon banks chartered by authority of the States, of which, in 1860, some 1,600 were putting out circulation to the amount of $202,000,000. Those issues were so inadequately guaranteed and the provision for their redemption was so imperfect, that the public became wearied of the uncertainty of their value and the losses to which the note-holders were exposed. The people, therefore, were only too glad to hail the supersedure of the State bank issues by the more carefully guarded circulation provided under the National Banking Act of 1864. That enactment, however, was dictated by the necessities of war finance; its main purpose being to provide a fixed resting place for a large amount of Government bonds. With that end in view, banks issuing under this law were required to deposit with the Treasury United States bonds to the extent of about 11 per cent. in excess of the amount of their circulating notes; and, in order to bring under the new system the largest possible number of banks, the State institutions were prevented from issuing by the imposition of a tax of 10 per cent. per annum on their outstanding notes. This system, it is true, remedied the worst defect of the State bank notes-the varying discounts from their value;—but the severity of the guarantee has had the effect of driving one-half of the national currency out of circulation, thereby creating a popular demand for silver money and seeming to justify it. As a means of providing an adequate supply of bank circulation, the national system has thus largely failed of its purpose. So far as respects bank and State paper, we have, therefore, had four successive and complete failures within the century. The emergencies of the war period forced into our currency arrangements elements still more vicious than those above specified. We have now outstanding $345,000,000 of greenbacks, then issued as a forced loan. Behind them there is no fixed guarantee, beyond a promise to maintain a reserve of $100,000,000 in gold, in order to provide for their current redemption; of which promise the less said the better, in view of its perpetual infraction within the last two years. The constitutionality of these issues still remains gravely uncertain. They act as a constant menace to the credit of the Government, and serve as a precedent and an encouragement to further prostitutions of State powers to semi-banking functions. The notes are the more dangerous because of their legal-tender quality, which constitutes them the chief element in bank reserves and a money of final settlement that surrounds investments with the gravest uncertainties. Most inexcusably, since 1890 the quality of these notes has been further deteriorated by the issue of $150,000,000 of Treasury notes against purchases of silver, which are also an unlimited legal tender, and are, equally with the greenbacks, a claim upon the $100,000,000 gold reserve. 'The uncertainty of this joint reserve against the two classes of notes is illustrated by the fact that in February, 1895, it stood at a fraction over 8 per cent., the original legal intent being that it should be 30 per cent. Such is the quality of our much-belauded legal tenders. Is it strange that the country should have become impatient to get rid of them? The manifold defects of our bank and Government paper have been tenfold aggravated by the forced issue of $550,000,000 of silver money at a coinage valuation double that of the bullion value of the contents. This silver currency being a full legal tender, our $500,000,000 of legal tenders and our $200,000,000 of bank circulation are alike redeemable in the depreciated coin, and must be actually so redeemed in the event of the Treasury being unable to meet its obligations in gold-a catastrophe which has been twice most perilously imminent within the last twelve months. We have thus tried within the first century of our national existence no less than six systems for satisfying our currency requirements, each of which has demonstrated its rottenness or its insufficiency by its failure. We have to-day seven distinct forms of currency independently of subsidiary money, only two of which-gold coin and gold certificates-can be regarded as really sound money; and we have consigned nearly as many more to the limbo of monetary abortions. By the policy of arbitrary issues we have swelled the proportionate supply of money beyond all normal requirements, the amount of currency having risen from $13.85 per head of population in 1860 to $24 in 1893. Our system is utterly devoid of homogeneity. We have two standards, between which there is a daily varying divergence. We have $550,000,000 of coin intrinsically worth only fifty cents on the dollar. We have $500,000,000 of notes which, though supposably payable in gold, have very recently been on the verge of becoming redeemable in a coin which has lost half its legal value. We have $200,000,000 of bank paper which, though sure of liquidation in full, has yet no guarantee as to the value of the money in which it may be redeemed. We are supposed to have $600,000,000 of gold, which is the only money we possess that can be considered fit for the purposes of a rich and honorable nation. The Legal Tenders are supposed to represent gold either in hand or procurable when wanted. But the truth is that the ability of the Government to honor its notes is wholly dependent on the metropolitan banks, which can, at their pleasure, either deprive the Treasury of its sole gold income by giving out paper to pay customs duties, or withdraw from the Treasury all the gold needed for the export of that metal-a policy which the banks have actually enforced for the last three years, with the result of twice bringing the Government to the verge of suspension of gold payments. This is the situation into which our monetary system has drifted through permitting the Government to become the creator and, directly or indirectly, the sponsor of three-fourths of our enormously inflated circulation. These, expressed in very general terms, are the features of the monetary disorganization which awaits remedy. MEASURES OF REMEDY. The first step toward educing order and soundness out of this medley mass of monetary instruments must be the retirement of the paper legal tender, consisting of $346,681,000 of United States notes, or greenbacks," and $150,705,000 of Treasury notes, generally known as "Sherman notes." Few nations have escaped the temptation to issue paper legal tender under pressure of fiscal emergencies; and the result has almost invariably been dishonor to the credit of the Government, and disaster to the interests of the people. Our own experience under this form of borrowing has been little exceptional to the rule of the world. It must be conceded, however, that the greenbacks have a history which has won for them a certain degree of popular attachment. They helped us through the straits of our war finance. Since the resumption of specie payments they have suffered no taint of credit. For the principal uses of money they have been practically "as good as gold; " and the world over they have ranked with the notes of the Bank of England, or the Bank of France, or the German Reichsbank. Thus it has come to pass that the greenback has acquired a prestige which has made it a fundamental factor in our monetary system. Popular preferences, however, are not always infallible; and experience is always demonstrating how easily a fatal fallacy may lurk in the shadow of a conventional idol. When United States notes were first authorized, the expedient was widely con demned by the intelligent sentiment of the country, and, still more, by the expert verdict of bankers. None pretended to defend them on principle; many questioned their constitutionality; and the Legal Tender Act was acquiesced in only as an inevitable resort of war finance. The issues were kept in check as far as possible and were assumed to be only transient. For some years after the war, the conservative opinion of the country was in favor of repealing the Legal Tender Act, and the last thing thought of was that the notes should be assigned a foremost rank in our various forms of money. The instrument that was first condemned on economic grounds and distrusted for its illegitimacy as a creation of Government has at last, however, become the chief corner stone of our banking economy and of our credit structure. And yet there is not one of the reasons originally urged against this strained exercise of power that does not equally hold good to-day. It is contrary to every legitimate function of government that the Federal Power should in times of peace undertake to guarantee credit money for the people. The Government may properly "coin money" for the owners of bullion; fix its weight, fineness and value; and devise its image and superscription; but any authorization supposed to be conveyed by the language of the Federal Constitution beyond this comes only of the most violent construction of the plain terms of that charter. The Legal Tender Act is purely an unrestrained exercise of the power of arms that overrides even fundamental law. Its only warrant is the brute maxim, "inter arma silent leges." As a subjection of law to an extra-legal necessity, it should have been tolerated for no longer than while the necessity which gave it birth remained in force. The needless prolongation of this act is a deliberate, perpetual violence to the fundamental law of the Republic; and its unopposed toleration is calculated to vitiate that jealous respect for Constitutional authority on which the safety of our institutions supremely depends. It is scarcely possible to conceive of a more vicious perversion of the functions of government than the issuing of a paper currency based upon the mere credit of the central power. The issuing of a circulatory credit is distinctly a banking function, and, as such, cannot be properly done by a government, which has no right to assume fiduciary responsibilities in behalf of private interests. Its legitimate debts are more than a government is wont to care for wisely; why then should the State assume sponsorship for a vast amount of demand liabilities in behalf of merchants and bankers whose natural business it is to provide these instruments, and who best understand the requirements of the case? Governments are exposed to special risks and to wide irregularities of income and expenditure, which, by endangering their credit, expose their currency obligations to depreciation, to irredeemability and even repudiation. At one time or another, state currencies are sure to be overtaken with these defaults; when the investments and the commerce of the nation suffer accordingly. In order to maintain its stability of value, credit money should always be guaranteed by convertible assets, readily within reach of the law; but how can a government be assured of having a sufficiency of available assets whenever its note-holders please to demand the redemption of its notes? The State may provide a gold reserve against its issues; but how surely do other more urgent demands of government divert such reserves to other purposes! It may have the power to tax the people to pay its notes; but how rarely is a legislature found willing to authorize taxation for any such purpose! If a people cannot be trusted to provide their own credit money, certainly the State cannot ; for no government has practically a financial resource equal to that of its organized citizens, nor a steadiness of control over its means comparable to that of the voluntary action of the people at large. The recent position of the United States Treasury affords a fair illustration of what may at an unexpected moment befall a government which has undertaken to furnish paper circulation for the people. Though its long obligations may enjoy the highest credit, its demand notes may be thrown into sudden default, and plunge the nation into consequent panic. |