Chapter XLVIII: Part II: Present Day Problems (2)

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

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

BY SAMUEL LEAVITT,
_Author of “Our Money Wars,” “Dictator Grant,” etc._

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

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

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

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

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

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

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

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

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

Our Coin for a Century.

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

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

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

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

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

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

United States Banks—Wild-Cat and State Banks.

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

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

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

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

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

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

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

The College Professor and the Facts.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Safety Fund—Suffolk and Redemption Banks.

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

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

In 1841 and 1842 eleven of the Safety Fund banks failed, making a loss to the creditors of $2,588,933. The fund was then $86,274. The whole amount of the fund to September 30, 1848, was only $1,876,063. The balance of the loss was provided by the State, which was to be reimbursed by further additions to the fund. That was very nice for the banks. In 1842 the act was so amended that the fund became chargeable only with the losses to the public on the note circulation, just as it is the case with the national banks now.

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

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

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

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

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

In a panicky time such redeeming banks must either put more capital into the service or reject the bills. In 1857, in spite of the best management, the currency circuit was kept up; the bills of one bank were paid for the bills of all the others.

Another evil arose from these banks. The credit given to an unsecured currency by their indorsement gave it a wide circulation, to the displacement of bills that were based upon State and United States stocks. It was now seen that this credit had no other basis than a current deposit by the issuing bank, which deposit was in very small proportion to its outstanding bills; and that the redeeming bank was prompt to the hour in repudiating those bills if the deposit was not maintained. This was a fallacious credit, entirely independent of the separate ability of the issuing banks. The general result was that bills were _likely to fail in transit_, and they would not then be admitted as a deposit, which would involve the rejection of others. And so the row of bricks began to tumble in both directions.

There was no incident of that panic that spread its terrors abroad with such sure and rapid steps as the rejection, by the redemption banks, of bills which they had been accustomed to receive on deposit. If it had been possible to remove all other causes of excitement, that alone would probably have involved the suspension of specie payments. It filled all the shops of the country with alarm. It created mobs in the savings banks, and pushed forward the panic, by exciting the fears of the multitude.

The Example of France.

Professor Laughlin has the gall, as few of his confreres have, to appeal to “the example of France,” after the Prussian war of 1871, in not “interfering with her media of exchange.” It is hard to tell whether his statement is based upon impudence or ignorance. She interfered with all the ideas of propriety entertained by his clique in a way that has been secretly their despair ever since. Yet hear his glorification of a scheme that cuts all the ground from under him. He says:

“France borrowed largely, collected large amounts of capital by the creation of her national debt, and, on the other hand, retained her circulating medium in so perfect a condition that the moment the war was over she slipped along smoothly upon the wheels of industrial success and prosperity, without any derangement of her business. And, during that time, she carried through one of the most magnificent schemes of exchange, in the form of the payment of indemnity, that has ever taken place in history. She actually paid that foreign indemnity of the war to Germany practically without deranging the rate of exchange in France.”

He don’t tell how. Don’t tell that she flooded all the avenues of trade with her paper money, and thus made her goods so plenty and cheap that Germany bought them instead of her own, and was then in turn nearly bankrupted; so that France paid three quarters of the “milliard” in French goods!

But hear the true story from Wendell Phillips, an all-round, up-to-date reformer, whose motto was, “Act in the living present.” When the monopolizers of black men were beaten he turned to face the monopolizers of all men and women. Here is his eloquent picture:

“France has just paid Germany one billion dollars. Her chief cities have been sacked and plundered. Humiliated by defeat, torn by civil dissensions, she laughs, while all the rest of Christendom wade through the mire of bankruptcy. Her ships are full busy, and what little other nations do is in carrying to and fro her manufactures. Her homes are happy, her streets crowded with passing trains loaded with goods; all her mills hurrying night and day to get even with her demand upon them. Labor walks rejoicing and capital sleeps easy, fat with its gains. What magician has done this? Paper money. Like the rest of the nations, she ran to its protection during the stress and strain of her German war. Unlike and wiser than the rest of us, she has not hurried back to coin. Wiser than we, she received the paper she offered to others. This honesty has its reward. Her paper is, to-day, more valuable than gold.”

Among the great results of this policy were an abundance of gold and silver coming from abroad, until $1,200,000,000 was found to be in the country.

Lest some may doubt the statement about the Germans only getting a little gold for that indemnity, an extract is here given from “Our Money Wars,” p. 152.

“Ivan C. Michels says: ‘The indemnity from France to Germany, after the war of 1870-71, including interest at five per cent. per annum, amounted to $1,060,209,015. After crediting France with the value of certain railroads in Alsace and Lorraine, the amount of indemnity due Germany was $998,172,069, or 4,990,860,349 francs, which was paid by the French government through the Bank of France. At my request the Bank of France furnished to me several years ago the following statement as to the mode of having paid said indemnity:

Francs. In bank notes of the Bank of France 125,000,000 In French gold coins 273,003,050 In French silver coins 239,291,875 In German bank notes 105,039,045 Bills of exchange drawn in thalers 2,485,513,729 Bills drawn on Frankfurt in florins 235,128,152 Bills drawn on Hamburg in marksbancs 265,216,990 Bills drawn on Berlin in reichsmarks 79,072,309 Bills drawn on Amsterdam in florins 250,540,821 Bills drawn on Antwerp and Brussels in francs 295,704,546 Bills drawn on London in pounds sterling 637,349,832 ——————- Total francs 4,990,860,349

“‘The patriotic people of France raised the vast sum by a loan in less than six months from the time the government appealed to them. Germany expected to receive for years to come five per cent. per annum on the indemnity bonds; but the Bank of France, through the French bankers, drew on Germany, England, Scotland and Belgium, and in four months’ time the whole indemnity was paid. Never in the history of the world has this financial transaction been equaled, and I doubt that any other banking institution could have succeeded so well as the Bank of France. Germany expected the payment in gold coin or bullion, having previously and purposely demonetized silver. But the fact remains that actually in gold only 273,003,050 francs, equal to $54,600,610, was paid by the Bank of France, and that sum only left France, was remelted in Germany and coined into reichsmarks. England, with her gold standard, had to part with her gold to the amount of 637,348,832 francs, equal to $127,469,964. Bills of exchange on the German bankers throughout the German empire, especially on Hamburg, Berlin and Frankfurt, came to 3,064,901,180 francs, equal to $612,986,236, nigh on two-thirds of the whole amount of the indemnity. This magnificent stroke of finance on the part of the Bank of France and the French bankers came near ruining the leading German bankers; and forty-one banking houses throughout the German empire had to suspend temporarily, not being able to honor the drafts made upon them. The extravagance of the German people during the war of 1870-71 brought them into debt to France for luxuries, wines, etc., to an enormous extent; and when the Bank of France purchased bills of exchange from the French bankers, who drew on their German correspondents, a panic ensued, and the Germans suffered more than is generally supposed.’”

The above from Michels shows that he saw but dimly what Phillips saw so plainly, that government paper money, nourishing all industries, gave France that victory. Michels catches a glimpse of the truth when he speaks of luxuries, wines, etc.

To get a clear view of the French financial genius we have to go back to 1848, when Louis Philippe abdicated and the republic was founded amid great confusion. The French have an instinct for finance far superior to anything yet shown—by our rulers at least—in England and America. “Paris,” says Victor Hugo, “is the city of the initiative.” It is not afraid to start things. It is not, like Washington and New York, always asking what London would do or think. Taking Louis Blanc’s advice in 1848, it started national work-shops to insure the employment of surplus labor. Those did good for a time, but they were soon perverted and destroyed by a treacherous Jew who got hold of them.

Another new departure was more successful. “Besides its regular financial operations,” says the London _Times_ of February 16, 1849, “the Bank of France made vast advances to the city of Paris, to Marseilles, to the Department of the Seine, and to the hospitals, amounting in all to 260,000,000 francs. But even this was not all. To enable the manufacturing interests to weather the storm, at a moment when all sales were interrupted, a decree of the National Assembly had directed warehouses to be opened for the reception of all kinds of goods, and provided that the registered invoices of these goods so deposited should be made negotiable by indorsement. The Bank of France discounted these receipts. In Havre alone 18,000,000 francs was thus advanced upon colonial products, and in Paris 14,000,000 on merchandise. In all 60,000,000 francs was thus made available for all the purposes of trade. Thus the great institution had placed itself, as it were, in direct contact with every interest of the community, from the Minister of the Treasury down to the trader in a distant part. Like a huge hydraulic machine, it employed its colossal powers to _pump a fresh stream into the exhausted arteries of trade_, to sustain credit and preserve the circulation from complete collapse.”

How like “a grimacing dance of apes” our American way of handling financial crises looks, in comparison with the above.

The Bank of England.

Prof. Laughlin showed the usual gold-bug worship of British finance in this:

“In the Bank of England the first moment of stringency the rate of discount is raised. That has the effect of preventing all unnecessary loans. The borrower who has good collateral will get the money if he is willing to pay an increased rate. Our system is such that we can loan until we come to the legal limit; and is deficient in that respect, as we cannot loan at a greater discount because of the iniquitous action of the usury laws. You can help a customer by increasing the rate. Just at the moment of the greatest stringency our American system is deficient.”

Ordinary decorous language would fail to characterize that infamous statement. The fact is that the British system is utterly brutal. Our “iniquitous usury laws” prevent a man from giving everything he has to the banks in hard times. The British system is that of Jay Gould in his gold corner of 1869. He settled with his debtors by “taking all they had.” He was merciful, and forgave them the balance; which is the usual stock exchange style.