Chapter IX: Great Questions and Great Answers (2)

“From the official records of the Treasury Department it appears
that, from the beginning of the American Revolution in 1775 to the
beginning of the late rebellion, the total expenditures of the
Government for all purposes, including the assumed war debts of the
States, amounted to $2,250,000,000. The expenditure of four years of
the rebellion were nearly $1,100,000,000 more than all the other
Federal expenses since the Declaration of Independence. The debt of
England, which had its origin in the revolution of 1688, and was
increased by more than one hundred years of war and other political
disasters, had reached in 1793 the sum of $1,268,000,000. During the
twenty-two years that followed, while England was engaged in a life
and death struggle with Napoleon (the greatest war in history save
our own), $3,056,000,000 were added to her debt. In our four years
of war we spent $300,000,000 more than the amount by which England
increased her debt in twenty-two years of war; almost as much as she
had increased it in one hundred and twenty-five years of war. Now,
the enormous demand which this expenditure created for all the
products of industry stimulated to an unparalleled degree every
department of business. The plow, furnace, mill, loom, railroad,
steamboat, telegraph—all were driven to their utmost capacity.
Warehouses were emptied; and the great reserves of supply, which all
nations in a normal state keep on hand, were exhausted to meet the
demands of the great consumer. For many months the Government
swallowed three millions per day of the products of industry. Under
the pressure of this demand, prices rose rapidly in every department
of business. Labor every-where found quick and abundant returns. Old
debts were canceled, and great fortunes were made.

“For the transaction of this enormous business an increased amount
of currency was needed; but I doubt if any member of this House can
be found bold enough to deny that the deluge of Treasury notes
poured upon the country during the war was far greater even than the
great demands of business. Let it not be forgotten, however, that
the chief object of these issues was not to increase the currency of
the country. They were authorized with great reluctance, and under
the pressure of overwhelming necessity, as a temporary expedient to
meet the demands of the Treasury. They were really forced loans in
the form of Treasury notes. By the act of July 17, 1861, an issue of
demand notes was authorized to the amount of $50,000,000. By the act
of August 5, 1861, this amount was increased $50,000,000 more. By
the act of February 25, 1862, an additional issue of $150,000,000
was authorized. On the 17th of the same month, an unlimited issue of
fractional currency was authorized. On the 17th of January, 1873, an
issue of $150,000,000 more was authorized, which was increased
$50,000,000 by the act of March 3d of the same year. This act also
authorized the issue of one and two years’ Treasury notes, bearing
interest at five per cent., to be a legal tender for their face, to
the amount of $400,000,000. By the act of June 30, 1864, an issue of
six per cent. compound-interest notes, to be a legal tender for
their face, was authorized, to the amount of $200,000,000. In
addition to this, many other forms of paper obligation were
authorized, which, though not a legal tender, performed many of the
functions of currency. By the act of March 1, 1862, the issue of an
unlimited amount of certificates of indebtedness was authorized, and
within ninety days after the passage of the act there had been
issued and were outstanding of these certificates more than
$156,000,000. Of course these issues were not all outstanding at the
same time, but the acts show how great was the necessity for loans
during the war.

“The law which made the vast volume of United States notes a legal
tender operated as an act of general bankruptcy. The man who loaned
$1,000 in July, 1861, payable in three years, was compelled by this
law to accept at maturity, as a full discharge of the debt, an
amount of currency equal in value to $350 of the money he loaned.
Private indebtedness was every-where canceled. Rising prices
increased the profits of business, but this prosperity was caused by
the great demand for products, and not by the abundance of paper
money. As a means of transacting the vast business of the country, a
great volume of currency was indispensable, and its importance can
not well be overestimated. But let us not be led into the fatal
error of supposing that paper money created the business or produced
the wealth. As well might it be alleged that our rivers and canals
produce the grain which they float to market. Like currency, the
channels of commerce stimulate production, but can not nullify the
inexorable law of demand and supply.

“Mr. Chairman, I have endeavored to trace the progress of our
industrial revolution in passing from peace to war. In returning
from war to peace all the conditions were reversed. At once the
Government ceased to be an all-devouring consumer. Nearly two
million able-bodied men were discharged from the army and navy and
enrolled in the ranks of the producers. The expenditures of the
Government, which, for the fiscal year ending June 30, 1865,
amounted to $1,290,000,000, were reduced to $520,000,000 in 1866; to
$346,000,000 in 1867; and, if the retrenchment measures recommended
by the Special Commissioner of the Revenue be adopted, another year
will bring them below $300,000,000.

“Thus during the first year after the war the demands of the Federal
Government as a consumer decreased sixty per cent.; and in the
second year the decrease had reached seventy-four per cent., with a
fair prospect of a still further reduction.

“The recoil of this sudden change would have produced great
financial disaster in 1866, but for the fact that there was still
open to industry the work of replacing the wasted reserves of
supply, which, in all countries in a healthy state of business, are
estimated to be sufficient for two years. During 1866, the fall in
price of all articles of industry amounted to an average of ten per
cent. One year ago a table was prepared, at my request, by Mr.
Edward Young, in the office of the Special Commissioner of the
Revenue, exhibiting a comparison of wholesale prices at New York in
December, 1865, and December, 1866. It shows that in ten leading
articles of provisions there was an average decline of twenty-two
per cent., though beef, flour, and other breadstuffs remained nearly
stationary. On cotton and woolen goods, boots, shoes, and clothing,
the decline was thirty per cent. On the products of manufacture and
mining, including coal, cordage, iron, lumber, naval stores, oils,
tallow, tin, and wool, the decline was twenty-five per cent. The
average decline on all commodities was at least ten per cent.
According to the estimates of the Special Commissioner of the
Revenue in his last report, the average decline during 1867 has
amounted at least to ten per cent. more. During the past two years
Congress has provided by law for reducing internal taxation
$100,000,000; and the act passed a few weeks ago has reduced the tax
on manufactures to the amount of $64,000,000 per annum. The repeal
of the cotton tax will make a further reduction of $20,000,000.
State and municipal taxation and expenditures have also been greatly
reduced. The work of replacing these reserves delayed the shock and
distributed its effects, but could not avert the inevitable result.
During the past two years, one by one, the various departments of
industry produced a supply equal to the demand. Then followed a
glutted market, a fall in prices, and a stagnation of business, by
which thousands of laborers were thrown out of employment.

“If to this it be added that the famine in Europe and the drought in
many of the agricultural States of the Union have kept the price of
provisions from falling as other commodities have fallen, we shall
have a sufficient explanation of the stagnation of business, and the
unusual distress among our people.

“This industrial revolution has been governed by laws beyond the
reach of Congress. No legislation could have arrested it at any
stage of its progress. The most that could possibly be done by
Congress was, to take advantage of the prosperity it occasioned to
raise a revenue for the support of the Government, and to mitigate
the severity of its subsequent pressure, by reducing the vast
machinery of war to the lowest scale possible. Manifestly nothing
can be more absurd than to suppose that the abundance of currency
produced by the prosperity of 1863, 1864, and 1865, or that the want
of it is the cause of our present stagnation.

“In order to reach a satisfactory understanding of the currency
question, it is necessary to consider somewhat fully the nature and
functions of money or any substitute for it.

“The theory of money which formed the basis of the ‘mercantile
system’ of the seventeenth and eighteenth centuries has been
rejected by all leading financiers and political economists for the
last seventy-five years. That theory asserted that money is wealth;
that the great object of every nation should be to increase its
amount of gold and silver; that this was a direct increase of
national wealth.

“It is now held as an indisputable truth that money is an instrument
of trade, and performs but two functions. It is a measure of value
and a medium of exchange.

“In cases of simple barter, where no money is used, we estimate the
relative values of the commodities to be exchanged in dollars and
cents, it being our only universal measure of value.

“As a medium of exchange, money is to all business transactions what
ships are to the transportation of merchandise. If a hundred vessels
of a given tonnage are just sufficient to carry all the commodities
between two ports, any increase of the number of vessels will
correspondingly decrease the value of each as an instrument of
commerce; any decrease below one hundred will correspondingly
increase the value of each.

“The functions of money as a medium of exchange, though more
complicated in their application, are precisely the same in
principle as the functions of the vessels in the case I have
supposed.

“If we could ascertain the total value of all the exchanges effected
in this country by means of money in any year, and could ascertain
how many dollars’ worth of such exchanges can be effected in a year
by one dollar in money, we should know how much money the country
needed for the business transactions of that year. Any decrease
below that amount will correspondingly increase the value of each
dollar as an instrument of exchange. Any increase above that amount
will correspondingly decrease the value of each dollar. If that
amount be doubled, each dollar of the whole mass will perform but
half the amount of business it did before; will be worth but half
its former value as a medium of exchange.

“Recurring to our illustration: if, instead of sailing vessels,
steam vessels were substituted, a much smaller tonnage would be
required; so, if it were found that $500,000,000 of paper, each
worth seventy cents in gold, were sufficient for the business of the
country, it is equally evident that $350,000,000 of gold substituted
for the paper would perform precisely the same amount of business.

“It should be remembered, also, that any improvement in the mode of
transacting business, by which the actual use of money is in part
dispensed with, reduces the total amount needed by the country. How
much has been accomplished in this direction by recent improvements
in banking may be seen in the operations of the clearing-houses in
our great cities.

“The records of the New York Clearing House show that from October
11, 1853, the date of its establishment, to October 11, 1867, the
exchanges amounted to nearly $180,000,000,000; to effect which, less
than $8,000,000,000 of money were used, an average of about four per
cent.; that is, exchanges were made to the amount of $100,000,000 by
the payment of $4,000,000 of money.

“It is also a settled principle that all deposits in banks, drawn
upon by checks and drafts, really serve the purpose of money.

“The amount of currency needed in the country depends, as we have
seen, upon the amount of business transacted by means of money. The
amount of business, however, is varied by many causes which are
irregular and uncertain in their operation. An Indian war, deficient
or abundant harvests, an overflow of the cotton lands of the South,
a bread famine or war in Europe, and a score of such causes entirely
beyond the reach of legislation, may make money deficient this year
and abundant next. The needed amount varies also from month to month
in the same year. More money is required in the autumn, when the
vast products of agriculture are being moved to market, than when
the great army of laborers are in winter-quarters, awaiting the
seed-time.

“When the money of the country is gold and silver, it adapts itself
to the fluctuations of business without the aid of legislation. If,
at any time, we have more than is needed, the surplus flows off to
other countries through the channels of international commerce. If
less, the deficiency is supplied through the same channels. Thus the
monetary equilibrium is maintained. So immense is the trade of the
world that the golden streams pouring from California and Australia
in the specie circulation, are soon absorbed in the great mass and
equalized throughout the world, as the waters of all the rivers are
spread upon the surface of all the seas.

“Not so, however, with an inconvertible paper currency. Excepting
the specie used in the payment of customs and the interest on our
public debt, we are cut off from the money currents of the world.
Our currency resembles rather the waters of an artificial lake,
which lie in stagnation or rise to full banks at the caprice of the
gate-keeper.

“Gold and silver abhor depreciated paper money, and will not keep
company with it. If our currency be more abundant than business
demands, not a dollar of it can go abroad; if deficient, not a
dollar of gold will come in to supply the lack. There is no
legislature on earth wise enough to adjust such a currency to the
wants of the country.

“Let us examine more minutely the effect of such a currency upon
prices. Suppose that the business transactions of the country at the
present time require $350,000,000 in gold. It is manifest that if
there are just $350,000,000 of legal-tender notes, and no other
money in the country, each dollar will perform the full functions of
a gold dollar, so far as the work of exchange is concerned. Now,
business remaining the same, let $350,000,000 more of the same kind
of notes be pressed into circulation. The whole volume, as thus
increased, can do no more than all the business. Each dollar will
accomplish just half the work that a dollar did before the increase;
but as the nominal dollar is fixed by law, the effect is shown in
prices being doubled. It requires two of these dollars to make the
same purchase that one dollar made before the increase. It would
require some time for the business of the country to adjust itself
to the new conditions, and great derangement of values would ensue;
but the result would at last be reached in all transactions which
are controlled by the law of demand and supply.

“No such change of values can occur without cost. Somebody must pay
for it. Who pays in this case? We have seen that doubling the
currency finally results in reducing the purchasing power of each
dollar one-half; hence every man who held a legal-tender note at the
time of the increase, and continued to hold it till the full effect
of the increase was produced, suffered a loss of fifty per cent. of
its value; in other words, he paid a tax to the amount of half of
all the currency in his possession. This new issue, therefore, by
depreciating the value of all the currency, cost the holders of the
old issue $175,000,000; and if the new notes were received at their
nominal value at the date of issue, their holders paid a tax of
$175,000,000 more. No more unequal or unjust mode of taxation could
possibly be devised. It would be tolerated only by being so involved
in the transactions of business as to be concealed from observation;
but it would be no less real because hidden.

“But some one may say: ‘This depreciation would fall upon
capitalists and rich men, who are able to bear it.’

“If this were true, it would be no less unjust. But, unfortunately,
the capitalists would suffer less than any other class. The new
issue would be paid in the first place in large amounts to the
creditors of the Government; it would pass from their hands before
the depreciation had taken full effect, and, passing down step by
step through the ranks of middle-men, the dead weight would fall at
last upon the laboring classes in the increased price of all the
necessaries of life. It is well known that in a general rise of
prices, wages are among the last to rise. This principle was
illustrated in the report of the Special Commissioner of the Revenue
for the year 1866. It is there shown that from the beginning of the
war to the end of 1866, the average price of all commodities had
risen ninety per cent. Wages, however, had risen but sixty per cent.
A day’s labor would purchase but two-thirds as many of the
necessaries of life as it would before. The wrong is, therefore,
inflicted on the laborer long before his income can be adjusted to
his increased expenses. It was, in view of this truth, that Daniel
Webster said, in one of his ablest speeches:

“‘Of all the contrivances for cheating the laboring classes of
mankind, none has been more effectual than that which deludes them
with paper money. This is the most effectual of inventions to
fertilize the rich man’s field by the sweat of the poor man’s brow.
Ordinary tyranny, oppression, excessive taxation, these bear lightly
on the happiness of the mass of the community, compared with a
fraudulent currency and the robberies committed by depreciated
paper.’

“The fraud committed and the burdens imposed upon the people, in the
case we have supposed, would be less intolerable if all business
transactions could be really adjusted to the new conditions; but
even this is impossible. All debts would be canceled, all contracts
fulfilled by payment in these notes—not at their real value, but for
their face. All salaries fixed by law, the pay of every soldier in
the army, of every sailor in the navy, and all pensions and
bounties, would be reduced to half their former value. In these
cases the effect is only injurious. Let it never be forgotten that
every depreciation of our currency results in robbing the one
hundred and eighty thousand pensioners, maimed heroes, crushed and
bereaved widows, and homeless orphans, who sit helpless at our feet.
And who would be benefited by this policy? A pretense of apology
might be offered for it, if the Government could save what the
people lose. But the system lacks the support of even that selfish
and immoral consideration. The depreciation caused by the over-issue
in the case we have supposed, compels the Government to pay just
that per cent. more on all the contracts it makes, on all the loans
it negotiates, on all the supplies it purchases; and to crown all,
it must at last redeem all its legal-tender notes in gold coin,
dollar for dollar. The advocates of repudiation have not yet been
bold enough to deny this.

“I have thus far considered the influence of a redundant paper
currency on the country when its trade and industry are in a healthy
and normal state. I now call attention to its effect in producing an
unhealthy expansion of business, in stimulating speculation and
extravagance, and in laying the sure foundation of commercial
revulsion and widespread ruin. This principle is too well understood
to require any elaboration here. The history of all modern nations
is full of examples. One of the ablest American writers on banks and
banking, Mr. Gouge, thus sums up the result of his researches:

“‘The history of all our bank pressures and panics has been the same
in 1825, in 1837, and in 1843; and the cause is given in these two
simple words—universal expansion.’

“There still remains to be considered the effect of depreciated
currency on our trade with other nations. By raising prices at home
higher than they are abroad, imports are largely increased beyond
the exports; our coin must go abroad; or, what is far worse for us,
our bonds, which have also suffered depreciation, and are purchased
by foreigners at seventy cents on the dollar. During the whole
period of high prices occasioned by the war, gold and bonds have
been steadily going abroad, notwithstanding our tariff duties, which
average nearly fifty per cent. _ad valorem_. More than five hundred
million dollars of our bonds are now held in Europe, ready to be
thrown back upon us when any war or other sufficient disturbance
shall occur. No tariff rates short of actual prohibition can prevent
this outflow of gold while our currency is thus depreciated. During
these years, also, our merchant marine steadily decreased, and our
ship-building interests were nearly ruined.

“Our tonnage engaged in foreign trade, which amounted in 1859–’60 to
more than two and a-half million tons, had fallen in 1865–’66 to
less than one and a-half millions—a decrease of more than fifty per
cent.; and prices of labor and material are still too high to enable
our shipwrights to compete with foreign builders.

“From the facts already exhibited in reference to our industrial
revolution, and from the foregoing analysis of the nature and
functions of currency, it is manifest:

“1. That the remarkable prosperity of all industrial enterprises
during the war was not caused by the abundance of currency, but by
the unparalleled demand for every product of labor.

“2. That the great depression of business, the stagnation of trade,
the ‘hard times’ which have prevailed during the past year, and
which still prevail, have not been caused by an insufficient amount
of currency, but mainly by the great falling off of the demand for
all the products of labor, compared with the increased supply since
the return from war to peace.

“I subjoin a table, carefully made up from the official records,
showing the amount of paper money in the United States at the
beginning of each year from 1834 to 1868 inclusive. The fractions of
millions are omitted:

1834 $ 95,000,000
1835 104,000,000
1836 140,000,000
1837 149,000,000
1838 116,000,000
1839 135,000,000
1840 107,000,000
1841 107,000,000
1842 84,000,000
1843 59,000,000
1844 75,000,000
1845 90,000,000
1846 105,000,000
1847 106,000,000
1848 129,000,000
1849 115,000,000
1850 131,000,000
1851 155,000,000
1852 150,000,000
1853 146,000,000
1854 205,000,000
1855 187,000,000
1856 196,000,000
1857 215,000,000
1858 135,000,000
1859 193,000,000
1860 207,000,000
1861 202,000,000
1862 218,000,000
1863 529,000,000
1864 636,000,000
1865 948,000,000
1866 919,000,000
1867 852,000,000
1868 767,000,000

“The table I have submitted shows how perfect an index the currency
is of the healthy or unhealthy condition of business, and that every
great financial crisis, during the period covered by the table, has
been preceded by a great increase, and followed by a great and
sudden decrease, in the volume of paper money. _The rise and fall of
mercury in the barometer is not more surely indicative of an
atmospheric storm, than is a sudden increase or decrease of currency
indicative of financial disaster._ Within the period covered by the
table, there were four great financial and commercial crises in this
country. They occurred in 1837, 1841, 1854, and 1857. Observe the
volume of paper currency for those years: On the first day of
January, 1837, the amount had risen to $149,000,000, an increase of
nearly fifty per cent. in three years. Before the end of that year,
the reckless expansion, speculation, and over-trading which caused
the increase, had resulted in terrible collapse; and on the first of
January, 1838, the volume was reduced to $116,000,000. Wild lands,
which speculation had raised to fifteen and twenty dollars per acre,
fell to one dollar and a-half and two dollars, accompanied by a
corresponding depression in all branches of business. Immediately
after the crisis of 1841, the bank circulation decreased twenty-five
per cent., and by the end of 1842 was reduced to $58,500,000, a
decrease of nearly fifty per cent.

“At the beginning of 1853 the amount was $146,000,000. Speculation
and expansion had swelled it to $205,000,000 by the end of that
year, and thus introduced the crash of 1854. At the beginning of
1857 the paper money of the country reached its highest point of
inflation up to that time. There were nearly $215,000,000, but at
the end of that disastrous year the volume had fallen to
$135,000,000, a decrease of nearly forty per cent. in less than
twelve months. In the great crashes preceding 1837 the same
conditions are invariably seen—great expansion, followed by a
violent collapse, not only in paper money, but in loans and
discounts; and those manifestations have always been accompanied by
a corresponding fluctuation in prices.

“In the great crash of 1819, one of the severest this country ever
suffered, there was a complete prostration of business. It is
recorded in Niles’s _Register_ for 1820 that, in that year, an Ohio
miller sold four barrels of flour to raise five dollars, the amount
of his subscription to that paper. Wheat was twenty cents per
bushel, and corn ten cents. About the same time Mr. Jefferson wrote
to Nathaniel Macon:

“‘We have now no standard of value. I am asked eighteen dollars
for a yard of broadcloth which, when we had dollars, I used to
get for eighteen shillings.’

“But there is one quality of such a currency more remarkable than
all others—its strange power to delude men. The spells and
enchantments of legendary witchcraft were hardly so wonderful. Most
delusions can not be repeated; they lose their power after a full
exposure. Not so with irredeemable paper money. From the days of
John Law its history has been a repetition of the same story, with
only this difference: No nation now resorts to its use except from
overwhelming necessity; but whenever any nation is fairly embarked,
it floats on the delusive waves, and, like the lotus-eating
companions of Ulysses, wishes to return no more.

“Into this very delusion many of our fellow-citizens and many
members of this House have fallen.

“The chief cause of this new-born zeal for paper money is the same
as that which led a member of the Continental Congress to exclaim:

“‘Do you think, gentlemen, that I will consent to load my
constituents with taxes, when we can send to the printer and get
a wagon-load of money, one quire of which will pay for the
whole?’

“It is my clear conviction that the most formidable danger with
which the country is now threatened is a large increase in the
volume of paper money.

“Shall we learn nothing from experience? Shall the warnings of the
past be unheeded?”

Here followed a brilliant historical review of the experience of the Colonies, of the Continental Congress, and of England, with paper money.

“From these considerations it appears to me that the first step
toward a settlement of our financial and industrial affairs should
be to adopt and declare to the country a fixed and definite policy,
so that industry and enterprise may be based upon confidence; so
that men may know what to expect from the Government; and, above
all, that the course of business may be so adjusted that it shall be
governed by the laws of trade, and not by the caprice of any man or
of any political party in or out of Congress....

“On the 10th of February, I introduced a bill which, if it should
become a law, will, I believe, go far toward restoring confidence
and giving stability to business, and will lay the foundation on
which a general financial policy may be based, whenever opinions are
so harmonized as to make a general policy possible.

“As the bill is short, I will quote it entire, and call attention
for a few moments to its provisions:

“‘A BILL TO PROVIDE FOR A GRADUAL RETURN TO SPECIE PAYMENTS.

“‘_Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled_: That on and
after the first day of December, 1868, the Secretary of the
Treasury be, and he is hereby, authorized and directed to pay
gold coin of the United States for any legal-tender notes of the
United States, which may be presented at the office of the
Assistant Treasurer, at New York, at the rate of one dollar in
gold for one dollar and thirty cents in legal-tender notes. On
and after the first day of January, 1869, the rate shall be one
dollar in gold for one dollar and twenty-nine cents in
legal-tender notes; and at the beginning of and during each
succeeding month, the amount of legal-tender notes required in
exchange for one dollar in gold shall be one cent less than the
amount required during the preceding month, until the exchange
becomes one dollar in gold for one dollar in legal-tender notes;
and on and after the first day of June, 1871, the Secretary of
the Treasury shall exchange gold for legal-tender notes, dollar
for dollar. _Provided_: That nothing in this act shall be so
construed as to authorize the retirement or cancellation of any
legal-tender notes of the United States.’

* * * * *

“I do not doubt that, in anticipation of the operation of this
measure, should it become a law, gold would be at 130, or lower, by
the 1st of December, and that very little would be asked for from
the Treasury, in exchange for currency. At the beginning of each
succeeding month the exchange between gold and greenbacks would be
reduced one cent, and specie payments would be fully resumed in
June, 1871. That the country is fully able to resume by that time
will hardly be denied.

“With the $100,000,000 of gold now in the Treasury, and the amount
received from customs, which averages nearly half a million per day,
it is not at all probable that we should need to borrow a dollar in
order to carry out the provisions of the law.

“But taking the most unfavorable aspect of the case, and supposing
that the Government should find it necessary to authorize a gold
loan, the expense would be trifling compared with the resulting
benefits to the country. The proposed measure would incidentally
bring all the national banks to the aid of the Government in the
work of resumption. The banks are required by law to redeem their
own notes in greenbacks. They now hold in their vaults, as a reserve
required by law, $162,000,000, of which sum $114,000,000 are
greenbacks. Being compelled to pay the same price for their own
notes as for greenbacks, they would gradually accumulate a specie
reserve, and would be compelled to keep abreast with the Government
in every step of the progress toward resumption. The necessity of
redeeming their own notes would keep their circulation nearer home,
and would more equally distribute the currency of the country which
now concentrates at the great money centers, and produces scarcity
in the rural districts.

“This measure would not at once restore the old national standard of
value, but it would give stability to business and confidence to
business men every-where. Every man who contracts a debt would know
what the value of a dollar would be when the debt became due. The
opportunity now afforded to Wall Street gamblers to run up and run
down the relative price of gold and greenbacks would be removed. The
element of chance, which now vitiates our whole industrial system,
would, in great part, be eliminated.

“If this measure be adopted it will incidentally settle several of
our most troublesome questions. It will end the war between the
contractionists and the inflationists—a war which, like that of
Marius and Sylla, may almost prove fatal to the interests of the
country, whichever side may prevail. The amount of paper money will
regulate itself, and may be unlimited, so long as every dollar is
convertible into specie at the will of the holder.

“The still more difficult question of paying our five-twenty bonds
would be avoided—completely flanked by this measure. The money paid
to the wounded soldier, and to the soldier’s widow, would soon be
made equal in value to the money paid to all other creditors of the
Government.

“It will be observed that the bill does not authorize the
cancellation or retirement of any United States notes. It is
believed that, for a time at least, the volume of the currency may
safely remain as it now is. When the measure has been in force for
some time, it will be seen whether the increased use of specie for
purposes of circulation will not allow a gradual reduction of the
legal-tender notes. This can be safely left to subsequent
legislation. It will facilitate the success of this plan if Congress
will pass a bill to legalize contracts hereafter made for the
payment of coin. If this be done, many business men will conduct
their affairs on a specie basis, and thus retain at home much of our
gold that now goes abroad.

ENGLISH PRECEDENT.

“I have not been ambitious to add another to the many financial
plans proposed to this Congress, much less have I sought to
introduce a new and untried scheme. On the contrary, I regard it a
strong commendation of this measure, that it is substantially the
same as that by which Great Britain resumed specie payments, after a
suspension of nearly a quarter of a century.

“The situation of England at that time was strikingly similar to our
present situation. She had just emerged from a great war in which
her resources had been taxed to the utmost. Business had been
expanded, and high prices prevailed. Paper money had been issued in
unusual volume, was virtually a legal-tender, and had depreciated to
the extent of twenty-five per cent. Every financial evil from which
we now suffer prevailed there, and was aggravated by having been
longer in operation. Plans and theories without end were proposed to
meet the many difficulties of the case. For ten years the Bank of
England and the majority in Parliament vehemently denied that paper
money had depreciated, notwithstanding the unanswerable report of
the Bullion Committee of 1810, and the undeniable fact that it took
twenty-five per cent. more of notes than of coin to buy an ounce of
gold.

“Many insisted that paper was a better standard of value than coin.
Some denounced the attempt to return to specie as unwise, others as
impossible. William Cobbett, the famous pamphleteer, announced that
he would give himself up to be broiled on a gridiron whenever the
bank should resume cash payments; and for many years kept the
picture of a gridiron at the head of his _Political Register_, to
remind his readers of his prophecy. Every phase of the question was
discussed by the best minds of the kingdom, in and out of
Parliament, for more than ten years; and in May, 1819, under the
lead of Robert Peel, a law was passed fixing the time and mode of
resumption.

“It provided that on the 1st of February, 1820, the bank should
give, in exchange for its notes, gold bullion in quantities not less
than sixty ounces, at the rate of 81s. per ounce; that, from the 1st
of October, 1820, the rates should be 79s. 6d.; from the 1st of May,
1822, 79s. 10½d.; and on the 1st of May, 1823, the bank should
redeem all its notes in coin, whatever the amount presented. The
passage of the act gave once more a fixed and certain value to
money; and business so soon adjusted itself to the measure in
anticipation, that specie payments were fully resumed on the 1st of
May, 1821, two years before the time fixed by the law. Forty-seven
years have elapsed since then, and the verdict of history has
approved the wisdom of the act, notwithstanding the clamor and
outcry which at first assailed it. So plainly does this lesson apply
to us, that in the preface to one of the best histories of England,
recently published, the author, who is an earnest friend of the
United States, says:

“‘It seems to me that no thoughtful citizen of any nation can read
the story of the years before and after Peel’s bill of 1819,
extending over the crash of 1825–’26, without the strongest desire
that such risks and calamities may be avoided in his own country at
any sacrifice. There are several countries under the doom of
retribution for the license of an inconvertible paper currency, and
of these the United States are unhappily one. This passage of
English history may possibly help to check the levity with which the
inevitable ‘crash’ is spoken of by some, who little dream what the
horrors and griefs of such a convulsion are. It may do more if it
should show any considerable number of observers that the affairs of
the economic world are as truly and certainly under the control of
natural laws as the world of matter without and that of mind
within.’”

* * * * *

This speech is remarkable. It is wonderful. Had that resumption bill become a law, it is possible and probable that the panic of 1873, and the long years of distress might have been, if not avoided, at least greatly shortened and alleviated. The argument never was and never could be improved upon by any one. In the light of history that speech was a prophecy. Congress procrastinated a return to specie payment. Finally the crash came, as he had foretold. Garfield once said, “After the battle of arms comes the battle of history.” In writing a historical estimate of the leaders of the epoch which closed with the consummation of specie payments, the critical historian would rightly claim that this speech of General Garfield, in the spring of 1868, _five and a-half years before the panic_, must take rank as a triumph of statesmanship above every argument, no matter how able or eloquent, _made after the panic_. In this speech Garfield showed his conservatism again in favoring the continuation of greenbacks in circulation, the very thing which was done over the bitter opposition of resumptionists seven years before.

In the earlier part of the speech he showed the necessity of an adjustable volume of currency. With specie this was easy. With paper currency the volume could be made adjustable through banks. They were the institutions to ease us through the straits to resumption. Their mission was more fully elaborated in a speech of June 7, 1870. The West and South having an insufficient number of banks, and, consequently, lacking the currency of checks, drafts, etc., were suffering. To meet this, he presented a bill redistributing the banks. His views are what most concern us.

CURRENCY AND THE BANKS.

“I wish first to state a few general propositions touching the
subjects of trade and its instruments. A few simple principles form
the foundation on which rests the whole superstructure of money,
currency, and trade. They may be thus briefly stated:

“_First._ Money, which is a universal measure of value and a medium
of exchange, must not be confounded with credit currency in any of
its forms. Nothing is really money which does not of itself possess
the full amount of the value which it professes on its face to
possess. Length can only be measured by a standard which in itself
possesses length. Weight can only be measured by a standard, defined
and recognized, which in itself possesses weight. So, also, value
can only be measured by that which in itself possesses a definite
and known value. The precious metals, coined and stamped, form the
money of the world, because when thrown into the melting-pot and
cast into bars they will sell in the market as metal for the same
amount that they will pass for in the market as coined money. The
coining and stamping are but a certification by the government of
the quantity and fineness of the metal stamped. The coining
certifies to the value, but neither creates it nor adds to it.

“_Second._ Paper currency, when convertible at the will of the
holder into coin, though not in itself money, is a title to the
amount of money promised on its face; and so long as there is
perfect confidence that it is a good title for its whole amount, it
can be used as money in the payment of debts. Being lighter and more
easily carried, it is for many purposes more convenient than money,
and has become an indispensable substitute for money throughout all
civilized countries. One quality which it must possess, and without
which it loses its title to be called money, is that the promise
written on its face must be good and be kept good. The declaration
on its face must be the truth, the whole truth, and nothing but the
truth. If the promise has no value, the note itself is worthless. If
the promise affords any opportunity for doubt, uncertainty, or
delay, the note represents a vague uncertainty, and is measured only
by remaining faith in the final redemption of the promise.

“_Third._ Certificates of credit under whatever form, are among the
most efficient instruments of trade. The most common form of these
certificates is that of a check or draft. The bank is the
institution through which the check becomes so powerful an
instrument of exchange. The check is comparatively a modern
invention, whose functions and importance are not yet fully
recognized. It may represent a deposit of coin or of paper currency,
convertible or inconvertible; or may, as is more frequently the
case, represent merely a credit, secured by property in some form,
but not by money. The check is not money; yet, for the time being,
it performs all the functions of money in the payment of debts. No
greater mistake can be made than to suppose that the effective value
of currency is not directly increased by the whole amount of checks
in circulation.

“I would not for a moment lose sight of the great first necessity of
all exchanges, that they be measured by real money, the recognized
money of the world; nor of that other necessity next in importance,
that bank notes or treasury notes should represent real money;
should be of uniform value throughout the country, and should be
sufficient in amount to effect all those exchanges in which paper
money is actually used. I would keep constantly in view both these
important factors. But that is a superficial and incomplete plan of
legislation which does not include, in its provisions for the safe
and prompt transaction of business, those facilities which modern
civilization has devised, and which have so largely superseded the
use of both coin and paper money.

“The bank has become the indispensable agent and instrument of trade
throughout the civilized world, and not less in specie paying
countries than in countries cursed by an inconvertible paper
currency. Besides its function of issuing circulating notes, it
serves as a clearing-house for the transactions of its customers. It
brings the buyer and seller together, and enables them to complete
their exchanges. It brings debtors and creditors together, and
enables them to adjust their accounts. It collects the thousand
little hoards of unemployed money, and through loans and discounts
converts them into active capital. It is a reservoir which collects
in amounts available for use, the rain-drops which would otherwise
be lost by dispersion.

“I find there are still those who deny the doctrine that bank
deposits form an effective addition to the circulation. But let us
see. A bank is established at a point thirty or forty miles distant
from any other bank. Every man within that circle has been
accustomed is keep in his pocket or safe a considerable sum of money
during the year. That average amount is virtually withdrawn from
circulation, and for the time being is canceled, is dead. After a
new bank is established, a large portion of that average amount is
deposited with the bank, and a smaller amount is carried in their
safes and pockets. These accumulated deposits placed in the bank, at
once constitute a fund which can be loaned to those who need credit.
At least four-fifths of the average amount of deposits can be loaned
out, thus converting dead capital into active circulation.

“But the word deposits covers far more than the sums of actual money
placed in the bank by depositors. McLeod, in his great work on
banking, says: ‘Credits standing in bankers’ books, from whatever
source, are called deposits. Hence a deposit in banking language
always means a credit in a banker’s books in exchange for money or
securities for money,’—Vol. ii, p. 267.

“Much the largest proportion of all bank deposits are of this
class—mere credits on the books of the bank. Outside the bank, these
deposits are represented by checks and drafts. Inside the bank, they
effect settlements, and make thousands of payments by mere transfer
from one man’s account to that of another. This checking and
counter-checking and transferring of credit, amounts to a sum vastly
greater than all the deposits. No stronger illustration of the
practical use of deposits can be found than in the curious fact,
that all the heavy payments made by the merchants and dealers in the
city of Amsterdam for half a century, were made through a supposed
deposit which had entirely disappeared some fifty years before its
removal was detected. Who does not know that the six hundred
millions of dollars of deposits reported every quarter as a part of
the liabilities of the national banks, are mainly credits which the
banks have given to business men?

“No currency can meet the wants of this country unless it is founded
directly upon the demands of business, and not upon the caprice, the
ignorance, the political selfishness, of any party in power.

“What regulates now the loans and discounts and credits of our
National banks? The business of the country. The amount increases or
decreases, or remains stationary, as business is fluctuating or
steady. This is a natural form of exchange, based upon the business
of the country and regarded by its changes. And when that happy day
arrives, when the whole volume of our currency is redeemable in gold
at the will of the holder, and recognized by all nations as equal to
money, then the whole business of banking, the whole volume of
currency, the whole amount of credits, whether in the form of
checks, drafts, or bills, will be regulated by the same general
law—the business of the country.”

At last, Congress came up to the position taken by Garfield in 1868. In 1875, the Resumption Act was passed, providing that, after January 1, 1879, the United States Treasury would offer one dollar in gold for every dollar in greenbacks presented for redemption. That this law was ten years too late can not be doubted. The delay prolonged the agony. But it was all that popular opinion would allow. In the interim between 1875 and 1879, every effort was made by the paper-money men to repeal the act. Of General Garfield’s speeches in its defense, we select that of November 16, 1877, as the type. The reader shall see whether he had changed his views, whether the panic and hard times had disconcerted his calculations? Let James A. Garfield speak for himself:

THE REPEAL OF THE RESUMPTION ACT.

“We are engaged in a debate which has lasted in the Anglo-Saxon
world for more than two centuries, and hardly any phase of it to
which we have listened in the course of the last week is new. Hardly
a proposition has been heard on either side which was not made one
hundred and eighty years ago in England, and almost a hundred years
ago in the United States. So singularly does history repeat itself.

“That man makes a vital mistake who judges of truth in relation to
financial affairs from the changing phases of public opinion. He
might as well stand on the shores of the Bay of Fundy, and, from the
ebb and flow of a single tide, attempt to determine the general
level of the sea, as to stand on this floor and from the current of
public opinion in any one debate, judge of the general level of the
public mind. It is only when long spaces along the shore of the sea
are taken into account, that the grand level is found, from which
all heights and depths are measured. And it is only when long spaces
of time are considered that we find at last the level of public
opinion which we call the general judgment of mankind. From the
turbulent ebb and flow of the public opinion of to-day I appeal to
that settled judgment of mankind on the subject-matter of this
debate.

“In the short time which is allotted to me I invite the attention of
gentlemen, who do me the honor to listen, to a very remarkable fact.
I suppose it will be admitted on all hands, that 1860 was a year of
unusual business prosperity in the United States. It was at a time
when the bounties of Providence were scattered with a liberal hand
over the face of our Republic. It was a time when all classes of our
community were well and profitably employed. It was a time of peace;
the apprehension of our great civil war had not yet seized the minds
of our people. Great crops North and South, great general prosperity
marked the era.

“If one thing was settled above all other questions of financial
policy in the American mind at that time, it was this, that the only
sound, safe, trustworthy standard of value is coin of a standard
weight and fineness, or a paper currency convertible into coin at
the will of the holder. That was and had been for several
generations the almost unanimous opinion of the American people. It
is true there was here and there a theorist dreaming of the
philosopher’s stone, dreaming of a time when paper money, which he
worshiped as a kind of fetish, would be crowned as a god; but those
dreamers were so few in number that they made no ripple on the
current of public thought, and their theories formed no part of
public opinion, and the opinion of 1860–’61 was the aggregated
result of the opinions of all the foremost Americans who have left
their record upon this subject.

“I make this statement without fear of contradiction, because I have
carefully examined the list of illustrious names and the records
they have left behind them. No man ever sat in the chair of
Washington as President of the United States who has left on record
any word that favors inconvertible paper money as a safe standard of
value. Every President who has left a record on the subject has
spoken without qualification in favor of the doctrine I have
announced. No man ever sat in the chair of the Secretary of the
Treasury of the United States who, if he has spoken at all on the
subject, has not left on record an opinion equally strong, from
Hamilton down to the days of the distinguished father of my
colleague [Mr. Ewing], and to the present moment.

“The general judgment of all men who deserve to be called the
leaders of American thought ought to be considered worth something
in an American House of Representatives on the discussion of a great
topic like this. What happened to cause a departure from this
general level of public opinion? Every man knows the history. War,
the imperious necessities of war, led the men of 1861–’62 to depart
from the doctrine of the fathers; but they did not depart from it as
a matter of choice, but compelled by overmastering necessity. Every
man in the Senate and House of 1862 who voted for the greenback law,
announced that he did it with the greatest possible reluctance and
with the gravest apprehension for the result. Every man who spoke on
the subject, from Thaddeus Stevens to the humblest member in this
House, and from Fessenden to the humblest Senator, warned his
country against the danger that might follow, and pledged his honor
that at the earliest possible moment the country should be brought
back to the old, safe-established doctrine of the fathers.