THE CURRENCY. BY JOSEPH S. ROPES. BOSTON: NICHOLS AND NOYES. 1868. CAMBRIDGE : TRESS OF JOHN WILSON AND SON. tjy S. Vaught 3 3 u ^ 3, 1 c- SEMINAR PREFACE. The author of this pamphlet has no personal end to gain ; no new theory to propound ; not even a pet financial scheme to advocate. He simply desires to explain, as simply, briefly and distinctly as possible, the plain facts and principles re- lating to Paper Currency, and their application to our present situation. His sole object being to promote sound views and a healthy public sentiment on this subject, he has purposely avoided all controversy and all discussion of doubtful matters. o £ That even such elementary knowledge is needed, we have j melancholy proof in the absurd schemes and assertions to be c 1 found daily in the most widely circulated journals, and heard *- even in the halls of Congress. In these brief pages the author has sought merely to contribute his mite towards the C diffusion of truth and the triumph of common sense. Boston, May 1 , 1868 . THE CURRENCY. The principles of currency and finance are simple, and easily understood ; but it is often difficult to apply them, and especially to re-establish their operation when they have been for -a time disregarded. It is hoped that a plain statement of these prin- ciples, and a careful examination of the facts to which they apply, may aid many honest and intelligent minds among us to judge of the real state of affairs, to understand better the real causes of existing evils, and the proper remedy to be applied. At least the attempt, however imperfect, may elicit some truth, and expose some error. MONEY. Money is that commodity which is employed in any com- munity to measure the value and facilitate the exchange of other commodities. With us, and other commercial nations, the com- modity adopted almost exclusively for this purpose, and emi- nently suited to it, is gold. For the protection and convenience of the community, the Government coins this gold ; that is, it divides it into suitable pieces of uniform weight and fineness, the unit of which is called a dollar. As this coin is to measure value, it must of course itself possess value ; that is, it must cost as much labor to procure the dollar as to procure the articles for which it is to be exchanged. This value belongs to the metal itself, and is not communicated by the Government stamp, which merely certifies the weight and purity of the metal contained in each coin. If a gold coin were beaten into any other shape, so as to be no longer a coin at all, it would still retain its intrinsic value, and could be exchanged for about as much of other commodities as before. 6 CREDIT. It is obvious that, though all values are measured by money, a great many exchanges of commodities may be effected without the actual employment of money itself. A merchant may ex- change cotton for grain, or grain for cotton ; a farmer may sell his wool to the manufacturer, and receive in exchange the clothing needed for his family. The tailor, the shoemaker and the baker may supply each other with the products of their labor, and their mutual accounts may all be square without a single dollar passing between them. In all these transactions, however, the standard of value is as essential as if every one of them had been settled by the actual payment of coin. In other words, every thing bought, sold, or exchanged must be measured in dollars , or there would be no regularity in prices, and no certain basis of exchange. Every buyer must furnish, and every seller must receive, an equivalent in dollars, or in some- thing mutually agreed to be of the same value. But these exchanges are not all made at once, and are not always equal in amount. Where people are rich, and money abundant, the differences are easily paid in coin ; but where this is not the case, or even for the sake of mere convenience, people may allow their accounts to go on until, at the end of the month or year, a small amount of money may settle a large amount of exchanges. This is giving and taking credit ,* and, as long as no credit is given beyond the ability of the debtor to make it good, it is a legitimate and beneficial system. But this system of credit may be extended still farther. A man who has a large amount of money, deposits it for safe keeping in a bank, where he can hold a rich firm or corporation responsible for it. When he wants to use it, instead of drawing out the coin, which the receiver would probably again deposit in a bank, he gives an order (called a check) on the bank for the amount, or he takes the promise of the bank (called a bank- note) to pay it to the bearer. In this way he transfers to whom he pleases the right to receive the money from the bank. Here we have credit, not only economizing the use of money, but actually taking its place in circulation ; and, so long as the people who use these bank promises are certain of having them 7 redeemed on demand, they will prefer them to the coin itself, which is not so easily carried about, or remitted to a distance ; but if there is no such certainty, it is evident that checks and bank-notes cannot fulfil the office of coin. Now it is proved by experience, that when banks are thus known to be ready to redeem their promises in coin, a large part of the coin due from them is never called for, because the people prefer to use checks and bank-notes instead, and they even give to these paper promises the name of money ; and as the banks cannot afford to keep so much coin lying idle, and to do all the work of transfer for nothing, they pay themselves by lending , on interest, a part of the money thus left in their keep- ing, to those who can profitably employ it, and can be trusted to repay it when required. In this way, a large part of the gold coin belonging to the people finds its way out of the country, in exchange for commodities imported from abroad, enough only being retained to secure the ability of the banks to meet any probable demand. CURRENCY. In this way the whole mass of coin and credit settles into a kind of permanent equilibrium. That part of it which is used by the people as money, constitutes the currency of the country ; the remainder being held in reserve for the purpose of redeem- ing it. The currency thus consists of three parts : first, the coin in actual circulation, in men’s pockets and tills and cash-boxes, the amount of which (except small silver coin) has always apparently been small and insignificant in this country ; secondly, bank-notes, of which the smaller ones discharge most of our lesser daily payments, and the larger are chiefly used by banks and bankers ; thirdly, the amounts due from banks to their depositors, and made available chiefly by checks. These amounts, called “ bank deposits,” constitute by far the most important part of the currency used for the large transactions of merchants, bankers, corporations, &c. Before the issue of United-States notes, the whole currency of the country was comprised under these three heads, embra- cing whatever passed current in the community as money, and by which payments could be effected, and debts discharged. The 8 reserve of gold coin held by the banks was merely a provision for redeeming their own currency, and must not, therefore, be counted as currency itself, so long as it was kept for that pur- pose. But, so long as this coin remained in the banks uncalled for, it proved clearly that the paper currency was on a par with gold : otherwise every holder of a check or a bank-note would have demanded payment in coin. CURRENCY OF THE UNITED STATES. In ^$61, before the outbreak of the rebellion, the currency of the United States consisted of about $202,000,000 of bank- notes, $257,000,000 of bank deposits, and probably not far from $100,000,000 of gold and silver coin in actual circulation among the people, — say about $550,000,000 of available ready money, — of which $459,000,000 was due from the banks to the people ; and, though less than one-fifth ($88,000,000) was actually on hand in specie (gold and silver coin), yet the people were so well satisfied of the security of their money, that they did not call for what they could have had, but used notes and checks instead. It is evident, therefore, that on the whole, of course with some local exceptions, the bank currency of the country was then at par with specie. To make the case still plainer, we may say that the people of the United States possessed in 1861 about $550,000,000 of ready money, equal in available value to gold coin ; but, of this amount about $370,000,000, not being needed in specie , was permanently loaned through the banks to the merchants, manu- facturers, and others who could employ it profitably and pay interest for the use of it. And, as we have said, the paper promises of the banks took the place of this coin with perfect safety and convenience to the people, except where the affairs of banks were mismanaged. EFFECT OF AN INCREASE OF CURRENCY. We have said that the money and credit of a country settles into an equilibrium more or less permanent. The people require, and can afford to hold, a certain amount of ready money, in due proportion to the wealth and population of the country. This amount may be increased suddenly by a large importation of 9 gold from abroad, or by the issue of additional bank-notes or the artificial increase of bank deposits ; for if a bank wishes to lend one of its depositors any amount of money, it merely credits him with that amount on its books ; and thus, without itself receiving any additional money, it creates an additional amount of currency, which answers all the purposes of money, so long as the bank continues in good credit. Now what will be the effect of such an increase of currency, when the people already had all they were willing or able to keep on hand and to use for their daily wants ? Evidently it will be redundant ; that is, those who hold the surplus will want to get rid of it. They can only do so by exchanging it for something else, which they want more ; but, as their neighbors already have all the money they can afford to keep, the latter will not make the exchange at the old prices, but will ask more ; and then they themselves must also pay higher prices to others, for the same reason, till at last perhaps the prices of nearly all commodities will be raised. But, as this effect has not been pro- duced in other countries, it becomes more profitable to import foreign goods, which cost the same as before, and will now com- mand a higher price here ; and, as these goods must be pur- chased abroad with gold, some of the holders of bank promises will now demand their payment in gold, and send it abroad. This of course diminishes the banks’ reserves of coin, and leads to a curtailment of currency ; that is, the banks for a time lend less of their promises to borrowers, for fear they should not be able to redeem them. This diminution of currency operates, of course, in the opposite direction, and causes prices to decline until the equilibrium is restored. As long as all currency is redeemed on demand in coin, and banks are managed with common prudence, these fluctuations of currency adjust themselves with great facility to the wants of the community : when we have too little money, gold comes in, and when we have too much, gold goes out, by the mere operation of the natural laws of trade. But when the paper promises of the banks can no longer be redeemed, the whole mass of values is thrown out of equilibrium, and great alarm and loss ensues. 2 10 IRREDEEMABLE CURRENCY. If the increase of paper currency becomes so large as to make its full redemption impossible, it will in time settle down to about the value at which it can be redeemed. This was the case in Russia, where such vast amounts of paper money were issued during the wars with Napoleon, that the people could only sustain it at about one-fourth of its nominal value, and it was finally redeemed at the rate of two-sevenths for one. But if the volume of paper currency is largely increased, and yet with the intention and expectation of ultimately paying it in full, the case becomes greatly complicated. On the one hand, as we have shown, the people, being no richer than before, can- not afford to keep more money lying idle, and earning nothing. On the other hand, when prices of all commodities have ad- vanced/ so that paper has become greatly depreciated, the people are tempted to hold it rather than gold or other merchandise, in hope of sooner or later having it redeemed in gold, dollar for dollar. There will thus be incessant fluctuation in the ex- changes of paper money for other commodities, tending to unsettle all business, and greatly to demoralize the public mind. PRESENT STATE OF OUR CURRENCY. At present, as is well known, the currency of the country is com- posed wholly of paper. It consists, in round numbers, of about $400,000,000 United-States legal-tender notes, $300,000,000 bank-notes, and above $500,000,000 of bank deposits. Allow- ing $200,000,000, or more, of this to be held by banks, &c., as a reserve for purposes of redemption, at least $1,000,000,000 is held by the people as currency , available only to make pay- ments. This is nearly or quite twice as much as we had in 1861 on a specie basis; and we find accordingly, as we might have expected, that prices of nearly all the principal necessaries of life (with some exceptions from special causes) have been nearly or quite doubled. This could not be otherwise ; for the people, as a whole, can hardly afford to hold more idle money than in 1861, while they are compelled to hold irredeemable paper promises to about double the amount of currency they held then. Consequently, they have been obliged to exchange it for commod- 11 ities at prices about double what they formerly paid ; and yet, as they all hope that at some time it will be redeemed in coin, they keep it in a state of incessant fluctuation, which checks, to a fearful degree, the development of their industry and enterprise. EVILS OF AN INFLATED CURRENCY. A currency is said to be redundant when there is more of it than is wanted for legitimate purposes of exchange. This was the case with our present legal tenders and bank-notes when they were first issued. But when the people have been com- pelled to use it until prices have risen, and there is no longer any apparent surplus of paper, it is no longer redundant, but inflated. It then no longer lies in masses, as it were, on the surface, but has become mixed and incorporated with all our values, — puffing them up to large nominal amounts, but really adding nothing but a false pretence to what they were before. This process is most justly styled inflation , and its effects are evil, and only evil, in every direction. Some of them we will try to point out. 1. The fundamental evil from which all others spring is, of course, the displacement of the only sound standard of value. The property of the people of the United States is estimated at $15,000,000,000, or more, and their annual production, or in- come, at about $4,000,000,000. All the daily valuations and exchanges connected with this vast mass of wealth and expendi- ture are now dependent on a mere uncertain paper promise. The market value of a greenback depends mainly on two ele- ments, — the degree of expectation in the holders that it will be redeemed, and their ability to wait for its redemption. Per- haps no two persons in the whole number possess both these elements in exactly the same proportions, nor does any one often possess them for two days exactly alike. Consequently, the average must be perpetually unsettled, and values of many kinds at least are subject to the wildest fluctuations. We have seen gold vary from nearly 300 per cent to less than 150 within not many months ; petroleum rise in the same way from twenty cents to nearly a dollar, and decline again below twenty-five cents a gallon ; flour advance in a few weeks from six to fifteen dollars a barrel. In our daily purchases of food, clothing, and 12 other necessaries, the fluctuations, though less marked, have been equally unsatisfactory. These results may indeed be attributed to speculation ; but what makes such speculation pos- sible ? With a currency regulated by the real and steady values of specie, these tricks upon the public would rarely be at- tempted, and, if attempted, would be sure to fail in the end. But, so long as we measure values and pay our debts in mere indefinite promises, we have no protection against the most un- scrupulous schemes. 2. An inflated currency discourages productive industry, and so tends greatly to impoverish the community. The two great agencies combined in the production of wealth are labor (includ- ing the work both of head and hands) and capital, which is merely the product of previous labor, laid up to be used in further production. Our improved lands, our houses, shops, factories, tools, machinery, stores of food and clothing, money ( real money) with which these things can be purchased, — all these are capital ; and as in this country almost every man has more or less of these, and almost every man works with hands or head, almost all of us are, in our degree, botli la- borers and capitalists. Now, how does an inflated currency affect the laborer ? First, by universal testimony, it raises the cost of his living long before it raises the rate of his wages ; and next, as it furnishes speculators with the means of artificially increasing the cost of his food and clothing, while it gives him no additional facilities for enforcing the payment of higher wages, it keeps him at a disadvantage until the currency is either restored to its true value, or permanently depreciated by being redeemed at a discount, — that is, partially repudiated. This produces disagreements with employers, strikes, idleness, and disorders of all kinds, perhaps the wanton destruction of property, and a constant tendency to leave honest work and take to speculation, ending too often in ruin. How does inflation affect the capitalist? First, by deprecia- ting all his money-property, and a large part of the rest. If he invests his money in ships, manufactures, or any other produc- tive enterprise, he must pay far higher nominal prices than he would have to pay on a specie basis ; so that, when a sound cur- rency is restored, both his property and income in dollars must 13 be greatly diminished. It is, of course, much better for him to invest his money in United-States bonds, where he will receive both principal and interest in coin. Still more is this the case when his own capital will not suffice for the undertaking he con- templates. If, for instance, he should invest $50,000 of his own in any enterprise, and borrow $50,000 more to complete it, he might reasonably fear that the income from the whole might hereafter not exceed the amount of interest he has to pay on the amount borrowed, so that his own capital might be entirely lost. But by far the greatest mischief to be apprehended here is, that capitalists will either use their money to speculate them- selves, or will lend it to others for that purpose. Speculation, as we have seen, is greatly promoted by the constant fluctuations of prices resulting from the absence of any fixed or definite standard of value. Multitudes are tempted, by the hope of. sud- den profits, to embark in every species of gambling. A few are successful ; and these generally spend lavishly the wealth they have obtained so easily. The great majority fail, and have to be supported by the earnings of their neighbors. Neither of these classes produce any thing of value, or render any service to the community ; but, on the contrary, they both do all they can to impoverish it. 3. It is evident, therefore, that the effect of inflation on a community is most demoralizing. When laborers cannot count on just wages and steady employment ; when capitalists cannot safely take measures to employ labor ; when regular business is changed to gambling, and gambling becomes a regular business ; when farmers find it more profitable to mortgage their farms, and speculate with the borrowed money in land, than to raise food ; and banks and merchants can make more money by helping to withhold merchandise from consumption than by aiding to sup- ply the wants of the people, — common sense tells us that things must be in a bad way. This explains the thronging of multi- tudes towards the great centres of speculation, the uneasy rest- lessness pervading the community, the incessant plots, “ corners,” and intrigues of all kinds on the stock exchange ; the defalca- tions, robberies, suicides, and crimes of every sort connected with money matters, which have become a matter of daily 14 occurrence among us. But we need not enlarge upon this head. 4. An inflated currency can never be in equilibrium with the values of the community, because it has no real value in itself. One day, money (so called) may be so abundant as to tempt multitudes to speculation ; the next week, it may be apparently so scarce as to cause a panic. It is needless to give examples of what has occurred so often in our midst. We can all under- stand that, when prices are doubled, it takes twice as much currency to pay for the same things ; and when many are specu- lating, they require a great deal of money to speculate with. If our prices were based on steady specie values, the amount of currency required would vary but little, and the banks could no longer lend their credit beyond their ability to redeem it. When we wanted more money, we should obtain it in a legiti- mate way, in exchange for other commodities ; and when we had too much, other countries would readily buy the surplus. 5. As regards the government which issues or sanctions it without absolute necessity, an irredeemable and excessive cur- rency is utterly dishonest. We may as well call things by their right names. A private individual who issues checks which are not paid, or signs promises payable on demand which are not redeemed, when he can obtain the means of redeeming them , is a rogue and a swindler. Now there is only one law of right; and what is wrong in the citizen must be wrong in the govern- ment. When it promises to pay, it ought to pay ; and, unless it can show that it cannot pay, and cannot even begin to pay, it cannot honestly refuse to do so. HOW TO GET RID OF AN INFLATED CURRENCY. This, after all, is the real question before us. There are many who admit that specie is the true standard of value, and that it is most desirable to return to it, if it were possible. But how to do it is a question they feel they cannot answer. Let us first settle what is wanted. It is, to have our money values replaced substantially in the equilibrium which existed before the war ; so that the people shall have no more money than is needed to effect their payments and exchanges, measured in specie ; and that all the paper money or bank credit used for 15 this purpose shall be exchangeable for gold coin on demand, but shall at the same time be so entirely on a par with gold, that, in general, the gold will not be called for. Of course we cannot certainly tell how much money could thus be kept employed ; but it seems probable that the amount would not vary much from what it was before the war, when the paper part was less than $500,000,000. If so, the present amount of $1,000,000,000 must be reduced about one-half, and the $200,000,000, assumed to be held in reserve, must be, in part at least, replaced by coin, of which a large part is in fact already on hand. Along with this diminution of currency must come a reduction of prices of all kinds of commodities, so that the smaller amount of money, and smaller incomes, will in fact purchase as many commodities as the larger amounts did before. How shall this change be brought about? There are three conceivable ways of returning to specie pay- ments and specie values ; that is, to a state of things in which all values are measured by gold coin, and all the promises which pass for money can be promptly redeemed in coin. Let us con- sider frhem, each in turn. 1. The Government and the banks might, by borrowing and saving, accumulate in their vaults so large an amount of coin, that they could safely undertake to redeem all their promises which might be presented. Some think $200,000,000 of coin, or even less, would suffice for this purpose ; others would call for $400,000,000 or $500,000,000. If our currency were in equilibrium with specie, the amount now on hand would be enough ; for, as we have shown, there would be no reason for exchanging paper for gold, and, in fact, a much smaller quantity in 1861 was abundantly sufficient. But this equilibrium, we know, does not exist. Almost every thing we use or consume can be bought much cheaper abroad with gold dollars than at home with paper dollars. Therefore, if our paper dollars could all be exchanged for coin, large amounts would be so exchanged, and the coin would be sent abroad to pay for commodities of all descriptions, which, being imported, would over-supply our markets, and cause great stagna- tion, decline in prices, and the ruin of multitudes of merchants. At the same time, the withdrawal of so much money from circu- 16 lation would make money comparatively scarce ; while the de- cline in prices, and shock to credit, would make it difficult to borrow what remained. In short, the inevitable result of this plan would be a very great and very sudden change in the volume or amount of currency, on the circulation of which all our daily transactions depend ; and such a change must of neces- sity disturb the whole framework of society. It would be some- thing like emptying a large basin by overthrowing the walls, instead of opening the sluice-gates. # It is perhaps supposed by those who advocate this course, that, during the time necessary to accumulate such a large amount of specie, the change referred to will be gradually accomplished ; that currency will be hoarded, and prices will decline, in antici- pation of the moment when all credit and all values will be again measured by gold. But this is simply impossible. Most of the people already hold all the currency they can afford to hold. They are compelled to part with it about as fast as they receive it ; and, at present inflated prices, there is none to spare. On the other hand, if prices begin to decline, currency becomes redundant, and those who hold it are compelled to employ it in speculation, which, as we have shown, causes prices again to advance. Instead, there- fore, of a steady and gradual approximation to a specie standard, we should have an incessant series of fluctuations, worse even than those which have now for years afflicted us ; and, when the time came for resuming specie payments, we should un- doubtedly find ourselves unprepared, in every way, to meet it. Even if this plan were feasible and safe, it would be the most burdensome that could be devised ; keeping all our industrial resources and energies cramped by the baneful operation of an irredeemable currency, while compelling us, slowly and pain- fully, to accumulate at home a vast mass of specie, at least three-fourths of which would, by the inevitable laws of trade, be sent abroad within a few weeks or months after specie pay- ments were resumed. 2. We might leave the whole question to settle itself, trusting to time, and the growth of wealth and population, to supply a sufficient demand for paper currency to bring it up to the level of coin. If thirty millions of people could use four hundred and IT fifty millions of paper credit on a par with gold, how many people, equally rich, would it take to use above a thousand mil- lions ? Obviously, more than twice as many ; so that the process must be expected to last at least a quarter of a century, suppos- ing all to work right. Are we prepared to submit to these evils for that length of time, or for one-half of it ? Even this alternative, however, would be comparatively toler- able, if we could be sure of a steady and gradual progress towards specie values and lower prices. But of this, unfortu- nately, there is no chance. As in the past, so in the future, the absence of any real standard will perpetually unsettle all val- ues. Prices will be driven up by speculation, till paper money will become so scarce that even honest but ignorant men will clamor for more currency; and the clamor may not long be resisted. When the evil shall have become too great to be borne, specie values will be restored, — but how? With an increased volume of paper currency, with a country impover- ished, and a people demoralized by the pretence of fictitious wealth, will the national obligations, already called in question, be honorably met, though with far greater difficulty than now ? Or shall we, on the plea of necessity, resort to partial bankruptcy or repudiation, and repay dollars with fractions of dollars ? The truth is, that, in such matters, delay is not only useless and dangerous, but suicidal. Every year of irredeemable cur- rency makes us earn less, save less, work less, spend more and waste more, than we should have done with a sound standard of value, and therefore relatively impoverishes the country, and demoralizes the people. It is this, and not the burden of taxa- tion, which retards our progress, which closes our factories, desolates our ship-yards, and drives our vessels from the ocean. And is this an evil to be remedied by retaining it to the last pos- sible moment? THE TRUE REMEDY. 3. There remains one way of return to a sound currency, which threatens no disaster, and presents no serious difficulty ; yet ignorance, prejudice and selfishness have made its very name a by-word of reproach, — how unjustly, we shall hope to show. 3 18 What is contraction ? It is simply the gradual withdrawal from circulation of so much of our existing paper currency as is proved to be excessive, because it will not circulate on a par with gold. The necessary and evident effect of such a withdrawal is to make that which remains more valuable, until it shall at last be equal to gold coin, as it was six or seven years ago. When that point is reached, the whole work is done. How does this process look from the side of the Government ? If any honest private debtor owed, on demand, more than he could pay, would he not be glad to restore his credit by calling in these demand-notes, and getting the term of payment ex- tended ? Would it be honest, would it be decent, for him to say to his creditors : “ It is true that the forced circulation of my unredeemed notes and checks is causing the greatest embarrass- ment, both to myself and to my involuntary and innocent credi- tors. It is true, that there are plenty of capitalists able and willing to redeem them, and wait my convenience for their pay- ment, with moderate interest ; but I prefer to save this interest, and to throw the loss upon others, until some lucky chance enables me to get rid of my obligations without any cost to myself ? ” And how w r ould the case be aggravated, if the debtor were at the same time the legal agent of the creditors whose interests he was thus sacrificing ! But are the obligations of a government less sacred than those of a private individual ? Being itself above the coercion of law, should it not be a law unto itself? Having issued as “ lawful money” some $400,000,000 of notes, payable on demand, at a definite place, in dollars, that is, in gold coin, and, being unable to redeem these promises, is it not bound in honor to allow every holder of them to claim interest on his unpaid debt, or, in other words, to bring them into the treasury, and receive in exchange a bond bearing interest ? This is what is called “ funding ” a debt, and is, to a government, what an “ extension ” is to a private debtor. Can any one object to this ? and can any honest debtor, public or private, do less ? How does such a process look from the side of the people ? Its effect, of course, must be to relieve them of a portion of the paper currency which they have been accustomed to call “ money.” And we have already seen that it is precisely the 19 over-issue of this currency which has caused all our troubles- Is it not plain, that the only possible remedy is to diminish it, until there shall be no more of it than the people can afford to keep, and the banks to redeem, on a par with gold coin ? And this process must be gradual, as we have already shown, because it involves a great change in nominal values, which cannot be effected suddenly without disaster. But will a gradual contraction of the currency deprive any one of money, or even of paper currency, to which he has any legitimate claim ? Of course, no one can be compelled to part with that which is his own. And if he prefers to exchange it for a Government bond bearing interest (that is, to have it funded), no one can complain. The Government itself cannot exercise any compulsion, for its revenue from taxation barely suffices to meet its current expenses. The only sufferers by contraction would seem to be those who are compelled to borrow currency to pay their debts, # and who would naturally find a smaller amount of currency to borrow from. But, if these bor- rowers are solvent, they have property which they can sell for currency, and so pay their debts, long before the gradual con- traction we advocate could cause them serious inconvenience or loss. Their next purchases would be made at lower prices, and would require less currency to meet them. In a word, their wants, and the means of supplying them, would diminish to- gether. But, suppose these borrowers who oppose contraction should happen to be great speculators in stocks, in land, in breadstuff’s, in cotton, &c., — what then? Why, then, we say that the sooner they are broken down the better. What right has any man, or set of men, to use fictitious values to create an artificial scarcity of the necessaries of life? and what right has any gov- ernment to abet and sanction such conduct ? It is easy to see that the only class of the community which will really suffer by contraction is that of speculators and gamblers, whose business it is to profit by the incessant fluctuations of a debased currency. But every dollar so made is stolen from the legitimate earnings of honest industry. The capitalist, the laborer, the manufac- turer, the artisan, the merchant, all who live by supplying the real*wants of the community, — these all need, and should de- go sire, a sound and uniform measure of value, and they lose by every day’s delay in restoring it. Let us consider for a moment what resources of currency will remain to us, even when . “ contraction ” is completed. Before the war, there was, practically, no limit to the issue of currency, except the necessity of keeping it at its proper value by redeeming it in coin ; yet the whole amount, as we have seen, barely came up to about $200,000,000 in notes, and less than $300,000,000 in “ deposits.” Now, there are $300,000,000 of notes alone, — all which, with deposits to correspond, may be kept in circula- tion, provided they can he kept at par with gold coin. Moreover, there is every reason to suppose, that even after greenbacks are redeemable in coin, a considerable amount of them will still circulate instead of coin and on a par with it, because they will be considered equally safe, and more convenient ; and long before any addition to these amounts will be needed, we may expect to have a free banking law, allowing a practically unlim- ited issue of paper, subject to prompt redemption in specie. It is a common argument of the opponents of contraction, that the currency of a country should be “ elastic ; ” that is, that it should have the power to expand and contract according to the demands of trade. This is very true, but it tells directly against their views. A currency which represents real value is always and necessarily elastic. That which is based on a mere uncer- tain future promise has no element of elasticity. The amount of the former is determined by the amount of values to be ex- changed by it ; that of the latter, being already too large, cannot ever be safely increased, and cannot always be prudently dimin- ished. The only resource is to get back to an elastic, real cur- rency as soon as possible. Our financial situation may be compared to that of a vessel aground, or to a dislocated joint, which can have no “ elasticity” of movement or repose, until, with some strain and pressure, it has been restored to its normal condition. It is true that there are times, when even the withdrawal of $4,000,000 of currency in a month may cause distress, and may therefore be inexpedient ; but there are other times when a much larger amount could be well spared. We have seen more than this locked up by speculators in a single day, for the avowed 21 purpose of creating scarcity for selfish ends. If we can submit to that, shall we complain of the much more moderate and gradual process which is indispensable to our safety, and essen- tial to the maintenance of our national honor ? But even this objection may be obviated by making the con- traction purely voluntary on the part of the people. The Government might offer to all a ten-forty bond, at par, payable, principal and interest, in gold, at five per cent, in exchange for legal-tender notes, with a distinct pledge, that the notes thus received should not be re-issued, except by special act of Con- gress. This loan would not attract capital too rapidly, but it would probably begin at once to bring in a slow but steady stream of greenbacks, causing a constant demand for them from all parts of the country. This would compel the banks to diminish their loans, and would thus lessen the resources of speculators, who would be obliged to sell the merchandise they have been holding back from consumption ; thus prices would decline, and less currency would be needed. Should the pro- cess go on too rapidly, and currency become inconveniently scarce, the bonds would fall below par, and no more would be taken until the decline of prices should have restored the equi- librium, and made “ money” again easy. When it became cer- tain that this was the fixed policy of the Government, the bonds would be sought abroad, and our stock of gold would be aug- mented. The price of gold would decline, but our credit abroad would rise in proportion, till (probably within two or three years, at farthest) our gold coin would be at par at home, and our five- per-cent bonds at par abroad. Then specie payments might be safely resumed. In the mean time, all prices having declined, capital and labor would again be at work in concert ; agriculture, manufactures and commerce would be revived ; and the rapid development of national wealth, now so greatly checked, would be resumed. Such, by the necessary working of economical laws, must be the natural result of a gradual and judicious funding of the legal- tender currency. We have suggested one simple method of accomplishing this object ; but the particular method is of com- paratively small importance, provided the thing itself be done. The only essential conditions are, that there be no needless 22 delay and no imprudent haste in carrying out the process ; in other words, that it shall be moderately but steadily going on, except when the state of the money market may render a tem- porary cessation expedient. It has been argued, that a mere contraction of the legal-tender currency would deprive the banks of the means of redeeming their own currency, and so render their position unsafe by under- mining their basis, without diminishing the superstructure. But the banks will have fair warning, and ample time to provide themselves with specie ; and how else can they be made to pro- cure it, but by gradually withdrawing all other means of redemp- tion ? In specie-paying times, the operation was exactly the same, — only their specie was drawn out by the balances of for- eign trade. Moreover, they have the peculiar advantage of receiving large amounts of coin, as interest on their Government bonds, which they might easily and justly be compelled by law to hold in reserve from this time forward. Many small schemes for a return to specie payment have been brought forward ; such as the partial payment of custom-house duties in greenbacks, the issue of various intermediate currencies, &c. ; but they are, for the most part, either unjust or impracti- cable, or at least involve no important principle, and need not be here discussed. Many persons have argued, that mstead of withdrawing greenbacks, the banks should be compelled to withdraw their own notes. The inexpediency, and even injustice, of this course might be shown on various grounds, such as these : that it would be a virtual breach of faith ; that it would break up our present banking system, and probably cause great financial embarrass- ment ; that it would throw a vast amount of Government bonds upon the market, and endanger the national credit. But it is enough to say, at present, that it is the first duty of the Govern- ment to make good its own promises, before meddling with those of others, which are contingent upon its own. Again, many have contended, that by funding the legal-tender notes, the Government will lose a large amount of interest, which it now saves. To this there are two plain answers: First, the Govern- ment has no more right than individuals have to borrow money by compulsion, and without paying interest. Secondly, the nomi- 23 nal gain of interest is offset a hundred times by the loss and injury entailed on the Government and the whole people, by compelling them to employ a standard of value which is no standard, a measure which is no measure, a promise which is never fulfilled, a currency which fluctuates from day to day, and which speculator^ and sharpers are continually using to defraud the people of their earnings. In conclusion, it may be profitable to inquire briefly, what ter- mination may be reasonably anticipated to the present state of things, if the policy of contraction is definitely abandoned ? The experience of the past does not warrant the expectation expressed by some, that if the currency is simply left on its present basis, it will before long be all wanted, and on a par w r ith gold. We have shown that its amount is fully double what it ever was on a specie basis ; and as banking facilities increase, less and less currency will be required in proportion to the amount of wealth and population. It is not at all probable that, for many years hence, we shall need as much paper currency as we now have in circulation, unless it continues depreciated. On the other hand, the necessities of commerce and the laws of trade will compel us ultimately to return to a sound standard of value, by one of two roads, — public repudiation or private bank- ruptcy. The former has been exemplified in the history of France, Russia and Austria ; but their repudiation was in fact compulsory, being the result of national insolvency. The latter was the case of Great Britain, and is peculiarly instructive, from its close analogy to our own, at least up to the present time. The British Parliament, like our own Congress, refused to en- force a contraction of their depreciated currency ; and the result was a continual expansion of paper credit, until at last the mass of fictitious values became too large to be supported. The prices of breadstuff’s (the great basis of all values) broke down, and the whole superstructure fell with it. Hundreds of banks, and mul- titudes of farmers, were ruined ; and such an involuntary “ con- traction ” of currency was produced, that specie values were speedily and easily restored. It is not difficult to trace the probable course of either alterna- tive among ourselves. So long as the policy of contraction was definitely recognized by Congress (though begun too late, and 3 011 2 061967292 24 greatly hindered by the illegitimate use of compound-interest notes, and by the needless limitation of $4,000,000 a month), speculation was checked, and there was, on the wfiiole, an ample supply of currency for all necessary purposes. But no sooner was all contraction stopped than speculators took courage, and already the volume of currency proves insufficient for their operations. Of course, while prices continue to advance, this scarcity must increase, and at length will come a lpud call for “ more currency,” which currency, if issued, will at once be absorbed by speculative borrowers, thus raising prices still higher, and adding fuel to the flame. Another and another issue will be called for, until the intoxication is followed by collapse, and partial repudiation must follow. If, on the other hand, the Government and the people have sufficient honesty and firmness to resist all further issues of cur- rency, the present advance in prices will naturally be followed by a re-action, and that again by inflation, until in due time (and not a long time) the same sudden and violent remedy of a finan- cial collapse overtakes us, as it did Great Britain in 1813. The present course of affairs is enriching the rich, pauperizing the poor, gradually impoverishing the masses of working people, depressing manufactures, ruining commerce, discouraging honest labor, which creates wealth, and encouraging speculation, which dissipates wealth. But there remains one precious resource, which speculators cannot monopolize. Land is still abundant, fertile, and comparatively cheap. The laborer can always earn his living by producing food for others ; and the very aggrava- tion of the evil will thus accelerate the remedy. We hear from time to time of the increase of cultivation and the anticipations of larger crops ; and the first year which sees abundant harvests, both here and in Europe, will probably witness the greatest collapse of currency ever known in this or any country, unless it be averted by timely contraction, — a collapse caused not by a ruinous destruction of real, but by the disappearance of fictitious values. All the banks and all the capital and credit of the West could not sustain the prices' of breadstuff's, under the circum- stances we have supposed, or prevent a decline which must ruin multitudes. We have in reality no alternative. We must either submit to moderate and gradual contraction now, or we cannot escape a ruinous crisis hereafter.