UNIVERSITY OF ILLINOIS 
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L 
 
 
 
 THE WORLD’S EXPERIENCE 
 
 OF 
 
 GOVERNMENT PAPER MONEY. 
 
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 in 2016 with funding from 
 
 University of Illinois Urbana-Champaign Alternates 
 
 httf^://archive.org/details/worldsexperienceOOjour 
 
The World’s Experience 
 
 OF 
 
 GOVERNMENT PAPER MONEY: 
 
 A SERIES OF EDITORIAL ARTICLES 
 
 PUBLISHED IN THE 
 
 New York Journal of Commerce and Commercial Bulletin, 
 
 NOVEMBER 21 and 25 and DECEMBER 4 and 12 
 
 1896. 
 
 I. RUSSIA. 
 
 A great many people are blind to the 
 danger of making the demand notes of 
 the Government the basis of a national 
 currency because they are unfamiliar with 
 the experience with paper money of any 
 nation but our O'wn. In dealing even with 
 this they are apt to recall the dangers and 
 inconveniences of the unregulated system 
 of State bank issues that preceded the era 
 of the greenbacks and the national bank- 
 ing system that grew out of the necessi- 
 ties of the war, rather than the lasting 
 injury inflicted on public credit by the 
 costly and demoralizing expedient of mak- 
 ing a forced loan on the people by means 
 of demand notes dishonored in the act of 
 making them. We propose to offer a con- 
 tribution to public education on this sub- 
 ject by passing in review the experience 
 of other nations than our own with this 
 disastrous expedient, and by showing how 
 uniform has been the failure of all at- 
 tempts to erect a solid structure of sound 
 
 currency on so utterly i«secure a basis. 
 The experience of Russia with which we 
 begin this series of articles will be found 
 to supply an instructive lesson and an Im- 
 pressive warning. 
 
 It was in 1768, under a decree of the Em- 
 press Catherine, that tlwo banks were called 
 into being to place in circulation paper 
 money issued by the State. The apology 
 for the issue of this money, known as 
 assignats, was the need of a more con- 
 venient form of money than the silver and 
 copper then in use and of an increase of 
 the circulating medium. The notes were 
 not made a legal tender, and due pro- 
 vision was made for their redemption In 
 silver on demand. The system was 
 started under the fairest auspices, was 
 surrounded by careful precautions against 
 its abuse, and might have been cited as an 
 example of the intelligent forethought 
 which a paternal government bestows on 
 the welfare of its citizens. But it was 
 
 
 
4 
 
 the Introduction of the head of the camel 
 Into the tent of the Arab, and it had the 
 usual sequel. 
 
 The regrime of prudence lasted for 
 eighteen years, these things not marching 
 so quickly a hundred years ago as they 
 do in our day. In 1786 the paternal heart 
 of the Government had a new prompting, 
 of the kind so warmly approved in the 
 State of Kansas. An issue of 60,000,000 of 
 rouibles wtas ordered, of which 22,000,000 
 were to toe employed in making loans to 
 the notollity and 11,000,000 in loans to 
 cities. The two original banks were at 
 the same time consolidated with the loan 
 bank of the Empire, and the institution 
 thus created was relieved of the necessity 
 of compulsory redemption of the notes of 
 the State because the new currency was 
 secured only in part by a metallic re- 
 serve, the rest toeing issued against mort- 
 gage loans. As a counsel of perfection, 
 however. It was decreed that the issue of 
 assignats should never exceed 100,000,000 
 rouibles. The promise was kept just four 
 years, and in 1790, when the French Revo- 
 lutionary Government began to disturb 
 the peace of Europe, the limit was passed 
 ■'7 11,000,000. After that came the deluge. 
 By 1793, the year of Catherine’s death, 
 
 157,000,000 had been issued; in 1800 the 
 amount was 212,000,000, and by 1810 the 
 paper circulation, based solely on the 
 ''redlt of the Government, had reached a 
 /)tal of 577,000,000 roubles. 
 
 Of course the Interval between the value 
 of metallic money and that of the as- 
 signats Increased with each succeeding 
 issue. In 1793 the difference was forty- 
 five per cent, by 1807 the silver rouble of 
 100 copecks was worth 164 in paper, in 180 
 it rose to 2001^, in 1810 to 401, and In 18ll 
 the year of Napoleon’s march to Moscow, 
 it reached 423, so that the assignat rouble 
 was worth only 23% copecks in silver. 
 The demoralization of all prices was ruin- 
 nu.e; to both producers and consumers, and 
 the State Treasury which was bound to 
 receive the assignats at par in payment 
 of taxes began to pay the price of finan- 
 cial recklessness. To cover the steadily 
 increasing deficiencies in its revenue the 
 State issued more paper, merely with the 
 result of enlarging them, because the 
 greater the infiation in the volume of the 
 circulation the greater the shrinkage in Its 
 value. So finally, in 1812, the last prop 
 
 was removed from the paper rouble by 
 the refusal of the Government to recognize 
 Its assignats as a legal tender to the 
 Treasury. As the edifice of national credit 
 began to tumble, plans were made to build 
 another on a more solid foundation. Thus, 
 by an Imperial decree of 1810, it was pro- 
 vided that the silver rouble should be once 
 more the only legal money, and a* loan 
 was issued for the purpose of substituting 
 interest-bearing bonds for part at least 
 of the forced loan in the shape of incon- 
 vertible paper that had been imposed on 
 the people. The scheme fell through, and 
 with the renewal of the Napoleonic wars 
 came fresh issues of assignats till their 
 amount reached the impressive total of 
 
 800,000,000 roubles. 
 
 Meanwhile the value of the paper rouble 
 kept on the average at about 25 per cent 
 of its face value. Several years after the 
 issue ceased, it began slowly to appreciate, 
 reaching 28 per cent in 1840, twenty-five 
 years after the conclusion of peace and 
 twenty-three years after the maximum of 
 paper issue was reached. The generation 
 to whom the assignats were issued had 
 clearly been cheated out of some 600,000,- 
 000 of roubles by the failure of their Gov- 
 ernment to keep its promises to pay. 
 Between 1817 and 1820 the Government 
 took some measures to buy back, by the 
 aid of foreign loans, its dishonored paper. 
 But it took it up at the market price of 
 four paper roubles to one of silver, and 
 thus at a moderate outlay reduced the 
 amount of assignats outstanding from 
 
 800,000,000 to 595,000,000 roubles. But it 
 was not till 1839 that the attempt was 
 seriously made to reform the currency. 
 A deeree of that year pro\'ided that for 
 the future silver money should he the only 
 legal tender, that all taxes and private 
 debts should he estimated and paid in 
 that money, and that the ratio between 
 ■the silver and the assignat rouble should 
 be fixed, once for all, at 1 to 3%. This 
 was followed in 1841 by a decree creating 
 a new form of note — the credit rouble — 
 which has existed from that day to this, 
 and in 1843 by another calling for the re- 
 tirement of all outstanding assignats In 
 exchange for the new form of bill at the 
 rate established In 1840. 
 
 The new system, like the old one, began 
 under the most favorable auspices. A 
 discredited form of currency, worth only 
 
5 
 
 28 2-7 of ita nominal value, had been 
 driven out of circulation and in its place 
 there was a brand new note of the Gov- 
 ernment, exchangeable on demand for sil- 
 ver, and quite on a par with the paper 
 money of the richest countries of Europe. 
 The credit rouble had its origin in the 
 issue of bills on the deposit of silver. As 
 the deposits increased and few demands 
 were made for payment, it was determined 
 that a specie reserve of one-sixth of the 
 amoimt issued was sufficient to secure 
 the paper circulation. Thus, for the 180,- 
 000,000 of credit roubles issued to retire 
 
 595.000. 000 roubles in assignats, the sum of 
 
 30.000. 000 roubles in silver was deemed 
 sufficient security. There was a tempting 
 ease about this method of supplying money 
 with which to conduct the Government. 
 So in 1849 a supplementary issue of 20,- 
 000,000 was ordered, and in 1853 another 
 of 40,000,000 roubles. Then came the 
 Crimean war and a difficulty in negotia- 
 ating loans abroad, compelling the Treas- 
 ury to meet all extraordinary expenses by 
 “temporary” issues of bills of credit. It 
 was formally decreed that at each issue 
 the Treasury was to deposit with the is- 
 suing office one-sixth of the sum in metal, 
 and that these temporary bills were to be 
 retired within three years after the close 
 of the war. The bills are in circulation 
 yet. The volume of paper money which 
 had been 250,000,000 roubles after its first 
 increase in 1853 was 509,000,000 at the end 
 of 1855, and by the time the authority for 
 the issue of “temporary” bills was re- 
 scinded the amount had reached the total 
 of 725,000,000 roubles. 
 
 Among the reforms attempted but not 
 achieved by Alexander II. was that of the 
 currency. A plan for the resumption of 
 specie payments formulated in 1862 proved 
 a failure, primarily because the coin re- 
 sources of the Government were In- 
 adequate and there was a great redund- 
 ance of paper. In less than ten years the 
 circulation had been increased almost 
 
 threefold, an increase demanded not by 
 any commercial or industrial neceeaity 
 but simply by the needs of the Treasury. 
 The harvest of disaster was not slow in 
 ripening. As a German observer said In 
 1865: “The condition of Russia is im- 
 measurably sad, not to say hopeless. 
 Paper money is depreciated by one-fifth, 
 despite its legal tender value; gold and 
 silver have disappeared; there is practi- 
 cally no credit; discount rates are high; 
 there is an annual deficit; trade is nearly 
 at a standstill, and capital is exhausted 
 almost to the last penny; prices are im- 
 moderately high; the no'bility is ruined, the 
 capital city and trade centres are in vis- 
 ible decay.” It has taken about thirty 
 years to extricate Russia from that slough. 
 The volume of paper money was increased 
 by the issue of some 400,000,000 roubles in 
 the last war with Turkey, 1876-77, but the 
 foundations of a gold reserve were laid 
 before that time, and the edifice has to- 
 day attained such proportions that Russia 
 has in the coffers of the bank or of the 
 Treasury one gold rouble for every two 
 paper roubles outstanding. In the last 
 twenty-five years the exchange value of 
 the paper rouble has fluctuated wildly, 
 being at times as high as 87 copecks— par 
 being 100 — and at times as low as 62. The 
 redemption of the paper rouble, originally 
 payable in silver, is to be effected, as al- 
 ready explained in these columns, in gold 
 at the rate of 66 2-3 copecks to the rouble, 
 and Russia is about to close her long and 
 disastrous experiment -with a currency of 
 Government paper by decreeing that, 
 henceforth, no bills of credit shall be Issued 
 on account of the Treasury. These facts 
 may be commended to the study of those 
 who have become Infected with an In- 
 fatuation for the greenback and the Sher- 
 man note. They are quite incompatible 
 with the theory that Government paper 
 is either a safe or a sound form of cur- 
 rency. 
 
6 
 
 11. ITALY AND SPAIN. 
 
 We have seen, in the case of Russia, 
 the Government of a great empire about 
 to surrender, after a costly experience of 
 130 years, the right to issue its own notes 
 to serve the purpose of a national cur- 
 rency. Every step taken toward this end 
 has marked an ijnprovement in public 
 credit and an advance in the development 
 of commerce and industry. In the two 
 countries to whose experience we devote 
 this article the converse of the Russian 
 policy is being followed, and Italy is 
 steadily and Spain very rapidly drifting 
 towards hopeless bankruptcy. In both 
 the credit of the banks has become 
 merged with the credit of the Govern- 
 ment, in both the Government has exer- 
 cised the right to drain the resources of 
 the banks at its pleasure, and in both 
 cases the penalty paid for the identiflca- 
 tlon of two interests which can never be 
 safely conjoined has been out of all pro- 
 portion to the temporary advantage 
 gained by the arrangement made between 
 them. 
 
 It is Pierre des Essars who says very 
 aptly, In his treatise on Banking in the 
 Latin Nations*; “There is a treacherous 
 enemy who lays pitfalls for prodigal gov- 
 ernments and for the banks which lack 
 stamina to resist the State’s intrusion; 
 this enemy is called Exchange, and it Is 
 the dial of national decline of credit. This 
 exchange arrests all commerce and makes 
 trading a speculation on the country’s 
 money. This exchange impoverishes, day 
 by day, whoever receives an unsound 
 bank note; it makes such money melt 
 like snow, and like snow it trickles from 
 the hands.” The monetary unit which Is 
 called a franc In Prance Is called a lira 
 in Italy, and the par of exchange of both 
 is precisely the same, say, 5.18% to the 
 dollar. But a reference to the current 
 quotations for European exchange will 
 show that while the rate for a banker’s 
 sight draft on Paris is fr. 5.19% to the 
 dollar, the sam-^ kind nf draft on Italy 
 commands lire 5.46% to 5.56% per dollar. 
 The difference marks the depredation 
 
 • Cr>ntalned !n “The History of Banklnjr In the 
 r-eadlnjr NatlonB,” oubllrtied at thl* office. 
 
 which has already taken place in the 
 Italian currency — a, depreciation caused 
 by the issue of paper through the banks 
 on the credit of the Government, and 
 which, very largely because of this issue, 
 the Government is powerless to cure. 
 
 The first raid which the Kingdom of 
 Italy made on the banks was in the form 
 of a loan of 300,000,000 lire in notes from 
 the National Bank in 1872. There fol- 
 lowed in 1874 the paper loan of the syndi- 
 cated banks, amounting to 1,000,000,000,000 
 lire, for which six then existing institu- 
 tions of credit made themselves respon- 
 sible. This paper, which was of all de- 
 nominations from half a lira, or ten cents, 
 to 1000 lire, or $200, was made a legal 
 tender throughout the Kingdom, the notes 
 of the individual banks being a legal 
 tender only in the provinces where the 
 offices and branches of the banks were 
 situated. The forced currency of the 
 syndicate notes which was limited to two 
 years was finally extended to seven. In 
 1881 the syndicate was dissolved and the 
 Government negotiated a loan for the re- 
 demption of the notes. All that were in 
 circulation were considered a Government 
 debt and continued to be a legal tender 
 for the whole Kingdom, but were to be 
 redeemable in coin on presentation. There 
 are still in circulation over five hundred 
 millions of lire of Government paper in 
 notes of from one lira to five lire, but it 
 has not been kept at par with gold. 
 
 The reason for this is not far to seek. 
 It was in the beginning of 1894, when the 
 monetary situation was going from bad 
 to worse, that the 'Minister of Finance 
 and of the Treasury proposed the remedy 
 which always suggests Itself in such 
 cases — the Issue of more Government 
 paper. His Idea was to issue another 600 
 million lire In denominations of 6, 10 and 
 2!>, to be secured by 200 million lire of 
 gold belonging to the banks which should 
 be placed at the State’s disposal and held 
 as reserve. In place of the 200 million 
 thus taken from the banks the State was 
 to deposit Its notes and the banks were 
 to be allowed to count them as so much 
 metallllc reserve on which they could Issue 
 
7 
 
 notes in the proportion of three to one. 
 While the Grovernment may issue 600 
 million of paper on the streng’th of the 
 200 million in gold taken from the banks, 
 and still be within the three to one rule, 
 it is plain that the security of the bank 
 note circulation must be to that extent 
 impaired. The scheme which is known 
 as the decree of February 21, 1894, is one 
 of inflation pure and simple, and hangs 
 like a threatening cloud over Italian 
 credit. The fifth article of the same de- 
 cree contains this concession to the diffi- 
 culty of maintaining specie payments 
 under such circumstances, — in case of 
 notes being presented for redemption the 
 banks have the right to demand the 
 benefit of the premium quoted on the Ex- 
 change, so that if the premium on gold be 
 10 it requires notes for 110 lire to procure 
 100 lire in gold. 
 
 With a currency exposed to an indefinite 
 amount of depreciation at the caprice of 
 the Government, and a debt of over $2,- 
 500,000,000 crushing it to the earth, it re- 
 quires a somewhat robust faitlr to believe 
 in the financial recovery of Italy. 
 
 The case of Spain absolutely precludes 
 the exercise of faith. Here the Govern- 
 ment has hopelessly demoralized one of 
 the strongest and most profitable bank- 
 ing institutions in Europe by making a 
 forced loan on it whenever the occasion 
 arose. That it has arisen very often may 
 be inferred from the fact that the note 
 circulation of the Bank of Spain, which 
 in 1885 was 424,000,000 pesetas (francs), 
 rose to 740,000,000 in 1890, was 931,000,000 
 in 1894, and is considerably over 1,000,000,- 
 000 to-day. There has been no increase of 
 Spanish commerce to warrant this In- 
 crease of circulation; it is purely and 
 solely a forced loan to the Government. 
 The charter of the Bank of Spain dates 
 from 1874, and when it was granted It 
 was stipulated that the bank should only 
 negotiate public securities or make ad- 
 vances to the State upon substantial 
 guarantees which could be readily con- 
 verted into funds. When the term of the 
 charter was extended in 1891 the bank 
 was compelled to lend to the Treasury 
 150 million of pesetas, without interest, 
 reimbursement of which cannot be de- 
 manded till 1921. 
 
 The assets against the circulation of the 
 Bank of Spain Includes 275 millions of 
 pljver worth fifty per cent of Its face 
 
 value and 720 millions of the obligations 
 of a State heavily in debt, and with vir- 
 tually no credit abroad. The bank is al- 
 ways ready to pay out the five peseta 
 piece — the duro — ^but refuses to pay in 
 gold, so that, as nobody wants silver, the 
 country is practically under a regime of 
 inconvertible paper. Spain is not in the 
 Latin Union, so that her silver does not 
 circulate outside of her own borders. In 
 point of fact the bank notes, redeemable 
 only in silver, are worth more than the 
 bullion value of the silver coins — the dis- 
 count on them being not 50 per cent as it 
 would be if their value was accurately 
 measured by the equivalent silver, but 
 only 20 per cent at the present time. Of 
 course the depreciated silver and paper 
 money have driven away good money, 
 gold pieces being quite unknown in the 
 circulation of the country. The signature 
 of the bank is worth something on its 
 notes, as the facts cited show, but the 
 credit and resources of the bank are so 
 absolutely at the mercy of the Govern- 
 ment that every fresh blow which the 
 credit of the latter receives tends still 
 further to depreciate the bank paper. 
 
 If our silver advocates were right in 
 the assumption that a high rate of ex- 
 change against a country serves to de- 
 velop its industries and stimulate its for- 
 eign commerce, Spanish trade would be 
 flourishing. But it has for years been 
 seriously depressed, and instead of the 
 depreciated currency stimulating exports 
 the imports of Spain are, in spite of al- 
 most prohibitory customs duties, always 
 in excess of the exports. Briefly, to quote 
 the pithy comment of M. des Essars, 
 “Spain suffers from the mistake which 
 economists fight in vain — the error that 
 the Government can do as it pleases with 
 the money and the credit of the country. 
 Laws do not change the nature of affairs, 
 and if matters are handled contrary to 
 nature, immediate and sudden counter- 
 shocks show that mistakes have been 
 made, and those who danced must pa 3 ^ 
 the piper.” With the decline of Spanish 
 credit the depreciation of the national 
 money keeps steady pace, and concurrent- 
 ly with both goes on the process of com- 
 mercial dislocation and industrial 
 paralysis, with the goal of general bank, 
 ruptcy not dimly in view in the near 
 future. 
 
8 
 
 III. FRANCE. 
 
 It has been said apropos of the finan- 
 cial policy of the Committee of Public 
 Safety of the French Revolution, that 
 demagog-lsm has an instinctive hatred of 
 all credit institutions, understanding none 
 of them, and seeing in them all nothing 
 but instruments of speculation and fraud. 
 We stop to wonder at the excesses of the 
 reign of terror and almost fail to recog- 
 nize them as human, yet the attitude to- 
 ward a number of social and economic 
 questions of the Government which sanc- 
 tioned them did not essentially differ 
 from that of a party whose candidates 
 have just received the support of 6,400,000 
 people in the United States. The vindic- 
 tiveness with which the National Assem- 
 bly and its successor the Convention pur- 
 sued the Discount Bank of Paris finds 
 an echo' in the declaration of the Chicago 
 platform denouncing the issue of notes 
 intended to circulate as money by Na- 
 tional banks “as in derogation of the 
 Constitution,” and in the twin declara- 
 tion made by the Populists at St. Louis, 
 “we demand a national money issued by 
 the general Government only, without 
 the intervention of banks of issue, to be 
 a full legal tender for all debts, public 
 and private.” 
 
 The French National Assembly was 
 like the party that nominated Bryan, 
 very deeply impressed with the scarcity 
 of money. Having sequestrated the 
 church lands it seized on the idea of 
 making them and the property of the 
 crown the basis of an issue of Govern- 
 ment paper. This was the origin of the 
 assignats whose history is known of all 
 nations, but has been heeded by few. 
 They were, originally, interest-bearing 
 mortgage bonds, secured by the royal 
 and ecclesiastical estates and redeemable 
 by the product of these properties. Of 
 the first four hundred million of francs 
 of these obligations issued in 1789 the 
 rate of redemption was duly prescribed. 
 There were to be 120 millions cancelled 
 in 1791, 100 millions in 1792, 80 millions in 
 1793-4, and the remainder in 1795. They 
 at first bore interest at five per cent, but 
 this was reduced in 1790 to three per 
 
 cent; they were, further; made a legal 
 tender between individuals, and all pub- 
 lic departments were directed to receive 
 them as the equivalent of specie. The 
 new notes were popular, and, as is cus- 
 tomary in such cases, ^ the Government 
 concluded that the people could not have 
 too much of a good thing. Issue suc- 
 ceeded issue, till within two years and a 
 half after their first appearance there 
 was 2,385,000,000 francs in nominal value 
 of them outstanding. 
 
 Combining the two fatal qualities of 
 redundancy and lack of security, the 
 assignats rapidly depreciated. The Con- 
 vention thought it could arrest the down- 
 ward course of the paper money by 
 *'nal legislation. Our own Populist con- 
 tentions revived the same idea when 
 they demanded “such legislation as will 
 prevent the demonetization of the lawful 
 money of the United States by private 
 contract.” The Revolutionary Junta pro- 
 vided a penalty of six years’ imprison- 
 ment for all sellers of coin who should 
 exchange a given amount of gold or sil- 
 ver for a nominally greater amount of 
 assignats, and the same penalty was Im- 
 posed on merchants who should sell their 
 goods at one price in assignats and at 
 another in coin. Nevertheless, in June, 
 1793, a silver franc was worth three, and 
 in August worth six, francs in assignats. 
 It was a great opportunity for debtors, 
 of which the State was chief. Obligations 
 which had been incurred in money of 
 full value were paid off in this depreciated 
 currency at its face value to the impov- 
 erishment and ruin of creditors. Work- 
 ing people discovered that they too be- 
 longed to the creditor class, and being 
 unable to force their wages up as fast 
 as assignats went down, they soon found 
 that they were not getting enough to buy 
 the actual necessaries of life. By a con- 
 fusion of Ideas, not absolutely unknown 
 since that time, they laid their troubles 
 on the merchants, and demanded that 
 these avaricious persons who would not 
 give a franc’s worth of goods for a flo- 
 titious franc worth only 20 centimes 
 should be sent to the guilloHne. 
 
9 
 
 By way of relieving popular dlatress tbo 
 Convention tried its liand at Axing prices. 
 It decreed that the maximum price of a 
 quintal of wheat should be fourteen 
 livres, and the prices of other articles of 
 necessity were Axed in proportion, dire 
 penalties being promulgated against all 
 who should trade in disregard of the law. 
 The result was that trade ceased almost 
 entirely, what was done being mostly con- 
 ducted in secrecy. BrieAy, the law was a 
 signal failure, and its repeal was found 
 to be imperative. The fact that the issues 
 of Government paper went on gaily had 
 something to do with precipitating this 
 decision. Some of the wild projects of 
 our Populist legislators which may be 
 found on the Ales of the last two Con- 
 gresses call for more paper money than 
 the Convention authorized, but save by 
 comparison with this merely contemplated 
 lunacy the record of the French Revo- 
 lutionary Government Is a very remark- 
 able one. In Ave years 8,000 millions of 
 francs had been issued, of which 2,464 
 millions had been returned to the Treas- 
 ury and cancelled, leaving 5,536 millions 
 in circulation. 
 
 But the freedom with which the Con- 
 vention used the printing press to make 
 money was conservatism itself beside the 
 performances in this line of its successor, 
 the Directory. Between the 27th of Oc- 
 tober, 1795, and the 18th of February, 1796, 
 there was issued more than 20,000 million 
 francs of new assignats. By December, 
 1796, the issue reached 30,000 million 
 francs, and by February, 1797, it was 45,- 
 500 millions, of which 20,000 millions were 
 in the hands of the public. A computa- 
 tion was made in 1894 of the cost of some 
 of the schemes proposed in our Senate 
 and House of Representatives by Popu- 
 list members, and the total footed up to 
 $35,507,300,000, which shows how easy a 
 superiority American Populism at its best 
 has over the most ambitious Aiights of 
 French Jacobinism. When the limit of 
 saturation was Anally reached under the 
 Directory a new form of Government 
 paper, known as land warrants, were Is- 
 sued to take their place. The assignats 
 were gradually cancelled till their amount 
 Anally shrunk to 24,000 millions, and this 
 
 aanount was made convertible into 800 
 million francs of land warrants, that is in 
 the proportion of thirty to one. The new 
 obligations whose total issue amounted to 
 2,400 million francs constituted a lien on 
 all the lands of the Republic, certain 
 forest lands excepted, but they were so 
 little esteemed that they were at a dis- 
 count of eighty-two per cent on the day 
 of their issue. When they lost ninety- 
 nine per cent of their value, as they did 
 within a year, they were withdrawn from 
 circulatian. The last act in this drama 
 of public spoliation was the “readjust- 
 ment” of the national debt by the repudi- 
 ation of two-thirds of it, the remainder 
 being inscribed on the great book of the 
 State as the “consolidated third.” 
 
 Thus, as Pierre des Essars remarks, 
 from whose chapter on the Assignats in 
 the History of Banking in Prance (pub- 
 lished by “The Journal of Commerce 
 and Commercial Bulletin”) we have 
 taken the Agures above quoted, “the 
 issue of State paper money ended 
 In bankruptcy after bringing untold 
 evils upon the State.” The lesson 
 was not lost on the French people, the 
 creation of the Bank of Prance on a solid 
 basis of Anancial responsibility, being the 
 work of the Consulate and an especial 
 care of Bonaparte’s. But other nations 
 have tried the same experiment of con- 
 Ading the dangerous power of issuing 
 paper money to the Government as if it 
 had never been pushed to its logical con- 
 clusion before the eyes of an astonished 
 world. What the Populist cranks ask and 
 expect of it here ought to be warning 
 enough of the mischief which is Inherent 
 in any toleration of the system. No gov- 
 ernment can safely abrogate Its function 
 of being the protector of its people against 
 debasement of the currency. When its 
 stamp ceases to mean that the coin which 
 bears it is exchangeable at its face value 
 in the markets of the world it has en- 
 tered on the path that leads to repudia- 
 tion; when it begins to make money on 
 the basis of its own credit it challenges 
 distrust and places the whole fabric of 
 public and private credit at the mercy of 
 a temporary necessity or a casual out- 
 break of triumphant demagogism. 
 
10 
 
 IV. BRAZIL AND ARGENTINA. 
 
 Brazil is a coilntry of incalculable natu- 
 ral resources. With an area greater than 
 that of the United States, its range of 
 products is quite as extensive and the 
 labor required to extract them from the 
 soil very much less. Its two great ex- 
 ports of coffee and rubber have returned 
 for years enormous profits. It was be- 
 lieved twenty years ago that the rubber 
 trees could not be made to yield' without 
 exhaustion more than 8,000 tons a year, 
 but now the annual production has risen 
 to from 20,000 to 21,000 tons. The average 
 coffee crop of Brazil is from 5,000,000 to 
 
 6.000. 000 bags, but this year the crop will 
 probably be found to be from 8,000,000 to 
 
 9.000. 000 bags, and though the price has 
 gone down the average return to the 
 planter is more than it was when his 
 profits made him the most fortunate 
 among agriculturists. A dozen reasons 
 might be given why Brazil should have 
 grown rich and stilll be growing richer, 
 but they are all neutralized by the one 
 fact, that its Government discharges its 
 obligations in paper promises to pay, and 
 that the bank currency is based on the 
 discredited security of the Government. 
 
 For a generation Brazil has been on a 
 paper basis, specie payments having been 
 suspended in 1864. But up to the fall of 
 the Empire the note oirciilabion was kept 
 within $100,000,000, and in 1880 paper was 
 held in preference to gold. Between 1889 
 and 1891 another $150,000,000 of unsecured 
 paper was issued, and the whole volume 
 outstanding depreciated to one-third of its 
 par value. The Bank of the Republic of 
 Brazil — 'the product of a union in 1892 of 
 the two chief banks of issue — lis nominally 
 responsible for the paper circulation, but 
 the ultimate liability rests with the Gov- 
 ernment. The Republic had not been 
 three years in power when the amount of 
 Government paper, exclusive of bank 
 notes, in circulation amounted to $116,- 
 000,000, reckoned at the par of the milreis. 
 A. little over a year later, by the end of 
 1893, it had reached $154,000,000; and in 
 March, 1895, it was $198,000,000. At the 
 latter date the bank issues amounted to 
 $184,000,000, as nearly as could be ascer- 
 
 tained, making a total paper circulation 
 of at least $382,000,000, with nothing save 
 'its forced currency and the remains of the 
 shattered credit of the Government to 
 keep it from becoming absolutely worth- 
 less. 
 
 For years the exchange value of the 
 milreis has been steadily downward, and 
 it requires to-day about 300 milreis in 
 paper to buy 100 milreis in gold. While 
 the process of depreciation was going on 
 business was, of course, a perpetual 
 ganible. Men realized how 'the paradox 
 could become a truism that the more 
 money they gained the poorer they be- 
 came. A currency that shrinks in pur- 
 chasing power in the pocket of the pos- 
 sessor means ruin not only to the State 
 that legalizes it but to the people who 
 use it. Habits of reckless extravagance 
 are not the least of its penalties, and a 
 condition of universal distrust is its in- 
 evitable end. Brazil is reaping to-day 
 the harvest of bankruptcy which she has 
 so diligently sowed, and the fruit is all 
 the more bitter because there is distress 
 in the midst of plenty and poverty under 
 conditions well calculated to assure the 
 possession of wealth. The crisis in Brazil 
 is doubtless aggravated, and recovery 
 from 'it will be less easy because of the 
 incapacity, seilfishness and corruption 
 which are the bane of South American 
 Republics; but the primary cause of it all 
 is that most corrupting of all governmen- 
 tal powers — 'the power to make money out 
 of printed promises to pay, dishonored in 
 the act of making them. 
 
 The troubles of the Argentine Republic 
 have sprung from the same source as 
 those of Brazil, though there have been 
 characteri stile differences in the methods 
 of creating them. Here the greed of the 
 politicians and the extravagance of the 
 Government have been supplemented by 
 the desire to make popular capital by 
 liberal loans to the farmer. What the re- 
 sult has been is best told in the words of 
 the last annual report of the United 
 States Consul-General at Buenos Ayres 
 on the commerce and finances of the Re- 
 public. The Hypothecary, or land roort- 
 
gagre bank, of the Province of Buenos 
 Ayres has ouitstaniding' “cedulae” amount- 
 ing- to $187,5^1,698 in currency and $3,330,- 
 000 in gold. But the lands on which the 
 mortgages were placed are edither value- 
 less or they are valued at three times 
 more than their present market price. 
 The securities, taiken altogether, are 
 thought to be worth about 20 cents on the 
 dollar. The National Hypotheteary Bank 
 has outstanding $74,966,650 in currency 
 cedulas and $12,291,200 tin gold, the value 
 of the former being estimated at 50 cents 
 on the dollar. These cedulas form part of 
 the circulation, and like the notes of the 
 National banks are reckoned among the 
 obligations of the Government. 
 
 W^hat the Consul-General does not state 
 is that when this mass of mortgage loans 
 was issued the lands were deliberately 
 overvalued by the agents of the Govern- 
 ment, that after deducting the commission 
 of the bank probably a third of the 
 amount realized went to the politician 
 who had sufficdenit “pull” to get the loan, 
 and that the farmier got only the re- 
 mainder. The Government’s engaging in 
 the banking business was the first step 
 downward, the rest was easy. The Pro- 
 vincial Governments have followed the 
 lead of the National Government in this 
 respect, and now the Republic is expected 
 to assume the responsibilities of all of 
 them. The combined circulation of na- 
 tional and provincdlal banks amounts to 
 some $290,000,000, and their notes are 
 worth about 30 cents on the dollar. Re- 
 ducing the currency to gold at 320 dollars 
 to 100 doUars, the total debt of the nation 
 and of the provinces, including the notes 
 of the banks for which the Government 
 holds iftself responsible, amounts to $714,- 
 500,000— all to be borne by a population of 
 but little more than two-thiirds of that of 
 New York. 
 
 The Argentine Republic has, obviously, 
 drawn on the future with a recklessness 
 which leaves even that of Brazil far be- 
 hind. But like Brazil the instrument of 
 its ruin has 'been the lending of the name 
 of the Government to the manufacture of 
 paper money. The present situation of 
 the country is very mildly indicated in 
 these statements of Consul-General Baker: 
 “The rate of taxation which the Govern- 
 ment is forced to levy, in order to pay 
 even a limjilted proportion of the interest 
 on its bonded indebtedness, is already 
 having its effect upon the people and the 
 industries of the country; and it is well 
 understood that the taxes, in all their 
 various guises, are now so heavy that 
 capital already invested here is no longer 
 able to pay dividends, and there are but 
 few persons who are willing to make new 
 investments except in such lines of in- 
 dustry as the albsolute necessities of the 
 nation require.” When a government is 
 compelled to buy gold to meet its obliga- 
 tions abroad out of the proceeds of taxes 
 payable in a depreciated currency it be- 
 gins when too late to leam how costly a 
 device its papier money is, either to tide 
 over a time of pressure or to help develop 
 the country. The Argentine Republic has 
 had five years of hard times, and the 
 penalty for the financial debauch that 
 marked the few preceding years of seem- 
 ing prosperity is still very far from being 
 paid. The blight that fell on its fortunes 
 was partly due to public dishonesty, but 
 that was fostered, encouraged and ex- 
 panded out of all common proportion b^^ 
 the acceptanice of the theory that every- 
 body could become prosperous if only 
 there was issued enough paper money to 
 ffo round bearing the stamp of a legal 
 tender and the capacity to discharge dues 
 to the public Treasury.