all such influences. A currency depreciated from its nominal value is by no means an intolerable one. Where government does not interpose, it will pass only at its real value, as does the silver coin of the United States at the present time. A bank-note, where its constituent is worth 50 per cent of its par value, will pass at that price. No one is deceived or injured in taking it. It will not rise or fall much above or below its value. Its price has always close reference to its actual worth. The mischief comes with a currency the value of which there is no possible means of determining, but to which a potency is sought to be given equal to that of coin; and may be given, as far as debtors are concerned, although it may prove to be utterly worthless in their hands. It is this attribute of discharging debts, without reference to their value, which renders all government currencies so intolerable. In the two great historical examples, the currencies became worthless, although having at one time the price of coin. It is a currency mischievous from the very beginning, and terribly so where the issues are large. Those who issue it will always, in the end, be able to supply their necessities far better without than with it. Its issue is a crime; and, if those issuing it be not criminals, it is only from ignorance of its nature and effect. The currency of government notes having been secured, Mr. Chase returned to the work of establishing a system of banking, to be created by the United States; its notes to be provided for by the deposit of bonds. The following presentation of the subject is taken from his first report, under date of December 5th, 1861: "To enable the government to obtain the necessary means for prosecuting the war to a successful issue, without unnecessary cost, is a problem which must engage the most careful attention of the legislature. The Secretary has given to this problem the best consideration in his power, and now begs leave to submit to Congress the result of his reflections. "The circulation of the Banks of the United States on the 1st day of January, 1861, was computed to be $202,000,767. Of this circulation, $150,000,000, in round numbers, was in the States now loyal, including Western Virginia, and $50,000,000 in the rebellious States. The whole of this circulation constitutes a loan, without interest, from the people to the Banks, costing them nothing except the expense of issue and redemption, and the interest on the specie kept on hand for the latter purpose; and it deserves consideration whether sound policy does not require that the advantages of this loan be transferred, in part at least, from the Banks, representing only the interests of the stockholders, to the government, representing the aggregate interests of the whole people. "It has been well questioned by the most eminent statesmen whether a currency of bank-notes, issued by local institutions under State laws, is not, in fact, prohibited by the National Constitution. Such emissions certainly fall within the spirit, if not within the letter, of the Constitutional prohibition of the emission of "bills of credit" by the States, and of the making by them of any thing except gold and silver coin a legal tender in payment of debts. "However this may be, it is too clear to be reasonably disputed that Congress, under its constitutional powers to lay taxes, to regulate commerce, and to regulate the value of coin, possesses ample authority to control the credit circulation which enters so largely into the transactions of commerce, and affects in so many ways the value of coin. In the judgment of the Secretary, the time has arrived when Congress should exercise this authority. The value of the existing bank-note circulation depends on the laws of thirty-four States, and the character of some sixteen hundred private corporations. It is usually furnished in greatest proportions by institutions of least actual capital: circulation, commonly, is in the inverse ratio of solvency. Well-founded institutions, of large and solid capital, have, in general, comparatively little circulation; while weak corporations almost invariably seek to sustain themselves by obtaining from the people the largest possible credit in this form. . . "The Secretary thinks it possible to combine with this protection a provision for circulation, safe to the community and convenient for the government. "Two plans for effecting this object are suggested. The first contemplates the gradual withdrawal from circulation of the notes of private corporations, and for the issue, in their stead, of United States notes, payable in coin on demand, in amounts sufficient for the useful ends of a representative currency. The second contemplates the preparation and delivery, to institutions and associations, of notes prepared for circulation under national direction, and to be secured as to prompt convertibility into coin by the pledge of United States bonds and other needful regulations. "1. The first of these plans was partially adopted at the last session of Congress, in the provision authorizing the Secretary to issue United States notes, payable in coin, to an amount not exceeding $50,000,000. That provision may be so extended as to reach the average circulation of the country, while a moderate tax, gradually augmented, on bank-notes, will relieve the national from the competition of local circulation. It has been already suggested, that the substitution of a National for a State currency, upon this plan, would be equivalent to a loan to the government without interest, except on the fund to be kept in coin, and without expense, except the cost of preparation, issue, and redemption; while the people would gain the additional advantage of a uniform currency, and relief from a considerable burden in the form of interest on debt. These advantages are, doubtless, considerable; and if a scheme can be devised by which such a circulation will be certainly and strictly confined to the real needs of the people, and kept constantly equivalent to specie by prompt and certain redemption in coin, it will hardly fail of legislative sanction. . . . "2. The second plan suggested remains for examination. Its principal features are: first, a circulation of notes bearing a common impression, and authenticated by a common authority; second, the redemption of these notes by the associations and institutions to which they may be delivered for issue; and, third, the security of that redemption by the pledge of United States stocks, and an adequate provision of specie. "In this plan, the people in their ordinary business would find the advantages of uniformity in currency; of uniformity in security; of effectual safeguard, if effectual safeguard is possible, against depreciation; and of protection from losses in discounts and exchanges while, in the operations of the government, the people would find the further advantages of a large demand for government securities; of increased facilities for obtaining the loans required by the war; and of some alleviation of the burdens on industry, through a diminution in the rate of interest, or a participation in the profit of circulation, without risking the perils of a great money monopoly. "A further and important advantage to the people may be reasonably expected in the increased security of the Union, springing from the common interest in its preservation, created by the distribution of its stocks to associations throughout the country, as the basis of their circulation. "The Secretary entertains the opinion, that, if a credit circulation in any form be desirable, it is most desirable in this. The notes thus issued and secured would, in his judgment, form the safest currency which this country has ever enjoyed; while their receivability for all government dues, except customs, would make them, wherever payable, of equal value as a currency in every part of the Union. The large amount of specie now in the United States, reaching a total of not less than $275,000,000, will easily support payments of duties in coin, while these payments and ordinary demands will aid in retaining this specie in the country as a solid basis both of circulation and loans. "The whole circulation of the country, except a limited amount of foreign coin, would, after the lapse of two or three years, bear the impress of the nation, whether in coin or notes; while the amount of the latter, always easily ascertainable, and, of course, always generally known, would not be likely to be increased beyond the real wants of business. . . . "It only remains to add that the plan is recommended by one other consideration, which, in the judgment of the Secretary, is entitled to much influence. It avoids, almost, if not altogether, the evils of a great and sudden change in the currency, by offering inducements to solvent existing institutions to withdraw the circu lation issued under State authority and substitute that provided by the authority of the Union. Thus, through the voluntary action of the existing institutions, aided by wise legislation, the great transition from a currency heterogeneous, unequal, and unsafe, to one uniform, equal, and safe, may be speedily and almost imperceptibly accomplished." It may be replied, to invert a little the order of Mr. Chase's statement, that it never "has been well questioned by the most eminent statesmen, whether a currency of bank-notes, issued by local institutions under State laws, is not in fact prohibited by the National Constitution." No competent authority had ever maintained that the notes of a State Bank are the "bills of credit" contemplated and forbidden by the Constitution; nor has any one worth listening to ever questioned the authority or power of the States to charter Banks for the purpose of issuing notes, as the representatives of capital, to serve as money. Previous to the formation of the Constitution, all the States had issued their own notes to serve as money. Having no capital, these were termed "bills of credit." Immediately upon the formation of the Constitution, and before the United States Bank was created, Banks were chartered by the several States, without a suggestion of their unconstitutionality from any quarter. On the contrary, it was claimed by the strict constructionists, in the debates upon the bill creating the first United States Bank, that the right to charter Banks was among those reserved to the States, and was never conferred upon the general government. Mr. Chase's assertion was not only a pure fiction, but was opposed to the whole experience of the country and the theory of our government. It might, with some reason, be claimed, as it was claimed, that, the central government having no express authority therefor, the power to create Banks resided only in the States. It is the common trick with those who have a selfish or personal scheme on foot to begin by invoking the Constitution. Underneath this covert they stalk for game. Jackson appealed to the Constitution against the creation of a United States Bank, and in favor of State Banks. Mr. Chase's appeal was against State Banks, and in favor of United States Banks. Between the two, who were simply types of American politicians, the country has had no Constitution, by having as many constructions of it as there were demagogues seeking plunder and place. Neither does the "whole circulation of Banks constitute a loan, without interest, from the people to the Banks, costing them nothing except the expense of issue and redemption, and the interest on the specie kept on hand for the latter purpose." Every issue of the Banks, to be convertible, must be founded on solid capital; and, if they make more than the ordinary rates of interest, it is because they are intrusted with large sums, for safe keeping, which they are allowed to loan. Every borrower at a solvent Bank receives the command and use of capital equal in value to the amount of his loan. Neither did "the value of the existing bank-note circulation depend on the laws of thirtyfour States, and the character of some sixteen hundred different corporations." Its value was almost wholly independent of legislation. It is probable that, at the date of Mr. Chase's report, the currency of the country would have been more valuable than it was, had there been no legislation whatever in reference to it. A currency may exist as well without legislation as may any method employed in the operations of production and trade. A great deal more harm than good came of all the safety-fund systems. Neither is it true that "the greatest amount of circulation is furnished by the weaker Banks." Deposits are circulation as well as notes. The former constitute the circulation and means of strong Banks. If amount of circulation be evidence of weakness, then those Banks which Mr. Chase would consider to be the strongest are the weakest. Acredit circulation " is never desirable, nor can it long be maintained unless it be made legal tender. When a suspension takes place, the public will for a time use the notes of the suspended Banks, but always in the expectation that they will speedily resume. The moment it is seen that they will not resume, or that any one will not, its notes will no longer be taken as money. Mr. Chase had not the trace of an idea of the principles upon which the notes of Banks circulate. He assumed that they would remain at par, the capital to redeem them being locked up in Washington. He might as well have assumed that a steamer could cross the Atlantic with its coal locked up in the same place. Every note issued by a Bank must, to maintain itself at par, be convertible into coin or its equivalent, at the will of the holder. The power to convert on demand is that which gives it value. If convertible in terms in ten years from date, it might be worth 50 |