THE proverbial diversity of men’s minds has a notable exception in the universal harmony of opinion in favor of the resumption of specie payment. The President, the Secretary of the Treasury, the blunt-spoken Treasurer, Congress, the party and commercial conventions, and the free and enlightened press all join in the chorus. Inasmuch as specie payment is called the key-note of commercial soundness and of public and private faith, this accord is a cheering testimony to the general sentiment of integrity. It is agreed with like harmony that resumption shall take place as soon as the country shall be prepared for it. But it is found that every measure to prepare for resumption meets almost unanimous opposition. In all things else, progress toward a condition of good is good ; but although the state of specie payment is unanimously thought good, all progress toward it is unanimously held to be bad, and all the methods proposed to hasten it are with one accord pronounced destructive. The fact is so curious as to excite inquiry.
The reason of this hostility to any measure to promote resumption is the common notion that it can be positively promoted only by a withdrawal of part of the paper-money, or, in other words, a contraction of the currency. Contraction is so fearful a thing that no public man dares to propose it. It is one of the mysteries of the monetary problem, that, whilst the contraction of the currency is by all held to be a curse, the appreciation of the currency is accepted as a blessing. Who shall be so rash as to say their effect is the same ? But what is appreciation ? Simply the increased purchasing power of money. It takes more of labor and commodities to buy the dollar. Debts contracted in cheap money have to be paid in dear. The rise in the purchasing power of money is measured by the fall in the values of all other things. This is the only real appreciation of the currency.
What is the effect of contraction of the currency? It is the same. It makes money grow dearer. Its purchasing power rises. It takes more of labor and its products to buy the dollar. Debts have to be paid in dearer money. Appreciation is all that can come of contraction. Yet contraction is thought a calamity, and appreciation a blessing. Therefore the financial genius of the country is turned to the contrivance of resumption without contraction. Many reckon this easy by the old banking theory, that one third in specie in bank is a good basis for circulation. They apply this rule to the volume of greenbacks, and they liberally reckon all the specie they guess at in the country. But what has resumption to do with the greenbacks ? For the resumption chorals are not more harmonious than were the declarations that these notes were issued upon military necessity,—an extraordinary recourse in the nature of a “ forced loan,” justifiable only by that common peril which gave warrant to take even the lives of citizens for the public defence. All agreed that a power so arbitrary and so liable to abuse should be laid down as soon as the country was saved.
But since that salvation the Treasury has received from $ 450,000,000 to $600,000,000 a year in taxes. It has had a surplus of from $ 100,000,000 to $ 200,000.000 a year. It has taken into the Treasury the whole amount ofgreenbacks several times over. It needed only to cancel so much of them each year as it could spare from its surplus, as they came in by way of revenue, to withdraw all these notes by payment, without the use of a dollar in coin. It has only to receive and hold them, to do the same now. Their withdrawal would leave the banks no medium of redemption but coin. This would be specie payment as was promised, when the legal-tender notes were emitted.
But this would be redemption of the greenbacks, not resumption. The curious fact is that the popular want is resumption, not redemption. It looks, not to the payment of the “ forced loan,” but to keeping it out. And so we find that all the talk by which we kept virtuous principles while emitting legal-tender notes has subsided ; we have accepted their issue as the permanent function of a party government, and parties will vie with each other in increasing this blessing to the people. Development is the order of creation.
There are $ 356,000,000 of greenbacks in authorized circulation, and $40,000,000 of fractional notes. Some india-rubber warrant has been found for issuing more greenbacks “ to move the crops ” ; but we will reckon for the time when there are no crops to move. The one-third rule would require $ 132,000,000 of coin in the Treasury ; but as the greenbacks are the “people’s currency,” this calculation takes in all the coin in the country, which is generally thought to exceed this sum; and it seems reasonable that, if the Treasury shall thus float the greenbacks and fractionals with resumption, thereby furnishing to the banks a specie currency of $396,000,000 for their medium of redemption, the whole $ 732,000,000 of paper-money can be floated on $ 132,000,000 of specie. By resting one thing on another thing, in the manner of Irving’s Hindoo Cosmogony, our expanded paper-money structure may, after two or three removes, rest on a very narrow base of coin.
In this great country, whose progress is a continual surprise to itself, the experience of the past is no guide for the future. For example, in the era of intermittent specie-paying banks, the proportion of one third coin—when the banks had it — was the lesser part of the specie in the country. The whole bank circulation seldom, if ever, equalled the specie. When it rose to near that amount, there was a disturbance, and that periodical turn which was called a crisis ; and a suspension and a sharp contraction of the circulation took place before payment could be renewed. The one-third rule for greenback resumption ignores the main premise. It has not yet been proved that a paper currency equal to the whole amount of coin can be floated with specie payment.
It is true, no way had been invented for finding out the quantity of coin in a country until we invented one by putting the specie out of circulation. But when we think of the prejudices of the common people in favor of specie, of their habit of getting it for all their hoards, and of that habit of saving which money of intrinsic value promotes, we have to conclude that a reasonable estimate of what was in the hands of the people, added to what was visible in banks and Treasury, prior to 1860, would be more than $ 200,000,000.
The wonderful capacity of our country to carry paper-money without payment has made us forget how limited were its capabilities with payment. But the highest point ever reached by the circulation with specie payment was $214,000,000 in 1857, which caused a crisis, a suspension, and a sharp contraction. It is commonly thought our favored people never felt the pains of currency contraction till Secretary McCulloch withdrew $ 4,000,000 a month from an aggregate paper currency of over $ 700,000,000, counting only greenbacks. fractional notes, and issued national bank circulation. Pathetic descriptions were given by a leader in the House of Representatives of “ the groans of the great West, and of her cries, now, as she feels the life’s blood drawn from her veins, and her limbs chafed and swollen by the gyves of contraction,” — the very mild reduction of the volume of paper-money, at the rate of little over six per cent a year. But our beloved country’s veins and limbs have really been used to more heroic treatment.
According to figures published by the Treasury, the bank circulation of $214,778,822 in 1857, sank to $155,208,344 in 1858, being a contraction of more than $ 69,500,000 in one year, which was at the rate of near twentyeight per cent. That was a contraction to speak of. During the same time the volume of bank loans was contracted from $ 684,456,000 to $ 533,165,000. That was another severe pinch. But a virgin soil, a great foreign demand for our crude products, and the rapid growth of industry under a moderate taxation gave wonderful recuperative power against the calamity of a vicious paper-money system. Prosperity brought another increase of bank circulation, which had reached $ 207,000,000 in 1860, when it was settled by suspension. Yet it is not likely that in either of these inflations the volume of paper-money equalled the specie in the country.
In the historic inflation of 1837 the bank circulation had risen from $ 61,000,000 in 1830, to $ 103,000,000 in 1835, to $ 140,000,000 in 1836, and to $ 149,000,000 in 1837. Then came the crisis, the suspension, and contraction. In 1843 the circulation was but $ 58,500,000. Let no one think this contraction and appreciation of money was pleasant ; for it would need a whole volume to tell its calamities. But all the sins of paper-money are easily forgotten in this blessed land.
It is not likely that the great bank inflation of 1837 exceeded the specie of the country. In 1849 the flow of gold from California began, and the specie must have largely gained on the volume of paper-money, which increased very slowly till 1853.
An approximate estimate of the specie in this country can now be made, because the most of it is visible in the banks and the Treasury, save that which serves the diminishing gold circulation of California. Nowhere else does it circulate, and the hoarding of specie in small savings has ceased. It is questionable if there are $ 160,000,000 of specie in the whole country, including the amount circulating in California. The resumption problem, therefore, is to float our paper-money on something under $ 160,000,000 of coin in the country, of which the California circulation will contribute nothing to the work. It we judge by the past, this would be impossible ; but, as was remarked, the past is no criterion for America.
A more distinguished class of financiers have made the resumption problem easy by a stroke of that simplicity which marks true genius, “The preparation for resumption is to resume.” A former Secretary of the Treasury, holding the disputed title of Father of the Greenbacks, made this great utterance. It was advocated by another distinguished but unfortunate public man and writer on political economy, who founded it on a principle deep in the wellsprings of human nature,— that principle which makes man indifferent to whatever he can have for nothing. It was reasoned that, as soon as the holders of paper-money found they could have specie for it, they would cease to want it. Thus, without any preparation, resumption could be achieved by simply placarding the Treasury door with the legend, “Specie Payment is Resumed.” Yet it was feared the note-holders might suspect that specie would not continue to be had for the asking, and so with one accord would take Time by the forelock. This admirable method, therefore, was condemned by the administration party, and in a conspicuous manner by its late finance minister.
That officer justified himself by presenting a theory quite as simple, and even more agreeable, and founded on substantial principles universally accepted by our people. His theory frankly grants that our currency is too great at present ; but it affirms the wonderful growth of the country, and holds that, if the currency be kept at the present amount, the country will in time grow up to it. The premises of this are such as no American can deny. First, this is a great country. Second, a great country needs a great currency. As it grows greater it must have more. With increase in population, settlement, industry, production, and trade, there must be an increase of money to make the exchanges. It is as plain as that it takes more blood to keep up the circulation of a man than of an infant. If these premises be granted, then, if the currency be in excess now, we have only to let it be till the growth of the country catches up.
This was declared by the Secretary of the Treasury to be the only way of resumption, save the destructive one of contraction. It is generally accepted by our statesmen and by the press. There are still a few who talk of the ancient monetary principles, and insist that there is no way to specie payment but by reducing the volume of papermoney; but, as they deny the self-evident American truth that a great country needs a currency expanded in proportion, they are regarded as men destitute of patriotism, if not bereft of judgment.
The growing-up process may be called the development theory of resumption. But it proposes to stop the currency development while the development of the country goes.on. Thus the development theory of resumption is, after all, only inverted contraction.
A more consistent application of the development theory of paper-money was made by one of our leading statesmen, now representing the country in a diplomatic capacity, in a speech in the House of Representatives, July, 1868, from which we extract briefly here and there, to show its expansive American spirit : —
“ Our currency, as well as everything else, must keep pace with our growth as a nation. My plan is to increase our circulation until it will be commensurate with the increase of our country in every particular..... Expansion is the natural law of currency, and of a healthy growth as a nation..... Five times as much postage is paid today as was paid ten years ago ; consequently we need five times as much of a circulating medium to transact this little item of business as we previously needed..... Reduce the currency, — the means of the people, — and, in my opinion, you are fast finding the road to universal bankruptcy, from which may be seen leading repudiation..... But, says my hard-money friend, the price of gold proves that we have a redundancy of money. No such thing; if it did, we had less when the war closed than now, for gold was lower..... The great cause that made gold go up to 280 was the fact that there was a doubt in the minds of some as to our ability to conquer the South ; not because we had too much paper, but too little confidence. And the same thing enters into the price of gold to-day, and any return to a gold basis, before it is settled, will be only at the expense of the people..... France has a circulation per capita of $ 30 ; England, of $ 25 ; and we, with our extent of territory and improvements, certainly require more than either..... Then, to determine the amount necessary, we must take into consideration the area of our territory, extending across a continent larger than England, France, and Prussia combined, with a network of railroads unparalleled anywhere. Soon the great iron artery will be spanning our whole country, furnishing the great through route to China. With everything yet in its infancy and unfinished, from the cabin in the far West to our magnificent Capitol above us, farms to be opened, and manufactories building, railroads reaching out here and there with a rapidity unknown anywhere else, no calculation can tell how much we need or can use. You have no past to judge from ; for nowhere upon the page of history do you find the counterpart of ours, nor can you institute a comparison with our past.”
An unappreciated Philistine of Massachusetts tried to contend with this Samson of speech, by a letter published in a Treasury document, showing that he had greatly exaggerated the per capita circulation of these foreign countries. But this was not heeded ; for a free, enlightened, self-governing American citizen must not be gauged in his circulating medium by the measure of the stolid subjects of the effete despotisms. It was estimated that not more than one third of the circulation of Great Britain and France was in paper. Two thirds was in coin, which they got by earning it. This is the true measure of the money a country needs, as it is of a man’s needs, — what it earns. But if either does not earn it, the most common resource is to emit notes as a substitute. According to the evidence of the senses, our circulation is paper. The orator’s declaration that no calculation can tell how much currency we need or can use, means that it would be rash to place a limit, since the country is illimitable. But he has stated the elements from which a calculation may be made. If we multiply the population by the square of the continent, and the product of that by the network of railroads, and add the cost of finishing everything unfinished, from the cabin to the Capitol, and the cost of opening up the continent and the China trade, and allow for the increment, we shall have a sufficient basis to show that we may put all the greenback mills grinding night and day, without any risk of catching up with the need.
It has been shown by writers upon money that the reciprocal nature of the trade of civilized countries reduces the use of money to the payment of balances ; that modern improvements have much quickened its circulation ; that the medium has been made to do increased service through deposits and checks and bills of exchange and clearing-houses and other contrivances ; that various kinds of securities serve some of the uses of money ; and that, through these inventions, the use of money grows less with increasing trade. They point, as an example, to Great Britain, whose industrial production and trade multiply at a rate which challenges even American admiration, without any increase of paper-money, or of any currency save what is gained honestly by the profits of trade with other countries. But, as we remarked, and as was better expressed in the speech we have quoted from, no other country is a criterion for ours, and she is no criterion for herself.
Our public financiers do sometimes, in a splendid general way, refer to the process of this development method of resumption, and calculate on an increase in production that shall turn the balance of foreign trade in our favor, and so stop the outflow of specie. But American experience has uniformly shown that, with the expansion of paper-money, exports diminish and imports increase, and thus the balance of trade grows adverse. This is the natural consequence of increasing “the means of the people ” by making paper-money. For what is the use of making paper-money, if it is not to raise prices, and thus make “good times ” ? And to raise prices by making money plenty is to make it dearer to produce at home than to buy of those peoples whose tyrannical governments have refused to thus increase “ the means of the people.”
By the bank statement of December 27, 1872, the actual bank circulation was $336,289,285, — say $336,000,000. The amount authorized is $356,000,000, and it is all going out; but we catch this sum on the wing for our use. This, with the authorized greenbacks and fractionals, makes $ 732,000,000 of paper-money. How shall we turn the balance of trade in our favor, while we have $732,000,000 of paper-money ? How shall we turn the flow of specie inward, whilst our Treasury policy of depressing gold so as to force an appearance of appreciation of the currency, makes gold the cheapest commodity for export, — except bonds ?
A sketch of the current resumption methods would be very imperfect which left out the prevalent belief that, as the territorial area of circulation is increased, its redundancy is diminished by the quantity that pours into the new field. When the South became reconciled to greenbacks, it was thought that so much as she took into her circulation was taken from the redundancy of the circulation in the before circumscribed area. Likewise the purchase of Alaska enlarged the area of circulation, and so will the annexation of San Domingo and the Sandwich Islands. It is impossible to deny a proposition so plain. Yet if this is true, all the currency poured into the circulation ol the South was so much taken from the “ life’s blood ” of the North. Four millions a month was but a drop to this wholesale venesection. And the annexation of San Domingo and the Sandwich Islands, and the rest, will only tighten “ the gyves of contraction ” on the limbs of our own people. Thus all our pleasant paths of resumption come out at the den of this ogre, contraction. Even our manifest destiny has become a diminution of our life-blood.
But, in the wonderful currency experiences of the last ten years, there have been phenomena which confounded all monetary principles, giving an apparent victory to those who affirm that the American Eagle has soared above all the Old World rules and all the lessons of the past, and exploding the idea that there is any relation between the volume of paper-money and its depreciation. Positive proof is found in the fact that, after Lee’s capitulation and the sudden fall of the great Rebellion, the gold premium, which on one day, in July, 1864, had touched 185, fell, with various diminishing rebounds, till it touched 28 in May, 1865, from which it rose to 48 in June, and for the rest of that year ranged about 47 to 48 with much steadiness, and for the next three years ranged in the neighborhood of 40. Affirming that in all this there was no material variation in the amount of paper-money, and that this flight of the gold premium was the measure of depreciation and appreciation of the currency, the friends of the Eagle declare it demonstrated that the volume of currency has nothing to do with its value, but that all depends on faith. And inasmuch as the rise of faith in the country’s stability and solvency has appreciated the currency so greatly, they want to know why faith may not overcome the small remaining margin. At first it was alleged that, when the rise of faith should lift our six-per-cent bonds to par with gold, the currency would appreciate with them. There was no natural relation between irredeemable notes and interest-bearing bonds, but it was thought there was a relation in faith. Upon this assumption the famous bill to lift the public credit was passed. But the bonds have risen to par, while the currency remains about as it was when this bill was passed.
It would be foolish to deny that faith is a potent element in paper-money currency and all other affairs of credit. Even in the time when the currency was payable in specie, and when the whole volume was less than the specie, a decline of faith generally brought a suspension of payment. Faith is a vital property when $ 732,000,000 of paper-money is to be raised to par with coin. When Congress, after it had promised that the limit of the issue should be $150,000,000, went on and authorized $ 450,000,000; when the war seemed interminable, and increasing in magnitude, and when the brood of national banks had been authorized to pour $300,000,000 more into the circulation, there was reason enough for a heavy decline of faith and a consequent depreciation. And, besides these natural causes and effects, the situation made an opportunity for that kind of trade in the money market which buys and sells without ownership or transfer, and creates an appearance of demand or supply, of plenty or scarcity, without any realities. But there was no such variation in the purchasing power of the greenback dollar in things in general as would be indicated by the fluctuations of the Wall Street gold market.
The currency depreciation never reached the point indicated by the gold premium of 185. Likewise, when the great Rebellion suddenly collapsed, and confidence rebounded, and it was thought that the declarations that the legal-tender notes were strictly a war measure would be at once practically verified, and when the Treasury was aiding the reaction of faith by throwing gold upon the market, — then all this force of the unreal speculation was turned the other way, and all these causes carried the gold premium below proportion or reason. But still it was not the measure of the value of the greenbacks. There was not such appreciation of them as would be measured by the fall of the gold premium from 185 to 29, nor such a following depreciation as would be indicated by the rise of the gold premium to near 50. We must learn the amount of depreciation and appreciation of the currency by other measures, if we would demonstrate by it the soundness or unsoundness of accepted monetary principles. In the face of this great fall of the gold premium, the greenbacks appreciated very slowly in the purchase of general commodities and of labor, and this appreciation has long since ceased. We have learned that when we cut loose paper-money from specie redemption, and give it a forced circulation by making it a legal tender, gold and silver do become in a considerable degree “demonetized”— to use a term invented by a former Secretary of the Treasury — and become commodities of commerce, and in some respects lose their quality of a standard of value. This distraction is greatly increased when the Secretary of the Treasury becomes Ursa Major in the gold market, and holds a great reserve threatening it.
Yet, if we look into the conditions, we shall find that the wonderful phenomena of the gold market do not conflict with any monetary rules before accepted as sound. We still find that the purchasing power of the paper dollar in wages and general commodities is about in proportion to the volume of the currency. As to the gold premium, the narrow margin of about one fifteenth of its highest point is found harder to pass than all the rest. It is also generally believed that but for the standing “ bear ” posture of the Secretary of the Treasury, the premium would range much higher. Not till that threat is taken off the market can it be affirmed that, even with papermoney in forced circulation and with gold demonetized, gold has quite ceased to be the standard of value of the currency and of other things.
But when, in all this reckoning, we speak of the volume of currency, do we comprehend it ? The mind commonly stops at the greenbacks and banknotes ; when contraction is spoken of, the mind runs only to the $ 44.000,000 of greenbacks retired under Secretary McCulloch. But both the volume and the contraction of the currency have greatly exceeded these items, as we shall show. Secretary McCulloch’s Report for 1867 states that the public debt reached its highest point August 31, 1865. He gives its various forms, including these : —
Temporary loan certificates . $107,148,913.16
Certificates of indebtedness . . 85,093,000,00
Five-per-cent legal-tender notes . 33,954,230.00
Compound-interest legal-tender notes 217,024,160.00
U. S. notes (greenbacks) . , . 433,160,569.00
Fractional notes .... 26,344,742.51
Add national bank-notes returned as in circulation, October, 1865 . 171,321,903.00
Circulation of State banks as by same report.78,867,575,00
Total notes serving as currency $ 1,152,915,092.67
Of this sum $684,138,959 was in legal-tenders, besides the fractional notes. These items, with the bank circulation, made $960,693,179.51 of common currency. But the other certificates served the uses of currency for payments by the government, for bank deposits, and for payments in trade, and made the amount of the currency in actual circulation as above stated. At that time the gold premium was 46.
The Secretary’s Report for 1868 showed the following currency items on the 1st of July of that year: —
Temporary loan certificates . . $797,029.00
Certificates of indebtedness * . . 18,000 00
Five-per-cent legal-tenders . , . 710,603.64
Compound interest notes . , 28,161,810.00
Three-per-cent certificates . . 50,000,000*00
Fractional notes .... 32,626,954.75
Greenbacks .... 356,141,723.00
$ 468,456,120 39
Add national bank-notes returned as in circulation .... 299,806,565 00
Total currency .... $ 768,262,685 39
This shows a contraction in three years of $ 384,652,207.28. In this the contraction of greenbacks was but $ 44,000,000; yet the people look to that as the measure of the contraction we have .suffered. An inspection of these items will suggest the idea that the noiseless contraction of these various irregular forms of currency would naturally have gone on, and thus would have greatly reduced the inflating material before its full effect, had not financial unwisdom provided a banking establishment to pour $ 300,000,000 more into the inflated circulation, and to neutralize the further reduction of these temporary forms of debt currency. It was given out that this bank currency was to take the place of the greenbacks, and in some mysterious way was to bring about specie payment. But it only added to the currency inflation, after the war necessity for emitting irredeemable paper-money had ceased, and it has made the chief part of the difficult problem of specie payment.
The question will arise, How could the country stand so great a contraction, with its inseparable concomitants, appreciation of money and falling prices? In the first place, several things prevented an inflation of general prices commensurate with this volume of currency. It had not been issued long enough to have full effect. It was expected that contraction would follow hard on the end of war. War apprehensions prevented the inflation of confidence. The swift fall of the gold premium, upon Lee’s surrender, tended to restrain the inflation of prices ; and as soon as the war ended, Secretary McCulloch took the flood tide of revenue and confidence, and paid off various currency obligations, except the greenbacks, at a most heroic rate. His prompt contraction of these forms of currency stopped the paper-money inflation of prices far within the limit they would otherwise have reached. Had it not been for his gigantic blunder of converting from $ 700,000,000 to $ 800,000,000 of seven-thirty currency obligations into gold bonds, he might have been called a great finance minister. And had it not been for the new banks then pouring their notes into circulation, his policy of contraction would have brought the country much nearer to the possibility of specie payment, without any pressure, than it now is after all the “bearing” of gold and the increase of bank paper.
In the second place, there was, after the war, a considerable though unequal fall in prices, with attendant loss of the profits due to industry and trade, increase of debt of every sort, and generally a realization by business men of difficulty in making ends meet. Falling prices which are caused by variations in money are always a calamity, as our country has felt. But the amount of contraction of the currency that has been made must astonish those who picture the body politic with a tourniquet twisted on its veins by the greenback contraction of but $4,000,000 a month.
There are still a few who cling to the belief in monetary principles, as applicable to this surprising country. Some of them have been in the Treasury Department, and have vaticinated before the country in official reports. But our government has shown that it has no more use for them than King Ahab had for the unpleasant Prophet Micaiah, whilst there were four hundred others whose words pleased him better.
The recent session of Congress abounded in resumption plans founded on the American principle, that a great and expanding country needs a great and expanding emission of papermoney ; nearly all of them sought the measure of the proper issue of papermoney in the “ wants of the people” ; and nearly all proposed resumption, without any diminution of the luxury of paper-money. The simplest application of the American principle was in the proposition to add $ 25,000,000 to the bank circulation ; to add $ 50,000,000 to the greenbacks for a revenue, the spigot of which should be turned on by the Secretary of the Treasury at his discretion, in “moving the crops,” preventing stringency, or checking speculation, abolishing the limitation of bank circulation, and the requirement of bank reserves. All of the plans failed to be adopted. But they showed a prevalence of financial genius which gives assurance of future safety.
The most complete and surprising resumption measure was presented by Mr. Sherman, the chairman of the Senate Committee on Finance. Its main features are these: 1. The Treasury at New York shall begin, January 1, 1874, to exchange coin or five-per-cent gold bonds, at the option of the Secretary of the Treasury, for greenbacks in sums of $ 1,000 or any multiple thereof. 2. The Secretary may reissue the greenbacks, either to pay current expenses or to buy or redeem bonds. 3. The limitation of bank circulation shall be abolished July 1. 4. Banks that make a redeeming agency shall be released from the law reserves.
The merits of this plan are ably set forth in Mr. Sherman’s speech on presenting it. First, he invokes the national conscience. He starts with the solemn pledge of the faith of the nation to pay, as soon as the public peril was over, the notes which Mr. Sherman has continually characterized as a forced loan. He then gives assurance that these notes shall not be taken away from the people, but shall be reissued, since the people insist on being forced to lend money to the government, and cling to their forced loan with a fondness hitherto unheard of.
The speech declares the impregnable principle, that specie is the only true standard of values, and specie payment the only sound basis of paper-money ; but that positive specie payment has an ever-impending danger of panics, because many may want it. The finance chairman says: “All that is needed to complete the system is general specie redemption, but with provision for temporarily suspending specie payments in case of extreme necessity.” Specie payment when it is not wanted, with suspension when it is wanted, is the perfect currency system.
Mr. Sherman forcibly describes the evils caused by a depreciated currency ; but as the popular taste has become depraved by depreciated money, he promises appreciations and specie payment without any change in its value. For, he says, “ there will be no contraction of the currency, no disturbance of real values.” Thus the dollar shall appreciate fourteen or fifteen per cent without any change of value. And with specie payment, he says, there will be a flexible currency adjusting itself to the demand ; whereas now everything is subject to the shifting value of a fixed currency.
These are but a part of the wonderful virtues ascribed to this plan. It promises to offer coin or bonds for the greenbacks, and to return the greenbacks again, thus giving two for one. It promises the addition of the bank reserve to the circulation. It promises free banking and unlimited paper-money, and proposes to throw the coin into the circulation. It fools the American people to the top of their bent, by offering them the meal of paper-money inflation, wholly concealing the cat of specie payment.
And the finance chairman gives positive assurance of the practicability of his plan by laying down as a fundamental rule, that the notes will not be presented for specie unless they are in excess of the wants of the people. He says, “ If, then, these notes are in excess of the wants of the people for a currency, they will be presented for redemption, and ought to be redeemed. If not, their value will be appreciated to the gold standard, and this in specie payments.” Everybody knows that he has no more of these notes than he wants. The people would take a thousand millions more, and still cry, Give! And the principle, that if the papermoney be not in excess of the wants of the people, it will not be presented for redemption, makes the alternative of redemption in bonds, it not all redemption, unnecessary. Surely it makes resumption easy.
The other most notable resumption bill was that of a distinguished financier of the House, Mr. Samuel Hooper. It was more simple. It proposed simple convertibility of the greenbacks at the Treasury at New York, to begin May 1, 1874, after which time greenbacks should be received for customs, and the Secretary might sell six-per-cent bonds to buy coin to keep the mill running, and should reissue the greenbacks. In this, as in the other case, the greenbacks that flowed into the treasury in exchange for coin were to flow out again, bringing more debt with them, and to repeat the operation ad infinitum. The bill also provided for the issue of three-per-cent notes to the banks on call, in exchange for greenbacks, to be held as reserves. This was to induce them not to lend their money to speculators. Having created banks to issue paper-money as a loan to the people, it was now proposed to pay them interest out of the public treasury on their idle money, to prevent their lending it too freely. This method also promised much paper-money inflation with specie payment,— a recognized necessity in plans for resumption ; for the popular instinct fears contraction, and is in favor of unlimited paper-money. We should not judge harshly our public financiers, who have to frame their plans for resumption upon this necessity.
The problem of the paper-money expansion is much complicated by the expansion of the American Eagle in our statesmanship and in the palladium of our liberties. He would be a prophet without honor in his own country who should say that depreciation of gold by the Treasury operations is no real appreciation of the currency, and, therefore, is no approach to specie payment: he would fare even worse who should say that there is no appreciation of the currency without calamity ; that appreciation is an increase in the purchasing power of money in all things which is measured by falling prices in all things ; that to cause an apparent appreciation of the currency by depreciating gold, whether it be by making notes legal tender, or by “ bearing ” the gold market with the Treasury surplus, is only to cheapen gold for export, and thus to drive it from the country, and put specie payment farther off; that the depreciation of gold below the range of 45 to 50 has not been attended with a corresponding appreciation of the currency in its general purchasing power ; that the actual depreciation of the currency is now more than double what is marked by the premium on gold ; and that all the operations of “ bearing ” gold below its just ratio to the currency have only sacrificed so much of its value to the Treasury, stimulated its exportation, and reduced the means of resumption.
The American people have had from their infancy a genius for paper-money. It is mortifying to find that the colonial fathers brought it to a more perfect system than we. Regularly, after their frequent Indian wars had made necessary a “ forced loan ” in notes, they fixed the rate of their redemption according to the depreciation they had experienced. Thus the depreciation was diffused gently as the dew, and at the end the holder got all the value he paid. Thus the good times of expansion were not followed by the terrible pinching of contraction. There was no appreciation, and thus the measure of private contracts was not raised, nor the specie standard disturbed. The colonial fathers were very pious men, and they thought this a just way of levying a “ forced loan,” and of redeeming a depreciated currency. But we have a higher standard : we insist on the inflexibility of the obligation of the government, overlooking the fact that we raise the obligation of the $ 10,000,000,000 of private contracts by raising the value of the medium of payment. But the mysteries of papermoney have so confused the popular mind that it actually believes this raising of the obligation of contracts makes all richer. It was a serious matter to change the measure of all existing contracts from coin to flying paper : it is vastly more serious to raise the obligation of current indebtedness from flying paper to coin. But we call this tremendous alteration of private obligations public faith.
This is chiefly because we have imagined that the currency can be raised to par with coin, without changing its value, and that the dollar can be appreciated, and yet be as easy to get as when it was cheap. But real appreciation of money is always a calamity. The instinct against contraction recognizes this. Depreciation of money stimulates all the circulation of the body politic. It is rising prices, quickened trade, easy payment of debts, general confidence, and, apparently, general prosperity. Appreciation is the reverse. It restricts the circulation of the body politic, causes falling prices, harder payment of debts, diminishing trade, and general distrust. It is the instinctive perception of the hard consequences of real appreciation which, in the face of all the high professions of public faith, has caused it to be fixed that there shall be no redemption of the greenbacks, no payment, and therefore no real appreciation. It is this that has imposed on the Secretary of the Treasury the miraculous task of converting $ 732,000,000 of paper-money (with occasional additions to “move the crops” and to equalize the banking privilege) to specie value and to resumption, by speculative operations on the Wall Street gold market.
There is for our instruction the experience of Great Britain in restoring specie payment after a lesser depreciation. It tells of contraction and appreciation, and their consequences, — monetary pressure and widespread mercantile ruin. At the last the small remaining margin between paper and gold was overcome by beginning payment, in large sums only, in ingots, somewhat raised in value. An attempt to force specie payment, before contraction bad appreciated the notes to par, proved disastrous. But America is such asurprising country that no experience serves her.
The bank circulation before the civil war had been as high as $ 214,000,000. In 1860 it was $ 207,000,000. We suppose the amount of specie was over $ 250,000,000, and the greater part was in the hands of the people. This gave $ 457,000,000 as the circulation medium of that time. We suppose $165,000,000 a high estimate for the specie at this time. Save the diminishing amount circulating in California, it is out of the ordinary channels of circulation or deposit. This seems to leave the $732,000,000 of paper-money the sum of the circulation. No close comparison can be made of the situation at this time with that in the era of specie-paying bank-paper, because of the peculiar condition of the coin, and because of the law of bank reserves on circulation and deposits. No one can tell how far this law is observed, or how far it holds currency out of circulation. But if we make a rough guess, and set off the doubtful amount withheld from the circulation by the law of reserves, against such incalculable influence as the specie may have in the circulation, and call the $ 732.000,000 of issued paper the true volume of the circulation we may find that this increase, as compared with the circulation, with specie payment, is not far above the inflation of general prices. And these have risen with the increase of bank circulation, and are rising. The cost of domestic production in general has been increasing for several years, and is growing with the growth of paper-money. This is the way a country grows up to its currency. But the inflation of prices by papermoney is always uneven and fluctuating. In the reckoning, we must take into account that the operations of the Treasury to depress gold depress in like degree the prices of the exportable products. There never was devised so potent an engine for stimulating imports as that which inflates the cost of home production by papermoney, and “bears ” the gold for foreign purchases.
A simpler showing is made by taking the actual amount of paper and specie, and comparing their proportions with those of any time of specie payment, anywhere. Only they who think the expansion of the American Eagle is to bring specie payment will deny that a specie basis is prerequisite, and that conditions must be made which will secure this basis before resumption can begin. To depress the purchasing power of specie drives this basis out of the country. Not only the paper, but the coin, must be made to appreciate. If the appreciation of money be a blessing, the country can have much of it; for by a contraction of the paper-money we can not only bring that to par with coin, but, by restoring coin to its natural channels, we can rescue that from a forced depreciation which drives it from the land.
But it is confessed that the real appreciation of money which comes from contraction, or making it grow dearer, is so repugnant to the popular instinct that no public man dare propose it. It may be that ingenious financiers will invent a plan of banking upon a specie basis, with special encouragement, which shall transfer new transactions to the coin basis, and thus specie payment shall be made to steal upon the people unawares. It may be that, through some endless chain contrivance, which shall carry greenbacks into the Treasury and bring out bonds, contraction shall surreptitiously come upon the country through the promise of inflation. But at this writing the development theory of resumption is the great American doctrine. The country is waiting to grow up to specie payment. And as confidence in the growth of the country is boundless, many are desirous to show their faith in it by pouring the bank reserves into the inflated current, and by adding a large sum in greenbacks, to be issued to “ move the crops,” or to relieve the chronic monetary stringency, or to regulate general speculation, at the discretion of the Secretary of the Treasury.
Sam. R. Reed.